Home Sales and Consumer Confidence Get Year-End Boosts, but Jobless Claims on Upswing
U.S. existing home sales rose in November for the second month in a row and consumer confidence reached an eight-month high in December, suggesting the U.S. economy might be bouncing back from two quarters of slowing growth. Business activity also grew in the Midwest in what might be the beginning of a rebound in the manufacturing sector. Bond prices fell on the reports, which were stronger than expected, since the odds are now slimmer that the Fed will cut interest rates early in 2007. The National Association of Realtors said existing home sales rose 0.6% in November, while the Conference Board said its index of consumer sentiment reached 109.0 in December, the highest since April. The number of homes on the market dropped 1%, although median home prices are still down 3.1% from a year ago. Though the news is mixed, the home sales report suggests the sector might have bottomed. Meanwhile, U.S. initial jobless claims rose slightly last week, and the number of people collecting unemployment benefits rose to the highest level since January. Slower employment growth is likely to dent consumer spending and to place a drag on an economy already encumbered by the weak housing market.
• Sources: Bloomberg (I, II), Forbes, Reuters
• Related commentary: U.S. Economy Just Beginning to Sizzle -- Barron's, How Long Can Consumer Confidence, Earnings Weather the Housing Bust?, It's Still The Economy, Stupid, Paul Kasriel On the State of Consumer Debt and Savings
• Potentially impacted ETFs: S&P 500 Index (NYSEARCA:SPY), NASDAQ 100 Trust Shares ETF (QQQQ), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), 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)
TECHNOLOGY AND INTERNET
Apple: Jobs Knew
In its delayed annual filing with the SEC, Apple Computer said this morning that CEO Steve Jobs was "aware or recommended the selection of some favorable grant dates," but insisted "he did not receive or financially benefit from these grants or appreciate the accounting implications." A special committee appointed by the company to investigate stock options grants had serious concerns with two unnamed former officers in connection with the accounting, recording and reporting of stock-option grants: Of 42,077 stock-option grants made between October 1996 and January 2003, 6,428 grants on 42 dates have been deemed as not the proper measurement dates. Of two option grants awarded to Jobs, one was improperly dated Oct. 19, 2001, with an exercise price of $18.03, instead of the correct date on Dec. 18, when Apple was trading at $21.01. That stock-option grant was for 7.5 million shares. Apple is restating its after-tax earnings by $4 million, $7 million, and $10 million in fiscal 2006, 2005 and 2004, respectively, and is taking an $84 million non-cash charge as a result. The committee said the board is confident the company has fixed its problems and has "complete confidence" in Jobs and senior management. Apple shares were up 1.2% in Germany.
• Sources: Apple SEC filing (10Q), Apple press release, MarketWatch, Wall St. Journal
• Related commentary: Disney's Pixar, Founded by Apple CEO Jobs, Under SEC Investigation, Apple Stock Drops Sharply On Report of Faked Options Docs, Apple : Jobs Should Win This Battle Too, Apple Options Uncertainty: Responses, With All the Focus on Apple 's Options Issues, When Will We Hear About Microsoft's?, Apple Options Rumors: Getting to the Core, UBS: Apple Options Fears Overdone. Conference call transcripts: Apple F4Q06
• Potentially impacted stocks and ETFs: Apple Computer Inc. (NASDAQ:AAPL), Walt Disney Company (NYSE:DIS)
Robert Chapman Urges Cypress To Spin Off SunPower, Do LBO
Legendary hedge fund manager Robert Chapman sent a scathing letter to the board of Cypress Semiconductor, urging management to separate its core semiconductor business from its controlling stake in solar cell provider SunPower Corporation, via spinoff and LBO. Chapman, whose fund owns just over 1% of Cypress, implies in the letter that CEO Thurman Rodgers may be neglecting Cypress to concentrate on SunPower. Following a strategic review in October, Cypress announced it is not pursuing a buyout of itself or SunPower; Chapman claims Rodgers isn't selling SunPower because "such reorganization could remove from Cypress the only growth vehicle capable of vindicating his career oversight of Cypress, once and for all, as Mr. Rodgers moves into the late stages of his 40-year career." Cypress announced 3Q net income of $10.7 million on $290.2 million in revenue, but Chapman notes that the core value of Cypress declined 50% in Q4. SunPower's Q3 revenue nearly tripled y/y to $65.3 million, as the company posted net income of $9.6 million -- its second consecutive profitable quarter.
