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Productivity Growth Skids to Standstill [AP]

Summary: In yesterday's economic numbers, productivity (a measure of output per hours of work) sunk to 1.3%, its poorest showing in nine years; productivity has averaged 2.8% over the last decade and 3.1% over the last 5 years. Conversely, unit labor costs (compensation per hour) grew 3.7%, down substantially from Q2, but higher than analysts' estimates of 3.4%, and employee compensation grew by 5.3%, a level it hasn't seen since 1990: workers were earning more to do less. Both figures caught analysts by surprise; they said the numbers were certain to raise Fed inflation concerns. At best, they said, the news meant the Fed wouldn't be cutting interest rates anytime soon; at worst, the continued rise in wage pressures could prompt the Fed to resume raising its benchmark rate. Scott Brown, chief economist at Raymond James & Associates: "The unit labor costs number is a bit unsettling for the Fed... so many people have focused on commodity prices, but the Fed's real fear is always the labor market and the possibility of inflationary pressures developing there." Stocks and bonds were down on the news.
Related links: Press releaseDavid Andrew Taylor: Productivity Drop: More Money For Less Work
Potentially impacted stocks and ETFs: S&P 500 Index (NYSEARCA:SPY) • NASDAQ 100 Trust Shares ETF (QQQQ) • iShares Russell 2000 Index ETF (NYSEARCA:IWM) • iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY) • iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) • iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT)


Microsoft Backs Novell's Linux Platform [AP]

Summary: In recognition of the fact that companies routinely combine Windows software with a Linux open-source operating system, Microsoft and Novell reached an agreement yesterday. Microsoft makes its money selling Windows and its Office suite software, while Novell profits off providing customer service for its version of Linux, Suse Linux. "This builds a very important intellectual-property bridge between the open source and proprietary sides of software," -- Brad Smith, Microsoft's general counsel. CEO Steve Ballmer added: "It all comes down to recognizing there is a mixed environment out there." Novell shares gained $0.92 (+15%) on the news, while Microsoft shares were flat. One company that continues to suffer is Red Hat, the nation's number one provider of Linux-based customer support services: Oracle recently announced it would begin providing support for Red Hat's version of Linux in a bid to undercut the company. Now, Microsoft has also seemingly snubbed them, choosing to partner with America's number two Linux company instead of Red Hat, whose shares fell nearly 5% on the news. While financial details of the deal were left undisclosed, the Wall Street Journal reports Microsoft will be paying Novell, "for a minimum of roughly 70,000 'coupons' that Microsoft customers can convert into annual subscriptions to receive support." The coupons will be worth between "$400 and $1,500 a year according to Novell Chief Executive Ron Hovsepian," according to the Journal.
Related links: Linux v. Microsoft: Third World Showdown - SeekingAlphaMicrosoft and Novell - Foes Now Friends? [] •Yahoo! Dips its Toe Into Open SourceOracle's Linux Announcment: A Load of Bull?Panic Exit From Red Hat Shares - Overdone?Microsoft, Novell Reach Accord on Linux [WSJ]
Potentially impacted stocks and ETFs: Microsoft (NASDAQ:MSFT), Novell (NASDAQ:NOVL), Red Hat (Red Hat), Oracle (NYSE:ORCL) • iShares Goldman Sachs Software Index (NYSEARCA:IGV), PowerShares Dynamic Software (NYSEARCA:PSJ)

Gateway Gets Profit Lift []

Summary: Gateway surprised the Street by announcing earnings of 5 cents per share yesterday, on especially strong results from its consumer sales unit. Consensus was for the PC-maker to break even but a lucrative tax break and a payment from Microsoft from a 2005 settlement brought the company soundly into profit territory. On the quarter, Gateway reported net income of $18.1 million on revenue $963 million. gateway In the year ago period, earnings were just 4 cents a share but total revenue was 5.5% higher. There were certainly other negative aspects to Gateway's quarter as well; most significantly, declines in revenue in its professional unit, which includes sales to business, government and education, as well as in its direct-sales unit - by 8% and 44% respectively. Shares of Gateway gained 4.9%, or 8 cents, to $1.72 in after hours trading on the news. Despite his company's respectable results, recently appointed-appointed CEO Ed Coleman, said "I come to Gateway with a sense of urgency. While we have many strengths, business as usual is the farthest thing from my mind," Coleman said in his first earnings conference call as CEO.
Related links: Gateway Q3 2006 Earnings Call TranscriptGateway Investor Group Demands ChangeWhat Really Makes Money for Circuit City, Best Buy, Gateway & Dell?Gateway Denies Price Pressure in the PC MarketGateway a Promising Acquisition TargetGateway Slammed as Price Declines Offset Unit GrowthGateway Net Rises, But Revenue Falls; Direct Sales Plunge
Potentially impacted stocks and ETFs: Gateway (GTW), Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), Lenovo (OTCPK:LNVGY)

