Summary: Shares of big pharmaceutical companies slid yesterday as the House of Representatives was taken by the Democrats. The Dow Jones Wilshire U.S. Pharmaceuticals Index, missing the party enjoyed by the record-setting DJIA, fell 1.7%. Analysts remain sanguine that real change is unlikely with a slim Democratic majority and a Bush veto pen still in the White House, but investors are rattled by the ascension of Nancy Pelosi -- a vocal advocate of legislation that would allow the government to negotiate directly with drug companies to purchase medicines for Medicare, a process the industry regards as the imposition of price controls -- to the position of Speaker of the House. Analysts believe the newly Democratic House is far less a concern to big pharmaceuticals than the small number of new drugs in the pipeline and the threat of generic drug competitors. Many companies are also faced with expiring patents on blockbuster drugs and are feverishly seeking fresh FDA approvals. Some observers are apprehensive that the Democratic conquest of the House implies a Republican presidential defeat in 2008, but most analysts believe the psychological impact on big pharmaceutical stocks will be brief.
Related links: Additional coverage: Newsday, MarketWatch • Commentary: Merck Wins FDA Approval for New Type-2 Diabetes Drug • Drug Companies Threatened By Proposed Patent Legislation • Generic Cholesterol Drugs Pressuring Not Only Merck, But Also Pfizer
Potentially impacted stocks and ETFs: Merck (MRK), Schering-Plough Corp. (SGP), Pfizer Inc. (PFE) • ETFs: iShares Dow Jones US Pharmaceuticals (IHE), Pharmaceutical HOLDRs (PPH), First Trust Morningstar Div Leaders Idx (FDL), SPDR Dividend ETF (SDY), WisdomTree High-Yielding Equity (DHS)
TECHNOLOGY AND INTERNET
Summary: In a move to improve its data protection software, Network Appliance announced that it will acquire Israeli start-up Topio, for approximately $160 million cash. Expected to formalize in December, Topio will become a new business unit within NetApp, with its research and development team remaining in Israel. The companies were strategic partners before the acquisition. Topio provides enterprise-class software for data replication and rapid recovery which complements nicely NetApp's storage solutions business for data rich organizations.
Related links: Byteandswitch.com • Barron's Tech Trader Daily. Commentary: Network Appliance's Shrewd Acquisition May Bring Upside to Its Stock • Cramer's Take on NTAP. Conference call transcript: Network Appliance Q1 2007 Earnings Conference Call Transcript (NTAP)
Potentially impacted stocks and ETFs: Network Appliance (NTAP). Competitors: Hewlett-Packard Company (HPQ), Dot Hill Systems (HILL), Blue Coat Systems. (BCSI), Sun Microsystems (SUNW), Overland Storage (OVRL), Cisco Systems (CSCO) • ETFs: Internet Architecture HOLDRS (IAH), PowerShares Dyn.Hdwr. & Cons.Elect. (PHW).
Priceline.com Beats Estimates [TheStreet.com]
Summary: Internet retailer Priceline.com had earnings of $1.05/share ($48.8M), down from $3.71/share ($171.6M) a year ago, but beating analyst forecasts of $0.67/share. Last-year's numbers included a tax benefit without which earnings would have been a mere $0.47/share. Sales were up 21% ($313.5M). Priceline Europe had a stellar quarter, increasing gross travel bookings by 121%. For Q4, the firm gave guidance of a 15% revenue increase. Shares of Priceline were up $3.05 (+7.6%) in after-hours trading.
Related links: Q3 2006 Earnings Call Transcript • Additional coverage: Reuters, Newratings.com. Commentary: Priceline : Strong Growth That Doesn't Look Sustainable • Net Stocks Atop Short Interest List • Priceline's Big European Surprise • Priceline Continues To Outperform • Priceline's Headwind • Priceline: Surprising International Strength & Continued Domestic Weakness
Potentially impacted stocks and ETFs: Priceline.com Inc. (PCLN) • Partners: Sabre Holdings Corp. (TSG) • Competitors: Expedia Inc. (EXPE), lastminute.com
New Nvidia Chip Steps Closer to Supercomputing in the PC [New York Times]
Summary: Yesterday, NVIDIA introduced its newest graphics card, the GeForce 8800, which includes the unveiling of CUDA GPU technology featuring 128, 1.35GHz processor cores. NVIDIA is competing with ATI Technologies to develop graphics chips with graphical processing units [GPU] that rival the speed and power of microprocessors. The chips are especially popular among gamers and graphic artists. The GeForce 8800's price tag is $449-$599. It is said the 8800 can handle the same computations capable of the Cell processor in Sony's PlayStation 3. NVIDIA expects to further close the gap between super-computers with the next-generation 8800 due out sometime next year. ATI and AMD say they could introduce a chip in 2008 that combines conventional microprocessors and graphics processors.