• Sources: Silicon Valley/San Jose Business Journal, EE Times
• Related commentary: Cypress Semiconductor: Undervalued and Very Appealing, Vitesse: Chapman Selling Shares; Strange Timing On 13D, SunPower Acquires PowerLight In Bid To Diversify Itself, The Short Case on SunPower, Focus on SunPower: A Clearly Successful Spin-off. Conference call transcript: Cypress Semiconductor Q1 2006
• Potentially impacted stocks and ETFs: Cypress Semiconductor (NASDAQ:CY), SunPower (NASDAQ:SPWR). ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (NYSEARCA:PSI), SPDR Semiconductor (NYSEARCA:XSD), PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW)
Sprint Close to Choosing Nokia as Its Third and Final Wimax Partner
According to the Wall Street Journal quoting 'people familiar with the matter,' Sprint Nextel Corp. is close to choosing Nokia as its third primary equipment provider for its U.S. next-gen wireless network. This summer Sprit picked Motorola Inc. and Samsung Electronics as its other two providers. It plans to spend $3b on the WiMax network over the next two years. WiMax technology allows for wireless access over far greater range than Wi-Fi, serving cities as opposed to cafes and airports, but is yet untested on a large scale. Sprint intends its project to be the largest WiMax project in the world, and aims to launch in trial markets by the end of 2007. Its coveted 'third partnership' was also pursued by Alcatel-Lucent and Nortel Networks Corp., who see the technology as a huge growth area. Joining with Sprint will likely require some Nokia investment: When Sprint announced its partnerships with Motorola and Samsung it said it included "commitments" from its partners "in the areas of market development, mobile WiMax devices and other contributions to Sprint Nextel's core business." The people said Sprint could announce its choice as early as next week, but that it could still fall apart. Some analysts have questioned the plan's feasibility, noting Sprint is already struggling with its existing two networks.
• Sources: Wall Street Journal
• Related commentary: Sprint Buyout Rumors Are False, Stock's Overpriced, Gauging WiMAX After the Dust Settles, Seeking Alpha WiMax Coverage. Conference call transcripts: Sprint Nextel Q3 2006, Nokia Q3 2006 has CEO Mike Zafirovski saying, "On WiMAX again there are obviously quite a few current carrier customers looking at us."
• Potentially impacted stocks and ETFs: Sprint Nextel Corp. (NYSE:S), Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Alcatel-Lucent ADR (NYSE:ALU), Nortel Networks Corp. (NT)
AMD Gains Legal Upperhand Against Intel -- 'Chip Market is Global'
Advanced Micro Devices announced a "significant legal victory" yesterday when Intel was ordered to produce evidence from its foreign operations as part of the discovery process in their antitrust suit case. A Special Master informed the presiding judge on the 15th that the "... undisputed geographic market (for x86 microprocessors) is global ..." with approx. 68% of global sales to non-U.S. customers and therefore, "... evidence of foreign exclusionary conduct is essential for AMD to demonstrate" Intel violated U.S. antitrust laws. AMD's executive VP commented, "We will proceed vigorously to prove that Intel abuses its global monopoly power by limiting or excluding competition, which ultimately hurts consumers worldwide." Intel said in a letter to the judge that it will comply with the order. However, Intel noted the Special Master did not decide whether any evidence would be admissible at trial, which is expected to begin Apr. '09, and said it "... plans to raise evidentiary issues with the court at a later date." The news didn't help shares of AMD, which closed lower by 0.63% at $20.57, while Intel gained 0.10% to close at $20.42.