Electronic Arts Beats Estimates []

Summary: Electronic Arts virtually came out of nowhere to report record Q2 revenue in N. America and Europe, with total net revenue of $784 million, a 16% y-o-y increase. Net income was $22 million ($0.07/share), or a 57% y-o-y decline, but excluding special items it was $65 million ($0.21/share), beating the $0.02/share estimate of analysts surveyed by Thomson First Call. EA said sales were driven primarily by its sports titles, led by Madden NFL 07 and NCAA Football 07, which sold more than 7 million copies combined in the quarter. Chairman and CEO Larry Probst commented, "We are well prepared for the holidays on all platforms, including the Xbox 360, PlayStation 3 and the Nintendo Wii." ERTS-Q205-Q207-REV-NI EA was bullish in its Q3 outlook, saying it expects sales to range between $1.2 and $1.3 billion, with net income between $0.33 and $0.43 per share. EA raised its full-year guidance, saying sales will be between $2.95 billion and $3.125 billion, compared to its prior forecast of $2.8 billion to $3 billion. Full-year earnings per share is now seen at break-even to $0.15, versus -$0.30 to break-even, previously. EA's stock gained 0.45% during normal trading to close at $53.00, but jumped over 8% in after-hours trading to $57.31.
Related links: EA F2Q07 Earnings Call TranscriptEA Q2 Earnings Press Release • Additional earnings coverage: Bloomberg, Reuters and The Wall Street JournalEA Earnings Preview: Guidance Will Drive Price ActionGaming Software Stocks: Analyst Cuts Rating on Take Two, THQEA to Profit From the Gaming Console WarsThe Growing Importance of Online Gaming for Nextgen Consoles
Potentially impacted stocks and ETFs: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI), Microsoft (MSFT), Nintendo (OTCPK:NTDOY), Sony (NYSE:SNE) • ETF: iShares Goldman Sachs Software Index (IGV)

Solid Showing at Qualcomm []

Summary: Wireless giant Qualcomm has reported fiscal Q4 adjusted earnings of $705 million, or $0.42/share, beating analyst expectations of $0.41/share. Quarterly profit rose 14% on strong demand for cell phone chips. Total sales for the quarter were $2 billion, 28% above a year ago and ahead of analysts' forecast of $1.97 billion. For the fiscal year, adjusted net earnings were $2.8 billion, or $1.64/share, up 42% for the year. Sales grew 33% to $7.53 billion. The company's forecast for fiscal Q1 is for adjusted net income of $0.43/share on revenue between $1.98 billion and $2.08 billion, slightly shy of Street expectations of a $0.44 profit on $2.07 billion. For fiscal 2007, Qualcomm forecasts a profit of $1.44 on sales between $8.1 billion and $8.6 billion vs. analyst expectations of $1.82 on $8.6 billion. Qualcomm is in the middle of a legal dispute with Nokia over technology patent license fees. The companies' agreement, which Qualcomm is attempting to renegotiate, will expire on April 9, and Qualcomm forecasts a $0.04-$0.06 hit to fiscal Q4 2007 earnings if payments from Nokia stop at that time. Analysts agreed that the estimate was reasonable and appreciated Qualcomm's quantifying it in advance.
Related links: QUALCOMM F4Q06 (Qtr End 9/24/06) Earnings Call TranscriptCell Phone Makers: Nokia May Run, But Qualcomm's On An End RunIn WiMax, It's Qualcomm vs. The World
Potentially impacted stocks and ETFs: Qualcomm Inc. (NASDAQ:QCOM), Nokia (NYSE:NOK) • Broadband HOLDRs (NYSE:BDH), SPDR O-Strip (OOO), PowerShares Dynamic Large Cap Growth (NYSEARCA:PWB)

Tech Firms Woo 'Next Billion Users' [Wall Street Journal]

