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To: Return to Sender who wrote (88940)9/1/2022 11:51:10 PM
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MW Broadcom CEO defends optimistic 'true demand' outlook as PC, smartphone sales slide
8:12 PM ET 9/1/22 | MarketWatch

Demand 'solid' going into year-end quarter, CEO says

Broadcom Inc.'s chief executive on Thursday defended his positive outlook that end-market demand is "solid" for the rest of the year as Wall Street analysts questioned that optimism amid a cooling of growth in the chip industry.

Broadcom (AVGO) CEO Hock Tan told analysts on a post-earnings conference call that he sees "true demand" in the company's end markets, and that takes into account weakness in consumer markets. The San Jose, Calif.-based company had forecast revenue of about $8.9 billion for the fiscal fourth quarter, while analysts have estimated revenue of $8.77 billion. That forecast received a little pushback from analysts who have seen a rocky earnings season for chip makers, where optimism is in short supply.

"Let me start by saying, while consumer IT hardware spending has been reported to be weak, very weak from our vantage point, infrastructure spend is still very much holding," Tan said. He also addressed speculation that the appearance of strong demand could be "false," as many customers in times of shortage will hoard chips by double- or triple-buying, creating a bubble of demand that eventually collapses.

"We put in a lot of checks and balances, hugely, before we put products out on aircraft or trucks to our customers, and we have been doing this now for two years, so we're pretty good at doing it," Tan told analysts.

Shares gained 2% after hours, following a 1.4% decline in the regular session to close at $492.01.

Broadcom reported fiscal third-quarter net income of $3 billion, or $7.15 a share, compared with $1.8 billion, or $4.20 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation and other items, were $9.73 a share, compared with $6.96 a share in the year-ago quarter.

Revenue rose to $8.46 billion from $6.78 billion in the year-ago quarter, as chip sales surged 32% to $6.62 billion from the year-ago period, and infrastructure software sales ticked 5% higher to $1.84 billion.

Analysts surveyed by FactSet had expected earnings of $9.56 a share on revenue of $8.41 billion, based on Broadcom's forecast revenue of about $8.4 billion back in late May. The Street also forecast chip sales, on average, of $6.57 billion and infrastructure software sales of $1.83 billion.

In July, the company said its software head, Tom Krause, is leaving the company in the middle of the $61 billion VMware Inc. (VMW) acquisition he helped bring about, to go head the private company formed from a combined Citrix Systems Inc(CTXS) and Tibco Software. Broadcom's earnings were overshadowed last quarter by the announcement of the VMware bid. Tan was also optimistic about how that process is going along.

"We're making good progress with our various regulatory filings around the world," Tan told analysts. "We have an excellent team focus on these efforts, and we are moving forward very much as expected in this regard. We continue to expect the transaction to be completed in Broadcom's fiscal-year 2023."

Year to date, shares of Broadcom have fallen 26%. In comparison, the S&P 500 index has fallen 17%, the tech-heavy Nasdaq Composite index is down 25%, and the PHLX Semiconductor Index has dropped more than 33%.

-Wallace Witkowski

To: Return to Sender who wrote (88940)9/2/2022 4:36:18 PM
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Market Snapshot

Dow 31395.49 -262.89 (-0.83%)
Nasdaq 11649.66 -135.43 (-1.15%)
SP 500 3934.08 -32.84 (-0.83%)
10-yr Note

NYSE Adv 1259 Dec 1725 Vol 797 mln
Nasdaq Adv 1624 Dec 2593 Vol 4.2 bln

Industry Watch
Strong: Energy

Weak: Communication Services, Real Estate, Consumer Staples, Health Care

Moving the Market
-- Softer August Jobs Report compared to July

-- Gazprom says Nord Stream 1 pipeline to remain shut for technical issue, according to Bloomberg TV

-- Falling Treasury yields

Closing Summary
02-Sep-22 16:30 ET

Dow -337.98 at 31320.40, Nasdaq -154.25 at 11630.84, S&P -42.59 at 3924.33
[BRIEFING.COM] The stock market had a good run in the morning trade that saw the S&P 500, Dow Jones Industrial Average, and Nasdaq each gain 1.0% at their highs. The market had a quick, and sharp, reversal in the afternoon, however, following a Bloomberg TV report that Gazprom is going to keep the Nord Stream 1 pipeline shutdown due to a "technical issue" that involves an oil leak. Additionally, there was no timetable provided for when the pipeline might reopen.

