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TECHNOLOGY

IBM To Launch Enterprise Social Networking Software Called 'Lotus Connections'

IBM will today announce the forthcoming release of its Lotus Connections, a set of blogging and social networking software built to improve intra-company productivity.ibm Like a My Space designed for the corporate world, Lotus Connections will allow a company's employees to set up virtual worlds in which they can meet like-minded colleagues and trade ideas. According to IBM's VP for Social Software, Jeff Schick, The purpose of Lotus is to “unlock the latent expertise in an organization.” I.B.M. will introduce the software at the annual Lotus Developers Conference being held in Orlando this year. IBM's software unit has been a true growth driver for the company recently with management reporting last week that software revenues increased 14% over the prior year period. Lotus Connections will likely pose a challenge to Microsoft Exchange.
• Sources: Press Release, New York Times, Reuters, MarketWatch , IBM Q4 2006 Earnings Call Transcript
• Related commentary: IBM Flexing Muscle In Software, Does IBM Spell Trouble For Hardware Sales?, IBM Profit Up 11%, but Shares Drop on Hardware Sales
• Potentially impacted stocks and ETFs: International Business Machines Corp. (IBM). Competitors: Microsoft (MSFT). ETFs: Internet Architecture HOLDRS (IAH), iShares Goldman Sachs Technology (IGM), Technology SPDR (XLK)

Sun Set to Announce Deal to Use Intel Chips in Servers

AP and The Wall Street Journal report a deal between Intel and Sun Microsystems will be announced as early as today involving Sun's plans to purchase Intel chips for use in its servers, according to a person briefed on the deal. Sun is seen embracing Intel's Xeon processors again, after about a two year period in which Sun opted to exclusively use AMD's Opteron processors given their lower power consumption. Intel reportedly may endorse Sun's Solaris operating system. Bank of America Securities analyst Sumit Dhanda started the rumor of a Sun-Intel partnership last Friday in a research note, basing his prediction on unspecified channel checks. He said Intel could potentially gain 50% of Sun's x86 business, which would result in a $25m to $50m loss of revenues for AMD and lower its annual EPS by about $0.01 to $0.02. Dhanda added that "[W]hile the impact to Intel financials is not meaningful in the near-term, we think the shift away from AMD bodes well for momentum in Intel's server business over the course of the upcoming quarters." Sun will continue to use AMD chips according to sources.
• Sources: NY Times-AP, WSJ, ZDNet-CNET
• Related commentary: Intel Shares Fall on Price War Worries, Intel: You're Either With Them Or Against Them, Sun Microsystems Has a New Sales Approach (And It's Working), IBM, Sun Lead the Pack in Q3 Server Sales
• Potentially impacted stocks and ETFs: Intel (INTC), Sun Microsystems (SUNW), Advanced Micro Devices (AMD). Competitors (server market): Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (PSI), SPDR Semiconductor (XSD), Internet Architecture HOLDRs (IAH), PowerShares Dyn Hardware&Con Electronics (PHW)

MEDIA

Online Gambling Shares Fall as U.S. Opens Probe

Two weeks before the Super Bowl, the U.S. Justice Department has subpoenaed e-mails, phone records and other documents from at least 16 banks, primarily in London, in an aggressive investigation into the online gambling industry. PartyGaming shares fell 9.8%, Sportingbet shares 3.4% and 888 shares 3.5% on the news. At least four of the subpoenaed banks, HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, have underwritten the IPOs of foreign-based online gambling sites. Betting online is illegal in the U.S. as of last October, when President Bush signed into law the Unlawful Internet Gambling Enforcement Act, which forbids banks and credit-card companies from making payments to gambling websites. More than half of the millions of bets placed at offshore casinos come from Americans. The probe begs the question whether investment in a legal foreign company might be grounds for prosecution if the company's business is illegal in the U.S. There is no clear indication as yet, however, whether the subpoenas are precursors to charges being filed against the banks.
• Sources: New York Times, Times Online, Reuters (U.K.)
• Related commentary: The U.S. Ban on Online Gambling - Not Unlike the Chinese Ban on Democracy, Distant Early Warning, Top 10 Tech Storylines of 2006
• Potentially impacted stocks and ETFs: PartyGaming [London: PRTY], Sportingbet [London: SBT], 888 Holdings Public Limited Company [London: 888]