Summary: During Intel chairman Craig Barrett's trip this week to China and India, he made the comment, "There are about a billion Internet users. The next billion aren't going to be city dwellers." In order to reach these potential customers, Intel and other high-tech companies including rival Advanced Micro Devices, are undertaking efforts to develop localized, affordable technology, and channel investment capital totaling billions of dollars to rural areas, particularly in China and India. One of the problems global tech and software companies are facing are maturing markets in advanced economies, as well as in the more developed areas of emerging markets. Therefore, there's an understanding that investing in the more rural and poorer areas will help bridge the digital divide, and as Microsoft India chairman Ravi Venkatesan puts it, "This is a good way to do long, long-term business development. We are under no illusions that this is going to generate a quick payoff." Such efforts also win the support of host governments.
Related links: Earnings Conference Call Transcripts: Intel Q3 2006, AMD Q3 2006, Microsoft F1Q07 and Motorola Q3 2006In Recognition of New "Mixed" Software Environment, Microsoft To Work With Novell's LinuxLinux v. Microsoft: Third World ShowdownIntel Shares Boosted by Q3 Report, But Not Everyone Is ConvincedAMD Profit Margins Skid During Price War with IntelMicrosoft Beats the Street with 11% Earnings GainMotorola Gains Market Share But Misses Q3 Sales Target
Potentially impacted stocks and ETFs: Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Microsoft (MSFT), Motorola (MOT) • ETFs: iShares Dow Jones US Technology (NYSEARCA:IYW), iShares S&P Global Technology (NYSEARCA:IXN), iShares Goldman Sachs Semiconductor (IGW), Semiconductor HOLDRs (NYSEARCA:SMH), Technology Select Sector SPDR (NYSEARCA:XLK), Vanguard Information Technology ETF (NYSEARCA:VGT)


Cemex Officer Fails to Meet With Rinker to Discuss Bid [Wall Street Journal]

Summary: A week ago Rinker Group, an Australian building-products company that does 85% of its business in the U.S., received an offer from Mexican cement giant Cemex SA de CV of $13 a share. Rinker was quick to dismiss the cash offer, calling it Rinker Group Chart 3 11 06"opportunistic." On Sunday Mr. San Agustin, head of corporate strategic planning at Cemex, arrived in Sydney for media and analyst briefings, and said he hoped to meet Rinker Chairman John Morschel to discuss the offer. Yesterday, WSJ reports, Agustin left the country never having met Morschel, returning to the U.S. to talk with Rinker investors there and to apply for U.S. regulatory approval of the potential takeover. An insider: "He was out here predominately to meet with Rinker's Morschel, but no meeting could be arranged." Rinker shares climbed on the news, and are down slightly in the interim.
Related links: Press ReleaseAnalysts Not Impressed with Cemex's Bid for Rinker Group
Potentially impacted stocks and ETFs: Rinker Group (RIN), Cemex SA de CV (NYSE:CX)


Shoppers Step Back []

Summary: To the alarm of the retail sector, shoppers are beginning to rein in their spending on the brink of the holiday season. Wal-Mart reported a 0.5% same-store sales gain in October, missing analyst expectations -- its lowest monthly figure since December 2000. Wal-Mart also warned that November sales are not expected to exceed those of a year ago, a forecast that sent a chill through the retailers that supply the chain: Of the 104 U.S. suppliers that derive more than 10% of their sales from Wal-Mart, 62 saw their shares slide yesterday. Nor does the problem appear to be limited to Wal-Mart: 57% of the major retail chains have reported sales for October that disappointed the Street. This is the first time the retail sector as a whole has shown signs of widespread spending weakness. It remains unclear whether the poor showing means the widely feared slowdown in consumer spending has finally begun or simply that consumers took a breather before the holiday shopping season. Target reported a 3.9% rise in same-store sales, shy of analysts' expectation of a 4.2% increase, and Costco also disappointed with a 4% rise. BJ's Wholesale Club saw a 0.7% drop in same-store sales vs. expectations of a 1% rise, and Family Dollar Stores' figure came in at a 1% increase vs. a 3% analyst forecast. In specialty retailing, Ann Taylor, the Gap and Abercrombie & Fitch all disappointed, with Aeropostale the only chain to beat expectations. Department stores bucked the trend, with Federated and J.C. Penney both showing better-than-expected comps.
Related links: When Goliath Stumbles: Wal-Mart, Target and CostcoWal-Mart: October Same Store Sales Rose (Only) 0.5%, Lowest Since Dec. 2000Retail Wrapup: Bullish on Target, Old Navy and TJ MaxxWal-Mart Outlook May Damp Holidays As Retailers Post Mixed October Sales [Wall Street Journal]
Potentially impacted stocks and ETFs: Wal-Mart Stores Inc. (NYSE:WMT), Target (NYSE:TGT), Costco (NASDAQ:COST) • Market 2000 HOLDRs (NYSEARCA:MKH), iShares Russell 1000 Growth Index (NYSEARCA:IWF), iShares Russell 3000 Growth Index (IWZ), PowerShares FTSE RAFI US 1000 (NYSEARCA:PRF)

