TWST: You mentioned saturation in the market. Are we at market saturation in this sector?

Mr. King: Certainly these segments themselves are still growing, but growth has slowed significantly over the last several years. From an industrywide perspective, wireless net adds have fallen off by several million from their peak on an annual basis. You have carriers like Verizon (VZ) and AT&T (T) that continue to do well. But more and more, they are doing it at the expense of carriers like Sprint (S) that continue to lose postpaid subscribers. So from an industry standpoint, there is still growth, but it’s certainly much slower growth than it has been in the past.

CHRISTOPHER C. KING is a Senior Telecom Services Analyst and Principal at Stifel Nicolaus, where he covers telecommunications and cable services firms. His current coverage universe consists of rural local exchange carriers (RLECs) as well as Regional Bell Operating Companies (RBOCs), in addition to a focus on Latin American and national independent wireless carriers. Mr. King joined the Legg Mason telecommunications equity research team in January 2001. He was an Equities Trader and fixed-income Analyst with Wachovia Bank and Allfirst Bank. Five years prior to joining Legg Mason/Stifel, Mr. King was a Financial Analyst with Allfirst in the company’s brokerage and capital markets groups. Mr. King has a bachelor’s degree in politics and economics from Wake Forest University and an MBA with a concentration in finance from the University of Maryland.

Read more of the interview with Mr. King and other Telecom sector analysts.

The title says it all. In a recent interview with Colby Synesael Senior Analyst Kaufman Bros., L.P.  as part of our Data Hosting & Data Storage Services Report. Here is his take on the group;

Mr. Synesael: I’m positive on the group. Out of the four subsectors I cover within telecom and data ser­vices, the two that I’m most favorable on are neutral co-location providers like Equinix (EQIX) and Switch & Data (SDXC), as well as managed hosting providers like Savvis (SVVS) and Terremark (TMRK). In terms of why I’m positive, from a modeling perspective, I like the fact that they’re recurring revenue-based models. I think that that gives a lot of visibility for shareholders.

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Our current Semiconductor report contains a roundtable discussion with Dan K. Scovel of Tokeneke Research LLC,  Kevin D. Vassily of Pacific Crest Securities and Patrick Wang of Wedbush Morgan Securities. According to Patrick Wang the top of his list is MPWR;

Mr. Wang: When I think about best-of-breed technology, I think about a company called Monolithic Power. It’s my favorite small cap name. Hopefully it’ll graduate to mid-cap sometime soon. It[s one where these guys have just a very, very compelling, very cost competitive and performance competitive process technology, which allows them to essentially build chips that are cheaper, smaller and faster than a lot of the competitors out there.

Other companies mention in the rountable include: Intel (INTC); Micron (MU); Microsemi (MSCC); STEC (STEC); National Semiconductor (NSM);Texas Instruments (TXN); ON Semiconductor (ONNN); Linear Technology Corporation (LLTC)

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As part of our Application Software Report we spoke with Aaron Schwartz, Senior Analyst, Ladenburg Thalmann & Co. thinks software stocks , have gotten a little ahead of fundamentals, and he expects the group to trade sideways into the fourth quarter . He does like Avocent (AVCT) on the long side:

Mr. Schwartz:”…It’s a company that’s a mix of hardware and software. To me, this is a company in sort of a turnaround story, it’s a non-consensus call. They’ve had a new CEO in there for about a year and he started to influence some change in the company, but they’re going to see their software mix increase as a percent of total. I think that they are a derivative play on the Windows 7 release - that’s the desktop operating system release that will be out in Octo­ber. They should see some pretty strong margin and earnings leverage into next year, and the valuation is at about a little less than 10 times earnings. To us, it is very attractive for a company that’s continuing to see things improve.”

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Our Featured Interview this week is with Allen Zhang of Pansoft Company Limited (PSOF)

Pansoft is a leading enterprise resource planning (ERP) software solutions and services provider for the oil and gas industry in China. Founded in 2001, the company is uniquely positioned to capture anticipated growth in customer driven software solutions and services by targeting large and mature business clients in the energy field in China. Pansoft has a strong balance sheet, solid revenue growth and impressive operating margins.

In our recent:DATA STORAGE-ROUNDTABLE FORUM Greg Mesniaeff of Principal & Senior Analyst Needham & Company, LLC  gave us his views on Equinox, Inc. (EQIX);

Mr. Mesniaeff: The only name in this area I officially cover is Equinix, and I like it a lot. It trades right now at about nine times EV to next year’s EBITDA and about four times EV to next year’s sales. That’s a slight premium to the group, but I think the premium is well deserved given the company’s unique franchise, its carrier-neutral model, its access to capital, its ability to maintain firm pricing, and also its ability to maintain healthy revenue growth in a challenging environment. Generally speaking, I do favor the carrier-neutral colocation providers, which would include Equinix as well as Switch & Data over the captive ones within the carrier organizations, such as AT&T and Verizon and Level 3. I think the carrier-neutral model is clearly superior on many if not on all fronts.

