With tech earnings season about to start, investors should be aware that a flurry of the industry’s less-followed players have been warning about emerging weakness across the enterprise and telecommunications-networking landscape.
Evercore ISI hardware analyst Amit Daryanani, speaking Tuesday on Barron’s Live, noted that heading into earnings he has concerns about weakness in IT enterprise spending, continued soft demand from communications carriers, and continued caution by consumers. The primary bright spot he sees heading into earnings: spending on cloud and AI infrastructure.
The list of companies providing cautious commentary on the outlook is growing by the day.
NetScout Systems stock (ticker: NTCT) is down 17% on Tuesday after the cybersecurity software company slashed its revenue forecast for its March 2024 fiscal year to a range of $840 million to $860 million, down from a previous forecast of $915 million to $945 million. NetScout also trimmed its adjusted profit per share forecast for the year to $2 to $2.20, down from $2.20 to $2.32. The company said it is seeing “slower order conversion,” due to “industry and economic headwinds facing our customers” that began in September.
Ericsson American depositary receipts (ERIC) are 3.3% lower after the networking infrastructure company on Tuesday provided disappointing financial guidance. “We expect the underlying uncertainty impacting our Mobile Networks business to persist into 2024,” the company said.
Adtran (ADTN), which provides networking hardware, on Monday warned that it now sees third-quarter revenue of $272.3 million, below its previous guidance range of $275 million to $305 million. Adtran said that its “customers remain focused on reducing inventory levels and managing capital expenses.”
Late last week, Belden (BDC), another network infrastructure provider, said it now sees third-quarter revenue of $625 million, down from a previous forecast of $675 million to $690 million. “Demand began to weaken in the third quarter, adding to ongoing pressure from channel destocking,” Belden said in its announcement. “We believe softer demand will continue as we move into the fourth quarter, impacting both revenue and profitability.”
A10 Networks (ATEN), which also provides networking infrastructure, likewise provided September quarter preliminary results that failed to match previous estimates. “In our third quarter we experienced delays related to North American service provider customers pushing out capital expenditures,” the company said earlier this month. “Deals we expected to close at the end of the quarter were delayed into future periods.”
Cambium Networks (CMBM), which provides wireless-network infrastructure, said earlier this month that it now sees third quarter revenue of $40 million to $45 million, below previous guidance of $62 million to $70 million. The company cited a number of reasons for the big miss, including a delay in government orders due to U.S. government budgetary timing issues, and a decrease in orders from distributors in the company’s enterprise business, among other things.
Tech earnings season kicks off Wednesday with results from Netflix (NFLX), to be followed by a deluge of financial reports next week from Alphabet (GOOGL), Microsoft (MSFT), International Business Machines (IBM), Meta Platforms (META), ServiceNow (NOW), Amazon.com (AMZN), Intel (INTC), and Juniper Networks (JNPR), among others.
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When will Berkshire Hathaway stop selling Bank of America stock?
Berkshire began liquidating its big stake in the banking company in mid-July—and has already unloaded about 15% of its interest. The selling has been fairly aggressive and has totaled about $6 billion. (Berkshire still holds 883 million shares, an 11.3% interest worth $35 billion based on its most recent filing on Aug. 30.)
The selling has prompted speculation about when CEO Warren Buffett, who oversees Berkshire’s $300 billion equity portfolio, will stop. The sales have depressed Bank of America stock, which has underperformed peers since Berkshire began its sell program. The stock closed down 0.9% Thursday at $40.14.
It’s possible that Berkshire will stop selling when the stake drops to 700 million shares. Taxes and history would be the reasons why.
Berkshire accumulated its Bank of America stake in two stages—and at vastly different prices. Berkshire’s initial stake came in 2017 , when it swapped $5 billion of Bank of America preferred stock for 700 million shares of common stock via warrants it received as part of the original preferred investment in 2011.
Berkshire got a sweet deal in that 2011 transaction. At the time, Bank of America was looking for a Buffett imprimatur—and the bank’s stock price was weak and under $10 a share.
Berkshire paid about $7 a share for that initial stake of 700 million common shares. The rest of the Berkshire stake, more than 300 million shares, was mostly purchased in 2018 at around $30 a share.
With Bank of America stock currently trading around $40, Berkshire faces a high tax burden from selling shares from the original stake of 700 million shares, given the low cost basis, and a much lighter tax hit from unloading the rest. Berkshire is subject to corporate taxes—an estimated 25% including local taxes—on gains on any sales of stock. The tax bite is stark.
Berkshire might own $2 to $3 a share in taxes on sales of high-cost stock and $8 a share on low-cost stock purchased for $7 a share.
New York tax expert Robert Willens says corporations, like individuals, can specify the particular lots when they sell stock with multiple cost levels.
“If stock is held in the custody of a broker, an adequate identification is made if the taxpayer specifies to the broker having custody of the stock the particular stock to be sold and, within a reasonable time thereafter, confirmation of such specification is set forth in a written document from the broker,” Willens told Barron’s in an email.
He assumes that Berkshire will identify the high-cost Bank of America stock for the recent sales to minimize its tax liability.
If sellers don’t specify, they generally are subject to “first in, first out,” or FIFO, accounting, meaning that the stock bought first would be subject to any tax on gains.
Buffett tends to be tax-averse—and that may prompt him to keep the original stake of 700 million shares. He could also mull any loyalty he may feel toward Bank of America CEO Brian Moynihan , whom Buffett has praised in the past.
Another reason for Berkshire to hold Bank of America is that it’s the company’s only big equity holding among traditional banks after selling shares of U.S. Bancorp , Bank of New York Mellon , JPMorgan Chase , and Wells Fargo in recent years.
Buffett, however, often eliminates stock holdings after he begins selling them down, as he did with the other bank stocks. Berkshire does retain a smaller stake of about $3 billion in Citigroup.
There could be a new filing on sales of Bank of America stock by Berkshire on Thursday evening. It has been three business days since the last one.
Berkshire must file within two business days of any sales of Bank of America stock since it owns more than 10%. The conglomerate will need to get its stake under about 777 million shares, about 100 million below the current level, before it can avoid the two-day filing rule.
It should be said that taxes haven’t deterred Buffett from selling over half of Berkshire’s stake in Apple this year—an estimated $85 billion or more of stock. Barron’s has estimated that Berkshire may owe $15 billion on the bulk of the sales that occurred in the second quarter.
Berkshire now holds 400 million shares of Apple and Barron’s has argued that Buffett may be finished reducing the Apple stake at that round number, which is the same number of shares that Berkshire has held in Coca-Cola for more than two decades.
Buffett may like round numbers—and 700 million could be just the right figure for Bank of America.
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