Related links: NVIDIA press releases: World' first real-time virtual celebrity, CUDA GPU technology unveiled, New GeForce 8800 and nForce 680. Commentary: Nvidia Buying Portalplayer; Who Knew Last Week? • NVIDIA and PortalPlayer, Not Intel and NVIDIA • Nvidia Threatened by AMD ATI Merger.
Potentially impacted stocks and ETFs: NVIDIA (NVDA) • Competitors: ATI Technologies, recently acquired by Advanced Micro Devices (AMD) and Intel (INTC) • ETFs: streetTRACKS Morgan Stanley Technology (MTK), SPDR Semiconductor (XSD), First Trust NASDAQ-100-Tech Index (QTEC), Rydex S&P 500 Pure Growth (RPG)
Napster Snoozing Less [TheStreet.com]
Summary: Online music company Napster posted a $0.21/share ($9M) loss for Q2, but beat Street estimates of -$0.27/share. Its total paid subscriber base of 518,000 was up slightly. Napster said it expected "double-digit" revenue growth in 2007. There has been speculation the firm might be acquired -- it hired UBS to help it explore strategic alternatives -- but CEO Chris Gorog said on the earnings conference call he would not discuss the situation "until there is something to announce." Gorog cited projected growth in music-enabled cell phones to provide growth for Napster going forward; the company recently inked deals with NTT DoCoMo Inc. in Japan and Cingular, the latter saying it expects 1/2 of all handsets shipped in 2007 will be music enabled. Its website's unique visitors grew 42%, a boon for its ad-supported free service. CEO Gorog: "We are more optimistic about our business than we have been in some time."
Related links: Earnings Call Transcript. Additional coverage: Reuters. Commentary: Napster to "Thoughtfully Examine" Partnerships • Napster Gives It Away For Free • Ugly Conference Call Moments
Potentially impacted stocks and ETFs: Napster Inc. (NAPS), UBS AG (UBS) • Partners: NTT DoCoMo Inc. (DCM), AT&T Inc. (T) and BellSouth Corp. (BLS) own Cingular • Competitors: Apple Computer Inc. (AAPL), RealNetworks Inc. (RNWK)
Summary: AOL announced its acquisition of Relegence, a subscription-based company which provides financial information from over 20,000 content sources. Details of the transaction have not been released, but the deal may be worth close to $65 million according to Globes, an Israeli business publication. Privately-held Relegence has a staff of 60 employees located in New York, London and Tel Aviv, and is the fifth acquisition for AOL parent Time Warner's internet division since the beginning of 2006. AOL has been making changes to attract more online advertising, and revenue from ads jumped 46% in the third quarter.
Related Links: Relegence home page • Additional coverage: CNET News.com. Commentary: Time Warner Considers Cutting AOL Loose • Time Warner Discusses AOL and Online Ad Revenue Growth • AOL Restructures - Again
Potentially impacted stocks and ETFs: Time Warner (TWX) • Competitors: Yahoo (YHOO), Google (GOOG)
Summary: Roaring consumer interest in fast Internet video as well as investments by corporations in more powerful routers and switches gave Cisco Systems a 28% boost in fiscal Q1 profit. Net income for the period ended Oct. 28 rose to $1.61 billion, or $0.26/share, from $1.26 billion, or $0.20/share, a year earlier. Sales rose 25% to $8.2 billion, comfortably exceeding analyst expectations. This is the third consecutive quarter in which Cisco's sales have increased at least 15%. The company's shares rose 4.1% after the report and are up 47% on the year. In February, Cisco acquired cable TV set-top box manufacturer Scientific-Atlanta for $6.9 billion. Sales at the unit came in at $584 million, again topping analyst forecasts. Cisco also won lucrative contracts this quarter from South Korea's KT Corporation and from Verizon Communications, which is interested in Cisco's brand new video-conferencing system.
Related links: Earnings conference call transcript: Cisco FQ1 2007 • Additional coverage: TheStreet.com, The Wall Street Journal • Commentary: Expectations High Going into Cisco Earnings, Analysts More Confident in Cisco, Barron's: Cisco To See Ongoing Growth, Cisco Unveils High-End Video Conferencing Technology, Cisco to Offer YouTube-like Service for Businesses
Potentially impacted stocks and ETFs: Cisco Systems, Inc. (CSCO) • Competitors: Nokia Corp. (NOK), Lucent Technologies Inc. (LU), Juniper Networks, Inc. (JNPR), Nortel Networks Corp. (NT) • ETFs: iShares Goldman Sachs Networking Index Fund (IGN), Internet Architecture HOLDRs (IAH), iShares S&P Global Technology (IXN), iShares Russell 1000 Growth Index (IWF), iShares Russell 3000 Growth Index (IWZ)
Summary: France's Renault and India's Mahindra & Mahindra announced they will form a 50:50 joint-venture to build an auto plant in India. Renault/Nissan CEO Carlos Ghosn is reviewing Nissan possibly joining the venture, after he said Nissan cancelled plans to build a factory with Suzuki. Nissan will still purchase cars from Suzuki to sell in India. Ghosn commented, "The Indian market (is) one of the fastest-growing in the world and offers an excellent opportunity for growth and profitability." He expects India's auto sales to reach 2 million by 2010, from 1.14m last fiscal year. Currently, only 1 in 7 owns a car. Renault and Mahindra created a $160 million venture last year in India, to build Renault's Logan sedan. The new plant is reportedly expected to have a capacity of 300,000 units by 2009 and 500,000 by 2012 -- approaching 25% of the Indian market (sales-base) per Ghosn's estimates.
