2HRS2GO: Street brushes off Nextel''s 2Q miss

Tuesday thoughts...

No one seems to care that Nextel (Nasdaq: NXTL) lost more than analysts expected in the second quarter. Yes, shares of the wireless service provider are down today, but less than the overall Nasdaq Composite Index.

Investors might have been pleased by Nextel's continued strong revenue and subscriber growth. Yet I suspect the real story continues to revolve around takeover fever.

Nextel's market value has multipled over the past 12 months because investors viewed it as an acquisition candidate. Worldcom (Nasdaq: WCOM) talked to Nextel about it last year until negotiations faltered over price.

The collapse of the Sprint (NYSE: FON) merger has brought wireless companies back into Wall Street's spotlight. VoiceStream Wireless (Nasdaq: VSTR) keeps appearing in news reports these days, but the buzz spilled over to the entire sector and it will keep them afloat until some major player (read: Deutsche Telekom) finally closes a deal.

Naturally, the stock speculation also makes it more expensive and thus more difficult for anyone to make an acquisition. It's particularly hard to justify in the case of Nextel, a stock which has risen more than 50 percent in the last two months despite the absence of any real catalysts.

Continuing with wireless, Inter@ctive Week has a piece today that examines the rise and fall of Qualcomm (Nasdaq: QCOM), and already the hordes of CDMA adherents have begun leaping to the defense of their beloved stock.

One of them asks why has Qualcomm been criticized in the press. Here's why: discussions about CDMA royalties aside, the main concern with Qualcomm over the past year has been valuation. Even after plunging for most of this year, Qualcomm's current stock price of $65 and change -- more than 60 times this year's consensus earnings estimates and almost 50 times the 2001 forecast -- demands perfect execution and roaring growth.

The former hasn't happened, as in the case of China Telecom. The latter is uncertain at least in the near term: obviously wireless activity is going to grow in the long run, but there are hints the current cycle might be slowing; Motorola (NYSE: MOT), for instance, recently reported flat year-over-year revenue growth in its wireless handset business.

Combine that worry with the fact that at least one major geographic area -- Europe, which also happens to be the leader in wireless adoption -- seems more inclined to adopt the GSM standard that isn't necessarily based on Qualcomm's CDMA technology, and you might see why many people now shy away from Qualcomm.

At any rate, it's still a popular stock, judging by its current market cap. Or perhaps those who bought in at $200+ levels simply refuse to take such a heavy loss.

DLJdirect (NYSE: DIR) cited "unprecedented market volatility" as a reason for missing second quarter estimates.

I like that. Sounds like the online broker would have you believe shaky, roiling markets have never happened before in Wall Street's history.

Volatility isn't DLJdirect's fault, but wasn't the trend obvious by late May? Heck, by the end of April, most people knew the market was in for a rough patch. Nowadays, with all the business intelligence and analysis software that's available, it's up to companies to be able to forecast these things.

DLJdirect might have guided analysts to nudge their estimates down as the quarter progressed. It's not only encouraged, but expected on Wall Street these days.

Incidentally, DLJdirect's unwanted surprise ought to serve as a reminder that the very thing that's the appeal of a tracking stock could turn out to be a negative. Tracking out DLJdirect is supposed to let you invest in one particular portion of a business, but when the situation declines in that sector, you have nothing to balance it out -- it's isolated in the news. 22GO>