The reporting season is drawing to a close, and in the telecommunications equipment and semiconductor sectors, several companies-- great and small-- cut their guidance for the third quarter we are in now. Some managers estimated that stock adjustments, and even more so, fears of what was happening in Washington over the debt ceiling, had led to a mainly technical halt in orders, and that we were not on the eve of a recession as we were at the end of 2007.
With the insolvency cloud having left Washington to settle over Europe again sometime or other, it will be interesting to see whether there will be a renewed, gradual revival in orders, which might not help the third quarter much, but would make the fourth quarter one of the strongest of the year. After all, the strong demand for smartphones and all the other sexy gadgets has not ceased for a moment, and the back-to-studies and Christmas buying seasons are before us.
In semiconductors, in the NAND sub-sector alone (NAND being the default choice for data storage on all portable devices), it is already known with certainty that there will be no weakness in the third quarter, or in the fourth. On Friday, SanDisk (SNDK) rose against the market trend because the previous evening, Samsung (OTC:SSNLF), in its full second quarter report, guided for a 15-19% rise in deliveries of NAND chips in the third quarter compared with the second. This will happen because of the large number of new smartphone and tablet computer launches for the holiday shopping season. Also, as is well known, Samsung is the biggest company in NAND chips, and second only to Apple (NASDAQ:AAPL) in smartphones and tablets.
Last week, ClickSoftware Technologies Ltd. (Nasdaq: CKSW) fell almost 6%, despite reporting sales above expectations, over $20 million for the first time ever, and earnings per share in line with estimates, at $0.11. Furthermore, the company confirmed its guidance for annual sales of up to $85 million. Investors did not like the weakness in license sales, which were down in comparison with the previous quarter and the corresponding quarter of 2010, and the drop in the order backlog in comparison with the first quarter.
Roth Capital, which rates ClickSoftware a "Buy" with a target price of $11, points out in the company's favor that gross profit rose substantially, from 42% in the previous quarter to 54% and that sales of services accounted for 71% of sales in the quarter. Furthermore, although the orders backlog in the second quarter was lower than in the first, the growth in orders in the first half compared with the first half of 2010 was very strong-- 40%, thanks to the huge order from DirecTV (DTV) early in the year.
I would add that last week, giant SAP, one of ClickSoftware's main vendors, surprised the market with strong results and guidance. Among other things, SAP said that it saw very strong growth in mobility in the coming years.
ClickSoftware is only a small cog in SAP's mobility offering, but I am convinced that sooner or later it will be one of the big beneficiaries of SAP's success in this field, and that it is worth continuing to hold ClickSoftware shares, which from this year also give an annual dividend yield of 3.5% at a share price of $9.
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2011;Reprinted on Seeking Alpha with permission; © Copyright of Globes Publisher Itonut (1983) Ltd. 2011
Disclosure: No positions