Author Archives: Scalper1

Will Salesforce.com Help End Enterprise Software’s ‘Beatdown’?

More than most, Salesforce.com’s fourth-quarter earnings — scheduled for release after the market close Wednesday — could help bring an end to what one analyst calls “the beatdown that growth software stocks endured for about 45 days.” “We believe that last week probably marked a bottom, or close to a bottom” for software companies that “are down about 25% for the average stock,” wrote Canaccord Genuity analyst Richard Davis in a research note Sunday. “Deals are getting a bit more scrutiny than before, but we believe we are nowhere near anything that looks like an IT spending clampdown. We are broadly optimistic on the outlook for next-generation software companies.” Salesforce ( CRM ) stock hit a 16-month low at 52.60 on Feb. 8, then rose 22% through Monday’s close at 63.98. Salesforce stock was down a fraction, near 63.50, in afternoon trading in the stock market today . That’s 23% off the stock’s all-time high of 82.90, hit Nov. 19, after Salesforce reported fiscal-third-quarter earnings up 50%. Salesforce is a cloud software pioneer and the No. 1 maker of customer relationship management software. Salesforce is coming off many years of double-digit revenue growth and seven consecutive quarters of double- or triple-digit earnings-per-share gains, year over year. Its market cap at $42 billion makes it half the size of SAP ( SAP ), the largest in IBD’s Computer Software-Enterprise industry group, and much smaller than business software giant Oracle ( ORCL ), with its $154.7 billion market cap. But Salesforce is much larger than next-generation cloud software companies  Workday ( WDAY ), ServiceNow ( NOW ), Ultimate Software ( ULTI ) and others. Salesforce’s fiscal Q4 2016, which ended in January, should make it eight consecutive quarters of double-digit-or-better earnings growth. Analysts polled by Thomson Reuters expect Salesforce to report earnings up 36% to 19 cents per share minus items, on revenue up 24% to $1.79 billion. Salesforce had guided Q4 to adjusted EPS of 18 to 19 cents on sales up 24% at the midpoint. Earnings especially were a tough comparison to follow, as EPS had doubled to 14 cents in fiscal Q4 of 2015. For the current Q1 2017 ending in April, Wall Street models EPS up 31% to 21 cents ex items, on revenue up 23% to $1.861 billion. Salesforce CEO Marc Benioff said at the Q3 analyst conference: “We expect to deliver our first $8 billion year during our fiscal year 2017, which puts us well on the path to reach $10 billion faster than any other enterprise software company.” The company’s Salesforce1 platform for mobile-application development should spark growth, RBC Capital Markets analyst Ross MacMillan said in a research note Sunday, although “there are many avenues to sustain growth, including service and marketing, the platform, and international and future initiatives. “While deceleration is inevitable, we think Salesforce can continue to drive premium growth for its size, and it remains an important strategic asset.” RBC maintains an outperform rating on Salesforce.com stock, with an 80 price target, as “one of the best positioned companies in large-cap software.”

Apple’s Clash With Feds Over IPhone Encryption Not Hurting Brand

U.S. consumers are largely ambivalent about Apple ’s ( AAPL ) fight with the FBI over unlocking an encrypted iPhone, according to a new survey. Investment bank Piper Jaffray surveyed 1,002 U.S. consumers regarding their perception of Apple’s brand in the face of its legal clash with federal authorities. “Net-net, the data showed that there was no brand impact from Apple’s decision to refuse to unlock an encrypted iPhone, with essentially equal numbers of consumers viewing the brand more positively and less positively, with the rest viewing it the same or unaware of the situation,” Piper Jaffray analyst Gene Munster said in a research report Tuesday. Last week, a federal judge sided with the FBI and ordered Apple to create software to hack into an iPhone 5C belonging to one of the shooters in the Dec. 2 attack in San Bernardino, Calif., that left 14 people dead. Apple CEO Tim Cook said that complying with the order would set a “dangerous precedent” that would undermine the security and privacy for all iPhone users. Piper Jaffray’s online survey showed that 24.1% of respondents viewed Apple’s brand more favorably in light of its refusal to hack its iPhone security protections, while 23% viewed the brand less favorably. Of the rest, 17.8% said that they viewed the brand the same, and 35.1% said that they didn’t know anything about the story. “We believe that the U.S. market is likely more politically influenced than international markets (i.e. international markets would skew more favorably towards Apple if it continued to refuse to unlock the phone in question), but generally believe that regardless of the outcome of the dispute, it will not have a meaningful impact on Apple’s brand,” Munster said. On Monday, Apple CEO Tim Cook called for the formation of a government commission or panel to discuss the broader issues involved with smartphone encryption. Meanwhile, Facebook ( FB ) CEO Mark Zuckerberg came out in support of Apple in the case. Speaking at the Mobile World Congress trade show in Barcelona, Spain, Zuckerberg said that weakening the digital security of technology companies was a bad idea, the New York Times reported . “I don’t think building backdoors is the way to go, so we’re pretty sympathetic to Tim and Apple,” Zuckerberg said. In an interview with the Financial Times, Microsoft ( MSFT ) co-founder Bill Gates sided with the government in the case, saying that Apple should help the FBI in this instance. However, in a later interview with Bloomberg, Gates softened his stance, PC W0rld reported .  Ultimately, he said, Congress will decide the issue of smartphone encryption. Apple stock was down 1.5% in afternoon trading in the stock market today .  