ENERGY AND MATERIALS

Bidding War for Corus Steel in Final Days

The U.K. Takeover Panel has given India's Tata Steel until January 30 to top a 515 pence/share offer worth £4.9 billion from Brazil's Cia. Siderurgica Nacional [CSN] for Corus Steel, a deal accepted by the Corus board last month only hours after it accepted a 500p deal from Tata that valued Corus at £4.7 billion. Tata's shares slid 1.7% on rumors the company might raise its offer. Corus, the product of a 1999 merger between British Steel and Hoogovens , is the world's eighth-largest steel producer, but will rise to fifth-largest if it combines with either Tata or CSN. It has been subject to a bidding war since last October, when Tata submitted a 455 pence/share offer. There is speculation that Tata might raise its bid to somewhere between 520 and 600 pence a share, and CSN is rumored to have arranged additional financing in case Tata does come back to the table. If Corus accepts the CSN deal, it will gain access to high-quality, low-cost iron ore from Brazil and elsewhere in South America.
• Sources: Bloomberg, Ireland Online
• Related commentary: CSN Tops Tata Bid for Corus Group, Brazil's CSN Attempting to Steal Corus from Tata Steel, Metals and Mining: Blast Off!
• Potentially impacted stocks and ETFs: Tata Steel Ltd. (Bombay: 500470), Corus Group plc (CGA), Companhia Siderurgica Nacional (SID). Competitors: Mittal Steel Company NV (MT), Gerdau S.A. (GGB). ETFs: Market Vectors - Steel (SLX), SPDR Metals & Mining (XME)

RETAIL

Home Depot Board Seeks to Pacify Shareholder Activist

Home Depot board members are expected to reach out to activist investor Ralph Whitworth, whose fund owns a 1.3% stake in the company. Mr. Whitworth agitated for Robert Nardelli's departure due to poor performance and continues to criticize the company's current and long term business strategy. Contrary to Nardelli's diversification strategy, which the current CEO Frank Blake would like to continue, Whitworth wants the company to spin off its wholesale building supply business and focus on improving customer service and management performance in its retail business. Whitworth has stated that he plans to ask the board at its annual shareholder meeting in May to establish a committee of independent board members to review the company's long-term operating strategy. Whitworth has also threatened to initiate a proxy fight for a board seat if the board does not comply with his wishes. Analysts are doubtful that this week's meeting will appease Whitworth.
• Sources: WSJ
• Related commentary: Home Depot's Board Is to Blame for The Nardelli Affair, Activist Investor Ralph Whitworth Comments on Nardelli's Resignation, Lessons Learned From The Nardelli Fiasco: The Market Is Not Always Efficient, Activist Investor Calls For Review of Home Depot Management Conference call transcript: The Home Depot F3Q06 (Qtr End 10/29/06) Earnings
• Potentially impacted stocks and ETFs: The Home Depot Inc. (HD). Competitors: Lowe's Companies Inc. (LOW). ETFs: Retail HOLDRS ETF (RTH), Consumer Discretionary SPDR ETF (XLY), Vanguard Consumer Discretionary VIPERs (VCR)

TRANSPORT AND AEROSPACE

Ford, Toyota Tiptoe Towards Tie-Up

Ford and Toyota are cautiously exploring possibilities for a limited alliance, possibly concerning hybrid technology. Speculation about a tie-up of some kind has accelerated since the CEOs of the two companies met in Tokyo in December. The meeting was proposed by Toyota, which appears to be attempting to forge a "political peace" with the American auto giant as a means of counteracting any backlash that might result from its conquest of American market share. Toyota is expected to outsell Ford in the U.S. this year. Toyota is also interested in cooperation with Ford on gasoline-electric hybrid technology, since it is threatened by an alliance formed by GM, DaimlerChrysler and BMW on that front. Toyota has expressed interest in an alliance for the purpose of sharing costs or popularizing technology, but is considered unlikely to buy a stake in Ford.
• Sources: Wall Street Journal
• Related commentary: Settle Down, People -- Toyota/Ford Talks Were About Sharing Green Technology, Heads of Ford and Toyota Meet in Tokyo, Hybrid Vehicle Marketing: Toyota Leads Here As Well, Toyota Leads December Sales Growth, But Ford Holds On To #2, Ford's Internal Projections: Toyota Will Be #2 Within Months
• Potentially impacted stocks and ETFs: Ford Motor Co. (F), Toyota Motor Co. (TM). Competitors: General Motors Inc. (GM), DaimlerChrysler AG (DCX), Honda Motor Co. Ltd. (HMC). ETFs: Rydex S&P 500 Pure Value (RPV), BLDRS Asia 50 ADR Index (ADRA), BLDRS Developed Markets 100 ADR Index (ADRD), iShares NYSE Composite Index (NYC)