The morning gains were driven by a belief that less strong August employment data (versus July) could compel the Fed to take a less aggressive rate-hike path. The Gazprom news, which came on the heels of G7 members agreeing to impose a price cap on exports of Russian oil, quickly took over investor mentality.

Shortly after the open, market breadth showed advancers leading decliners by a 7-to-2 margin at the NYSE and a 3-to-2 margin at the Nasdaq. At the close, decliners led advancers by a roughly 3-to-2 margin at both the NYSE and the Nasdaq.

Mega cap stocks were an influential downside driver in the afternoon trade but they had plenty of company as a risk-off mentality took root following the Gazprom news and ahead of the extended holiday weekend.

Every S&P 500 sector reached positive territory this morning before the downside momentum left all the sectors in the red, with the exception of energy (+1.8%).

The energy sector benefited from the rising cost of oil in a notably volatile session for the energy complex futures. WTI crude oil futures settled 0.5% higher at $86.91/bbl. Natural gas futures fell 5.4% to $8.75/mmbtu.

The Treasury market also had a dynamic session with the 2-yr note yield ultimately falling 12 basis points to 3.40% while the 10-yr note yield fell seven basis points to 3.20%.

As a reminder, US equity markets are closed Monday.

Looking ahead to Tuesday, market participants will receive the final August IHS Markit Services PMI reading (prior 44.1) at 9:45 a.m. ET. The August ISM Non-Manufacturing Index ( consensus 55.2%; prior 56.7%) will be out at 10:00 a.m. ET.

Reviewing today's economic data:

  • August nonfarm payrolls increased by 315,000, average hourly earnings rose a smaller-than-expected 0.3% month-over-month, and the unemployment rate ticked up to 3.7% from 3.5% as the labor force participation rate jumped to 62.4% from 62.1%.
    • The key takeaway is that the labor market remains in pretty solid shape. It didn't function with the same zest it showed in July, but, objectively, it is running at a pace that is wholly inconsistent with an economy on the cusp of a recession.
  • Factory orders for manufactured goods declined 1.0% m/m in July ( consensus +0.2%) following a downwardly revised 1.8% increase (from 2.0%) in June. Shipments of manufactured goods declined 0.9% after increasing 0.8% in June.
    • The key takeaway from the report is that this was the first decline in order activity in ten months, meaning it could simply be a natural pullback after an extended period of new order increases as opposed to a meaningful turning point. Alas, future reports are needed to shed better light on the situation.
Dow Jones Industrial Average: -13.8% YTD
S&P 400: -15.8% YTD
S&P 500: -17.7% YTD
Russell 2000: -19.4% YTD
Nasdaq Composite: -25.7% YTD

Market moves lower into the close
02-Sep-22 15:30 ET

Dow -319.87 at 31338.51, Nasdaq -156.86 at 11628.23, S&P -39.42 at 3927.50
[BRIEFING.COM] The major indices are continuing to drift lower ahead of the close.

Small and mid cap stocks are faring somewhat better than their peers with the Russell 2000 (-0.4%) and S&P Mid Cap 400 (-0.4%) trading ahead of the broader market.

As a reminder, US equity markets are closed Monday.

Looking ahead to Tuesday, market participants will receive the final August IHS Markit Services PMI reading (prior 44.1) at 9:45 a.m. ET. The August ISM Non-Manufacturing Index ( consensus 55.2%; prior 56.7%) will be out at 10:00 a.m. ET.

Market stuck in narrow range
02-Sep-22 15:00 ET

Dow -262.89 at 31395.49, Nasdaq -135.43 at 11649.66, S&P -32.84 at 3934.08
[BRIEFING.COM] The major indices are stuck in a narrow range near session lows.

Energy complex futures settled mixed with WTI crude oil futures up 0.5% to $86.91/bbl while natural gas futures fell 5.4% to $8.75/mmbtu. The S&P 500 energy sector (+1.8%) remains in first place.

Separately, Treasury yields are near their lows. The 2-yr note yield is down 13 basis points to 3.40% while the 10-yr note yield is down seven basis points to 3.20%.

Generac lower ahead of Labor Day weekend
02-Sep-22 14:30 ET

Dow -207.25 at 31451.13, Nasdaq -127.09 at 11658.00, S&P -29.64 at 3937.28
[BRIEFING.COM] The benchmark S&P 500 (-0.75%) is still in second place to this point on Friday.

