Scott Moritz s Tech Focus: Wireless Ship Coming In for Amdocs

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1 In This Issue Page 1 Page 3 Page 6 Scott Moritz s Tech Focus: Wireless Ship Coming In for Amdocs Jordan Kahn s Model Portfolio: More Gold Surfaces in Techland Portfolio Performance Scott Moritz s Tech Focus: Wireless Ship Coming In for Amdocs With wireless number portability looking more and more like this year's Y2K bug, there are two options. Either we can freeze in utter panic, or we can take advantage of the turmoil and look at some stocks poised to cash in. Just as in 1999, our hopes ride on technological ingenuity. Or, more precisely, some good software. Whether thousands or even millions of cell-phone users end up changing telcos starting Nov when customers can change service providers while hanging onto their hard-won phone numbers -- it seems clear that the service providers will need to turn to the professionals for help. And trusted supplier Amdocs (DOX:NYSE) looks to be the best-positioned of all the software shops. Counting five of the six national wireless telcos as its customers, Amdocs has some analysts dubbing it the Bellcore of wireless. By way of explanation, Bellcore, now called Telcordia, was the standards body that every phone company long used for such things as blessing network technology and doling out phone number allocations. For its part, Amdocs is the leader in so-called back-office telecom software. This means it designs customized billing and internal customer-service programs. The Chesterfield, Mo., tech shop has already benefited from what analysts call defensive spending by wireless companies hoping to get ahead of customer management efforts before number portability kicks in. That trend is reflected in the company's three straight quarters of revenue growth. And last week Amdocs raised guidance, calling for sequential quarterly sales growth of 2%. Analysts project the company will make $1.04 a share next year. With the stock trading at $25, that's a not-unheard-of valuation of 24 times forward earnings. The company's steady growth and solid earnings have helped encourage investors who have pushed the stock up more than 300% in the past year. But bulls say there's more juice ahead for this story. (Continued on the next page) PLEASE SEE IMPORTANT LEGAL DISCLAIMER ON LAST PAGE 1

To keep current customers as well as attracting new users, telcos will likely pour more investment into customer relationship management software, or CRM, says Marianne Wolk of Susquehanna Financial

2 To keep current customers as well as attracting new users, telcos will likely pour more investment into customer relationship management software, or CRM, says Marianne Wolk of Susquehanna Financial Group. She doesn't rate stocks but considers Amdocs one of the brighter prospects in the field. CRM offers database programs that can help telcos identify big spenders and small spenders and pitch their services accordingly. Proponents of CRM technology say the profiles help companies with the customer retention efforts that will grow even more important in the new era of wireless free agency. Wolk says that while Siebel (SEBL:Nasdaq) is the teetering giant in the telecom CRM business, Amdocs has been gaining momentum. She predicts CRM sales, which are about 10% of 2003 revenue, will grow 40% in 2004 as Amdocs spreads beyond its billing and customer service applications. Wolk is also encouraged by a couple of potential deals in the pipeline. Notably, Amdocs is considered a favorite for a much-anticipated consolidated billing effort at Verizon (VZ:NYSE) that's due to be awarded mid Also, you may recall that last week a glitch at AT&T Wireless prevented customers from activating their new global systems for mobile, or GSM, phones. The problem persisted early this week, resulting in angry finger-pointing between AT&T Wireless, the tech solutions team at Deloitte & Touche and the folks at Siebel, whose software was said to be responsible for the failure. To Wolk and other industry observers, the glitch may have helped enhance Amdocs' position in the race for an upcoming contract at AT&T Wireless. Amdocs fans will point out that AT&T Wireless is the only national player that is not yet an Amdocs client. Number portability may not live up to some of our wildest expectations. But with excitement levels this high, playing the Amdocs hunch might not be a bad bet. Amdocs -- One Year 2

3 Jordan Kahn s Model Portfolio: More Gold Surfaces in Techland Issue 83: Tuesday, November 11, 2003 Fundamentals: Although the action in stocks was somewhat lackluster over the past week, the market did receive several positive data points that bulls can hang their hat on, led by Cisco s (CSCO:Nasdaq) quarterly results. The networking giant handily beat earnings and revenue expectations, which got the market excited about the potential turn in the telecom market. CEO John Chambers said on the conference call that the company saw strength across its core switching and routing businesses, and he said it's clear that an economic recovery is under way, although he hedged his comments a bit by questioning the duration of the recovery. Semiconductors also delivered some hope, as the Semiconductor Industry Association raised its 2004 sales outlook last week to a projected growth rate of 19.4% from a previous forecast of 16.8%. The trade group said that demand, led by a recovery in Japan and Asia, is being driven by stronger shipments of cell phones, PCs and servers. Those two nuggets were confirmed by Advanced Micro Devices (AMD:NYSE) and National Semi (NSM:NYSE). At its analysts meeting, AMD said that sales and profits would be higher in the fourth quarter due to higher expected sales of microprocessors and flash memory. And National Semi increased its revenue outlook to 7% to 10% (from 4% to 7% previously), citing better trends in its power management and wireless business. So there is evidence of plenty of strength in techland. Outlook: bullish (+1) Technicals: The technical backdrop remained solid, as the Nasdaq made a new high Friday at Granted, it quickly bounced back off that level, but I expect it will soon find support and come back to challenge the 2000 level. The market posted two accumulation days last week and one day of distribution. Volume was very strong also, with four consecutive days when Nasdaq volume exceeded 2 billion shares. Participation has been broad, also. A week-ago Monday, the Nazz posted more than 500 new highs, and the 10-day moving average of new highs/new lows is currently at a new high. The momentum indicators are the only chink in the armor. Both the oscillator and stochastics I use are flashing overbought. That means the best course of action is likely for the market too work off this condition via a few mild declines or just some sideways consolidation. That would allow the market to regain some momentum for when it s ready to make a run at new highs. Outlook: bullish (+1) (Continued on the next page) 3

