Summary: According to Per Nordlof, Ericsson's director of product strategy and portfolio management, Sony and Ericsson are set to expand their venture to mobile and broadband TV. Nordlof commented, "We see a mass market for mobile TV within two years." He expects 30% of cell phone users to regularly watch TV on their phones. The Sony Ericsson JV has enjoyed success and reported its strongest earnings ever last quarter. Nordlof acknowledged the JV's confidence and said, "... we will work to develop software that connects the gadgets in the homes with the outer world."
Related links: Media coverage: Seattle PI. Commentary: Nokia: 'The Future of TV Will Be Personal' • Report: Apple Developing iChat Smartphone. Conference call transcripts: Ericsson Q3'06,Sony F2Q'06.
Potentially impacted stocks and ETFs: LM Ericsson Telephone (ERIC), Sony (SNE) • Competitors: Motorola (MOT), Nokia (NOK), Apple (AAPL) • ETF: Wireless HOLDRs (WMH)
Nortel's CEO Details Recovery Plan [Wall Street Journal]
Summary: After its seventh loss in the past nine quarters, Nortel's CEO Mike Zafirovski is planning dramatic cost-cutting measures such as reducing spending on materials, R&D and administrative costs -- which are going to be slashed 50%. Zafirovski hopes to save $1.5b/year by 2008, commented that the telecommunications firm is on the "path to improved profitability," and is planning new products to raise profit margins. According to Ping Zhao, a senior analyst with CreditSights, Nortel suffers from "too many vendors and too little business," as evidenced by its third quarter loss of $99 million, in spite of its 17% revenue increase. Although competitors Alacatel and Lucent are easing competitive pressure by joining forces, Nortel has been passed up by prospective buyers because of its $4.4 billion debt and negative cash flow. Nortel faces the additional obstacle that phone companies may not install equipment fast enough to help the company meet its targets.
Related links: Media coverage: AP. Commentary: Nortel Reports Smaller Loss; Shares Fall 6% Winners and Losers in the Optical Communications Market Nortel Networks Refusing to Write Down Tax-Deferred Assets Patricia Russo on Taking the Lucent-Alcatel Helm. Conference call transcripts: Nortel Q32006.
Potentially impacted stocks and ETFs: Nortel (NT), Alcatel (ALA), Lucent Technologies (LU), Cisco Systems (CSCO)
Summary: Sony discovered a defect in some of its Cyber-shot compact digital cameras, and says that it will fix the affected cameras without charge. The liquid crystal display screen may present a distorted image or no image at all in eight of its camera models sold between September 2003 and January 2005. Sony executives would not disclose how many cameras are affected. The company has lately been beset with problems over defective products; last October there were problems with 20 of its digital camera models, and just last month, Sony undertook a massive recall of laptop batteries which had an impact on all laptop manufacturers. This comes in the midst of a fierce competition between the Japanese electronics company and its rivals over flat-panel TVs and DVDs, and Sony hopes for a successful release of PlayStation 3, which premiered in Japan and the U.S in early November, while its European release has been delayed until March because of production difficulties.
Related links: Commentary: Sony's Q2 Earnings Tank on Battery Recall Costs, PS3 Development • Sony's Battery Production Capacity Strained, Sanyo to Benefit • What is Sony Management Up To? • Top 10 Holiday Season Toys and Video Games -- Lycos. Conference call transcripts: Sony F2Q06.
Potentially impacted stocks and ETFs: Sony (SNE) • Competitors: Matsushita Electric Industrial Co. Ltd. (MC), Koninklijke Philips Electronics NV (PHG) • ETFs: BLDRS Asia 50 ADR Index ETF (ADRA)
ENERGY AND MATERIALS
Summary: The head of IR at Brazilian steelmaker CSN told the press, "Tata is a nice fit for Corus, but we think that we probably are the best fit." India's Tata Steel already bid 455 pence for London-based Corus on Oct 20th, when CSN came in with a bid of 475 pence last week, pending due diligence. A separate Bloomberg report today says Tata called media reports of the firm's board approval to raise its offer "speculative." Shares of Corus traded above 500 pence intra-day, reaching multi-year highs. CSN's IR head commented, "We are ready to grow internationally because we need to complement our domestic market. There will be a lot of synergies between CSN and Corus." With the Corus deal valued in excess of $8b, it would be the second largest of the year behind the $38.3b Mittal-Arcelor takeover. A news report from India says UBS and Goldman Sachs, both advisers to CSN, have taken an 11% stake in Corus.
Related links: Media coverage: Bloomberg and Business Standard. Commentary: Top Industry Groups in 2006: Steel, Telecom • Metal and Mining ETF: A Safer Way to Play Steel • New Van Eck Global Steel ETF • A Steel Industry Primer.
