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Casinos Emerge as Winners In Wake of Hurricane Katrina

  • Summary: Casino operation and building in Biloxi, Mississippi has bounced back strongly from Katrina's devastation, as the gambling industry managed to push through legislation that would have been unimaginable before the storm. A longstanding ban on land-based casinos was lifted, giving the existing casinos room to grow and new ones an opportunity to launch. Giants MGM Mirage and Harrah's are building massive new luxury-casino complexes, and gamblers have flocked back to the existing offshore ones. While Harrah's lobbied for the onshore ban to be lifted immediately after Katrina, MGM, which didn't want to move its Beau Rivage facility, initially found itself aligned with religious groups that opposed the reform. Once the law passed on a public safety basis, Harrah's bought a Pinnacle Entertainment casino in the region to increase its stake. Regional operator Isle of Capri Casinos and Trump Entertainment Resorts are both building new gaming centers in the area.
  • Comment on related stocks/ETFs: With Harrah's and MGM most aggressively exposed to this market, their stock could float up and down with this hurricane season's severity; Harrah's is well-insured (by Warren Buffett) however. Trump will gain some regional diversification from the new Gulf Coast site, while Pinnacle's choice to abandon Biloxi may hamper its growth.

Coming Soon to Your Screen

  • Summary: The major movie studios believe that online piracy safeguards are robust enough that they are finally able to embrace legal movie downloads. President of Fox Digital Media says "Our goal is to seek out as many [viable] retail outlets as we can, and put as many titles as we can on those sites". As a result, the number of websites offering movie downloads is set to soar. Amazon.com plans to launch its service next month. Apple plans to launch movie downloads on its iTunes site, and has the advantage of integration with video iPods. But Apple has had difficulty negotiating with the studios due to its insistance on a single price for all movies: it offered the studios $14 per movie, so it could sell them for $14.99. Microsoft will introduce a music/video player in Q4, but has delayed the launch of its movie store until early 2007. Wal-Mart and Comcast also plan to launch their own services, and Time Warner and AT&T are also talking to studios. Blockbuster has also shown an interest in launching an online service. File sharing service Bit Torrent is also planning to launch a legal movie download service later this year. Movielink LLC and CinemaNow Inc., the two existing online movie services, have failed to gain traction with consumers or establish strong brands. The studios do not expect significant revenue from online movie sales for a few years until users are able to save downloaded movies to DVD; currently, the studios are planning to allow only streaming downloads that cannot be saved. The proliferation of online movie services and the limited market size will likely lead to aggressive pricing, perhaps even below the cost charged to the distributing web sites by the studios. Web sites will also battle to win customers, assuming they will remain loyal for years once they are signed up with a particular service.
  • Comment on related stocks/ETFs: The only clear winners from the proliferation of competing online movie download sites are the movie studios themselves. The single remaining pure play is Lions Gate Entertainment (NYSE:LGF). Obvious losers are current movie rental firms Netflix Inc. (NASDAQ:NFLX), Blockbuster Inc. (BBI) and Movie Gallery (MOVI). Netflix CEO Reed Hasting's attempt to downplay the potential of movie downloads on his most recent conference call (full transcript here), in particular, looks ridiculous in the context of the information in this article. Investors expect Apple Computer Inc. (NASDAQ:AAPL) to be a major player in this market; the tougher competitive landscape pictured here is therefore incrementally negative for its stock. In contrast, there's considerable pessimism about Amazon's business; if it demonstrates any traction in digital distribution that would be a strong positive for its stock (NASDAQ:AMZN). The same is true for Microsoft Corp. (NASDAQ:MSFT). Related and important: Carl Howe's discussion of Google and Yahoo's testing of online cable TV.

