Autodesk

ADSK : NASDAQ : US$48.32
BUY 
Target: US$60.00

COMPANY DESCRIPTION:
Autodesk is a global design software company that sells
high-function, low-cost 2D and 3D computer-aided design
(CAD) applications. The firm also provides visualization
and simulation tools, which in conjunction with the
company’s design apps, enable customers to experience
their ideas early in the design process through the
development and analysis of virtual prototypes.

 

Technology — Enterprise Software — Applications
TRENDS IN FAVOR, STOCK LIKELY TO FOLLOW SUIT; UPGRADE TO BUY,
TARGET TO $60
Investment thesis
There are enough company-specific changes, augmented by what we believe
will be a multi-year macro tailwind in commercial construction, that ADSK
appears poised to resume an advance that we believe will take the stock back to
its old nearly $60 highs in fairly short order. We are equally bullish about the
possibility of a multi-year transition to a more predictable model that we
forecast to easily clear the 30% operating margin threshold in calendar 2017.
 Best-in-class portfolio. Taken as a whole, we believe ADSK has the design
industry’s most complete Design, Simulation and Visualization suite.
 Model switch means greater predictability and likely higher realized per
customer revenues. Much like the Adobe transition, we expect Autodesk’s
transition to begin slowly, if not occasionally haltingly, and then accelerate,
pushing recurring revenues to nearly 80% in late calendar 2017.
 Optionality from cloud PLM and simulation. Design collaboration, which is
really what PLM is, is tailor made for the cloud. Simulation, especially for
small- and mid-sized firms without dedicated CPU capacity, is also a great
use case for cloud. ADSK is the largest firm with credible cloud offerings in
these areas.
 A lot of moving parts, but the relevant ones subscription growth and cash
flow growth should move in the right direction. Specifically, our long-term
modeling says subscriptions and cash flow advance at a mid-to-high teens
pace for the next five years. In CY17/FY18E Autodesk should evolve to
become a less cyclical 30% non-GAAP, 32-35% operating cash flow margin
business with gradually accelerating mid-single-digit to total revenue growth.

 Therefore, we believe ADSK deserves consideration for a growth portfolio. While we
are not making a “called shot” on the quarter, it would not surprise us that ADSK’s
management will make sufficiently positive commentary on Thursday night’s earnings
call that the stock could advance on Friday.
Valuation and price target
Our new $60 price target (up from $52) is based on a 23x multiple applied to our
F2016/C2015 FCF per share estimate of $2.32 plus approximately $6.00 in prospective net
cash per share.
For perspective, looking out further, if we use this same 23x multiple, which could prove
conservative as investors give ADSK full credit for the transition to subscription, on
F2018/C2017 estimates, which we will be looking at in ~18 months, it implies a stock in
the $75-80 range. The math is roughly $3.07B in F2018 revenue at a 30% operating
margin, taxed at 25% over 245M shares, plus $11-13 per share in prospective net cash per
share. This implies a >50% return from current levels over the next 18-24 months

Goldman on High Frequency Trading

There’s only one bank that’s come out publicly against high frequency trading, and that’s Goldman Sachs.

It’s not an easy thing to do. Banks work with high frequency trading firms to execute orders, they also have their own dark pools — private, anonymous exchanges that have become a part of the new market ecosystem synonymous with HFT. Goldman’s dark pool is called Sigma X.

So why would a bank take on HFT?

Because Goldman bank believes it’s hurting their equities trading business, which has been on the decline for some time now. And as the WSJ’s Justin Baer and Scott Patterson point out, the bank would rather have a healthy stock trading business that can make it billions of dollars than a dark pool that only brings in hundreds of millions of dollars.

Thursday morning’s first quarter earnings numbers say it all. Goldman is losing stock trading share to its rivals. In Q1 2014, the bank made $416 million trading equities for clients. That’s down 49% from the same time in 2013 when the bank made $809 million.

In 2013, a year when the price of stocks exploded, Goldman’s client stock trading revenue fell from $3.2 billion in 2012 to $2.6 billion.

Arch rival Morgan Stanley, on the other hand, has seen it’s equity sales and trading rise 16% over the last year, and 24% over the last quarter.

Obviously for the biggest baddest bank on Wall Street, this is worrisome. The bank is not only losing market share in equity sales, but also its dark pool has lost its share of the market as rivals from Barclays, Deutsche Bank and Morgan Stanley have entered the market.