S&P 500 constituents DISH Network (DISH 16.97, -0.84, -4.72%), Zebra Tech (ZBRA 297.79, -11.95, -3.86%), and Generac (GNRC 225.07, -7.94, -3.41%) pepper the bottom of the standings. GNRC falls despite ongoing power issues in California and likelihood of upcoming severe weather Labor Day weekend.

Meanwhile, Texas-based oil&gas E&P name Halliburton (HAL 29.99, +1.05, +3.63%) is today's top performer owing to gains in crude oil futures.

Gold rebounds into weekend
02-Sep-22 14:00 ET

Dow -283.06 at 31375.32, Nasdaq -166.19 at 11618.90, S&P -40.34 at 3926.58
[BRIEFING.COM] We've continued to trickle lower in the major averages in the last half hour; the tech-heavy Nasdaq Composite (-1.41%) is today's top laggard with about two hours to go.

Gold futures settled $13.30 higher (+0.8%) to $1,722.60/oz, recovering a bit after notching a six-week low yesterday on modest weakness in yields and the dollar.

Meanwhile, the U.S. Dollar Index is down about -0.1% to $109.59.

nCino is "nFavor" as strong Q2 report showcases resilient demand for cloud banking platform (NCNO)

nCino (NCNO), a provider of a cloud banking platform, is depositing some sizable gains after issuing a beat-and-raise Q2 earnings report that featured strong revenue growth of nearly 50%. The company's solid results and bullish outlook come amid a challenging environment in the mortgage industry as interest rates climb, reflecting the competitive strength of its recently acquired (1/10/22) SimpleNexus business. The cloud-based homeownership platform generated robust subscription revenue growth of 73% to about $15 mln, driven by market share gains and the signing of 26 new customers in Q2.

An important factor that's working in SimpleNexus's favor is that it uses a per-seat subscription-based model, rather than a transaction-based model. Therefore, the platform is not directly impacted by falling mortgage applications, making its revenue more predictable than some might assume.

SimpleNexus represents just one pillar of NCNO's growth strategy.

  • The company's nIQ offering, which is backed by artificial intelligence and machine learning capabilities, is another key component. As part of the overall nCino Bank Operating System, nIQ uses predictive analysis to help financial institutions increase efficiency and improve customer service by automating a variety of banking processes.
    • In a separate press release, NCNO announced that Rabobank selected nIQ's automated spreading solution for its branches in Australia and New Zealand. The win is NCNO's largest order spreading deal to date.
    • Overall, the number of banking customers using nIQ applications surged by 119% yr/yr, bolstered by strong demand for portfolio analytics, automated spreading, and commercial pricing.
  • International expansion is another piece of the puzzle as NCNO looks to expand in a $16 bln total addressable market. Coming on the heels of New Zealand-based ASB going live earlier in the quarter, NCNO's signing of Rabobank is reflective of the company's momentum in APAC.
    • The company also added a new client in Japan, marking its fourth customer win in the country, while signing new customers in the Netherlands and South Africa.
    • Earlier this year, the international expansion story revolved around Canada after NCNO added a top-five Canadian bank to the list.
  • NCNO's growth is impressive, but the company isn't implementing a "growth at all costs" approach. In this market environment, that's music to investors' ears since profit growth is prioritized. Specifically, NCNO is taking a more measured approach with its hiring, commenting that it sees plenty of opportunity to support growth with its existing employee base.
    • These cost containment efforts, combined with healthy demand for its platform, enabled NCNO to increase its FY23 EPS guidance to $(0.19)-$(0.17) from $(0.30)-$(0.28).
    • Even better, the company reiterated its commitment to achieving non-GAAP profitability next year, despite the macroeconomic uncertainty.
The most pronounced headwind facing NCNO is the weakness in Europe, which has become a recurring theme among cloud software companies recently. During the earnings conference call, CEO Pierre Naude disclosed that deals are taking longer to close in Europe. However, strength in the U.S., Canada, and Asia Pacific is more than offsetting that weakness, with Naude adding that the sales pipeline has never been stronger. Given its exposure to the mortgage industry, NCNO may seem like an unlikely winner in a rough market for cloud stocks. Momentum is clearly on its side, though, as its platform lands in the sweet spot of a digital transformation that's sweeping across the banking industry.

