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Broadcom, Western Dig Downgraded on Market Fears

A couple of Wall Street wonks recently stuck sell signs on a couple of Orange County’s large technology companies: Broadcom Corp. and Western Digital Corp.

Earlier this month, an American Technology Research Inc. analyst downgraded Irvine chipmaker Broadcom from “neutral” to “sell,” citing concerns about an inventory buildup.

A day later, Prudential Equity Group LLC analyst Jesse Tortora started coverage on Lake Forest disk drive maker Western Digital with a stock rating of “underweight,” the equivalent of “sell.” Tortora cited concerns more about the market than Western Digital’s efforts.

Tortora set the price target at $15 for the stock, which was trading at about $17.50 at the time.

Western Digital didn’t take much of a hit on the downgrade, falling 1% the day after it was released.

Shares of Western Digital already were down earlier in the week after Marvell Technology Group Ltd., a maker of chips used in communications and storage devices, warned that customers, including drive makers, weren’t buying as quickly.

“The anticipated decline in net revenue is largely due to lower than expected demand from a number of the company’s hard disk drive customers,” Marvell said. “The company believes the shortfall of demand is primarily due to a combination of weaker than normal seasonal shipments in the personal computer market as well as excess inventory held by some of its significant storage customers.”

Tortora struck similar themes in his note.

“PC and (drive) demand growth is slowing, (drive) inventory has begun building throughout the supply chain, and recent trends in industry capital spending foreshadow an acceleration of capacity additions,” Tortora wrote.

Still, Tortora likes Western Digital’s business model.

Western Digital is poised to do well by being a “fast follower,” or letting others go after markets first before it does the same.

This has made the company a benchmark of efficiency.

Unlike some analysts, Tortora sees a price war continuing in the drive industry, but that’s not a bad thing for Western Digital.

“This plays to Western Digital’s forte as the low cost supplier and should enable the company to win additional business,” Tortora said.

American Technology Research’s Shaw Wu pointed to Marvell’s warning, among several others, to make the case that a slowdown in the chip sector is going to hit Broadcom.

Key markets such as broadband, wireless networking and the general networking business could drag on Broadcom, Wu said.

The big concern isn’t with the third quarter but the final quarter of the year and next year (particularly in the first half), Wu said.

“We believe inventories still need to be worked down,” Wu wrote.

Broadcom’s stock fell 3% the day of the downgrade and moved little in the following days.


Powerwave Pounded

Will the pain never stop for Powerwave Technologies Inc.?

The company, a maker of wireless tower gear, gave investors more bad news earlier this month with a warning that third-quarter sales could come in at $155 million to $160 million compared to earlier expectations of $200 million to $210 million. That’s a shortfall of at least 20%.

The company has been warning and disappointing investors a lot this year.

Powerwave’s first-quarter sales were $193 million, up from $162 million a year earlier. Analysts were looking for sales of about $203 million. The company blamed a sales slowdown with Cingular Wireless LLC.

The hope was that Cingular’s spending slowdown was more of a hiccup than a long-term issue. But in the second quarter, Powerwave posted sales of $232.4 million, up 20% from a year earlier.

Analysts were looking for revenue of $247 million after the company earlier said it would have a strong second quarter with about $250 million in sales.

In the latest warning, execution seemed to be as much a problem as demand.

Ronald Buschur, chief executive, blamed difficulties in implementing a companywide software program and delays in moving manufacturing lines.

“These issues combined resulted in both delayed production and shipments, which significantly reduced our actual revenues for the quarter,” Buschur said in a statement.

He added there was some “slowness” in sales.

All this has added up to a miserable year for the stock. The latest news sent the stock back down near its one-year.

The stock is off about 40% for the year,after Powerwave emerged as one of the county’s best performing stocks early this year.


Lenovo Chief Speech

William Amelio, chief executive of China’s Lenovo Group Ltd., is set to speak in OC.

Amelio plans to speak at an event sponsored by the University of California, Irvine’s Paul Merage School of Business called “Strategic Initiatives in China: Partnering for Innovation” on Oct. 27.

Amelio is set to speak on “technology, globalization and the corporation of the future.”

Of course, Lenovo beefed up its international reach last year when it acquired IBM Corp.’s computer business. The cost to attend is $450.

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