FTC Rules Against Rambus In Memory-Chip Patent Case

  • Summary: The FTC, in a unanimous 5-0 vote, found Rambus Inc. (NASDAQ:RMBS) guilty of monopolistic tactics yesterday, in a case that could change the rules of the game for company behavior involved in setting industry technology standards. The FTC found Rambus had intentionally withheld information about its patents and patent applications from an industry standard-setting group, then later on, began trying to enforce its patents against companies adhering to the standards Rambus had ignored. Shares of Rambus, a Silicon Valley developer of technology used in memory chips that has been embroiled in legal battles, plunged 26% on the news. Micron (NASDAQ:MU), which is currently battling in court with Rambis, issued a statement applauding the FTC ruling, stating the opinion supports its own counter-charges against Rambus. Technically the FTC opinion is not binding on other pending patent-infringement cases in which Rambis is involved. In response to the FTC ruling, shares of Rambis fell 26% in composite trading. Affected by an internal stock-options investigation as well as legal news, shares have declined over the past few months from a 52-week high in mid-April of $46.80 to just $12.65 yesterday.

  • Comment on related stocks/ETFs: Despite the company's many legal troubles, Rambus recently reported a strong quarter with increased revenues of 22% from the same period last year. On August 1 the day before the FTC's recent ruling, Rob Black reported in his Tech Stock Report that BWS Financial upgraded Rambus to a BUY with a $22 target price, believing that the low share value provided a good entry point and that Rambus' underlying business is still sound.

UMC's Quarterly Net Surges

  • Summary: United Microelectronics Corp., the world's second largest contract chip maker by revenue, reported a surge in Q2 net income to NT$6.05 billion (US$184 million) from NT$299 million last year -- easily beating consensus analysts' estimates of NT$4.43 billion. Revenue grew 32% on the quarter to NT$25.75 billion. UMC credited its gains to improved gross margins and nonoperating income, the latter which made up the bulk of earnings from the sale of holdings in chip designers MediaTek Inc. and SiRF Technology Holdings Inc. UMC said its outlook for the third quarter is positive, as wafer prices and margins should improve. It supplies chips for products such as mobile phones, digital cameras, and computers.
  • Comment on related stocks/ETFs: United Microelectronics Corp. is traded both on the Taiwan Stock Exchange (TWSE: 2303) and the NYSE under ticker: (NYSE:UMC). Its positive outlook for the current quarter should assuage some concerns over pricing and falling capacity utilization since in the article UMC's chairman Jackson Hu said its "wafer shipments are likely to be flat or to rise as much as 2% in the third quarter from the second quarter's 786,000 units, and factory use will be approximately 80%, roughly the same as it was in the second quarter." See two different perspectives from a few weeks back when Andy So found UMC to be oversold and the best value semiconductor stock. William Trent however, sent out a semi SOS questioning UMC's stated expected capacity utilization increase. Click here to read UMC's Q2 earnings conference call transcript.

Germany's SAP Allots $1 Billion For India Growth

  • Summary: SAP AG chairman & CEO Henning Kagermann said his firm will invest $1 billion in India over the next five years in order to expand its operations there. Mr. Kagermann speculated that "most of it will be on people." SAP currently employs 2,750 in India with plans to increase this number to 3,500 by December and double its Indian work force during its five year investment period. SAP has invested $500 million in India to-date since it began operations there in 1996. SAP however, isn't the only global tech company targeting India. In June, IBM Corp. announced a tripling of its investment to $6 billion over three years. Microsoft Corp. said last December that it plans to double its work force with a $1.7 billion investment over four years. And around that time, Intel Corp. announced a $1 billion investment plan.
  • Comment on related stocks/ETFs: SAP AG has ADRs listed on the NYSE under ticker: (NYSE:SAP). During its Q2 earnings conference call on July 20th, Leo Apotheker, member of SAP's Executive Board, mentioned that SAP continues to do a great job penetrating growth markets in Asia Pacific, particularly in China and India. "We usually don’t disclose the exact numbers there, but just to give an indication, in countries such as India and China, our growth rates are either big double-digit, and in one of the two cases actually triple-digits." A Bloomberg.com article covering SAP's India investment story stated, "The number of engineering graduates in India is expected to rise 50 percent to 536,000 a year by March 2008." Rival Oracle Corp. (NYSE:ORCL) said in June it plans to continue investing in India and increase its 9,500 employees there. The article also said Indian software centers represent SAP's largest facility outside of Germany. In its second quarter, SAP reported a 43% increase in net income while maintaining its full-year guidance.

