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Some tech firms still going strong



October 24, 2008 – Comments (1) | RELATED TICKERS: FFIV , MXIM.DL2 , EMC

Things are blowing up on Wall Street, but as I've repeatedly said, there are companies with good fundamentals that are getting caught up in a wave of general selling. A lot of that selling probably has to do with hedge funds deleveraging or imploding. I've previously highlighted some industries (MLPs, pharma, some consumer goods, some financials) that are less cyclical and are worth looking into. The tech industry is a bit more cyclical, but I still think there are some good-performing names. Here are a few that I own.

F5 Internet Networks is one of them. The stock has actually gained in the last couple days after announcing earnings. The company has no debt and a healthy cash balance. Although competition is heating up, I think F5 has what it takes to continue taking market share. 

I once  owned Maxim Integrated Products and pitched it in CAPS. I sold the stock at a small loss since I was spooked by their accounting issues. However, Maxim is now current on their SEC filings, and sells at $13 a share. Analog circuits are a bit of a specialized design field and Maxim, Linear Tech (LLTC), Analog Devices(ADI) and a few other firms have carved out a niche. Maxim's core business to date has been high performance analog chips. HPA chips typically have long design lives and don't require state of the art fabs - contrast this to the CPU space, which does require state of the art fabs and whose designs go obsolescent every year. Maxim is also expanding into consumer electronics, leveraging its considerable design capabilities. Linear Technology concentrates on higher margin products, which will limit its future growth. Maxim has what it takes to produce considerable growth in the consumer electronic space. Additionally, the stock is yielding 6%. I'm not buying this as a dividend play, though.

EMC has been beat up a bit in the past few months. However, it still dominates the storage segment of the market. There is a secular trend towards digitization of records. Switching costs are high and the hardware requires considerable reinvestment. EMC has an extensive base of installed systems and has significant R&D spending, which many competitors can't match.

While 90% of their revenue comes from the core storage business, about 10% comes from VMWare. EMC has 80+% ownership of VMW. The subsidiary got way ahead of itself and rocketed up to a high of $125 after its IPO, but later came down to earth. I'm not quite convinced VMW is worth buying on its own right now. I have concerns over significantly increasing competition and management turnover after EMC ousted VMW's visionary CEO, and many key personnel followed her out the door. VMW competes with companies like Microsoft in its core business of virtualization software.  Microsoft may be large and unfocused, but its resources are considerable. Also, VMW has a number of open source competitors who are expected to significantly improve their software within the next 1-2 years. VMW has stated an aim to move into virtual data centers and cloud computing. However, the latter is such a new field that visibility into its commercial prospects isn't good.

Either way, EMC is also a buy today. 

1 Comments – Post Your Own

#1) On October 24, 2008 at 4:23 PM, goldminingXpert (28.66) wrote:

Good companies make great shorts now. Take CIEN which is a buyout target and has loads of cash. All these positives caused an irrational run in the stock price today, equaling a beautiful entry on some put options. Everything must be viewed from the short side of the spectrum. EMC's VMW unit reports great numbers, EMC rises for a few hours and then crashes. All that good news amounted to was a GREAT short selling opportunity. Don't be a hero and pick out which knife you want slicing your hand off--instead start throwing the knives!

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