Whole Foods Sees Slowing 2007 Growth, Shares Fall [Reuters]

Summary: Whole Foods Market warned of substantially lower sales growth in 2007, with its CEO John Mackey saying it would "be a transition year." As a result, its shares tanked 14% in after-hours trading to $51.70, after falling nearly 5% during normal trading to close at $60.12. In pre-market trading today it has traded as low as $48.50. Same-store-sales for '07 were forecast between 6-8%, compared to double-digit growth over the past three years. WFMI-1yr-chart-110206 Mackey noted the intensifying competition, and said there was some cannibalization from new Whole Foods store openings. EPS growth will be "significantly impacted" by higher store opening costs associated with its plans to accelerate store growth. Although, Mackey said the new stores will be important sales drivers "in the not-so-distant future." Whole Foods Q4 earnings announced yesterday missed analyst estimates for revenue by about $30 million at $1.29 billion, despite 16% y-o-y growth. Net income was up more than 3-fold to $39.8 million ($0.28/share), a favorable comparison because of a one-time charge last year.
Related links: Whole Foods: Q4 2006 Earnings Press Release and Conference Call Transcript • Notable Calls Blog: Analysts comment on WFMI's disappointing results (scroll/search for WFMI) • Additional earnings coverage: Bloomberg and MarketWatch • Jim Cramer made a bearish call on Whole Foods on Oct. 30th, whereas he was bullish on Oct. 20th • Hain Celestial Group: Q1 2007 Earnings Press Release • In late August, Reuter's Marc Gerstein pointed out the vulnerability of some upscale consumer stocks
Potentially impacted stocks and ETFs: Whole Foods Market (WFMI), Wild Oats Markets (OATS), Hain Celestial Group (NASDAQ:HAIN), Kroger (NYSE:KR), Safeway (NYSE:SWY), Wal-Mart (WMT)


Smith & Nephew in Early Stage Tie-Up Talks with Biomet [Reuters]

Summary: British medical devices maker Smith & Nephew is in early talks to purchase American rival Biomet for between $10.5 billion and $12 billion. Biomet is a leader in orthopedic devices, and the combined company would join the ranks of market leaders Stryker Corp., Johnson & Johnson and Zimmer Holdings Inc. S&N CEO Chris O'Donnell warned that though there is logic to the acquisition, a deal could be complicated by the difficulty of integrating two sales forces. Still, Biomet's share price has risen as much as 18% over the past month on speculation that it will be acquired. Biomet has retained Morgan Stanley to assist it in locating "strategic alternatives," but has not confirmed that it is interested in a transaction. O'Donnell said S&N's sales of orthopedic reconstruction devices rose 13% percent in Q3, well beyond the market's 7% growth. Together, S&N and Biomet would have 14% of the global orthopedics market, on a par with Zimmer and slightly behind Stryker and Johnson & Johnson. Meanwhile, S&N reported a 50% Q3 earnings net profit rise $93 million from $62 million a year earlier on a stronger U.S. market and the rollout of new products. Sales increased 11% to $679 million from $612 million.
Related links: Biomet: Good Product Innovation, But Weak Financial PerformanceThese Medical Device Companies' Time May Have Come...AgainSmith & Nephew Holds Tie-Up Talks With Biomet [Wall Street Journal]
Potentially impacted stocks and ETFs: Biomet Inc. (Pending:BMET), Smith & Nephew plc (NYSE:SNN), Stryker Corp. (NYSE:SYK), Johnson & Johnson (NYSE:JNJ), Zimmer (NYSE:ZMH) • iShares Dow Jones US Medical Devices (NYSEARCA:IHI)


CBS Profit Advances 26% on TV, Outdoor Advertising [Bloomberg]