Related links: Press releases: Nissan and Mahindra & Mahindra • Commentary: Tata Motor's Disappointing October Sales • Tata Motors: Continuing Positive Outlook But Currently Overvalued • GM, Ford Eye India's Middle Class.
Potentially impacted stocks and ETFs: Nissan (NSANY) • Competitors: Tata Motors (TTM), Honda (HMC), Toyota (TM), General Motors (GM), Ford (F) and DaimlerChrysler (DCX) • Editor's note: Renault and Mahindra & Mahindra do not trade in the U.S.
MasterCard Wins Admission To Sam's Club [Wall Street Journal]
Summary: In a rarity for the credit card business, discount retailer Sam's Club has decided to accept Mastercard from its customers but not Visa. The cost conscious Sam's until now only accepted Discover Card (owned by Morgan Stanley) or its own cards. The chain is under considerable pricing pressure from two other large retail discounters - Wal-Mart and Costco. The move is significant for Mastercard as it vies for market share with Visa, who next year will follow Mastercard's lead and go public. The credit card market share breakdown is currently as follows: Visa leads the pack with 55% followed by Mastercard with 29%, American Express with 10% and Discover bringing up the rear with 5%.
Related links: Visa IPO Should Pose Challenge to MasterCard • Mastercard's Net Income Increases 82% • Bank of America Doesn't See Any Acquisitions; Both BoA and Wal-Mart to Offer Credit Cards in China • Retail Weakness: So Much for the 'Cheaper Gas Effect' • When Goliath Stumbles: Wal-Mart, Target and Costco
Potentially impacted stocks and ETFs: Mastercard (MA), Wal-Mart (WMT), Costco (COST), Morgan Stanley (MS), American Express (AXP), BJ's Wholesale (BJ) • ETFs: PowerShares Dynamic Retail (PMR)
Summary: UnitedHealthcare's outgoing CEO William W. McGuire and his successor, Stephen J. Hemsley, have agreed to return about $390 million in stock-option compensation as a result of an investigation into options backdating -- the biggest voluntary options forfeiture in history. At the same time, the company has announced that it will restate its earnings results dating back to 1994. The SEC is investigating more than 130 companies for options backdating, and UnitedHealthcare is one of the largest. In 1997, 1999 and 2000, Dr. McGuire received option grants on the day of the shares' lowest price of the year -- a lucky pattern with odds of 200 million to one. In addition to returning unexercised backdated options, McGuire has also agreed to forgo any benefit from such options that he has already exercised -- though it remains unclear how that forfeiture will be accomplished. At the end of 2005, McGuire held $1.78 billion worth of unexercised options. The company's shares dropped $1.57, or 3.2%, to close at $48.
Related links: The original WSJ story that broke the options scandal • Additional coverage: Newsday , Business Week • Commentary: UnitedHealth CEO Departure: Pain or Relief For Investors? • Updated WSJ Options Scandal Scorecard
Potentially impacted stocks and ETFs: UnitedHealth Group, Inc. (UNH) • Competitors: Wellpoint Inc. (WLP), CIGNA Corp. (CI), Aetna, Inc. (AET), Humana Inc. (HUM) • ETFs: iShares Dow Jones US Healthcare Provider (IHF), Vanguard Health Care ETF (VHT), and PowerShares Dynamic Large Cap Growth (PWB) have UNH as a top-ten holding
Summary: Cablevision reported a lower loss than last year for the 3rd quarter thanks to increased phone subscriptions. This year the cable television operator was down $59.2 million, or 21 cents a share, compared to $63 million, or 22 cents for the same period last year. Sales grew 13% to $1.41 billion due to an 83% rise in voice customers and a revenue growth of 18% from Cablevision's internet, telephone and cable package. The company's shares have risen 17% in the past month on the news of a proposed $7.9 billion buyout by Cablevision founders, the Dolan family. However, shares were down 4 cents to $27.89.