So once big institutional clients — the mutual funds and hedge funds that HFT firms love to pick off when they notice the institutionals’ big block trades in the market — started complaining about HFT, Goldman knew it was time to change their strategy.

Patterson and Baer reported that at a meeting in London several weeks ago, Goldman’s institutional clients voiced concerns that are now familiar thanks to Michael Lewis’ book, ‘Flash Boys‘.  They said that they felt HFT firms were given an unfair advantage and that the market was too opaque, complicated and dangerous.

That’s when Goldman started sending around internal memos asking for commentary on market structure, and COO Gary Cohn wrote the anti-HFT op-ed that shocked people across the Street.

In the op-ed, he mentions one more issue that has Goldman worried about HFT. The bank is known for having some of the best technology in finance, but last August a glitch in its software sent erroneous quotes into the market and cost the bank $100 million. And Goldman doesn’t lose $100 million.

From Cohn’s op-ed:

The economic model of the exchanges, as shaped by regulation, is oriented around market volume. Volume generates price discovery and liquidity, which are clearly beneficial. But the industry must recognize how certain activities related to volume can place stress on a market infrastructure ill-equipped to deal with it.

In other words, exchange software is now so complicated that it is not something a firm can do as a side show — it has to be the main event. 

Read more: http://www.businessinsider.com/why-goldman-sachs-2014-4#ixzz2zFx4Mt9a

ARM Holdings Raising Target Price $ 60

ARMH : NASDAQ : US$48.48
ARM : LSE
BUY 
Target: US$60.00 

 

COMPANY DESCRIPTION:
ARM is a leading semiconductor IP supplier to the diverse global
semiconductor market. ARM’s revenues are driven through a
licensing and royalty business model, with a majority of the
royalty sales driven by the mobile market including handsets,
smartphones, and tablets. ARM also supplies semiconductor IP to
the server, PC, and embedded markets and physical
implementation libraries and IP to semiconductor foundries.

Technology — Communications Technology — Semiconductors
INVESTOR CALL WITH MANAGEMENT; ARMV8
SHOULD DRIVE ROYALTY RATE EXPANSION
ACROSS MULTIPLE MARKETS, TIERS
Investment recommendation:

We participated in an open investor call on ARMv8 with Nandan Nayampally, ARM’s VP of Marketing for the CPU Group.
This note summarizes key points from the call. Since Apple’s A7 processor
announcement in September, the evolution of the 64-bit ARMv8 ecosystem
within the mobile market has progressed even more quickly than we had
anticipated. In fact, following Qualcomm and MediaTek both announcing
broad ARMv8 mobile roadmaps at MWC to include mid-tier smartphone
chips, we believe the path toward 64-bit smartphone/tablet ubiquity across
all tiers is well underway. Further, we believe ARMv8 opens new markets
including server and enterprise networking where ARM is less than 10%
penetrated today and ASPs tend to be much higher than in mobile. Given our
belief that near-term mobile royalty seasonality is well understood and
reflected in consensus estimates, we recommend investors accumulate ARM
shares ahead of reaccelerating royalty growth trends during 2H/14 and
2015. We reiterate our BUY rating and raise our price target to $60.
Investment highlights

 We believe ARM’s newest architecture, ARMv8, will both materially
increase the base royalty profile of ARM’s incumbent markets and open
new and equally large market opportunities including server and
enterprise networking where ARM has minimal market share today and
that should yield royalty rates at 2%+, or above the corporate average.
 In addition, given we believe ARMv8’s licensing applicability could be
broader than ARMv7 with the inclusion of these new markets, we believe
ARMv8 is still in the early innings of the licensing opportunity with
roughly 30 licenses to 20 companies today where ARMv7 has been
licensed 130+ times to roughly 80 companies.
 Our more detailed analysis of the ARMv8 architecture, including its
features and market applicability, and incremental licensing and royalty
revenue opportunities for ARM, is discussed at length in our September
19th ARM 64-bit white paper titled “ARM’s 64-bit smartphone coup:
Apple accelerates timing for higher royalties”.
Valuation: Our $60 price target is based on shares trading at roughly 38x our
2015 normalized EPS/ADS estimate and our royalty stream DCF.