PagerDuty sets itself apart from other cloud names with solid beat-and-raise report (PD)

In a week that has seen several meltdowns from cloud software stocks following earnings, PagerDuty (PD) has emerged as a winner following its solid beat-and-raise 2Q23 report. In the aftermath of nasty post-earnings sell-offs in MongoDB (MDB), Veeva Systems (VEEV), Okta (OKTA), and (AI), investors can be forgiven for taking a cautious approach ahead of PD's quarterly results. Yesterday, the digital operations platform provider closed lower by about 7.5%.

The overarching theme from the disappointing set of earnings reports is that IT budgets are tightening and that deals are taking longer to close, due to macroeconomic uncertainties. Consequently, these cloud software companies dialed back their revenue expectations for the back half of the year. That same scenario was seemingly expected to play out for PD, but the company pleasantly surprised by nudging is FY23 guidance higher for the second time this year. After raising its revenue outlook to $364-$369 mln from $360-$366 mln last quarter, PD is now forecasting revenue of $365-$370 mln.

Admittedly, the $1 mln guidance raise is quite modest, especially considering that PD exceeded Q2 revenue estimates by about $2 mln. However, it's the company's consistency and resiliency that stands out.

  • While many cloud software companies are experiencing a deceleration in top-line growth, PD's growth has remained steady, hovering in the 30-35% range over the past five quarters. In fact, PD's growth has accelerated a bit since FY21, when it was registering mid-to-high 20% growth.
  • PD's consistency is also illustrated by its dollar-based net retention rate, which came in at 124% in Q2. Impressively, this metric has exceeded 120% for seven consecutive quarters, and PD expects it to remain above that mark throughout FY23.
    • Driving this strong performance is a low ARR churn below 5%, combined with PD's successful land-and-expand strategy that's pushing customer spending higher. Relatedly, large customer accounts with ARR over $100K grew by 38% yr/yr to 689.
  • Compared to other cloud names that we mentioned, PD's earnings call had a less cautious tone. Although PD's CEO Jen Tejada acknowledged that sales cycles lengthened for some larger deals, particularly in the EMEA region, she stated that demand remained strong, despite the macro uncertainty. Moreover, she described the critical nature of PD's offerings, akin to cybersecurity products.
    • In particular, the platform's ability to identify and respond to incidents across digital channels is a highly valuable asset for companies. By reducing downtime for apps and sites, PD not only saves lost revenue, but it also improves the reliability and quality of a company's online presence.
  • Another key difference between PD and other cloud companies that recently reported earnings is that its bottom-line performance is significantly improving. In Q2, its operating loss narrowed to ($3.0) mln from ($10.0) mln in the year-earlier period. More importantly, though, PD expects to achieve non-GAAP profitability in 4Q23 and to be profitable on a full-year basis in FY24. Revenue continues to grow faster than expenses, which were up by 30% in Q2 to $109.8 mln.
The main takeaway is that PD set itself apart from other cloud software stocks as its solid results and outlook highlighted the mission-critical nature of its platform. Also working in the stock's favor is a more reasonable valuation with shares trading at about 6.4x expected FY23 revenue. This combination of consistent revenue growth, improving profitability, and a cheaper valuation make PD a compelling option in the cloud software space

Broadcom delivers a solid beat-and-raise JulQ report despite a challenging economic backdrop (AVGO)

Broadcom (AVGO +4%) bucked the trend of weakening consumer IT hardware and cooling enterprise networking demand with its beat-and-raise Q3 (Jul) report. The chipmaker set quarterly sales records in multiple divisions, posting total revenue growth of 24.9% yr/yr to $8.46 bln, a testament to its diversification and importance in many different organizations' supply lines.

