RESEARCH> > First Data Corp. (FDC) $25.81 EPS (FY Dec): 1998E $1.57, 1999E
$1.73> - Market Outperformer
> * We have removed our Trading Buy and now rate FDC shares Market
> Outperformers. The shares are up 25% from our upgrade 2 months ago
> versus 12% for the S&P 500. We believe some modest reductions inthe
> consensus estimates for 1999 may still be ahead, and may hampernear
> term stock performance. In addition, a return to double digitearnings
> growth may occur in the second half versus our previous Q1/99estimate.
> Our 1998 EPS estimate of $1.57 (up 6% Y-Y) remains unchanged, butwe
> have trimmed our 1999 estimate a nickel to $1.73 (up 10% Y-Y).>
> Nokia (ADR) (NOKA) $85.38 EPS (FY Dec): 1998E $3.15, 1999E $3.90 -
> Recommended List
> * Even with easy comparisons, Nokia had an otherworldly set of third
> quarter figures. Mobile phone sales of $2.4bn in the third quarter
> rocketed the company to the leading industry spot - Nokia sold 1m
> handsets in a single week - and infrastructure growth stayedstrong at
> 42%. Group margins of 19.5% were a record on flat inventories. Weare
> raising our EPS estimates by 17% for 1998 to FIM16.9 ($3.15) andfor
> 1999 to FIM19.5 ($3.90) and reiterate our Recommended List rating,
> although shares could face pressure simply because they are only8% off
> 1998 US dollar highs.
> * Mobile phone sales were outstanding - up 94% versus a weaker third
> quarter 1997 - with Nokia having produced and sold 1m units in asingle
> week in September; Nokia has become the world's largest producer of
> mobile phones by value ($2.4bn), outselling Ericsson and Motorola.We
> estimate margins in the mobile phone business reached 19% in the
> quarter, based not on new platforms but the numerous permutationsof
> existing ones. Nokia was confident about further growth in thefourth
> quarter and into 1999, based on the breadth and positioning of its
> product portfolio.
> * Nokia also maintained a high 42% growth rate and 22%+ margins inits
> Telecoms infrastructure, indicating a number of GSM networkexpansion
> orders, new transmission sales in Germany and the UK and equallystrong
> demand in wireline as wireless products. Nokia has a number ofother
> niche technologies which are promising and is proactivelyattacking its
> cost base through outsourcing deals to allow for greaterflexibility in
> its cost base and lower working capital requirements.
> * Capital gains on the sales of LK Products were FIM177m, but even
> adjusting for these and small currency gains, operating marginswere> 19%
> for the group - a record level of profitability. Nokia managed 45%
> higher sales in the nine-month period on the same level ofinventories
> and looks on track to make a staggering 50% return on capitalemployed
> in 1998. A critical point with Nokia is management's unwavering> guidance
> - save to exceed expectations - deserving of a premium rating. Wesee
> our estimated P/E multiple of 22.5 times as low relative to its25%+
> earnings growth record, as, in our view, Nokia has emerged from
> near-death in the early 1990s (and a 1995 stumble) as one of thebest
> run, most investor-friendly companies in Europe.>
> Ultratech Stepper, Inc. (UTEK) $18.13 EPS (FY Dec): 1998E $-0.51,1999E
> $0.45 - Market Performer
> * Ultratech Stepper reported September Q3 operating LPS of $0.34(vs. EPS
> of $0.25), wider than our estimates $0.10 LPS, and the Street LPSof
> $0.08. Orders $20 million, down 13% sequentially and down 44%
> year-over-year, but $42 million backlog included $18 million in Q3
> adjustments. Cutting 1998 operating LPS to $0.51 (vs. operatingEPS of
> $1.04) from $0.28 and shaving $0.05 from 1999 EPS of $0.50 to$0.45.
> Maintaining our Market Performer rating.>
> America Online (AOL) $114.94 EPS (FY Jun): 1999E $1.00, 2000E$1.75 -
> Recommended List
> * America Online (AOL) reports its Q1 (Sept.) f99 quarter thisTuesday> the
> 27th after the close. Our revenue, EPS, and net worldwidesubscriber
> addition estimates are $846m, $0.23, and 677k (to 15.3m),representing
> y/y growth rates of 60%, 230%, and 28% respectively. We believeSept.
> has been strong, providing potential upside to our EPS and sub.est.,
> possibly by $0.01-.02 and 250k+ net additions. In addition, keymetrics
> like rev/sub, adv./commerce growth, retention, usage, ad/ecommerce
> backlog, and cash flow should all show robust growth. Reit. Rec.List.
> * Overall, the quarter should prove to be a solid start to the
> traditionally strong
> Q2 (Dec.) and Q3 (Mar) fiscal periods. Gross margins should belittle
> over > 36% despite the stronger subscriber additions and usage, a benefitof
> AOL's > large scale network buying economies of scale. We expect good cost
> controls > on opex, with strong marketing efficiency to yield operating
margins of> over 11%,
> with profitability on the core subscriber business despite verystrong
> subscriber > adds and usage. In addition, mgmt. should be upbeat on its
ability to> supplement
> to its large, ecommerce partner list, adding, replacing, andupgrading
> existing > ecommerce partners at attractive economic terms.
