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S&P Downgrades Polycom

Polycom (PLCM): Downgraded to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ari Bensinger

Polycom sees June quarter revenue down about 7% from the March quarter to $124-$126M, with EPS of $0.13-$0.14, well below our $145M and $0.21 EPS estimates. Amid a weak spending environment, customers are lengthening their budget approval cycles and deferring product orders. We do not expect sequential revenue growth until the December quarter and are lowering our 2002 EPS estimate to $0.60 from $0.92. Polycom is the clear leader in the group audio/video conferencing market, but at 16 times our 2002 EPS estimate and 2 times our sales estimate, in line with its peers, its shares seem fairly valued.

Advanced Micro Devices (AMD): Reiterates 2 STARS (avoid)

Analysts: Thomas Smith, Richard Stice

The downgrade follows AMD's updated outlook. For the second time in two weeks, AMD says it expects Q2 sales below previous estimates. It now sees $600M, vs. previous $620M-$700M, reflecting persistently weak PC market. We are widening our 2002 loss per share estimate to $0.75 from $0.60, and cutting our 2003 forecast to breakeven from $0.50 EPS. Though the share price is approaching 0.7 times tangible book value, near historical cycle lows, early signs of a weak back-to-school season and competitive pricing pressure would cause us to place funds elsewhere.

Flextronics (FLEX): Reiterates 4 STARS (accumulate)

Analyst: Richard Stice

Flextronics reiterated its previously lowered June quarter and September quarter sales and EPS estimates. The company sees sequential improvement in the September quarter on seasonality, a pickup in the printed circuit board business, and the ramp-up of new programs. We believe Flextronics is well-positioned to benefit from future outsourcing opportunities, and are keeping our fiscal 2003 (ending March) EPS estimate at $0.40. At a discount to its peers based on p-e, p-e/growth and price/sales, and with the shares priced near tangible book value, Flextronics remains attractive.

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