Trader Talk

Optimism Increases in Tech Land

Yesterday there were some analyst report circulating that Intel was unlikely to be overly optimistic because the PC food chain was weakening, that recent orders out of Taiwan were weak.

All wrong. Intel came in 10 cents ahead of expectations, ($0.18 vs. $0.08), revenues were stronger than expected, forecast sales that exceeded expectations and said it had a "a clear expectation for a seasonally stronger second half."

Remember, the chip industry--along with everyone else--has been on a cost-cutting rampage. They are now capable of generating a larger cash flow even when revenues are lower. If revenues improve, cash flow gets even better.

This is the main bull argument: small increases in the top line lead to even bigger increases in the bottom line.

At the same time ASML , the Dutch company that is the largest maker of semiconductor equipment in Europe, also said revenues would increase in the third quarter. The company's CEO said sales in the just-finished second quarterwere "weak but better than anticipated."

Before you get too excited about this, one trader last night noted this painful bit of history: In July 1997, the S&P 500 was trading around 900, while Intel was trading between $17 and $18.

That was 1997. Today, the S&P 500 is trading around 900; Intel is around $18.

Twelve years later, the prices are the same.


1) U.S. stock futures up 11 points, mostly on Intel but also a small pop due to China's Shanghai Index up 1.4 percent to a 52-week high; the dollar is weaker (dollar index approaching its recent June lows), most commodities are up 1 to 2 percent.

2) Consumer Price Index just a tad hotter than expected (up 0.7 percent month over month, 0.1 percent more than expected, core rate up 0.2 percent, also 0.1 percent more than expected) Higher gas prices were the main culprit.

3) Capital One: June credit card debt worsens slightly. Capital One said is annualized net charge-off rate for its credit cards(debts the company believes it will never collect) rose to 9.73 percent in June, from 9.41 percent in June.

4) Yum Brands is down 4 percent pre-open after the fast-food chain reduced its full-year sales forecastdue to weakness in the U.S. and China.

Often regarded as a center of growth, the results out of China were particularly disappointing. The company reported China same-store sales fell 4 percent in the past quarter and are now expected to be flat in 2009.

Additionally, despite handily beating earnings estimates in the past quarter, the KFC, Pizza Hut, and Taco Bell parent only reaffirmed its full-year guidance of $2.10, slightly below estimates of $2.12.

5) Abbott Laboratories is down 2 percent ahead of the bell after reporting earnings inline with estimates. The drug maker's Q2 sales fell just short of expectations, however, hurt by sales of competing generic drugs and the negative impact of the dollar.

The company reaffirms full-year guidance inline with estimates, although Q3 earnings guidance of 88 cents-90 cents is mostly below the consensus forecast of 90 cents.

6) Ford keeps gaining. Merrill Lynch out with an interesting note this morning on Ford. Bottom line: they are are raising their earnings estimates from 2010 to 2012 because they believe Ford will be increasing its market share gains in the U.S. by a full percentage point, to a peak close to 19 percent of the U.S. market.

7) Shares of asset manager Janus fall 8 percent in pre-market trading after announcing a CEO change and drastically falling profits.

CEO Gary Black has abruptly resigned and will be replaced on an interim basis by director Tim Armour.

Meanwhile, although its Q2 earnings per share results beat estimates (10 cents vs. 7 cents est.), operating profits plunged a drastic 76 percent from the year ago quarter. Revenues fell 34 percent while assets under management dropped 31 percent. 



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