• Sources: Press release, MarketWatch,SF Chronicle
• Related commentary: Intel Beware: AMD Expects Greater Market Share in 2007, AMD Subpoenaed By DoJ; Unveils New Processor Family, ATR: AMD's Facing A Challenging Q4, AMD Bears Continue To Emerge Conference call transcripts: AMD Q3'06, Intel Q3'06
• Potentially impacted stocks and ETFs: Advanced Micro Devices (NYSE:AMD), Intel (NASDAQ:INTC). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW)
'Perfect Strategic Fit': Alliance Data Systems To Buy DoubleClick’s Abacus Division
Alliance Data Systems reported yesterday its plans to buy DoubleClick’s Abacus division for $435 million, giving the company a foothold in e-commerce and an extended customer base. Abacus’ 525 employees will be integrated into Alliance's Epsilon unit. The acquisition price of $435 million underscores just how far things have come since the internet bubble burst; DoubleClick paid $1.7 billion for Abacus in 1999 back when it was a publicly traded company whose price rose from $17 to $200 in a matter of a year. According to Alliance Chairman and CEO Mike Parks,The deal will open “cross-selling opportunities across Alliance Data's businesses,” making Abacus “a perfect strategic fit” for his company. Alliance has plans to expand Abacus’ cooperative database to new industries including financial services, pharmaceuticals and travel services companies. The acquisition is expected to $0.05 to Alliance's EPS in 2007 but be neutral in terms of overall GAAP earnings. If it receives the requisite regulatory approval, the deal should close during 1Q'07.
• Sources: Wall Street Journal, Reuters, Red Herring
• Related commentary: Cramer's Take on ADS, Seeking Alpha's M&A Page
• Potentially impacted stocks and ETFs: Alliance Data Systems (NYSE:ADS). Competitors: Electronic Data Systems Corporation (NASDAQ:EDS), Affiliated Computer Services (ACS).
Siemens and IBM Ink Joint IT Deal with German Army
Siemens AG and IBM have signed a 7.1 billion euro ($9.6 billion) deal to upgrade the German army's non-military computers and phones. They have established a joint company, BWI Informationstechnik GmbH, of which they will collectively own 50.1% with the remainder owned by the German government. Siemens will hold 60% of the two companies' joint share, making this the biggest contract in Siemens' history. The modernization project, dubbed "Herkules," is expected to take ten years, and is the largest "public-private" partnership in Europe. Siemens will be responsible for modernizing the army's personal computers, servers, and phones, while IBM will update the army's data centers. IBM will also build a "public key" infrastructure to enable electronic documents to comply with signature and encryption regulations. Siemens shares gained 1% on the news. The deal is good news for Siemens' IT unit, SBS, which has been cutting thousands of jobs in an increasingly competitive environment. Siemens has been embroiled in a bribery scandal that has put other joint ventures on hold, including a telecom venture with Nokia.
• Sources: Bloomberg, Reuters,Business Week
• Related commentary: Siemens-IBM in $9B German Military Deal (NYSE:AP), Nokia-Siemens Telecom JV Delayed, But Not Dead, More Consolidation in Telecom Equipment As Nokia and Siemens Announce $31.6 Billion Deal
• Potentially impacted stocks and ETFs: Siemens AG (SI), International Business Machines Corp. (NYSE:IBM). Competitors: Alcatel-Lucent (NYSE:ALG), Hewlett-Packard Co. (NYSE:HPQ), Electronic Data Systems Corp. (EDS). ETFs: Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN), iShares Russell 1000 Growth Index (NYSEARCA:IWF), iShares Russell 3000 Growth Index (IWZ)
AT&T Promises to Respect 'Net Neutrality' in Revised BellSouth Merger Plea To FCC
An impasse between AT&T and the FCC over the company's attempted $86 billion purchase of BellSouth may be about to break. In a 19-page letter filed with the FCC yesterday, AT&T made several additional concessions which the company hopes will be sufficient to placate the FCC's two Democrat leaders and gain it approval of the merger. Prominent among the concessions was a promise by AT&T to respect "net neutrality" provisions that would require it to treat all Internet content equally. As part of the deal, the new post-merger AT&T would have about 11.5 million high speed internet subscribers. A new FCC vote on the merger might come as soon as today.