Summary: CBS Corp. announced that operating earnings rose 26% due to the success of billboard and television advertising; nevertheless, the company's shares fell 11 cents to $28.70. The most-watched network reported $323.6 million, or 42 cents a share, compared to $256.9 million, or 33 cents a year ago. This was due in part to a 34% increase in outdoor advertising revenue. However, the company's net earnings have declined since its split from Viacom, and the defection of Howard Stern to Sirius Satellite Radio caused a 10% fall in radio revenues. CEO Leslie Moonves cut programming costs, has moved several shows, such as "CSI Miami" and the nightly news with Katie Couric, onto the web, and is currently making deals with Yahoo!, YouTube and other web sites to generate more revenue. CBS also announced a plan to buy back up to $1.5 billion worth of shares in the upcoming year.
Related links: CBS Q3 2006 Earnings Call TranscriptCBS Cashes In: Fool by Numbers [Motley Fool] • Nielson/NetRatings: TV Broadcasters Should Put Content On WebNYT: Google-YouTube Deal Could Happen Today; Content Deals with CBS, Sony, Universal CBS Op Earnings Rise, Announces Buyback [Associated Press]
Potentially impacted stocks and ETFs: CBS Corp. (NYSE:CBS) Viacom (NASDAQ:VIA) • Competitors: Clear Channel Communications (NYSE:CCU), Sirius Satellite Radio (NASDAQ:SIRI)

HEARD ON THE STREET: Did Tribune Blow Its Deadline? and Tribune to Weigh Offers for Parts Of Its Holdings [Wall Street Journal]

Summary: In what is shaping up to be a far more complicated endeavor than first thought, traditional media giant Tribune Company is having trouble auctioning off its shares at a profit. Tribune bull, Barry Lucas, senior vice president at Gabelli & Co. Research, admits that, "this is not the easiest environment to sell what's charitably called 'legacy media assets.'" When Tribune's largest shareholder, the Chandler Family, agitated for a sale earlier this year, they believed the company - owner of well-known names like The LA Times, The Chicago Tribune, NY Newsday, the Chicago Cubs and several TV stations - would fetch between $42 and $46 a share. Now it appears shareholders will receive no more than between $32 and $33 a share (the company currently trades for $32 and change). The company's attempted, and as of yet, unsuccessful sale is turning out to be a test case for other traditional media companies who may be considering going down the same path in the near future. While there have been suggestions Tribune Co. break up its empire, the assumption being the individual parts are worth more separately than together, the ensuing result would be exorbitant taxes. That combined with debt would mean when all was said and done, Tribune would be worth just $17 a share. In the meantime, falling revenue and profits, as well as a loss of advertising sales and circulation to the internet, means the pressure remains for Tribune to figure out some way to preserve its value before it's too late.
Related links: Tribune Q3 2006 Earnings Call TranscriptScary Times for Newspapers: Sharpest Circulation Drop in 15 YearsNewspapers: Another Slide Coming?Barron's Buries the Lede on Newspaper StocksTribune Group Discusses its Internet Businesses and Online Job Site CareerBuilder (TRB, MNST, GCI, KRI)Declining Print Ad Revenues Take Toll on Newspaper EarningsReport: Tribune considering breakup after low bids [Orlando Business Journal]
Potentially impacted stocks and ETFs: Tribune Company (TRB), The Washington Post Co. (WPO), Gannett Co. (NYSE:GCI), the New York Time Company (NYSE:NYT), The McClatchy Company (NYSE:MNI)


ECB Holds Rates, Hawkish Tone Confirms Rise on The Way [Reuters]

Summary: The European Central Bank left its interest rate unchanged at 3.25%, but sent a hawkish signal that a quarter-point rate hike will come next month, as well a possibility for further hikes next year. ECB President Jean-Claude Trichet declined to give '07 guidance but his emphasis on "strong vigilance" gave market participants the impression that there will be more rate hikes. Global-Central-Bank-Rates-110306 European stocks were sold as a result, and the euro gained against the dollar. Trichet commented that economic growth in the euro zone seems it will maintain its momentum in the second-half of this year, but probably won't match the "exceptional" growth rate in the first-half. The ECB has a goal of keeping inflation under 2%, although Trichet is doubtful for 2006 and '07, but says he is hopeful for '08. Next month, the ECB will publish updated forecasts for 2007 and its first for '08.
Related links: ECB: Monetary policy decisions press release and Jean-Claude Trichet: Introductory statement with Q&A • WSJ: European Bank Holds Key Rates But Hints at RiseFed Decision, Notable Changes, and Economist ReactionsWeak Core CPI Keeps Pressure on BoJ to Hold RatesWhich Currency ETF is the Best Hedge Against the Dollar?Fed Officials Disagree, But Number of Hawks Growing
Related ETFs: iShares Lehman TIPS Bond (NYSEARCA:TIP) • iShares Lehman 1-3 Year Treasury Bond (SHY) • iShares Lehman 7-10 Yr Treasury Bond (IEF) • iShares Lehman 20+ Year Treas Bond (TLT)

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