  • What stood out most was the impressive sales growth in AVGO's networking and server storage connectivity divisions, which was somewhat expected after key customer Cisco (CSCO) saw notable supply chain improvements in JulQ. Networking revs jumped 30% yr/yr, ahead of the company's forecast of over 25% growth, from cloud and enterprise data centers refreshing their systems. Meanwhile, server storage connectivity revs soared 70%, above AVGO's prediction of 60% growth, benefiting from the continued deployment of servers and storage.
    • These trends are in direct contrast to what we heard from storage supplier Seagate (STX) earlier this week, which slashed its SepQ sales projection due to increased cautious buying behavior among enterprises and certain U.S. cloud customers.
    • AVGO was bullish that these trends would continue, estimating its networking and server revs would grow 30% and 45% in Q4 (Oct).
  • AVGO's three other divisions within its semiconductor business posted mostly upbeat numbers. Broadband revs grew 20% yr/yr, fueled by service providers deploying next-gen broadband fiber globally. Wireless sales climbed 14% on sustained demand in North America, a pleasant surprise after Qualcomm's (QCOM) light SepQ guidance due to softening handset demand. AVGO expects similar figures for Q4, projecting broadband and wireless revenue growth of 20% and 10%, respectively.
    • Although AVGO's double-digit wireless growth is a good sign that demand for Apple (AAPL) products has not waned considerably, the company noted that volume is not expected to improve yr/yr, as its gains stem from increased content.
  • One of the weak points in Q4 was industrial sales falling 4% yr/yr, well below AVGO's expectations of around low-double-digit growth, reflecting weakness in China, partially offset by strength in the U.S. and Europe. However, industrial sales made up just 3% of total revs, so its decline in Q3 was not very impactful. Additionally, AVGO expects sales to rebound in Q4, forecasting high single-digit growth.
  • Software revs expanding by 5% yr/yr was in-line with AVGO's prior estimates. Although software represented only 22% of total revs in Q3, its pending acquisition of VMware (VMW) will up this number closer to 49%, showing AVGO's desire to become a software powerhouse. The company did not provide too many additional details on its $61 bln deal other than it is making "good progress" with regulatory bodies, and continues to expect the transition to be completed in FY23 (Oct).
Overall, AVGO's Q3 numbers were excellent. In fact, given what many of AVGO's peers have reported and discussed lately, its results really pop. However, investors may be skeptical that AVGO's Q4 guidance of 20% growth yr/yr is flimsy, keeping shares from moving higher today. Still, when asked if the company sees any changes in demand from its enterprise and cloud businesses, given its peers' comments recently, CEO Hock Tan replied that in terms of consumption of its products, it is not seeing any particular changes.

lululemon athletica bucks retail trend with impressive beat-and-raise (LULU)

lululemon athletica (LULU +10%) is rolling along despite many apparel retailers struggling this summer. This yoga-inspired athletic apparel company reported a huge beat for Q2 (Jul) and, probably even more impressively, guided nicely above expectations for Q3 (Oct). LULU clearly is bucking the retail trend. It helps that LULU's customers tend to be more upper income. But it is not just that. LULU's products are technically very innovative and yoga/runner enthusiasts are willing to pay more for that.

  • Total comps rose a healthy +23%, which includes an in-store com of +16%. Comps are down slightly from +28% in Q1, but still much better than Street estimates and well ahead of many other retailers. Direct to consumer revenue increased 30% and now represents 42% of total revenue. It is worth noting that these are not just markdown-driven sales. LULU remains predominantly a full-price business and has no plans to change.
  • In terms of the consumer, LULU says it looks closely at guest data to identify any shifts in spending patterns. LULU is not seeing any meaningful variation. Also, it keeps attracting new customers. Transactions by first-time guests increased 20+%.
  • China was also a bright spot. After a slower start to the year due to COVID-related closures, LULU has seen a rebound in the region with revenue up 30% yr/yr. Europe also did well with sales up 20%. Of note, LULU recently announced it has entered Spain, its first new market in the region in three years. LULU expects Spain to be a strong market going forward.
  • As important as the healthy sales are, supply chain constraints have been an issue for LULU in recent quarters. It was plagued by out-of-stocks and had to use air freight to get inventory in stores, which is very expensive. The good news is that LULU now sees some promising signs of improvement. Its vendors in China, which had to close or slow production earlier in 2022 due to COVID-19, are beginning to catch up. Ocean delivery times are improving. LULU is well positioned for the fall season.
  • Usually when companies talk about innovation, it can be a lot of fluff, but LULU makes some truly great products. Some new releases in 2H include new running styles that offer heat retention and reflective detailing to enable outdoor runs in cooler and low-light conditions. With the exception of a few outerwear styles, LULU says it has never had a solve for cold weather run, so it is looking forward to these launches. LULU has also branched into footwear, which we think is a great extension for the brand.
Overall, this was a very impressive beat-and-raise for LULU. While other retailers are warning left and right, LULU just put up some solid numbers. What is great is that not only are sales brisk, but now it sounds like the supply chain constraints that have dogged the company in recent quarters are starting to ease. That will be great for margins and sets the table for some impressive numbers in 2H22.