• Sources: AT&T's Letter To the FCC [pdf file], Wall Street Journal, AP/Newsday, Bloomberg
• Related commentary: AT&T/Bell South Merger Stalled as FCC Member Refuses to Vote, Justice Dept. Antitrust Chief: AT&T/BellSouth Merger is 'Straightforward Deal', Citi: Buy AT&T and Sell Verizon, Annals of Accounting: A Look at AT&T and Verizon's Methods.Conference call transcripts: AT&T Q3 2006
• Potentially impacted stocks and ETFs: AT&T (NYSE:T), BellSouth (BLS). Competitors: Verizon (NYSE:VZ), Sprint Nextel Corporation (S), Qwest Communications (NYSE:Q). ETFs: Telecom HOLDRS (NYSEARCA:TTH), iShares S&P Global Telecom (NYSEARCA:IXP), iShares Dow Jones US Telecom (NYSEARCA:IYZ), PowerShares Dyn. Telecom & Wireless (PTE), Vanguard Telecommunication Services (NYSEARCA:VOX)
Disney's Pixar, Founded by Apple CEO Jobs, Under SEC Investingation
According to a report in the Financial Times, Pixar, which was purchased by Disney in May, is being investigated by the SEC over questions concerning its stock options awards. Disney is said to have decided to launch an independent investigation into the matter after it received inquiries from the SEC as well as the U.S Justice Department, but it played down any likely financial impact from the issue. Pixar was founded by Apple CEO Steven Jobs. It is alleged that he was granted $7.5 million worth of Apple stock options in 2001 without permission from the board, and documents were falsified to make it appear as if consent was given. There is no evidence that Jobs personally received Pixar options.
• Sources: Financial Times, Bloomberg
• Related commentary: Pixar History, Wikipedia, Is a Disney-Apple Wireless Alliance Brewing?, Memo to Pixar and Dreamworks, Apple Stock See-Saws on Reports of Faked Options Docs, Apple Options Uncertainty . Conference call transcripts: Disney F4Q06, Apple F4Q06.
• Potentially impacted stocks and ETFs: Walt Disney Company (DIS) Competitors: CBS Corp. (NYSE:CBS), News Corp. (NASDAQ:NWS), Time Warner Inc. ETFs: (NYSE:TWX) Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR), PowerShares Dynamic Large Cap Growth (NYSEARCA:PWB), iShares Dow Jones US Consumer Services (NYSEARCA:IYC)
AEROSPACE AND DEFENSE
General Dynamics Inks $1.27 Billion Contract Addition With U.S. Navy
The U.S. Navy's second-largest builder of warships, General Dynamics Corp., inked a $1.27 billion in contract additions to continue work on one nuclear submarine and begin work on another. The deal is on top of a previous order to build five submarines for the Navy and is due to be completed by April 2014 according to the Defense Department. Northrop Grumman and General Dynamics each signed sub-building deals with the Navy in 1998. The submarines are 377 feet long, have four torpedo tubes and 12 vertical launch tubes, hold a crew of 134 and are both longer and lighter than earlier, Seawolf Class submarines.
• Sources: Bloomberg, Reuters, Business Week
• Related commentary: Defense Stocks Should Continue to Outperform in 2007 -- NY Times, General Dynamics Beats Street, Shares Fall, 9/11: Its Lasting Impact on the Economy and Defense Stocks, Build an Anti-Terrorism Portfolio to Protect Your Investments, Cramer's Take on GD
• Potentially impacted stocks and ETFs: General Dynamics Corp. (NYSE:GD), Northrop Grumman Corporation (NYSE:NOC). Competitors: Lockheed Martin Corporation (NYSE:LMT), Raytheon (NYSE:RTN), Boeing (NYSE:BA). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)
Power Corp. To Acquire Putnam for $3.9 Billion
Marsh & McLennan has provisionally agreed to sell Putnam Investments unit to Canadian holding company Power Corp. for $3.9 billion pending approval by Putnam workers who hold shares in the company, mutual-fund shareholders and the board in control of the funds. The sale exceeds estimates, anonymous sources told the Wall Street Journal, and should be a lift for embattled Marsh & McLennan shareholders. Putnam has been on the road to recovery after the bear market of 2000-02 and the fund-share trading scandal of 2003. Power Corp, Canada’s largest mutual-fund company, sees the acquisition of Putnam as an opportunity to expand into the U.S. money-managing business. Shares of Putnam closed at $30.72 down 0.8%, while Power Corp. shares were up 0.2% to $35.08 on the Toronto Exchange.