> * Going forward, we expect the following events to be positivecatalysts
> for the shares: (1) Anticipation of strong Christmas quarter, (2)> Roll-
> out of 'AOL Checkout' in the next few weeks, a feature that allowsAOL
> members to do one-click ordering on AOL affiliated merchants onAOL and
> on the web, (3) Initial roll-out of 'You've got Pictures' jointventure
> with Kodak in the November/December time-frame (see our detailednote
> dated 5/20/98), (4) Additional progress on the broadband partnering
> front, potentially by end of calendar '98, (5) possible stocksplit,> (6)
> Further progress on financial and operational fronts for AOL.com,ICQ,
> and AOL International, and (7) On-going ecommerce announcementsfor all
> the AOL brands.
> * Our fiscal (June) '98, '99 and '00 revenue and EPS estimates are
> $2.6billion/$0.55, $3.8b/$1.00, and $4.8b/$1.75, respectively. We
> continue to view these estimates as conservative, both on the topand
> bottom line, and expect upward revisions assuming on-going, strong
> execution by management. We reiterate our Recommended for Purchase
> rating on AOL shares, and continue to view it as our favorite pickfor
> 1998.>
> JetForm Corporation (FORMF) $14.31 EPS (FY Apr): 1999E $0.78, 2000E
> $1.04 - Market Outperformer
> * We recently checked in with management of JetForm. The pipeline of> deals
> going into the end of its second (October) fiscal quarter isreportedly
> at record levels and business appears to be going well, but we note
> that JetForm is dependent on end of quarter deal closings and the
> business has historically shown volatility, so the quarter isn'tover
> until its over. The shares traded down recently on somecontroversy
> over accounting issues, which we do not view as new news, and thestock
> has now begun to recover. No change in our market outperformerrating.> >
> TECH TEAM DAILY *Tech Chat Only* October 26, 1998>
> Our recent ITC note included some comments from competitors on LTX
> Corp regarding its absence from the show floor, its shipment of aFusion
> test system to National Semi, and LTX's ability to ship Fusion involume.
> We spoke with LTX management on Friday, which passed on the following
> clarifications: (1) LTX saved $400,000 by not having a booth on theshow
> floor, but met with customers offsite. (2) The test system sent to
> National was a full-blown Fusion, and not a Delta STE upgrade. (3)The
> company expects to ship three units in Q1, seven in Q2, and 14 in Q3,with
> no constraints on deliveries. (Miller)>
> Sun Micro has a big day on Tuesday, announcing Solaris 2.7, the
> 64-bit version of its operating system. This will be fully compatible
> with the current 32-bit version and will add more usability, security,
> directory services, and Java features. (Conigliaro) >
> Computer Reseller News indicates that IBM has landed a couple of
> major new OEMs for its latest line of mobile drives. Compaq andGateway
> will be using the drives, which include IBM's Drive Fitness Test
> technology, allowing users to do some fast diagnostic testing. Volume
> shipments begin in February. (Conigliaro/Schutte)>
> It sounds like IBM has learned its lesson of having come very late
> to market with a sub-$1000 PC and, as a result, will be the first ofthe
> top-tier PC companies to break the $600 barrier. By late November,IBM is
> expected to introduce a $599 Aptiva PC using a 300 MHz chip fromCyrix.
> (Conigliaro)>
> Microsoft's Windows NT 5.0 Beta 3 is due out by late November, with
> final availability expected in the second half of 1999, although some
> reports still indicate that partners are preparing for a spring of1999
> release. At NetWorld+Interop in Atlanta last week, Microsoftdemonstrated
> several new features that are to be included in Beta 3, which isexpected
> to be the first feature complete version of the upcoming new releaseof
> Windows NT. The new features unveiled last week include new scalable
> clustering and updated terminal services support. Missing from the
> product is synchronizing with third-party directories such as NDS. PC
> Week indicates that Microsoft also will integrate its COM+ (Component
> Object Model+) object
> plumbing architecture into the base operating system code. Beta 3 is
> likely to feature working DirectX and OpenGL multimedia and graphics
> components. (Sherlund).>
> Friday, we met Friday with Lucent's Carly Fiorina to get some
> longer-term perspective on the industry after all the recent press onthe
> prospects for slower growth in 1999. While little has changed sincethe
> September analyst meeting, and she remains extremely confident aboutthe
> growth outlook for 1999, we were able to get more detail on someproducts
> and regions. Of particular note was Carly's confidence in Asianbusiness,
> which grew in 1998 despite the turmoil and is expected to grow in1999.
> The Asian forecasts for fiscal 1999 "are in the bag, with room for
> upside," according to Carly. While that business is only about 10% of
> sales, it is one region where few companies claim much visibility fornext
> year. Goldmans Sachs |
