A pat on the back and a kick in the pants.
That’s what Conexant Systems Inc. got in a recent research note by Credit Suisse First Boston, which upgraded shares of the Newport Beach chipmaker to “neutral” from “underperform.”
“We are incrementally more positive on Conexant given the inventory overhang is behind the company, it has growth prospects in both the satellite set-top box and DSL markets, profitability is within sight, and valuation is reasonable,” Credit Suisse said.
Now, for the kick: “Longer term, we believe Conexant does not have the critical mass (investments, technology breadth, etc.) to survive the increasing integration occurring in the consumer networking market.”
What to believe? It’s hard to say. Conexant does seem to be turning a corner.
Last month, Conexant reported that its operating loss for the quarter ended April 1 narrowed by more than half from a year earlier, to $61 million. The chipmaker also said it was able to dwindle down its supply of unsold chips.
But the inventory drop came at a cost, as Conexant sold chips for less during the quarter.
“This dynamic depressed second fiscal quarter gross margins to 35.3% of revenue, a level below our expectations entering the quarter,” Chief Executive Dwight Decker said in a statement.
For now, Credit Suisse said it likes Conexant’s prospects in chips for satellite TV boxes and for digital subscriber lines.
That’s what investors clung to in the report, sending Conexant shares up 7% the day it was issued.
Switching to Ingram
There was another note from Credit Suisse, this one involving Santa Ana-based Ingram Micro Inc.
The investment bank kept its “neutral” rating on Ingram rival Tech Data Corp. Ingram stands a better chance of weathering the weakening European market for technology products than does Tech Data, according to Credit Suisse.
“Tech Data’s results and outlook will pale in comparison to chief rival Ingram Micro, which has Asia to cushion the fall,” Credit Suisse said.
Credit Suisse has an “outperform” rating on Ingram.
The comments came a week after Ingram’s Chief Executive Greg Spierkel, who officially took over last week, said he sees slower going in Europe, a trend that’s likely to persist for the near term.
“From a macro point of view clearly there’s been some slowdown,” Spierkel recently told investors at the J.P. Morgan technology conference in San Francisco.
Ingram’s sales in Europe were a big part of the company’s last earnings report, which showed the company’s sales rose 13% to $7.05 billion from a year earlier. Net income was up 13% to $42 million. The company said the gains were helped by strong European sales, which rose 12%.
Quest Closes Imceda Buy
Irvine-based Quest Software Inc. late last month wrapped up its buy of privately held Imceda Software Inc.
Quest detailed plans to buy Burlington, Mass.-based Imceda in April for about $60 million.
The deal mainly was done in cash. Quest used shares to pay for about 20% of Imceda. Quest also assumed some Imceda options.
Imceda makes tools to develop software for databases. Quest’s software works alongside databases to make them easier to use.
The deal stands to expand Quest’s products that help manage SQL server databases. While Quest’s main focus is to develop software for systems based on Oracle Corp. databases, it has been developing products for other database software, such as the SQL standard.
Tech Rally?
Tech stocks have gained strength as utilities have weakened for the first time in 18 months, according to a recent story at TheStreet.com.
Investors like utilities in times of uncertainty because they provide dependable cash flow. Chipmakers are more risky and usually don’t pay dividends.
Among the marquee performers in the chip sector? Irvine’s Broadcom Corp. was cited. From late 2002 to now, Broadcom’s shares have appreciated 225%. Nasdaq is up 54% during the same period.
