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Ericsson, Qualcomm, Cavium May Weather the Storm


But pervasive market negativity driving prices down.


Ericsson (ERIC) shows it's still able to deliver in tough conditions. However, given this report, we saw little pin action yesterday. In my view, Ericsson benefits currently from a couple key trends:

First, it was one of the first companies to really get knocked around in the carrier spending department (in the fall of 2007), and its stock has been trading under $10 for most of this year. Call this managing expectations and taking the pain: Cisco (CSCO) did the same thing in late 2007.

Second, Ericsson is very strong in the wireless deployment space (3G strength,
coming online in a big way soon), as well as edge routing (Redback Networks was added to the Ericsson mix for edge-routing prowess). This effect makes Qualcomm (QCOM) one of the few tech names you should own ahead of their upcoming quarter.

We're still in a massive tug-of-war between pervasive market negativity and how much of that negativity is priced into stocks at this point. PMC-Sierra (PMCS) was awfully cheap before they reported, and it didn't help much. But it also doesn't have a lot of large institutional sponsors.

So while a Texas Instruments (TXN) may feel some pain -- like Linear Technology (LLTC) did when their industrial-chip sales were put on "credit holds" -- names like Net Logic (NETL), Cavium Networks (CAVM), EZchip (EZCH) and Integrated Device (IDTI) might weather the storm better (if their sales hold up), or experience much shorter delays in business disruption.

Additionally, from a stock-price perspective, they've suffered just as much damage. The pain has been inflicted on beta more than it has on known fundamentals, at least at this point. There also seems to be a growing consensus that traditional routing may hold the roots a bit better than many other areas over the next couple quarters.

Texas Instruments will likely hold the trend line even if they lower guidance. Anything below $16 on Texas would be a worth a long-side shot post-report.

Cavium also reported last night, and, to be perfectly honest, had I seen PMC-Sierra better respond to their report (which I thought was a reasonably good report, given the backdrop). I would probably be long some Cavium ahead of this quarter. Should Cavium get the woodshed treatment post-report, I'll get long that name again.

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No positions in stocks mentioned.

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