Molex Executives Agree to Repay Gains on Options

  • Summary: These 4 companies show how not every option scandal is created equal: Molex (MLX) CEO Martin Slark said that the person entering data in the option-plan administration system simply plugged the wrong date in, sometimes to the favor of the executive, and sometimes not. Molex executives are voluntarily paying $675,000 from their own pockets to correct the problem. Clorox (NYSE:CLX) said that it found "unintentional errors" in its option grants and is is taking a $25 million pretax charge. They found ""no evidence of fraud, falsification of records ... or intentional deviation from generally accepted accounting principles." Brocade Communications Systems (NASDAQ:BRCD) former CEO Gregory Reyes is trying to have federal charges against him dismissed. It is alleged that he tried to hide options-based compensation from shareholders, and that he manipulated the value of stock options awarded to employees. An internal probe at Brooks Automation (NASDAQ:BRKS) found that former CEO Robert Therrien reaped $millions by falsely signed a document that enabled him to exercise expired options. Therrian calls the claim "scurrilous, irresponsible and categorically false".
  • Comment on related stocks/ETFs: While the problems raised at Molex & Clorox seem fairly mild, Jack Ciesielski has some very strong opinions on the shenanigans at Brocade & Brooks.

MasterCard Reports a Net Loss, Mostly Due to IPO-Related Costs

  • Summary: In its first earnings report since going public in May, MasterCard Inc. (NYSE:MA) posted a second-quarter net loss of $310.5 million, or a $2.30 a share, compared with net income of 89 cents, or $120.2 million, a year earlier. Investors shrugged off the quarterly loss, which was mostly associated with the initial public offering, and snapped up shares yesterday as the stock rose $5.02, or 11%, to $50.02 in composite NYSE trading. In positive news, MasterCard said it rung up $485 billion of global transactions on its branded cards in the quarter, representing a 16% increase over the year-earlier period. Despite rising interest rates and higher gasoline prices, "the second quarter indicated very strong continued consumer spending levels," said Robert Selander, chief executive and president of MasterCard. Revenue rose 9.7% to $846.5 million, driven by the higher spending, an 18% increase in the number of transactions processed on MasterCard's network, and an overhaul of fees charged for currency conversions. In addition, the company said expenses soared 93% in the quarter to $1.12 billion, in part reflecting advertising and marketing costs associated with its sponsorship of the World Cup soccer tournament.
  • Comment on related stocks/ETFs: Mastercard's CEO Robert Selander expressed his belief yesterday that the 16% increase in global sales transactions using Mastercard branding cards was proof that consumer spending was healthy. The Average Joe Investor believes that regardless of economic conditions, companies like Mastercard and American Express (NYSE:AXP) will continue to do well, because America's consumer-centric ideology has become so entrenched that it has reached a "point of no return."

