Ticonderoga on Networking & IT Hardware: Derivative Thoughts on XRTX Miss and the Phantom iPad 2 Panel Win
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Rating Summary:
2 Buy, 7 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 13
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Ticonderoga on Networking & IT Hardware: Derivative Thoughts on XRTX Miss and the Phantom iPad 2 Panel Win by Brian White
White said, "Xyratex Comes up Short, AUO Shoots Down iPad 2 Story - Last night, storage solution provider Xyratex (Nasdaq: XRTX)(NotRated) reported a disappointing quarter and outlook, while AU Optronics (NYSE: AUO) (Neutral) denied receiving iPad 2 orders."
"The iPad 2 Panel Win That Wasn't - Yesterday morning, the Economic Daily reported that AU Optronics had won iPad 2 LCD panel orders with Apple (Nasdaq: AAPL)(Buy), and the stock rose 4.5%. We took this story with a grain of salt, especially since our checks over the past few months never turned up AU Optronics as being involved in the iPad 2, nor does the company even have the IPS technology to support this program without licensing it from competitors. Last night, an AU Optronics executive was quoted in the Commercial Times (via the China Times) as indicating that the company did not receive iPad 2 orders. We commend AU Optronics for setting the record straight on an inaccurate news story; however, we expect the stock to give back yesterday's gains. We believe the big panel players in the iPad 1 were LG Display and Samsung, while Chi Mei Innolux may have been involved in a very minor capacity."
"A Weak Quarter and Outlook From Xyratex - Xyratex reported 1QFY11 sales of $360.5 million (down 9% Q/Q) that missed the Street's estimate of $374.3 million, while also offering up a disappointing 2QFY11 outlook, with revenue expected to be in the range of $320 million to $365 million versus the Street estimate of $384.1 million. Aside from market weakness and industry consolidation, NetApp is expected to drift slightly below 50% in 2Q versus 54% of 1Q revenue. Jabil (NYSE: JBL)(NR) is expected to benefit from this shift.
Notebooks Weak, Disk Drive Shipments Expected to Grow just 5%. There are many moving pieces at Xyratex due to industry consolidation, the NetApp shift and uncertainty surrounding Japan. The company sounded most negative about the notebook market, which experienced weakness in January and February. Xyratex now expects disk drive unit shipments to increase by just 5% this year to 685 million units versus 10% historically. In our EMS coverage universe, Flextronics (Nasdaq: FLEX)(Sell) is the most exposed to the notebook/ODM business with plans to ramp revenue in this market from $2 billion in FY11 to $4 billion in FY12. Also, Flextronics expects notebook/ODM sales to double Q/Q in the June quarter on a major new program ramp. Also, the leading LCD panel makers generate approximately 15% of sales from notebooks and 15-20% from desktop monitors. As such, further challenges in the notebook market could weigh on our LCD coverage universe, which includes AU Optronics, LG Display (NYSE: LPL)(Sell) and Corning (NYSE: GLW)(Sell)."
White said, "Xyratex Comes up Short, AUO Shoots Down iPad 2 Story - Last night, storage solution provider Xyratex (Nasdaq: XRTX)(NotRated) reported a disappointing quarter and outlook, while AU Optronics (NYSE: AUO) (Neutral) denied receiving iPad 2 orders."
"The iPad 2 Panel Win That Wasn't - Yesterday morning, the Economic Daily reported that AU Optronics had won iPad 2 LCD panel orders with Apple (Nasdaq: AAPL)(Buy), and the stock rose 4.5%. We took this story with a grain of salt, especially since our checks over the past few months never turned up AU Optronics as being involved in the iPad 2, nor does the company even have the IPS technology to support this program without licensing it from competitors. Last night, an AU Optronics executive was quoted in the Commercial Times (via the China Times) as indicating that the company did not receive iPad 2 orders. We commend AU Optronics for setting the record straight on an inaccurate news story; however, we expect the stock to give back yesterday's gains. We believe the big panel players in the iPad 1 were LG Display and Samsung, while Chi Mei Innolux may have been involved in a very minor capacity."
"A Weak Quarter and Outlook From Xyratex - Xyratex reported 1QFY11 sales of $360.5 million (down 9% Q/Q) that missed the Street's estimate of $374.3 million, while also offering up a disappointing 2QFY11 outlook, with revenue expected to be in the range of $320 million to $365 million versus the Street estimate of $384.1 million. Aside from market weakness and industry consolidation, NetApp is expected to drift slightly below 50% in 2Q versus 54% of 1Q revenue. Jabil (NYSE: JBL)(NR) is expected to benefit from this shift.
Notebooks Weak, Disk Drive Shipments Expected to Grow just 5%. There are many moving pieces at Xyratex due to industry consolidation, the NetApp shift and uncertainty surrounding Japan. The company sounded most negative about the notebook market, which experienced weakness in January and February. Xyratex now expects disk drive unit shipments to increase by just 5% this year to 685 million units versus 10% historically. In our EMS coverage universe, Flextronics (Nasdaq: FLEX)(Sell) is the most exposed to the notebook/ODM business with plans to ramp revenue in this market from $2 billion in FY11 to $4 billion in FY12. Also, Flextronics expects notebook/ODM sales to double Q/Q in the June quarter on a major new program ramp. Also, the leading LCD panel makers generate approximately 15% of sales from notebooks and 15-20% from desktop monitors. As such, further challenges in the notebook market could weigh on our LCD coverage universe, which includes AU Optronics, LG Display (NYSE: LPL)(Sell) and Corning (NYSE: GLW)(Sell)."
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