Sentiment: We are (finally) beginning to see a little movement in the sentiment indicators. The adviser surveys are still mostly bullish, as Chartcraft.

4 Sentiment: We are (finally) beginning to see a little movement in the sentiment indicators. The adviser surveys are still mostly bullish, as Chartcraft.com s Investors Intelligence spread narrowed slightly to +35 (56% bulls, 21% bears), and the bulls on Market Vane are back at 58%. On TheStreet.com surveys, the results are mixed with bulls exceeding bears slightly on RealMoney (39% bulls, 35% bears) and vice versa on Street Insight (40% bulls, 51% bears). The 21-day put/call ratio declined to 0.61, a level that hasn t seen since late June, but that doesn t mean investors are complacent. First, consider the short-sales data. The Specialist Short ratio is back at 0.28, a low level that indicates the specialists are doing a lot of buying. That means the public is doing a lot of shorting. IBD tracks the ratio of public-to-specialist short sales, with higher numbers being bullish. Right now the figure stands at 1.94, a five-year high. Somehow, the contrarian in me doubts all of those bearish bets are going to bear fruit. As such, sentiment is still mixed overall. Outlook: neutral (+0) Trading Points: The big earnings reports due out this week will be from Dell (DELL:Nasdaq) and BEA Systems (BEAS:Nasdaq). These calls should offer some good insight on application software demand and the PC/server and peripherals market. Overall tech rating: +2 (bullish) (Continued on the next page) 4

5 Portfolio Update Issue 83: Tuesday, November 11, 2003 Qualcomm (QCOM:Nasdaq): long Fundamentals: Qualcomm reported a solid quarter on Nov. 5, beating expectations and confirming the earlier positive implications that came from wireless companies like Texas Instruments (TXN:NYSE) and Motorola (MOT:NYSE). The company also raised earnings and unit guidance for next quarter and full-year 2004, citing strong demand in the U.S., Japan and India. Wideband CDMA, or WCDMA, is finally gaining momentum, and visibility is improving. The company executed well in the quarter, generating roughly $634 million in cash (total cash on the balance sheet is now $5.4 billion). Return on invested capital (ROIC) levels increased, as did the company s inventory turns, and days sales outstanding (DSOs) were down to 48 days from 56 last quarter. Average handset prices increased to $193 per phone, and operating margins were steady at 33%. CDMA revenue now represents 24% of the handset market, up from 20% a year ago. Inventory shortages in India and China highlight the strength of demand for CDMA technologies and bode well for continued strength in the near future. That said, I think Qualcomm's valuation is getting stretched, and I may take profits if this stock gets to the $50 level. 5

6 Ticker Affiliated Computer ACS Affiliated Computer ACS Garmin GRMN Qualcomm QCOM QLogic QLGC UTStarcom UTSI UTStarcom UTSI Zoran ZRAN Zoran ZRAN Trade Date Position Type Current Price Cost Basis Net Gain $ Return MSH at Trade Date MSH Return 07/08/2003 Long $ $ $ % $ % 02/04/2003 Long $ $ $ % $ % 09/16/2003 Long $ $ $ % $ % 03/18/2003 Long $ $ $ % $ % 09/09/2003 Long $ $ $ % $ % 09/30/2003 Long $ $ $ % $ % 07/15/2003 Long $ $ $ % $ % 10/28/2003 Long $ $ $ % $ % 09/30/2003 Long $ $ $ % $ % Performance Total Average Return 6.52% 2003 YTD Return 10.22% Performance results listed here reflect values of stocks as of the close of the most recently completed trading day, and do NOT take into account dividends paid, interest earned or commissions. Results are updated overnight and posted prior to the market open the following business day. The 2003 YTD Return figures reflect changes since the beginning of The Total Average Return figures reflect changes since inception on 10/8/2002. The Tech Edge model portfolio is a model portfolio of technology companies maintained by Jordan Kahn, CFA. Mr. Kahn is a Portfolio Manager at Berger Fund Advisors, a registered investment advisor that serves as advisor to a hedge fund. The performance represented here is for informational purposes only and should not be construed as a recommendation to buy any security. Holdings of the fund advised by Berger Fund Advisors are not identical to the model portfolio shown here. Please keep in mind that this is a model portfolio and does not necessarily account for the different risk tolerances, investment objectives, and other criteria used by each individual investor when making an investment decision. You are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. Past results are not necessarily indicative of future performance. **At the time of publication, Berger Fund Advisors, LLC was long CSCO, GRMN, QLGC, UTSI, ZRAN. To see Jordan s full portfolio, including closed positions, visit 6