Banker Now Regards $15.4 Million Lessons As a Serious Misstep

  • Summary: Mimi Monica Wong, the top Asia private banker for HSBC Holdings PLC, acted like quite the obsessed big spender when it came to her private dance lessons. In 2004, she agreed to pay $15.4 million for eight years (half of the amount up front) to secure unlimited Latin dance lessons from 15-time world Latin dance champion Gaynor Fairweather of the UK and her Italian husband, dancer Mirko Saccani. Wong, a 61-year old widow claimed she was "looking for the last bit of glory in life." Her extravagances are nothing new to Hong Kong, where there is said to be no shortage of big spenders. However, an Argentine dance instructor offering lessons there at a more modest rate of $70 per hour commented, "It's just ridiculous. No one could actually take enough lessons to make it worth it." Never mind the costs, dancing is serious business in Hong Kong and Wong is known for seeking perfectionism at any cost. She is now in court suing her instructors for the return of her prepayment following an embarrassing and threatening incident she suffered at the hands of Saccani at a mock dance competition. According to court documents Saccani shouted at her to "move your arse" and called her a "lazy cow" in front of fellow dancers. After this incident Wong came to realize the money involved for her lessons was "stupid," "crazy" and "completely out of hand," leading to a further falling out between them. Soon thereafter, she won a court order to freeze her instructors' bank accounts. Although the publicity surrounding her obviously isn't good, HSBC is standing behind its top Asia banker. A judgment in the court case is expected later this summer and in the meantime Wong is paying a new instructor $21,000 per month.
  • Comment on related stocks/ETFs: For someone who manages money for a living it really seems Ms. Wong lost touch with reality. Then again, she is in Hong Kong, which has "some of the craziest prices in the world," according to the president of the Hong Kong Ballroom Dancing Council as quoted in the article. HSBC (HBC) must be relieved to have its top Asia banker back and will need her full attention is at tries to sustain its spot as the new number one bank in the world by assets, after having reported a strong quarter earlier this week.

M&A Fuels Solid Lazard Results

  • Summary: The strong pace of corporate mergers that drove Lazard Ltd.'s (NYSE:LAZ) revenue up 30% in the first half isn't likely to abate soon, the company's vice chairman Steven J. Golub said. Yesterday, he cited continuing confidence from corporate chief executives, overflowing cash coffers at private-equity firms and interest rates for borrowed money that remain low as key catalysts that will continue to help Lazard report strong numbers. Lazard reported second-quarter profit of $62.9 million, or 60 cents a share, compared with $32 million, or 32 cents a share, during the same period last year. In addition, net revenue rose 25% to $386.9 million from $310.3 million. Estimates were for Lazard to earn $0.50 a share. As a result of its earnings beat, shares of Lazard rose 3.9% in composite trading yesterday.

Bank of Japan Official Hints at Rate Rises

  • Summary: Atsushi Mizuno, policy board member of the Bank of Japan, said the BoJ continues to plan to raise rates slowly but will not rule out the possibility of raising rates again this year. On July 26th, another BoJ board member Miyako Suda made similar remarks without clarifying when the next rate hike might happen. The BoJ raised the unsecured overnight call loan rate to 0.25% from effectively zero percent on July 14th -- the first rate hike in nearly six years. The BoJ's Mizuno was quoted in the article saying, "The Japanese economy is shifting to a moderate expansion path from a steady recovery path. Also, there is the possibility that Japan's potential economic growth rate may be upgraded. Given these facts, long-term bond yields undervalue Japan's economic recovery power."
  • Comment on related stocks/ETFs: With increasingly open and rather frequent communication between BoJ and even Fed governors with investors we have a situation where yes, it's good to have their latest thoughts on their respective economies but at the same time, it can be problematic because of their immediate impact on the markets and potential for misinterpretation and/or over-analysis. Yesterday, David Andrew Taylor commented on Mr. Mizuno's reiteration of the possibility of more rate hikes in the "Dollar Could Tank vs. Yen By End of Year." Unlike Mr. Taylor, I am skeptical of any further rate hikes this year and seriously doubt pushing towards 1.0% by year's end. The BoJ cannot afford shocking the markets and potentially stymieing growth since Japan just exited years of deflation, even though on a global scale short-term rates are still very low. Most of all, the BoJ doesn't want to be blamed for another market crash.

