July 2011 Tech Earnings 1.1
I have been busy over the past week; as such it has been challenging to find time to blog. When I started blogging again I said I would try to avoid posting frivolous content, hence I prefer to not post. We are getting into the heart of tech earnings this week and I think the table has been set by my previous posts here and here
It appears that my thesis on GOOG posted after their Q1 earnings release has played out as expected. The one area of caution I have regarding GOOG has to do with the geeky arrogance the company shows on occasion. There is a patent and royalty war coming to the mobile devices market. Investors should watch carefully as margin compression has forced participants to look at the distribution of margin and seek alternatives to boost profit margins. Here is my reaction to a few other results so far and as earnings play out over the next few weeks I will try to post reaction updates to see if the data points are confirming the prior hypotheses:
- ADTN: Well off the March ’11 high and now trading in a range that it last occupied in late 2010. When I wrote about the three market dislocations I was specifically thinking about how expectations had exceeded the ability of the company to meet and that these expectations were based on lagging indicators (the problem of induction) and investors and analysts need to be careful. The evidence was clear to me: CIEN, CSCO, FNSR, IXIA, HPQ and now ADTN. I noted several sell side calls reiterating strong buys on ADTN after the miss.
- WBMD: Not normally a focus area for me, but when a successful subscription based web property tells the world it has a subscription and renewal problem, I pay attention. Here is another company that confirmed the 30% down rule when forward growth expectations are missed.
Many more data points will emerge this week with VMW, EMC, INFN, AAPL, RVBD, EBAY, FFIV, STX, ERIC, INTC, T, VZ, MSFT, WDC and APKT earnings reports. I will be interested to look at CAPEX from the big service providers as well as the results and guidance from infrastructure suppliers. I continue to hear rumblings of a broad based CAPEX spending slowdown and budgets being pushed out. I am not sure if this is a result of European macro concerns, US budget issues or overall sluggishness in the economy, but over the next two weeks we should get enough data points to confirm or dismiss the rumblings. A number of research firms have put out positive CAPEX spending calls over the past few months, I have yet to see company results match these calls, but the data points coming in the next few days should help frame the correct answer.
* It is all about the network stupid, because it is all about compute. *
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