APPLE Target $600

AAPL :

NASDAQ : US$526.24
BUY  Target: US$600.00

COMPANY DESCRIPTION: Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Wireless Equipment MWC MEETINGS AND FEBRUARY WIRELESS SURVEYS:

ANTICIPATE 2H/C2014 IPHONE MARKET SHARE GAINS 

Investment recommendation:

While a host of new Android LTE smartphones for C2014 were introduced at MWC, our meetings suggested the maturity of the high-end smartphone market with the lack of innovation in the new high- end Android models. Given the lack of differentiated Android smartphones, we believe Apple could gain market share of the high-end smartphone and tablet markets during 2H/2014 based on our belief new iPhones and iPads with larger screen sizes could create a strong upgrade cycle among Apple’s loyal base. In fact, our February wireless store surveys indicated the iPhone 5s was still the most aspirational smartphone and the top selling device in the U.S. and in many international markets despite seasonally slower sales trends. Given these trends, we increase our F’14/F’15 iPhone and iPad unit estimates. We maintain our BUY rating and raise our price target to $600.  Investment highlights  Following our MWC meetings and after evaluating feature sets for a host of new Android LTE smartphones introduced during the show, we believe Android OEMs have only added incremental improvements to their prior generation smartphones. For example, the announced Galaxy S5 is another solid product from Samsung but more incremental to the Galaxy S4 than a compelling upgrade. Please see our separate MWC report published today, titled ‘MWC Meetings focus on Internet of Things, China TD-LTE, smartphone innovation and IP licensing’ for additional details.  Our Feb U.S. surveys indicated the iPhone 5s was the top selling U.S. smartphone. However, our surveys indicated certain carrier upgrade policies were more strictly enforced and adversely impacted the near-term uptake of the increasingly popular early upgrade or smartphone leasing type of plans. Based on our surveys, we anticipate stronger take-up rates for these plans once current subscribers reach the end of their 24-month contracts. Given strong iPhone and iPad customer loyalty, we believe a new larger screen iPhone and iPad should create a very strong upgrade cycle in North America, especially given the timing of grandfathering in 2 year plans and globally given the popularity of larger screen smartphones and tablets.   Given these trends, we slightly increase our F2014/F2015 iPhone and iPad estimates resulting in our F’14/F’15 EPS estimates from $42.86/$47.56 to $42.92/$49.96. Valuation: Our $600 (was $570) price target is based on shares trading at 12x our F2015 EPS estimate.

Akamai Technologies BUY Target Price $56

AKAM : NASDAQ : US$47.68
BUY 
Target: US$56.00

COMPANY DESCRIPTION:
Akamai provides content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the Internet, ranging from live and on-demand streaming videos to conventional web content, to c-commerce tools. The company is headquartered in Cambridge, Massachusetts.
All amounts in US$ unless otherwise noted.

Telecommunications
ANOTHER SOLID QUARTER EXPECTED; VOLUME GROWTH TO HELP OFFSET REPRICE IMPACT
Investment recommendation
We maintain our BUY rating and $56 price target ahead of its seasonally-strong Q4 report that is also expected to be potentially impacted by the “catch up” contract repricing with its largest customer. Despite this well-articulated headwind, we continue to expect another solid quarter report as we believe the potential drag has been well reflected in investor expectations and that organic growth from favorable secular trends will more than offset the negative impact over time.
Investment highlights
 Solid CDN traffic growth expected – With the majority of the software downloads for the initial iOS7 and subsequent updates expected to have occurred in Q4/13, we expect the traffic growth for the Media Delivery Solutions business to be strong in the quarter. Combined with the continued proliferation of over-the-top video traffic growth, we believe the company will deliver another quarter with robust traffic growth of the traditional CDN business.
 Security, e-commerce continue to benefit – As the consumer holiday purchases continue to shift towards mobile and other online venues, we believe the growth in Akamai’s e-commerce business will remain strong as the company facilitates fast and secure online transactions with its massive infrastructure and optimization software. Performance & Security business will also benefit from the continued IT outsourcing trends as enterprises increasingly focus on performance and reliability in their cloud migration.
 Temporary speed bump provides opportunity – Despite investor concerns due to a large contract re-pricing, we believe Akamai remains a unique asset well positioned to benefit from multiple favorable secular trends (mobile, cloud, online video and security). As such, recent volatility creates an opportunity to accumulate its share, in our view

Apple Update

AAPL : NASDAQ : US$550.50
BUY 
Target: US$570.00

COMPANY DESCRIPTION:
Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
SOLID RESULTS WITH HEALTHY GROSS MARGIN, BUT SOFTER IPHONE SALES IMPACT GUIDANCE
Investment recommendation:

Apple reported December quarter sales at the high-end of its previous guidance range with EPS above its implied guidance. However, total sales were below our expectations due to softer than anticipated iPhone sales of 51M versus our 54M estimate. While we anticipated softer Q2/F14 sales with seasonally lower iPhone and iPad product sales post the Holiday quarter, Q2/F14 guidance was below our expectations. Specifically, while our estimates anticipated a sharp Q/Q decline in iPhone sales during Q2/F14 consistent with Apple’s implied guidance, we anticipated this decline from our 54M December quarter estimate versus the 51M reported. Given the anticipated sell-off in the shares tomorrow combined with our belief Apple has a stronger pipeline of new products for C2014 versus C2013, we maintain our BUY rating. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating but lower our price target to $570.
Investment highlights
 Apple reported December quarter sales of $57.6B and EPS of $14.50 versus our $58.4B/$14.27 and StreetAccount consensus estimate of $57.5B/$14.09. While iPad and Mac sales exceeded our expectations, iPhone and iPod sales were below our estimates.
 We believe Apple’s soft Q2/F14 guidance is consistent with our expectations for a roughly 25% sequential decline in iPhone units post the Holiday season. We also note on a year-over-year basis, Apple’s guidance does not include inventory builds for iPhones or iPads, includes greater revenue deferrals and unfavorable F/X to create tougher year-over-year comparisons for growth. We were impressed with stronger gross margin results and guidance than our estimates.
 Primarily due to our lower iPhone unit estimates and somewhat due to a sharper decline in our iPod sales expectations, we lower our F2014 EPS estimate from $44.85 to $42.86 and our F2015 estimate from $50.24 to $47.56.
Valuation: Our $570 price target is based on shares trading at roughly 12x our F2015 EPS estimate

Analog Devices

ADI : NASDAQ : US$49.92
BUY
Target: US$55.00

COMPANY DESCRIPTION:
Analog Devices designs, manufactures and markets high performance analog, mixed-signal and digital signal
processing integrated circuits (ICs) used in industrial, communications, computer, and consumer applications

Technology — Hardware — Semiconductor Devices and Related
Technologies
PRUDENT GUIDANCE AS CUSTOMERS CAUTIOUSLY OPTIMISTIC ON 2014
Investment recommendation
We maintain a BUY rating for ADI, given lower risk on declining consumer exposure, healthy dividend yield of 3%, and near-term cautious guidance. We continue to view ADI as a core defensive semi holding that is well positioned for communications infrastructure
growth.
Investment highlights
 ADI reported Q3/C13 (Oct) yesterday after the close. Revenues and EPS were $678.1 million and $0.62, compared to consensus estimates of $688.5M and $0.58 and our estimates of $687.5 million and $0.58. Sequential revenue growth in Automotive was partially offset by declines in Consumer coupled with flat sales in Communications and Industrial.
 Management guided revenue for CQ4 (Jan) to range from down 10% Q/Q to down 5% Q/Q or $610M to $644M ($627M at the midpoint)  and EPS of $0.44-$0.52 ($0.48 at the midpoint). This compared to  consensus estimates of $681M/$0.56 and our estimates of $680M/$0.57. Management expects sequential declines in Industrial, Communication, Automotive and Consumer coupled with the divestiture of the consumer microphone business.
Valuation
ADI’s price target of $55 is 18x our C2014 EPS estimate of $2.39 plus net cash of $12.09/share.

Workday Target $90

WDAY : NYSE : US$73.30
BUY 
Target: US$90.00

COMPANY DESCRIPTION:
Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
ANOTHER EXCEPTIONALLY STRONG QUARTER, LIKELY MORE TO COME. REITERATE BUY, $90 TARGET
While high valuation momentum stocks have taken a breather this quarter as
many investors locked in good YTD performance, Workday, the company,
continues to execute quite well. The firm is a large deal shop, selling to large
firms in big chunks. Our view is that the pivot point for the business will be
several reference customer successes with financials. If that happens around
summer 2014, Workday is very likely to see a cascading list of customers switch
from Oracle and to some degree SAP and perhaps a few Microsoft customers.
With the stock valued at an eye-watering 17x 2014E revenues, Workday will
need to deliver those kind of epic results for the stock to continue working. At
this point, we expect that to happen and for WDAY shares to continue to
bulldoze doubters and short-sellers.
 The trend continues: another material upside. Workday reported revenues, calculated billings, and FCF loss of $127.9M (+76% y-o-y), $154.0M (+99%) and ($9.7M), which were respectively $10M, $21M, and $23M better than
our estimates. Subscription revenues grew 82% in the quarter, and non- GAAP EPS loss of ($0.12) was $0.05 better than we expected.
 Color from the call. Workday now has more than 550 customers worldwide, with approximately 2/3 currently live on the system. The firm added 10 new Financials customers in the quarter, which was a company record.
 Outlook: mid-point Q4 revenues ~$7M ahead of consensus. Rolling forward WDAY’s subscription revenue upside and improved outlook, we have increased our F2015 and F2016 revenue estimates by $30M and $20M respectively, which implies ~50% revenue growth next year. We continue to expect WDAY to show FCF profitability at some point in 2H/F16.

