32 BARRON’S March9,2020
TECH TRADER
H
idden within the
volatility and wor-
ried headlines this
past week were
glimmers of hope
from tech land: So
far, the coronavi-
rus-related guidance reductions from
tech companies have been relatively
subdued.
Consider the announcements from
chip makers: On Tuesday,Qorvo
(ticker: QRVO) lowered its March-
quarter sales guidance by $50 million
to $770 million. Qorvo makes radio-
frequency, or RF, semiconductors,
which enable smartphones to commu-
nicate with wireless networks.
NXP Semiconductors(NXPI),
Skyworks Solutions(SWKS), and
Marvell Technology Group
(MRVL), each announced similarly
modest impacts from the virus.
So far, most of the guidance reduc-
tions have related to falling demand in
China, but there is now the possibility
that the worst is over there. Foxconn,
which manufactures Apple iPhones
among many other products, said this
past week it expects factory production
to improve by the end of the month.
“We are currently of the opinion
that business conditions are steadily
improving in China, with both supply
and demand improving as each week
passes,” Piper Sandler analyst Troy
Jensen wrote on Wednesday.
To be sure, business trends and
outlooks could still deteriorate if in-
fections accelerate around the world,
but investors should begin to think
about buying opportunities.
The coronavirus won’t likely be the
end of the world. (We hope.) Yes, mar-
kets don’t react well to uncertainty, but
over the long term stocks are valued on
earnings power. We could see a couple
of difficult quarters or even a year of
subpar results, but either of those sce-
narios should not have a significant
effect on the fundamental value of
companies. Once investors can more
comfortably assess and handicap
downside risk, markets could stabilize
faster than expected.
Here’s how to find opportunities
amid the selloff:
First, avoid companies with exces-
sive debt on their balance sheets; ex-
treme short-term pain could imperil
these otherwise healthy companies.
Companies with potential bankruptcy
By Tae Kim
Thus far, chip companies are talking about
a relatively modest impact from coronavirus.
“We’relookingatthiseveryday,”says
Lam Research’s CFO. “Customer demand
is still very strong.”
Olly Curtis/Future/Getty ImagesTech Looks Better
Than You Think
risk aren’t worth the analytical head-
ache either. Leave that to experts.
For now, the safest practice would
be to look for companies where cash
exceeds debt. Then it’s about identify-
ing large stock slides among busi-
nesses levered to an eventual rebound
in confidence.
After a sharp drop,Uber Technol-
ogies(UBER) fits the bill.
The ride-hailing firm had $10.9
billion in cash at year-end. Its shares
have fallen 22% since rallying nearly
10% on Feb. 7, the day after it reported
better-than-expected financial results
and said it now expected to be profit-
able by the fourth quarter of this year.
Uber CEO Dara Khosrowshahi said
at a technology conference on
Wednesday that he is “confident” the
company will hit its goal of being prof-
itable this year, based on Ebitda, or
earnings before interest, taxes, depre-
ciation, and amortization. Khosrow-
shahi noted countries with the biggest
coronavirus issues represent less than
1% of the company’s business. Uber’s
airport-related segment, which ac-
counts for 15% of company revenue
has slowed some, he said, but it was
nothing “alarming.”
On Tuesday, Needham analyst
Brad Erickson reaffirmed his Buy
rating for Uber. “We think coronavi-
rus concern has created a very attrac-
tive buying opportunity,” he wrote.
“We acknowledge the airport and
related rides could be hurt in the near
term...We’re buyers and add Uber to
our conviction list.”
Another company to consider is
Lam Research(LRCX), which makes
essential equipment for chip makers.
Lam’s chief financial officer says the
company hasn’t seen a significant neg-
ative impact from the outbreak.
“We’re looking at this every day,”
CFO Doug Bettinger said during a
visit toBarron’sthis past week. “We
have not seen any change in customer
demand as a result of this. Customer
demand is still very strong.”
Lam is a key arms dealer for the
major global chip makers likeSam-
sung Electronics(5930.South Korea)
Micron Technology(MU),Taiwan
Semiconductor(TSM), andIntel
(INTC). These companies need to buy
Lam’s bleeding edge chip-making
equipment to compete. Being one step
removed from consumer demand is
good news for Lam and should reduce
volatility in its business.
This past week, Lam announced
more shareholder friendly policies. It
now plans to return 75% to 100% of its
free cash flow to shareholders, up from
50%. Bettinger alsovowed toincrease
its dividend on an annual basis. Lam
Research stock is down about 15% over
the last three weeks; it now yields 1.6%.
A