Swift Board Accepts Founder Moyes's $2.74 Billion Offer

The board of directors of Swift Transportation has unanimously accepted founder Jerry Moyes's $2.74 billion bid to buy the company he founded in 1966 -- and from which he was ousted last year from his CEO position amid an options backdating scandal. The all-cash transaction will include the assumption of about $332 million of net debt. Stockholders will receive $31.55 in cash for each share of Swift common Swift 22 01 2007 Chartstock, amounting to a premium of about 31% from the close on Friday, November 3, the last trading day before Moyes proposed acquiring the company for $29.00 per share. If approved by stockholders and regulators, the deal will close in Q2. Shares closed Friday at $27.74. Phoenix-based Swift is the third-largest trucking company in the U.S., with 17,900 trucks and almost $3.2 billion in revenues. Moyes paid a $1.26 million settlement last year without acknowledging wrongdoing and was fired two months before his planned retirement. He has since tried more than once to take back his company. Moyes's success with his latest bid might enable him to administer the coup de grace to the people who fired him.
• Sources: MoneyCentral (I, II)
• Related commentary: Swift Rejects $2.2 Billion Buyout Offer from Former CEO, Ousted Swift Transportation CEO Moyes Tries To Buy Company, Does the Slowdown in Trucking Mean a Retail Slowdown Is Around the Bend?, Trucker C.H. Robinson's Strategy of Not Owning Its Trucks Pays Off
• Potentially impacted stocks and ETFs: Swift Transportation Co. Inc. (SWFT). Competitors: JB Hunt Transport Services Inc. (JBHT), Landstar System Inc. (LSTR), Werner Enterprises Inc. (WERN), CH Robinson Worldwide Inc. (CHRW). ETFs: PowerShares Dynamic Small Cap Value (PWY)

FINANCIAL

NASD Approves Merger of Securities Regulation with NYSE

The NASD announced yesterday that 64% of its members have approved a consolidation of its regulatory functions with those of the NYSE. The consolidation will result in a single regulatory division that will be responsible for member examination, enforcement, arbitration and mediation, as well as market regulation for the NASDAQ, AMEX, ISE, and Chicago Climate exchanges. The Financial Industry Association, a group of smaller firms, objected to the consolidation, arguing that they would not be sufficiently represented, while other opponents of the plan claimed it might erode protections for individual investors. Larger firms favored the plan because it will cut costs and eliminate redundancy. The NASD will pay $35,000 to each member now that the merger has been approved. The streamlined regulatory division will begin operation in Q2. "The securities industry has embraced replacing an outdated regulatory structure with one that better serves firms and investors in a fast-changing marketplace," said NASD CEO Mary Schapiro, who will become CEO of the new entity. SEC Commissioner Paul Atkins favors the merger, calling it "a great step forward for efficient and effective regulation."
• Sources: Bloomberg, Wall Street Journal, MarketWatch, TheStreet.com
• Related commentary: U.S. Exchanges Continue To Trim Expenses Through Consolidation, M&A Activity, A Look At Stock Exchange Stocks, A Unified, Global Stock Exchange May Be Approaching, Treading Carefully In Exchange Stocks, Why I'm Long-term Bullish on the Exchanges (NDAQ, CME, NYX), Exchange Stocks: Beware The Bear, An Investor's Take On The NYSE/Euronext Merger, NYSE-Euronext Merger All But a Done Deal, NYSE Eyes Joint Venture with Toyko Stock Exchange
• Potentially impacted stocks and ETFs: NYSE Group (NYX), Nasdaq Stock Market Inc. (NDAQ), International Securities Exchange Holdings Inc. (ISE). ETFs: First Trust IPOX-100 Index (FPX), streetTRACKS KBW Capital Markets (KCE), Vanguard Extended Market Index ETF (VXF)

INTERNATIONAL

Chávez To Seize CanTv, Stock Likely To Suffer

In a move that will likely send shares of CanTv sharply lower, Venezuelan Hugo Chávez said yesterday he has no plans to pay "Western prices" for the countries largest telecom company.vnt This would allow the Venezuelan government to start reaping the benefits of CanTv's cash flow immediately. Such a move could also affect Verizon which owns a quarter of CanTv. In another move in which Chávez hopes to further socialize his nation's economy, Venezuela will boost the price of gasoline charged by the state-owned oil company. In the past, such increases in the price of fuel, which Venezuelans generally pay only pennies for, have caused widespread rioting such as in 1989, when hundreds died in riots in Caracas over a fuel price hike.
• Sources: Wall Street Journal, Bloomberg
• Related commentary: Chávez's Latest Ideological Shtick Sends Venezuelan-Related Equities Lower, Emerging Markets Investing: Protect Yourself From Downside, Hugo Chavez: Providing Profitable Investment Opportunities
• Potentially impacted stocks and ETFs: C.A. Nac. Telefonos de Venezuela (VNT), Verizon (VZ). ETFs: Telecom HOLDRS (TTH), iShares Dow Jones US Telecom (IYZ), Vanguard Telecommunication Services (VOX)