U.S., Japan Auto Unions Seek Ties

  • Summary: United Auto Workers and its Japanese counterpart, Confederation of Japan Automobile Workers' Unions, are said to have reached an agreement to deepen ties and begin studying common issues, according to people familiar with the matter. Some insiders believe this could eventually lead to collaboration on organizing workers at Japanese-owned auto factories in the United States. UAW president Ron Gettlefinger met with JAW representatives in Tokyo last week but was said not to have specifically asked for JAW help with hourly auto factory workers in the U.S. In the past the UAW has failed in its attempts to represent American workers at Japanese plants in the U.S.
  • Comment on related stocks/ETFs: This new agreement between the UAW and JAW seems to clearly favor the UAW in an obvious attempt by it to boost its membership. I don't see what the benefits are to the JAW. The Japanese auto companies are aware of the financial burden that labor unions have imposed on U.S. auto manufacturers and it's unimaginable that they'd subject themselves to such conditions.

AHEAD OF THE TAPE: Rate Dates and Debates

  • Summary: The European Central Bank meets today to decide on an interest rate hike. At its last meeting, the ECB suggested a quarter-point hike (to 3%) was in the works, but new reports showing strong European economic growth and higher inflation have brought some speculation that the ECB may make a half-point move. The ECB began its tightening cycle late last year, much later than the U.S. Federal Reserve began. Regarding the Fed's decision for next Tuesday, futures peg the chances of another quarter-point hike at just 36%. The expectation that the ECB is just beginning to raise, while the Fed is largely done, has pushed the euro higher against the dollar.
  • Comment on related stocks/ETFs: Eddy Elfenbein argues that the Fed should raise another 25 basis points next week, then stop -- here's why. David Andrew Taylor gives the two reasons why it's hard to predict interest rate shifts. If you're bullish on the euro vs. the dollar, the Euro Currency Trust ETF (NYSEARCA:FXE) is one simple way to play it.

HEARD ON THE STREET: Regional Banks Weather Effects of Hurricanes

  • Summary: Stocks of regional banks in Louisiana and Mississippi have been remarkably resilient, despite last year's hurricanes and this year's threats. New Orleans-based Whitney Holding has surged 31% this year, Hancock Holding of Gulfport, Miss. has jumped 38% and BancorpSouth is up 24%; this, while the regional bank index is up just 1.1% and the broader Dow Jones Wilshire Bank Index has risen 6.9%. While still struggling on defaults, the banks haven't seen wholesale write-offs or depleted accounts, and insurance payments and government aid have supported the banks. In Katrina's wake, investors dumped these banks, with Whitney's share price dropping 24% in six weeks, but most since have recovered. Analysts now are split on the Gulf Coast banks, with some seeing more upside ahead as the banks participate in a resurgent economy and others wary of this season's impact.
  • Comment on related stocks/ETFs: Catablast likes Hancock's balance sheet, but not its loan growth pace.

Germany's SAP Allots $1 Billion For India Growth

  • Summary: SAP AG chairman & CEO Henning Kagermann said his firm will invest $1 billion in India over the next five years in order to expand its operations there. Mr. Kagermann speculated that "most of it will be on people." SAP currently employs 2,750 in India with plans to increase this number to 3,500 by December and double its Indian work force during its five year investment period. SAP has invested $500 million in India to-date since it began operations there in 1996. SAP however, isn't the only global tech company targeting India. In June, IBM Corp. announced a tripling of its investment to $6 billion over three years. Microsoft Corp. said last December that it plans to double its work force with a $1.7 billion investment over four years. And around that time, Intel Corp. announced a $1 billion investment plan.
  • Comment on related stocks/ETFs: SAP AG has ADRs listed on the NYSE under ticker: (SAP). During its Q2 earnings conference call on July 20th, Leo Apotheker, member of SAP's Executive Board, mentioned that SAP continues to do a great job penetrating growth markets in Asia Pacific, particularly in China and India. "We usually don’t disclose the exact numbers there, but just to give an indication, in countries such as India and China, our growth rates are either big double-digit, and in one of the two cases actually triple-digits." A Bloomberg.com article covering SAP's India investment story stated, "The number of engineering graduates in India is expected to rise 50 percent to 536,000 a year by March 2008." Rival Oracle Corp. (ORCL) said in June it plans to continue investing in India and increase its 9,500 employees there. The article also said Indian software centers represent SAP's largest facility outside of Germany. In its second quarter, SAP reported a 43% increase in net income while maintaining its full-year guidance.

