The Wolfe Tech Universe rose by 5.5% compared with the S&P 500’s 2.5% increase. Semis rebounded by 7.5%, still the worst performing sector over 12 months but only trailing Software over 3 months. In general, underperformers bounced, such as Renesas (+21%), Universal Display (+15%), and Micro Focus (+10%). Rightmove and Infosys are now overbought; Xiaomi is oversold. Short interest in Lam Research, Broadcom, and Nvidia jumped higher (p4). We lean toward the skeptical side regarding the rally.
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IDC published worldwide PC shipment data today (01/11/19) after the close signaling a market units decline of 3.7% YoY in C4Q and full year decline of 0.4%. The sequential decline in the 4Q holiday quarter was the largest in six years. IDC pointed to sell through challenges in the quarter as a result of anticipatory inventory stockpiling in 3Q. In addition an uncertain Chinese business environment should cause buying pressure in the future, partially offset by the effects of the Windows refresh cycle. We see potential downside to our numbers for HP In. in F1Q19 and Dell in F4Q19 as a result of lower industry volumes.
We initiate on the newly public Dell Technologies with an Outperform rating and $58 price target. Despite near-term earnings challenges and heavy debt, the equity looks undervalued assuming good execution. Management appears up to the task of running a technology conglomerate; VMware remains the most attractive piece.