Western Digital Cuts SanDisk Offer After China Yanks Funds

China’s Tsinghua Holdings pulled its $3.8 billion investment in Western Digital ( WDC ) early Tuesday amid a government inquiry, prompting the disk drive maker to slash its already threatened bid for flash memory maker SanDisk ( SNDK ). The SanDisk acquisition will have to hurdle a Western Digital shareholder vote, which would not have been required with the investment by Tsinghua subsidiary Unisplendour. Western Digital stock was down 7% in midday trading on the stock market today , near 43, while SanDisk stock was down 2%, near 66. Shares of both have fallen 37% and 10%, respectively, since the deal was announced Oct. 21. Western Digital Investor Opposes Bid On Monday, Western Digital investor Alken Asset Management wrote an open letter claiming the $19 billion offer for SanDisk was “simply too high.” SanDisk, an Apple ( AAPL ) supplier, faces competitive headwinds in 2016. Alken owns about 2% of Western Digital stock. The vote is slated for March 15. The Unisplendour investment would have given it a 15% stake in Western Digital. Unisplendour terminated its Western Digital investment after the Committee on Foreign Investment in the U.S. said it would investigate. Neither Western Digital nor Unisplendour will pay a termination fee. In December, Summit Research analyst Srini Sundararajan told IBD that Tsinghua Holdings was trying to get its hands on SanDisk technology. Chip-arm Tsinghua Unigroup plans to invest $47 billion in semiconductor technology to become the world’s No. 3 chipmaker, leapfrogging  Qualcomm ( QCOM ). It wouldn’t be the first time a Tsinghua Holdings bid for U.S. technology was shuttered on regulatory concerns. A rumored $23 billion bid for Micron Technologies ( MU ) by Tsinghua Unigroup seemingly fell flat last year on worries that CFIUS would stop the deal. SanDisk Acquisition Remains ‘Compelling’ By terminating its Western Digital investment, Unisplendour triggered an alternative deal between Western Digital and SanDisk. Western Digital will now pay $67.50 per share in cash and 0.2387 in stock for SanDisk, for a value near $78.50 per share at Western Digital’s Monday closing price. The original deal valued SanDisk at 86.50 a share. Despite the failed Unisplendour bid, the demand for data storage is rising, Western Digital CEO Steve Milligan said Tuesday in a statement. By acquiring SanDisk, Western Digital would get easy access to Nand (flash memory). “We believe the strategic rationale of this acquisition is even more compelling today than when we first announced it in October last year, given industry trends and strong execution by both companies,” Milligan said in the statement. The SanDisk deal has been expected to close in Q2. Western Digital said it continues to see $500 million in synergies within 19 months of the closure and $1.1 billion by 2020. If the deal fails, Western Digital must pay SanDisk $184 million. Toshiba Could Benefit Western Digital RBC analyst Amit Daryanani sees the Western Digital-SanDisk deal being 34% dilutive without the Unisplendour investment. The ongoing shift to 3D Nand has pressured average sales prices for SanDisk’s bread-and-butter Nand business, he wrote in a research report. “While we think the long-term rationale of owning HDD (hard disk drive) and Nand under one umbrella is logical, the near-term implications of this could be negative,” he wrote. Needham analyst Richard Kugele notes the $17 billion debt that Western Digital will incur if it acquires SanDisk. But a partnership with Toshiba via SanDisk could buoy Western Digital. Toshiba manufactures SanDisk’s Nand. “Nothing will change the aggressive nature of the Nand industry, but partially owning a fab through the Toshiba partnership should help Western Digital over time navigate those waters,” Kugele wrote in a research report. Daryanani rates Western Digital stock outperform and has a 68 price target. Kugele rates Western Digital stock a strong buy and has a 90 price target.