Among the biggest losers in Wednesday's early trading are
Globecomm Systems (Nasdaq: GCOM)
Xyratex (Nasdaq: XRTX).
As the need to quickly access ever-rising streams of corporate
data becomes a central mission, a number of companies providing
data storage have been able to generate very impressive growth. For
Fusion IO (
which I profiled here
, is on track to boost sales 45% in fiscal (June) 2013 to
around $520 million. But for the number of winners this sector is
producing, there are also losers.
, which helps make enclosures and other equipment for some leading
data storage providers, is decidedly not part of that upswing. The
company just announced that third-quarter sales (ended August) were
likely around $275 million. That's far below the previously guided
range of $313 million to $373 million. That's also well below the
$362 million garnered in the year-ago quarter.
The company noted that major customers (likely including top
NetApp (Nasdaq: NTAP)
) have been reducing orders, right at a time when the broader
industry is seeing a big spike in orders. According to analysts at
Cantor Fitzgerald, NetApp may be giving more business to
Jabil Circuit (
, and less business to Xyratex.
Frankly, the 11% drop in this stock today doesn't look to be
deep enough. Yes, the company will still likely earn at least $1.50
a share in fiscal (November) 2012, (compared to the current
forecast of $1.78 a share). Yet by fiscal 2013,earnings per share
might be sinking quickly. So don't be lured in to what looks like a
value trap. This is a "don't touch" stock until demand has at least
stabilized. For now, management only notes that the current quarter
looks pretty dismal as well, likely setting the stage for a very
disappointing fiscal 2013.
The early signs of a smaller defense department
Shares of satellite communications firm Globecomm Systems are
losing more than 19% today as the company warns that revenues from
Department of Defense (DoD) contracts are likely to shrink in the
quarters ahead. Larger defense contractors, which operate a range
of long-term contracts, aren't yet seeing the impact of a
budget-constrained DoD, but smaller vendors, such as Globecomm,
Some analysts suggest that the near-term DoD slowdown will be
temporary, and once steps are taken to re-write the policies
with the looming fiscal cliff
, then the DoD will loosen up its purse strings. Don't you
believe it. It is almost impossible to see how the DoD will avoid
the cuts that many other sectors of government will have to absorb
in coming years. So Globecomm's warning is more of a reflection of
the "new normal" and not merely a 2012 aberration.
Action to Take -->
Both of these stocks are taking a big hit today, though they could
keep on dropping as their key investors start to unwind their
positions in coming days. These kinds of stocks are only appealing
when they appear to have hit bottom in terms of forward revenue
andprofit estimates. That cycle has yet to play out.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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