7 Contact Information Customer Service: Please or call Mon. Fri. 8 a.m. to 6 p.m. ET Reader Feedback and Questions: Please Scott directly at scott.moritz@thestreet.com, and Jordan directly at jordan.kahn@thestreet.com. Again, please direct all account-related inquiries to customer service. About Scott Moritz Scott is a senior reporter at TheStreet.com. Before joining TheStreet.com in July 1999, Moritz was the telecommunications reporter at The Record of Bergen County, N.J., for three years. Prior to that, he worked as a municipal reporter for the same publication. Moritz received a bachelor's degree in political theory from the University of Massachusetts - Amherst and a master's degree in journalism from New York University. About Jordan Kahn Jordan Kahn, CFA, is a portfolio manager with Berger & Associates, a Beverly Hills, Calif., money manager. He is the portfolio manager for the firm's separate account portfolios and also a long/short equity fund. Before joining Berger & Associates, Kahn ran a technology-focused hedge fund at Kahn Asset Management; served as assistant director of equities research at Feldman Securities Group in Chicago, where he was also the firm's Model Portfolio manager; and was an investment analyst at the Chicago Trust Company. He holds a master's degree in Financial Markets and Trading from the Stuart School of Business at the Illinois Institute of Technology, is a Chartered Financial Analyst and holds a bachelor's degree in Economics and Finance from the University of Colorado. 7

8 Legal Information Scott Moritz, writer of The Tech Edge, is a Senior Writer for TheStreet.com. TheStreet.com is a publisher and has registered as an investment adviser with the U.S. Securities and Exchange Commission. We are not a registered broker-dealer. The Tech Edge also contains a model portfolio maintained by Jordan Kahn, CFA, a Portfolio Manager at Berger Fund Advisors, a registered investment advisor that serves as advisor to a hedge fund. Berger Fund Advisors and its affiliates may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in The Tech Edge or included in the model portfolio. In such cases, appropriate disclosure is made, although positions may change at any time and without notice. The Tech Edge and model portfolio contain their authors own opinions and are provided for informational purposes only. You should not rely solely upon The Tech Edge for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained herein constitutes, or is intended to constitute a recommendation by Mr. Moritz, Mr. Kahn, Berger Fund Advisors or TheStreet.com, Inc. of any particular security or trading strategy or a determination by Mr. Moritz, Mr. Kahn, Berger Fund Advisors or TheStreet.com, Inc. that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Past results are not necessarily indicative of future performance. As an editorial employee of TheStreet.com, Mr. Moritz is restricted from owning individual securities other than stock or options in TheStreet.com, Inc. Mr. Kahn, who is an outside contributor, is subject to certain trading restrictions when transacting for his own benefit in securities included in The Tech Edge model portfolio. SPECIFICALLY, WITH RESPECT TO SECURITIES IN WHICH HE DOES NOT HAVE A POSITION AT THE TIME OF PUBLICATION, MR.KAHN MAY ENTER ORDERS TO PURCHASE OR SELL SECURITIES ADDED TO The Tech Edge model portfolio ONLY AFTER THE HOUR OF 10:30 A.M. ET ON THE TRADING DAY FOLLOWING THE DATE ON WHICH THE SECURITY IS ADDED TO The Tech Edge model portfolio. IF YOU ENTER ORDERS TO BUY OR SELL SECURITIES AFTER 10:30 A.M. ET, IT IS POSSIBLE THAT MR. KAHN MAY HAVE PURCHASED OR SOLD THE SECURITY AT A PRICE MORE ADVANTAGEOUS THAN THE PRICE YOU WILL OBTAIN. FOR SECURITIES THAT MR. KAHN DOES HOLD AT THE TIME OF PUBLICATION OF The Tech Edge model portfolio, HE WILL NOT BE PERMITTED TO SELL THE POSITION UNTIL ONE MONTH FROM THE DATE THE SECURITY WAS FIRST ADDED TO The Tech Edge model portfolio. 8

Scott Moritz s Tech Focus: The Mouse Roars at Logitech

In This Issue Page 1 Page 3 Page 6 Scott Moritz s Tech Focus: The Mouse Roars at Logitech Jordan Kahn s Model Portfolio: Some Favorable Signs Unfold in Fundamentals Portfolio Performance Scott Moritz s