• Sources: Wall Street Journal, Reuters, Marketwatch,
• Related commentary: Putnam Might Fetch a Good Offer Despite Difficulties, Slowly but Surely, Recovery Begins and MMC, A General Insurance Broker's Story
• Potentially impacted stocks and ETFs: Marsh & Mclennan Companies Inc (NYSE:MMC). Competitors: American International Group (NYSE:AIG), Aon Corp. (AOC)
Goldman Top M&A Adviser in Japan, Nomura Falls to Sixth
Bloomberg reports Nomura was dethroned by Goldman Sachs and four other investment banks in Japanese M&A advisory in 2006. Although Nomura advised on twice as many deals as its nearest rival and 7x Goldman, the value of its deals were less than half of the latter's. The key for Goldman was its role in the three largest deals, all involving overseas acquisitions. An analyst at Yasuda Asset Management comments, "Japanese companies are hiring advisers that know overseas markets and legal issues." A director at the Japanese division of Texas Pacific Group says, "Companies going after targets overseas naturally turn to foreign banks for advice. Locals will be left behind if they don't act now to get more competitive." Nomura once again acknowledges an increasingly competitive environment. Its CEO states, "Slowly but surely, we'll catch up with European and U.S. firms by generating deals from our steady base in Japan." The domestic M&A market actually slowed in '06 to $82b, compared to $125b last year, but is seen as robust with strong prospects in '07.
• Sources: Bloomberg
• Related commentary: UBS: "We Are Very Bullish on Japan", Goldman Posts Its Best Quarter (and Year) Ever, Nomura's Agreement to Buy Instinet from Silver Lake a Win-Win, Nomura's Disappointing Earnings and Difficult Circumstances
• Potentially impacted stocks and ETFs: Goldman Sachs (NYSE:GS), Nomura (NYSE:NMR), Merrill Lynch (MER), Mizuho Financial (NYSE:MFG), UBS AG (NYSE:UBS), Deutsche Bank (NYSE:DB), Greenhill & Co (NYSE:GHL)
U.S. Markets: Does the Slowdown in Trucking Mean a Retail Slowdown Is Around the Bend?
Housing: Stocks And Bonds Decoupled In December
Long Idea: Honda Motor: Why I'm On Board
Short Idea: Philadelphia Consolidated: Why Forbes Bulls Are Wrong
Internet: Would You Invest $8.5 Million In Digg?
Telecom: BCE Needs To Meet Growth Challenges
Software: Hedge Fund Dumps 3 Million Take Two Interactive Shares
Consumer Electronics: The Long Case For Concord Camera
Media: Point.360 Shares Skyrocket After DG FastChannel Confirms 11.4% Stake
Healthcare: CV Therapeutics: Last Chance for a Tax Loss
Retail: Sears' Lampert 'Just Says No' to Wall Street Convention
Transport: Heartland Inc.: The Trucking Company With a Heart of Gold
Energy: Energy East Corp.: Yankee Reliability
Financial: An Investor's Take On The NYSE/Euronext Merger
Asia: Chinese Stocks -- Blowoff Top or Just Warming Up?
ETFs: Portfolio Weighting: Getting It Right
Small-Caps: Alliance Healthcard Jumps On Acquisition; Why I Sold
IPO Analysis: Recent IPO First Solar is Overvalued Relative To Its Peers
Sound Money Tips: Tips on Joining Savings Clubs
Jim Cramer: Latest stock picks
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