Bank of Japan Official Hints at Rate Rises

  • Summary: Atsushi Mizuno, policy board member of the Bank of Japan, said the BoJ continues to plan to raise rates slowly but will not rule out the possibility of raising rates again this year. On July 26th, another BoJ board member Miyako Suda made similar remarks without clarifying when the next rate hike might happen. The BoJ raised the unsecured overnight call loan rate to 0.25% from effectively zero percent on July 14th -- the first rate hike in nearly six years. The BoJ's Mizuno was quoted in the article saying, "The Japanese economy is shifting to a moderate expansion path from a steady recovery path. Also, there is the possibility that Japan's potential economic growth rate may be upgraded. Given these facts, long-term bond yields undervalue Japan's economic recovery power."
  • Comment on related stocks/ETFs: With increasingly open and rather frequent communication between BoJ and even Fed governors with investors we have a situation where yes, it's good to have their latest thoughts on their respective economies but at the same time, it can be problematic because of their immediate impact on the markets and potential for misinterpretation and/or over-analysis. Yesterday, David Andrew Taylor commented on Mr. Mizuno's reiteration of the possibility of more rate hikes in the "Dollar Could Tank vs. Yen By End of Year." Unlike Mr. Taylor, I am skeptical of any further rate hikes this year and seriously doubt pushing towards 1.0% by year's end. The BoJ cannot afford shocking the markets and potentially stymieing growth since Japan just exited years of deflation, even though on a global scale short-term rates are still very low. Most of all, the BoJ doesn't want to be blamed for another market crash.

Merck Wins California Vioxx Case, Widening Edge on Trial Score Card

  • Summary: A 12 person jury in California took all of four and a half hours to Clear Merck of responsibility for the heart attack of a 71 year old man who took Vioxx for about two years. It turns out the plaintiff already had artery blockage when he started taking the medication. According to Merck's lawyer, "From the beginning of time, arteries that clogged have caused heart attacks...". Merck faces 14,200 Vioxx lawsuits, with California accounting for almost 500 of them.
  • Comment on related stocks/ETFs: This is the latest in the string of good news on the legal front for Vioxx. As Rick Conrad wrote, Merck has already won 4 of the 7 cases involving Vioxx. Merck's stock closed at $41.03 yesterday, up over 25% from the beginning of the year.

Notable articles on Seeking Alpha today: Today's earnings schedule and estimates. Rob Black's Media Stock Report and Retail Stock Report. Jim Cramer's latest stock picks. Jim Wiandt on house prices. James Fraser on OTC solar stock EnviroMission. Latest conference call transcripts from: Sina.com, Las Vegas Sands, Extreme Networks, Dolby Laboratories, Napster, Molex, Starbucks, Alltel, InfoSpace, Bankrate, Garmin, Cox Radio, ADP, Hecla Mining, Alvarion, PG&E, Procter & Gamble, Cognizant, UMC. Insider buying in Secure Computing. Vanguard Car Rental -- owner of Alamo and National -- files for an IPO. Welcome to new Seeking Alpha contributor Mark Gerstein, Director of Investor Research for Reuters.com. His first two contributions are on stocks versus ETFs in oil investing, and why churn isn't a problem for Sirius Satellite Radio. We've also launched a new category in the Seeking Alpha energy section devoted to analysis of, and predictions about, the price of oil.

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Source: One Page Annotated WSJ Summary, Thursday August 3rd