Whyman writes that he is seeing "the first signs of improving tech demand," and that tech-related economics are looking better. He notes that near-term conditions looks weak, and Q4 results are likely to be weaker than typical seasonal levels, and he thinks 2013 estimates will come down as earnings reports roll in starting later this month. But he sees that "an improving trajectory for '13," along with low inventory levels and a sector valuation below the market multiple make him positive on the group.
Whyman advises a bar-bell approach: he suggests overweighting secular growth names like Salesforce.com, Sourcefire and Google, while avoiding "legacy bounce" stocks like Nokia. He advises being selective in maturing big cap tech, sticking to companies - like EMC and Oracle - where there is less secular risk, and where record margins are creating record cash levels. He sees increased buybacks and dividends from that group.
Other key trends:
- In communications equipment, carrier spend should be "less bad."
- Software will be driven by the SaaS trend.
- Semis should improve with better performance by China and the consumer sector.
- The hardware sector will feel the impact of slowing smartphone growth in the second half. Growth will shift "up the stack" to mobile apps and services.
- In the enterprise, budgets are shifting to new areas. He thinks business spending is "a bit better," noting that businesses have the financial ability to spend, but lack confidence.
- Cloud computing accelerates.
- Big data potential is real, but spending is limited.
- Cyber security spending in focus; most systems are "fundamentally insecure."
- "Biggest risk is economic improvement stalls and leads business to hold off IT spending and consumer tech to stay stalled."
- Key risks: PCs fall into deeper secular decline; potential for major "cyber event"; wage increases in China pressure tech costs and margins.
Here's a brief look at some of ISI's Buy-rated stocks:
- EMC: "Single best positioned enterprise infrastructure co. to serve cloud."
- Apple: "Unique combination of growth and value. AAPL continues to gain share in large markets and iPhone/iPad penetration has plenty of runway ahead."
- Juniper: "Better carrier capex spending combined with multiple product cycles and opex discipline drive ~70% EPS growth in CY13."
- Liberty Global: Operating cash flow growth "could accelerate to +6%-7% from +4% in ’12."
- Liberty Media/Sirius XM: "Post-Starz spin, ~85% of the value of LMCA is 50% stake in SIRI, where stock buybacks are commencing and strong auto sales should buoy net adds."
- Comcast: "Could experience positive video net additions in Q4 2012 & Q1 2013, lifting sector sentiment. Investors looking forward to potential NBC buy-in EPS accretion."
- Broadcom: "Benefitting from the near term growth in smartphone units as well as improvements in connectivity and baseband ASPs starting in early 2013."
- Maxim: "Leader in integrated power management solutions critical to mobile devices; Strong position in smartphones (~25% of sales) esp. at Samsung (Galaxy S III, Note 2)"
- Intel: "Consensus view is that PC market is structurally impaired. Weak macro and product cycle timing (Win 8) are likely a factor, depressing sentiment and valuation."