Related links: Earnings conference call transcript: Cablevision 3Q 2006. Additional coverage: Wall Street Journal Online
Cablevision Growth Slows. Commentary: Memo To Cablecos: Fixed Line Is Dead • Investors Feel 'Short-Changed' in Dolan's Bid To Take Cablevision Private • Is Cablevision a Buy Following the Dolan Family Offer?Cable Stocks: Will The Rally Continue? • Dolan Family Wants To Take Cablevision Out of Wall Street's Watchful Eye
Potentially impacted stocks and ETFs: Cablevision (CVC) • Competitors: Verizon (VZ), Comcast (CMCSA), Viacom (VIA), Time Warner (TWX)
Summary: News Corp. reported strong earnings yesterday for the quarter ended September 30 - the first of its new fiscal year. The breakdown was as follows: $843 million net compared with a net loss of $433 million a year ago (+$580 million a year ago when 1-time operating costs are eliminated) - good for 28 cent a share (vs. -$0.14 last year). Revenue rose 4.1% to $5.91 billion from $5.68 billion a year ago, however operating income fell 6.4% to $851 million as sharp declines in News Corp.'s unpredictable film and TV business offset nice gains in its broadcast and cable television networks. Additionally, the HarperCollins book publishing unit had a 21% decline in earnings from a year ago. CEO Peter Chernin said the company was in the "very, very early stages" of turning online traffic at MySpace into revenues, noting that a deal with Google Inc. to integrate search technology into MySpace was just beginning, adding "We have more page views than we know what to do with." In addition to News Corp., the company owns the Twentieth Century Fox studio, Fox News Channel and the New York Post.
Related links: News Corp F1Q07 (Qtr End 9/30/06) Earnings Call Transcript. Additional sources: Bloomberg.com • WSJ • Fox Movies. Commentary: YouTube vs. MySpace Growth: No Contest • News Corp: Pay Attention to the MySpace Factor • Cramer's Take on NWS.
Potentially impacted stocks and ETFs: News Corp. (NWS), Google (GOOG) • Competitors: Time Warner (TWX), Disney [ABC] (DIS), CBS (CBS), Viacom (VIA), GE [NBC] (GE) • ETFs: PBS
Summary: Eli Broad, a billionare philanthropist, and Ron Burkle, owner of a number of supermarket chains, have expressed interest in jointly acquiring the Tribune Company, after separately making inquiries into buying subsidiary L.A. Times. A drooping stock price and sliding earnings have shareholders demanding that the media conglomerate sell off all or part of itself. Yesterday Dean Baquet, editor-in-chief at the L.A. Times, was fired for not making additional staff cuts as requested by the Tribune. After receiving very low bids for the whole company, it started putting subsidiaries on the block, which would have created significant tax issues. If the Broad-Burkle acquisition goes through, industry analysts expect them to spin off some smaller media companies and the Chicago Cubs baseball team. Movie mogul David Geffen has also expressed interest. The company currently trades around $32; it was at $50 as recently as 2004. Analysts estimate the company could receive $40 a share, a 25% premium. This would bring the sale price to $15 billion, including the Tribune's $5 billion in debt.
Related links: Additional coverage: MarktWatch.com, WSJ • Commentary: Fewer Newspapers With Lower Circulation Is the Way of the Future • Low-Balled in Its Bid to Sell, Tribune Company Ponders Its Options • Earnings Conference Call Transcript: Tribune Q3 2006
Potentially impacted stocks Tribune Company (TRB) • Competitors: Dow Jones & Company (DJ), The New York Times Co. (NYT), Gannett Co. (GCI), The Washington Post Co. (WPO), The McClatchy Company (MNI), News Corp. (NWS)
Summary: China's October trade surplus grew 56% m-o-m, and 99% y-o-y to a new October record of $23.83 billion, smashing economists' forecast of $17.7b. Through October its surplus totals $133.7b, having already exceeded last year's full-year total of $102b in Sept. Meanwhile, the yuan reached its highest level against the dollar at 7.8661, but is only up 3.1% since it was revalued by 2.1% in July '05. Economists at least partially blame the yuan for the extraordinary trade surplus and China's $1 trillion-plus of foreign reserves. October exports grew 29.6% y-o-y to $88.3b, and imports +14.7% to $64.3b. The slower rate of imports is being blamed on Beijing's attempts to curb over-investment. China's central bank is seen having to raise rates for the 4th time this year. One analyst says instead of another rate hike, he expects another bank reserve requirement ratio increase.
Related links: Additional coverage: Bloomberg and L.A. Times/AP. Commentary: China's Fuel Imports Surge in September • China's Foreign Reserves Approaching $1 Trillion • China's Exports are Like the Energizer Bunny, Trade Surplus Keeps Growing • China: A Country of Diverse Consumers • China's Massive Infrastructure Spending for '08 Olympics and Beyond
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