Potentially impacted stocks and ETFs: Corus Group plc (CGA), Companhia Siderurgica Nacional (SID) • ETFs: Market Vectors - Steel (SLX), SPDR Metals & Mining (XME)
Seeking Revenge? Moyes Extends Offer for Swift [Wall Street Journal]
Summary: In a buyout offer that may be more about ego than economics, former Swift Transportation Co. Chairman and CEO is trying to retake the company. According to Donald Broughton, an analyst at A.G. Edwards & Sons Inc. in St. Louis, "If Mr. Moyes is successful, he will be able to fire the people who fired him." With funding of nearly $3 billion from Morgan Stanley, Moyes has offered a 21% premium over current share price with the possibility of increasing his offer een further should the board reject it in its current state. Moyes had been ousted from the company he lead for 21 years in the midst of an options scandal last year.
Related links: Commentary: Trucker C.H. Robinson's Strategy of Not Owning Its Trucks Pays Off • Landstar's Success is Due to Their Business Model. Conference call transcripts: .
Potentially impacted stocks and ETFs: Swift Transportation Co. (SWFT) • Competitors: J.B. Hunt Transport Services (JBHT), Landstar System (LSTR), Werner Enterprises, Inc. (WERN).
Kerkorian to reduce his stake in GM [LA Times]
Summary: Kirk Kerkorian's (pictured) Tracinda Corp. announced the sale of a quarter or its stake in General Motors - 14 million shares - sending shares lower by 4.7% Wednesday. The move would bring Kerkorian pre-tax profits of $38.6 million in addition to freeing up $423 million for other investments. Nearly simultaneously to announcing its GM sell-off, Kerkorian's Tracinda announced plans to acquire an additional 15 million more shares of MGM Mirage - upping its stake from 56% to nearly 62% - for an average price of $55 a share, or 12% over its price during the time of the announcement. Shares rose 10.6% as a result.
Related links: Media coverage: WSJ. Commentary: • GM's Cost-Cutting Story: Will Kerkorian Cut And Run? • Kerkorian Dumps GM Shares Jerry York Quits GM Board - Is a Kerkorian Fire Sale Next? • With the GM Merger a No Go, What Kerkorian's Next Move? • Kirk Kerkorian's Next Move? GM's Guess is as Good as Mine • MGM Delivers Earnings In Spades.
Potentially impacted stocks and ETFs: General Motors (GM), MGM Mirage (MGM).
AEROSPACE AND DEFENSE
Airbus, Boeing Forecast Clear Skies [Wall Street Journal]
Summary: Boeing and Airbus disagree on the direction in which the aircraft business is headed with Boeing believing travelers will continue to want smaller, more efficient planes and Airbus believing travelers will want to travel in planes like the Superjumbo A380. The companies do agree over what the total value will be for their industry by 2025 - $2.6 trillion, as well as that much of the growth demand will come from emerging markets China and India.
Related links: Commentary: Boeing One-Ups Airbus Yet Again With FedEx Contract • Airbus' Loss in Market Share is Boeing's Gain • Boeing: Get Ready to Fly • Embraer Poised to Capitalize on Airbus' Jumbo-Jet Sized Difficulties. Conference call transcripts: Boeing Q3 2006.
Potentially impacted stocks and ETFs: Boeing (BA) • Competitors: Embraer-Empresa Brasileir de Aero. (ERJ) • ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA).
Japan's Sprinting Stock Market Stumbles Over Earnings Worries [Wall Street Journal]
Summary: Japanese stocks are starting to lose their luster after surging 40+% last year. It's not that earnings have been disappointing to-date, but investors are becoming concerned about full-year profits. Goldman Sachs' research shows Japanese stocks have turned in average first-half earnings of 11.7%, versus expectations of 5.2%, and sales growth of 9.8%, versus 8.5%. However, investors, especially foreigners are skeptical of Japanese consumer spending and a possible slowdown in the U.S. economy, and thus are critical of full-year downward revisions of earnings. Even the Cabinet Office downgraded its assessment of the economy for first time in nearly two years, citing "some weakness in consumption." In contrast, the Japan bulls are still out there and point to sustained earnings growth and increasing dividend and M&A activity.
Related links: Media coverage: Reuters. Commentary: Predicting a Strong Year-end Finish for Japanese Equities • Weak Yen to Persist, BoJ Not Seen Hiking Rates Until Q1'07 • Nomura's Individual Investor Survey for November • Sluggish Consumer Spending Dampens Japan's Economic Expansion.
Potentially impacted stocks and ETFs: ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/Topix 150 (ITF), Vanguard Pacific Stock (VPL) • CEFs: Japan Equity Fund (JEQ), Japan Smaller Cap Fund (JOF)
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