Street Talk: Gateway, Altera, more

Street Talk: Gateway gloom

November 30, 2000: 9:16 a.m. ET

Analysts slash Altera, Xilinx, communications chips; praise CNET

NEW YORK (CNNfn) - Analysts punished Gateway, Altera and Xilinx Thursday after Gateway and Altera warned of falling sales and weaker profits. The communications semiconductor sector was also unpopular, but CNET Networks, Brocade and Palm managed to avoid the tech purge.

Lehman Brothers cut its price target and earnings estimates on personal computer maker Gateway (GTW: Research, Estimates), which late Wednesday said its fourth-quarter sales and profits would fall far short of Wall Street estimates, citing slack holiday sales.

Lehman cut its price target to $35 from $85, its 2000 earnings estimate to $1.60 a share from $1.85 and its 2001 estimate to $1.87 from $2.25.

Lehman said it didn't think Gateway was the only PC maker having problems and said it was still waiting for "macroeconomic conditions" to improve before it would be optimistic about this or similar stocks.

Bear Stearns cut its 2001 estimate on Gateway to $1.90 a share from $2.25.

Gateway shares closed Wednesday at $29.50.

Altera, Xilinx, communications chips
WR Hambrecht cut its earnings estimates on chip maker Altera (ALTR: Research, Estimates) after the company said fourth-quarter revenue and earnings would be flat from the third quarter, citing sluggish November sales and an unanticipated backlog of its products.

Hambrecht cut its 2000 estimate to 97 cents a share from $1.03 and its 2001 estimate to $1.25 from $1.51. It kept its "neutral" rating on the stock.

Lehman Brothers also cut its 2000 earnings estimate on Altera to 97 cents a share from $1.02 and its 2001 estimate to $1.20 from $1.40.

Goldman Sachs cut its fourth-quarter outlook for Altera to 27 cents a share from 32 cents, and its 2001 estimate to $1.25 from $1.55.

Deutsche Banc Alex. Brown cut its rating on Altera to "buy" from "strong buy," lowered its fourth-quarter estimate to 27 cents a share from 32 cents and its 2001 estimate to $1.30 from $1.60.

Robertson Stephens cut its long-term rating on Altera to "attractive" from "buy."

ABN Amro cut its 12-month price target on chip maker Xilinx (XLNX: Research, Estimates) -- which, like Altera, makes a product called a programmable logic device -- to $70 from $100 and its 2001 earnings estimate to $1.26 from $1.31.

This is the second time in a week that ABN Amro has cut its estimates for the company. It lowered its projections last Friday after one of Xilinx's largest distributors, Avnet (AVT: Research, Estimates), said its semiconductor business in the current quarater could come in lower than expected.

Get your fresh Hot Stocks.

WR Hambrecht also cut its earnings estimates for Xilinx, to $1.26 a share from $1.28 in 2001 and to $1.64 from $1.74 in 2002. Hambrecht, which kept its "neutral" rating on Xilinx, said it was lowering estimates due to "an inventory correction starting to unfold in the programmable logic device industry."

Lehman Brothers reiterated "neutral" ratings for both Altera and Xilinx and said it thought Xilinx could lower its revenue outlook Monday.

Credit Suisse First Boston cut its ratings for Xilinx, Fairchild Semiconductor (FCS: Research, Estimates) and Lattice Semiconductors (LSCC: Research, Estimates) to "buy" from "strong buy."

Altera shares closed Wednesday at $25.94, while Xilinx closed at $43.

Lehman Brothers also had negative things to say about the communications semiconductor sector in general, cutting its price target on Vitesse Semiconductor (VTSS: Research, Estimates) to $50, downgrading PMC-Sierra (PMCS: Research, Estimates) to "neutral" from "outperform" and initiating coverage of Applied Micro Circuits (AMCC: Research, Estimates) with a "neutral" rating.

"We believe that the fundamental environment for the communications integrated circuit players is deteriorating," Lehman said in a research note. "We do not believe that the December quarter is at risk, although upside is likely to be limited. The March quarter is a major concern, given the reduced visibility and deteriorating order environment."

CNET Networks
Goldman Sachs analysts Tonia Pankopf and Joshua Fagen said price weakness in online information provider CNET Networks (CNET: Research, Estimates) creates an attractive entry point.

"While our value analysis suggests CNET would be more appropriately valued at $5.8 (billion), or $40.73 a share, we do not expect the shares to reflect this value until sometime next year," the analysts wrote in a research note. "We continue to recommend purchase of CNET at current levels."

Shares of CNET closed Wednesday at $22.25.

Brocade Communications
Goldman Sachs raised its 2001 earnings estimate for Brocade Communications Systems (BRCD: Research, Estimates) to $1.25 from $1.05, a day after the computer storage network parts maker said it expects revenue to rise by 150 percent.

Brocade reported better-than-expected fiscal fourth-quarter results of 22 cents per share and said it expects revenue to rise 150 percent to $830 million in 2001 from 2000.

Analyst Laura Conigliaro said Brocade "reported a strong, high-quality quarter, with substantial upward revisions to both top and bottom lines."

Conigliaro said she raised her fiscal 2001 revenue view to $830 million and raised her earnings per share estimate to $1.25, "with likely upside in both cases, given a strong market opportunity and the company's growing dominance within it."

Palm
Bear Stearns said it was maintaining its "buy" rating on hand-held digital organizer manufacturer Palm (PALM: Research, Estimates) and keeping its 12-month target price for the stock at $80.

The investment bank also said it was maintaining its earnings estimates for fiscal 2001 of 13 cents a share and for fiscal 2002 of 22 cents a share. Revenue is forecast at $2.0 billion for fiscal 2001 and $2.88 billion for 2002 "owing to continued strong demand trends for hand-held computing solutions, new products, higher licensing revenue stream and higher margins," Bear Stearns said.

It said its expects second-quarter earnings -- due for release Dec. 20 -- of 4 cents a share on revenue of $529 million.

Palm's shares closed Wednesday at $34.50.