After a very strong year, at the beginning of the new year stock indices are still groping in the dark with no clear direction. In the technology sector, Intel (INTC) reported more or less what was known, which is that the PC market has stabilized, and that 2014 will be a transition year, without growth, in anticipation of substantial penetration of the mobile market and what is known as "the Internet of things" next year. The test of execution will be on the new CEO, Brian Krzanich.
Intel's strong card for breaking into mobile is its production capability, that is, its ability to produce smaller processors with higher performance and lower energy consumption. As a chemist by education, as an ordinary engineer and as a senior manager, Krzanic sprung up at Intel in the past three decades from the production floor to chief, and means to leverage the company's production capability and his experience to launch into mobile.
Another gorilla finding growth hard to come by is IBM, which will report on Tuesday after the close, as will semiconductor company Texas Instruments (TXN). On Wednesday, there will be results from SanDisk (SNDK) and eBay (EBAY), and on Thursday from Microsoft, which will have to demonstrate to investors that its too long search for its third CEO in its glorious history, after Bill Gates and Steve Ballmer, did not harm its quarterly figures.
To judge from its share price, which rose above $74 last week to reach a seven-year peak, expectations of SanDisk's results are high. On the other hand, in the past few months, at around $60 per share, the analysts of most of the major banks, who had gone with the share all the way north from $32 in May 2012, abandoned their "Buy" recommendations. In addition, the short level has risen to about 10% of the company, anticipating that it will disappoint.
The analysts who downgraded the company mainly fear a drop in NAND prices from the record levels seen last fall, but there is no lack of triggers that could send the share price higher. It won't happen because of the sales line, which has a glass ceiling until major investment in production lines resumes, but because of the earnings per share line, which could surprise.
The steep devaluation of the Japanese yen dramatically improves SanDisk's profitability, the strong growth in SSD sales at the expense of less profitable products means a higher average gross profit, and the production capacity of SanDisk/Toshiba, currently among the highest in the sector, contributes to lower production costs.
In general, SanDisk today is a much more investor-friendly company than it was during the long period when it was investing huge amounts in plants in Japan in partnership with Toshiba. A year ago, the company's management, headed by Sanjay Mehrotra, decided on a new strategy mainly characterized by conservatism in investment. At the same time, it was decided to return most of the company's profits to the shareholders through aggressive share buybacks and dividend distributions.
Among the larger Israeli companies, Mellanox stood out last week with a jump of 15%, compared with a rise of just 0.5% by the Nasdaq index. The trigger for Mellanox's rise was provided by Macquarie, which came out with a "Buy" recommendation and a target price of $52, but in my opinion there were things beyond this recommendation.
A change has apparently taken place in Mellanox's target markets. Investments have picked up pace at its direct customers and/or at the customers of its OEM customers. So, for example, Mellanox's sales will certainly be boosted following the announcement on Friday that IBM had decided to invest a huge $1.2 billion this year in fifteen new data storage centers on five continents. IBM is not the only one, and I estimate that we will hear from Microsoft about similar investment in its results conference call on Thursday, and, later in the month, from other major vendors in the cloud computing market.
Needham's growth companies conference in New York last week boosted several small Israeli stocks. OTI Ltd. (Nasdaq: OTIV; DAX: OT5) rose 15% on very high volumes, apparently thanks to its repositioning as a player in the hot field of contactless payments, chiefly through smartphones (NFC). The lawsuit against mobile giant T-Mobile (TMUS) is also adding to the momentum.
Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI) came close to its 2011 peak, the main reason being the results conference call by its largest customer, TSMC (TSM), as well as the Needham conference, at which Nova presented.
Increased investment in 20 nano production lines, which will generate 10% of TSMC's sales this year, is the following wind for Nova. Around the corner is the next production geometry, 16 nano, that TSMC is planning.
Published by Globes [online], Israel business news - www.globes-online.com - on January 20, 2014
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