Another Positive trend for Equinix is as follows;

Mr. Mesniaeff: One thing I can point to about Equinix that I do like a lot is their recent successful foray into Europe. Europe has traditionally been several years behind North America in the macro trends that we have discussed. Added to that is the complexity of having lots of smaller countries with their own dedicated telecom carriers, which I think makes the carrier-neutral model particularly compelling in the case of an organization operating within the European Union, where there is a lot more complexity in negotiating tariffs with some of the local carriers. So that’s an area that I think Equinix has approached very well. The company has been steadily improving its profitability in some of its data centers that it acquired in Europe and continues to do so. I guess the message here really is that the globalization of these networks is creating new opportunities for carrier-neutral players like Equinix that have increasingly a global focus.

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In our recent 103 page Semiconductor  Report we conducted a roundtable discussion with Alex Gauna JMP Securities LLC , Hans Mosesmann Raymond James & Associates, Inc.  and Jeff Schreiner Capstone Investments about the Industry.

In times of trouble, there are opportunities. There are some interesting ideas for selectors who can look past the current economic uncertainty. There are definite trends going on within the semiconductor industry and some secular trends that are specific to programmable logic.

Mr. Gauna: “It looks like the indicators are cyclically moving in the right directions. They are not yet strong but they represent potential for the second half of 2010. That time period should also be helped by a lot of very encouraging upgrade cycles; you’ve got smartphones, you’ve got cloud computing and data centers, you’ve got ultra mobility factoring into the market, you’ve got a multimedia storm coming with all these exceptionally low priced LCD TVs that pretty soon are going to be wireless connected and with touchscreens.”

A lot of investors were and are astonished at the recovery and snap-back in this sector and semiconductor stocks tend to be a leading indicator in that they snap back quickly. Many investors are concerned that they might have missed and they remain under-invested in the space. But there are some solid names that have certain cycles that are in their back pocket and can deliver continuing growth.

Companies mentioned: in the roundtable: Silicon Labs (SLAB); Altera (ALTR); Xilinx (XLNX); Texas Instruments (TXN); Volterra (VLTR); Rambus (RMBS); Marvell (MRVL); NetLogic (NETL); EZchip (EZCH); NVIDIA (NVDA); LSI (LSI); Cypress (CY); Synaptics (SYNA); STEC (STEC); Intel (INTC); Broadcom (BRCM).

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As part of out Digital Media Report we spoke with Ralph Schackart of William Blair.  With Netflix already entrenched in the $50 billion dollar DVD market it has begun to position itself into the digital content market;

Mr. Schackart: What is attractive about Netflix is that its digital content can go global. And let’s say DVD is a $50 billion plus market worldwide. Netflix does not have to go find a $50 billion market; it’s right there. It’s not going to be a transfer or a change overnight. But our position is that if 2% of the market is digital today, that number will likely go up to 10% or 15% in the next five years. Just too many people know what to do with a shiny disc today. There are 265 million DVD players in the US alone, not including PCs. Hollywood studios have traditionally moved at the speed of an iceberg. They have a lot of different models and you just cannot change consumer behavior that quickly. So as it relates to Netflix, they are going to have a nice core DVD rental business by mail and they are going to attract more consumers, both with their current product and the nice feature on the streaming end. And we will see how quickly the market transitions over time to digital.

The DVD is not going to disappear overnight but it will go away and Netflix is getting ready for that eventuality.

In our recent Aerospace and Defense Report  our Roundtable Forum with Alex P. Hamilton of  Jesup & Lamont. and Richard Tortoriello of  Standard & Poor’s U.S. Equity Research focused on the defense budget and how cuts in spending would impact the sector:

Mr. Hamilton: My coverage of defense, by design, is to avoid some of the platform names. Those would include Lockheed Martin, Northrop, General Dynamics; those are the names that are historically associated with making platforms. That being said, I think what happens is when the defense budgets start getting cut, if I’m the defense contractor on several of these programs that are being cut and I’ve come off of record years of cash flow, I’m going to sit there and acquire some of the smaller names.

Mr. Tortoriello: I cover  the large defense contractors. I’m neutral on them, on Lockheed, Northrop, Raytheon (RTN), and General Dynamics, but the neutral opinion is primarily just a reflection of the low valuations currently as the stocks have already come down in anticipation of weak defense spending ahead. That being said, I wouldn’t recommend getting into these names at this point. I think we’re in a long-term environment of constraint in defense spending. I do agree that there will be spending in other areas - cyber security is certainly one of them - but I don’t think that that spending will be enough to offset the cuts that I believe we’re going to see over the next several years to the defense budget.

In our recent Corporate Software report Kevin McVeigh of Credit Suisse First Boston explores Iron Mountain’s Growth Opportunities:

Mr. McVeigh: They have both domestic and international growth opportunities. Penetration rates tend to be low in both regions. What is unique about the model is that you get a fair amount of internal growth from its existing customers. Every year existing customers tend to generate higher levels of storage activity. If you layer in new sales opportunities and price increases, you get a model that has been growing 7% to 9% internally on an annual basis for a long time. We don’t expect that to change. One caveat is in 2009, the company reduced its internal growth target to 5% to 7%, but the 200 basis point reduction was due to a reduction in commodities in one of the less predictable business lines.

Now nothing is recession proof but a predictable business models like Iron Mountain’s works well in this macro environment .