Equity Research and Investment Analysis

Consumers have quickly adopted mobile connectivity to the Internet through smart phones and netbooks, and wireless carriers have been all too happy to sign them up for a data plan. However, the demand for bandwidth has grown recently far faster than the network providers can expand their coverage. The immense popularity of smart phones like Blackberries, Apple's (AAPL) iPhone, and Motorola's (MOT) Droid is already putting a strain on the networks which results in dropped calls, non-functioning applications and other undesirable outcomes.

Revenue at Motorola (MOT) in the fiscal fourth quarter came in well below expectations as the new Droid failed to stop the bleeding for the world's former number one cell phone maker. Analysts were expecting to see sales of $5.96 billion in the quarter, but actual results come in well below that at $5.7 billion a nearly 20% decline from a year ago. Clearly, cost-cutting was the key reason why Motorola was able to best Wall Street's earnings expectations, and the market is selling off shares by 11% in morning trading.

The negative sentiment swirling around Research in Motion had brought the stock very much out of favor with the market. RIM has woefully underperformed the competitors mentioned earlier over virtually any timeframe in the past year. At Ockham, we continue to believe that RIM is Undervalued, and even after the run-up in after hours it presents an attractive opportunity to investors.

We agree with Cramer that this is a stock that investors should more readily buy than sell. The Citi downgrade was piling on with the bad news and the resultant drop should be viewed as an opportunity.

The market and some analysts took a very pessimistic view of the earnings release, but having the time to digest the numbers the Street has come around; although, even the positive sentiment among analysts has not moved the stock higher. RIM is still growing rapidly, albeit not at the same breakneck pace of yesteryear. However, we have to agree with the analysts that Research in Motion is quite attractive at the current price levels.

The market sent a clear message of displeasure to Research In Motion (RIMM) after reporting earnings on Thursday afternoon, sending the stock sliding as much as 17 percent on Friday. At Ockham, we see a lot of value in this company that--despite what you may have heard--is still growing sales and earnings rather quickly.

Assuming the CLIQ is a huge success, Motorola will still be just at break-even profitability or not too much better. The smart phone market is crowded and becoming more so by the month with established players releasing new phones and new competitors like Dell (DELL) and Garmin (GRMN) still on the horizon.

There is no doubt that Motorola has missed the mark on its smart phones up until this point, which does not mean that the company cannot recover but it does make it far more challenging. Earnings have not been impressive and have bounced around break even since 1Q 2007; about the only thing that investors could count on from Motorola over this period is declining sales performance.

Cramer was quick to point out that this is a speculative call because of the size of the company and the rapid appreciation in shares, but according to our valuation methodology this spec play has a lot of value as well. Sales growth has continued to be impressive, even through the downturn in the economy and the long term trends in gadgets seems to favor any chip maker that can continue to make them smaller and faster.

Research in Motion stock is getting clobbered today as the market is digesting profit and revenue warnings from the company today. However, the company continues to gain subscribers and will continue to be one of the best phone makers in the marketplace. We are not scared by the warnings today, and see this dip as an opportunuty

The old adage tells investors "the time to buy is when there is blood on the streets", and today's 22% decline and at least three analyst downgrades certainly qualifies for such a situation. We are contrarian investors at heart and see the market's response to this report as a little overkill. Any better execution for Brocade in upcoming quarters will likely be met with significant price appreciation. Based on the historically normal ranges of price-to-sales and price-to-cash earnings, we believe Brocade could easily achieve a price of $10 based on the current fundamentals.

Our methodology is value-oriented and our most important factors come from the fundamental strength of the stock, which is plainly obvious from looking at our overwhelmingly positive historical valuation chart. However, we agree with Cramer that the long term prospects for the business model are distressing, and this could be the dreaded value trap. At the very least, it appears the company will need to reinvent themselves which can often be long and arduous process. Although this stock looks like a value investors dream, we cannot advise holding this stock for the long term.

Tellabs (TLAB), which sells its products and services to telecom providers to help them manage increased traffic on lines, reported its fiscal fourth quarter results on Tuesday morning and their stock surged nearly 13%. The market is shaking off a slight revenue disappointment because there were other positive developments in Tellabs' report. For one, the company has initiated a quarterly dividend of $.02 per quarter which, based on yesterday's close, would imply a yield of 1.3% right off the bat.

Intel Corp. (INTC) delivered a tremendous fiscal fourth quarter last week, but the stock gapped down nearly 3% on the following day and has yet to recover. This head-scratcher of a situation has CNBC's star pundit Jim Cramer felling bullish on Intel, and he even said that he's increasing his exposure to Intel in his Charitable Trust if it falls below $20.

IBM's fourth quarter demonstrates that the company is performing quite well, and that could be a great thing for the technology sector going forward. Big Blue is managing impressive earnings growth and margin expansion and they deserve credit for that. That being said, IBM's story is well known to the market and it is no longer a great buy at these price levels. We would advise investors to look to some of the lesser known success stories in the tech sector to take advantage of this trend.

Makers of storage networking equipment, Emulex Corp. (ELX) said that they are having a better fiscal second quarter than analysts had expected. In fact, the new earnings guidance of 16 or 17 cents per share is well above their previous guidance of 10 to 12 cents per share. Furthermore, revenue is now expected to be about $107 million compared to previous estimates of about $90 million. The great performance was driven by strong demand for its products which connect computers and servers to remote storage facilities.

These are exciting times for technophiles as everyday technology becomes more and more integrated into life. In the first few days of the year techies are treated to a major unveiled of Google's (GOOG) much anticipated Nexus One handset. Furthermore, a feast of new gadgets and gizmos will be on display later this week at the annual Consumer Electronics Show or CES for those in the know. There is a buzz and an excitement in the air surrounding the tech sector, which begs the questions: Could tech stocks repeat the impressive run they enjoyed over the last year?

The negative sentiment swirling around Research in Motion had brought the stock very much out of favor with the market. RIM has woefully underperformed the competitors mentioned earlier over virtually any timeframe in the past year. At Ockham, we continue to believe that RIM is Undervalued, and even after the run-up in after hours it presents an attractive opportunity to investors.

Google is currently within its historically normal valuation ranges, yet if it were able to achieve the midpoint of these ranges it would imply a price for GOOG of $790. Google is still growing rapidly but may not be able to command the same premium from the market as it did as a less mature company. Clearly, we are still optimistic about Google's long term prospects just like Cramer; however, this not news to the market and there are plenty of cheaper stocks.

As November sales totals demonstrate, these are difficult times for the video game industry as a whole. However, value seeking investors could do worse than picking some unloved players in this market that continue to perform adequately through the challenges.