The last week was a disappointing one for technology stocks with the NASDAQ composite falling ~3%. As the uncertainty increases over a European rebound, most international markets are taking a hit. The situation should get better in the next couple of weeks, as we near a Microsoft (MSFT) Windows 8 launch and rumors about the iPad mini materialize. The success of Windows 8 and the iPad mini will impact a wide range of technology companies including semiconductor companies, OEMs and their respective vendors. The following are some expectations from the technology sector during the week:
Nokia (NOK), the troubled Finnish manufacturer, is finally getting its act together. The WP8 powered Lumia series has been a hit with critics and now carriers are also showing interest. The company announced last week that it had secured a spot with T-Mobile (Lumia810) and there are rumors that Verizon (VZ) will market Nokia Atlas (a version of Lumia 920). AT&T (T) has already won special rights to sell Lumia series and now enjoys exclusivity to Lumia 920 and Lumia 820. This gives Nokia coverage of more than 80% of US markets. Traditionally Nokia has been more successful in Asia as compared to the Americas and has a particularly strong hold on India and Indonesia. The Lumia 510 got the permit to be released in Indonesia last week, which is the second largest market in the world for phones after China. The combined effect of factors discussed above should result in a positive movement in NOK during this week.
Since the iPhone 5 launch, Apple (AAPL) has fallen approximately 9%. This reduction is a combination of investors taking profit after a good run and bad investor sentiment due to a lack of iPhone 5 wow factor. However one cannot underestimate the world's most valuable technology company on innovation and the ability to surprise investors. The iPad mini rumors have been flying around the web for quite some time and the launch date has been a source of speculation. The market is anticipating an iPad mini launch on the 23rd of October. We believe that after a 9% decline, AAPL can show some positive movement if launch dates are confirmed. Investors interested in an option play can invest in AAPL121020C00640000 option currently priced at $4.75. The Apple options market is highly liquid right now and the recommended option has an open interest of 12,590.
Advanced Micro Devices (AMD) has been in trouble over falling PC demand and failure to penetrate the handheld devices industry. The company recently cut its Q3 guidance. According to a press release AMD now expects a decline of 10% (QoQ) in the 3rd quarter sales as compared to previous guidance of 1% decline. The market was estimating revenues of $1.38 billion, approximately 9% more than the new guidance. The guidance for gross profit margin has also been estimated down to 31% from 44%, due to a $100 million inventory write down and reduced selling prices. Investors should expect AMD's stock price to continue its slide until its 18th October earnings release. There is a strong possibility that the stock will consolidate after the earrings release, as the company has a history of conservative targets and meeting analyst expectations. In the long run we are bearish on AMD, due to lack of exposure of the company to the handheld devices industry and intense competition in its Computing and Graphics segments.