Updates

 

Position Changes
FTR +1 to Long 3
Looks like we die by the sword and live by the sword- fresh off of our AVGO commentary this morning we are the beneficiaries of a cheap debt financed acquisition by Frontier Telecom of AT&T’s wireline assets in the state of Connecticut.  However, there are some important differences in terms of the criteria we went through on AVGO yesterday- namely they are almost all heading in the right vs wrong direction.  Add the fact that the deal is far more accretive, and of course one would expect a more muted positive reaction in the shares.  FTR shares nearly touched $5 post another strong quarterly report, backed off dramatically for reasons we are still not sure of, and this AM are up less than 10% on a deal that should have them up, on an AVGO equivalent basis, at least 25%.

 

Position Changes
COMM +2 to long 3
RKUS + 1 to long 1
TWER +1 to long 1
Increased Conviction
ERIC Short 3
BRCM Long 3
FNSR long 3
EZCH short 2
Last week was bookended by a pair of analyst days that while closely interconnected in the networking/infrastructure sector yielded markedly different results and interpretations.  We focus on the implications of Tuesday’s BRCM analyst day and Friday’s CSCO analyst day , in addition to touching on a number of datapoints and observations across the TMT space.  Foremost among those are the continuing ripples from the official granting of carrier LTE licenses in China a few weeks ago, in addition to  our own view that 2014 could finally be the year of small cells in the US , and their combined effect on our view of the wireless infrastructure market.  But first to the discussion of the analyst days.
If investors were confused by AVGO's recent $400M cash purchase of InP optical components supplier Cyoptics, this morning's $6.6B bet the company, highly levered purchase of LSI should have sent them into a tizzy.  Somewhat predictably, however, the reaction appeared focused overwhelming on reward rather than the many potential risks.  AVGO's shares were up 10% today, ostensibly due to comments around significant earnings accretion (driven entirely by cheap debt, which sounds familiar) or perhaps investors were indeed secretly champing at the bit waiting for AVGO to make a highly levered bet in enterprise storage.

 

Increased Conviction
CIEN short 2
FNSR long 3
CIEN's FQ4 report and outlook this AM demonstrated the uneven financial execution that has kept us short 2 the name despite strong positive demand trends in 100G optical transport and broad tailwinds from an overall capex perspective.  Despite posting some top line upside in Q4, CIEN reported a significant bottom line miss ($0.16 non GAAP EPS vs $0.24 estimates) with guidance much weaker on the bottom line with EPS around breakeven vs $0.18 estimates and top line in line with seasonallly weaker trends though still up double digits over last year.
After another round of solid beat and raises from both companies in separate reports yesterday, remaining questions look to be centered around sustainability and valuation with solid cases for more robust valuation levels for both names.

TMT Earnings/Datapoints Review and Preview – Black Friday III- Position Changes AMBA AMD INTC NVDA EBAY HPQ

December 2, 2013

  Position Changes AMBA -1 to long 1 AMD +1 to long 2 INTC +1 to short 1 NVDA -1 to flat EBAY +1 to long 3 HPQ -1 to short 3 Increased Conviction MSFT Long 3 AMZN Short 3 CRM Short 1 FNSR Long 3 After a few weeks in remote outposts, one in [...]

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SNAFU- CSCO market reaction; CTXS AMZN

November 14, 2013

  After careful consideration, it did seem to me that SNAFU was slightly better than FUBAR (both acronyms by the way, not abbreviations, NSA, for example, is an abbreviation, NASA is an acronym) to describe what’s going in the market today – Major market indices are flat, including the NAS, in response to CSCO instead [...]

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CSCO Earnings/Implications FNSR BRCM EZCH HPQ

November 14, 2013

  CSCO’s historically weak guidance, a huge miss from up 4% y/y expectations with revenue guidance down 9% mid range, will sorely test this market’s ability to ignore reality.  Not that they won’t try, analysts on the call, perhaps literally in a state of shock, are already contorting, attempting to blame the NSA, etc when [...]

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CSCO Preview- Taking Profits Into Report Based on Portfolio Position

November 13, 2013

  Position Changes CSCO -2 to flat After two years on the long side of the house in varying degrees, starting in the July quarter of 2011 at around the $15 level, our move to the sidelines on CSCO today is really a function of one thing- given our positioning across the rest of the portfolio, [...]

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FTR Earnings/Implications ADTN

November 6, 2013

  FTR (long 2) is trading up nicely today on the heels of another solid report after the close yesterday featuring the two key elements that brought us to the story in our 10/14 Q3 Update (1) strong broadband subscriber net additions, totaling 27K in the quarter and 85K YTD, compared to just 18K through [...]

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