TTM Technologies BUY Target Price $ 11

TTMI : NASDAQ : US$9.00
BUY 
Target: US$11.00

COMPANY DESCRIPTION:
TTMI is a leading global supplier of printed circuit boards focused on advanced technologies including advanced HDI, rigid flex PCB, and substrate. Headquartered in Costa Mesa, CA, TTMI has approximately 18,000 employees worldwide and is listed on the Nasdaq. TTMI operates 15 specialized factories in the US and China.

Technology — Hardware — Semiconductor Devices and Related
Technologies
UPBEAT MANAGEMENT
Investment recommendation

Management continues to expect higher utilization rates to drive near term improvements to gross margin, while divestiture and plant closure should structurally improve margins for the long term. For Q1, we expect upside to estimates on iPad Air strength and a conservative reserve, while Networking weakness was captured in guidance despite recent concerns stemming from Cisco’s outlook. We are reiterating a BUY rating and $11 price target.
Strong iPad Air boosting PCB suppliers
For Q4, supply chain conversations indicate strong demand for iPad Air is resulting in upward revisions to forecasts for PCB suppliers. Further, we believe production for the retina version of the iPad Mini is likely to pick up in Q1, following constrained production levels in Q4, potentially offsetting some of TTMI’s normal negative Q1 seasonality.
Cautious Cisco commentary not incremental to TTMI’s outlook

We believe TTMI captured Networking weakness in its Q4 guidance. The company has very little exposure to set top boxes and is still seeing good demand in the high end of networking (advanced routers and data center). TTMI doesn’t participate in federal so it is not seeing any impact from the government shutdown, while the guide from the earnings call captured a softer Asia wireless infrastructure, with Networking overall guided down for Q4.
Inventory reserves look conservative
We believe upside to margin expectations is possible if the $3M of the warranty claim taken as reserves against future claims turns out to be high. Most of the products these boards shipped into were sold last

Atmel Corporation

ATML : NASDAQ : US$6.58
BUY 
Target: US$9.00

COMPANY DESCRIPTION:
Atmel Corporation designs, develops, manufactures and sells a broad range of advanced logic, microcontroller,
nonvolatile memory, radio frequency (RF), and capacitive touch solutions. The company’s products are designed for
use in the automotive, communications, computing/storage/printing, consumer electronics , industrial/military/aerospace, and security end markets

REITERATE BUY ON MARGIN EXPANSION
Investment recommendation
We reiterate a BUY ahead of what we believe is likely to be strong gross margin expansion. Q4 gross margins are guided up Q/Q due to higher utilization rates and continued cost reduction efforts. Management expects gross margins to continue to improve in 2014 as utilization improves; they control operating costs and use up the higher cost inventory from the take or pay foundry agreements. We are slightly adjusting our estimates and maintain a $9 target.
Investment highlights
 ATML reported Q3/13A (Sep) after the close. Revenues and non- GAAP EPS were $356.3 million (+2% Q/Q) and $0.09, compared to our inline estimates of $357 million and $0.09. Revenue was slightly below the mid-point of guidance ($348M to $365M)
 Management guided revenue to be in the range of $340 million to $364 million ($357 million mid-point), compared to consensus estimate of $365 million and our estimate of $359 million. Management expects MCU to be flat Q/Q with maxTouch down low single digits and core MCU up single digits, ASIC to be down low double digits, Memory down mid to high single digits and RF & Automotive up low single digits.
 Atmel’s board authorized an additional $300M to the existing $700M stock repurchase program, of which ATML has repurchased approximately $636.3M (72.1M shares) of its common stock

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