ACTIONABLE BARRON'S CALLS

Barron's articles likely to move stocks today, culled from our Barron's Excerpts

  • Barron's Analyst Rountable Part II. Picks highlighted this week: Bill Gross: iShares MSCI EAFE Index Fund ETF (EFA), RCM Strategic Global Government Fund Inc. (RCS), Floating Rate Income Strategies Fund Inc. (FRA). Archie MacAllaster: Lyondell Chemical Company (LYO), Hartford Financial Services Group Inc. (HIG), Arch Capital Group Ltd. (ACGL), Capital One Financial Corp. (COF), Corning Inc. (GLW), Pioneer Natural Resources Company (PXD). Abby Cohen: General Electric Co. (GE), Royal Caribbean Cruises Ltd. (RCL), Federated Department Stores Inc. (FD), MedImmune Inc. (MEDI), Barr Pharmaceuticals Inc. (BRL), Baker Hughes Inc. (BHI), Symantec Corp. (SYMC). Felix Zulauf: iShares MSCI Singapore (EWS), Petroleo Brasileiro S.A. (PBR). John Neff: Lyondell, Nabors Industries Ltd. (NBR), YRC Worldwide (YRCW), Citigroup Inc. (C). See our Barron's summary for some reasons behind the picks.
  • Under Armour (UA) sales are up to $421m, from just $5m in 2000. But its P/E ratio of 80 is inflated and leaves no room for error; competitor Nike (NKE) does a moderate 17x. Adidias and Nike have introduced similar product lines, and UA has no patents on its anti-sweat wear. GS sees the stock at $44 (-12%), and if the company stumbles, it could do even worse.
  • Institutional investors are balking at the private equity $37.60/share ($26b) bid for Clear Channel Communications Inc. (CCU), citing strong radio revenues, a 90% in Clear Channel Outdoor Holdings (CCO) that's worth $9b, and its low P/E of 8.2 vs. an industry average of 10-11. They think CCU can do better, and the deal may fall through due either to their negativity, or of they succeed in attracting an even-higher bid.
  • Recent excitement over Genesis HealthCare Corp.'s (GHCI) buyout seems to have escaped investors in Manor Care Inc. (HCR). It offers low-cost, short term hospital stays that are proving more profitable than long-term stays. Its 18.5 P/E is low for the industry. Jim Lane of Tripoint Asset Management sees the $50 stock trading at $65 in just over a year, and notes its 97% of its real-estate provide an attractive hedge.
  • Last week's tech downgrades may have been an overreaction. Cisco (CSCO) was downgraded by several firms, but the company's core business continues to thrive. Internet video traffic could grow exponentially causing networking gear upgrades across the net. Barron's Bill Alpert sees no need to jump off the boat.
  • Alcoa (AA) announced a big share buyback and 13% dividend hike on Friday. It recently traded at 10x estimated earnigns - cheap considering aluminum demand; aluminum has been outperforming other metals, because it's less exposed to the slowing U.S. housing market. Shares were up 3.3% on Friday, and investors can expect more thrills over the course of the year.
  • Expanding corporate gains tend to benefit the affluent more than the working class, creating what Ajay Kapur of Citigroup calls Plutonomy - a global economy skewed towards the rich. Luxury stocks that stand to benefit include: Four Seasons Hotel Inc. (FS), Polo Ralph Lauren Corp. (RL), Coach Inc. (COH), Sotheby's Holdings Inc. (BID), and Tiffany & Co. (TIF), Best Buy Co. Inc. (BBY), Nordstrom Inc. (JWN), Simon Property Group Inc. (SPG), American Express Company (AXP), Whole Foods Market Inc. (WFMI), Starbucks Corp. (SBUX), Constellation Brands Inc. (STZ) and Merrill Lynch & Co. Inc. (MER). Mid-tier companies may struggle, but there's still a need for 'hard-times' companies like: Family Dollar Stores Inc. (FDO), Big Lots Inc. (BIG), and payday lenders EZCORP Inc. (EZPW) and First Cash Financial Services Inc. (FCFS).
  • Tesoro Corp. (TSO) may well use its growing stash of cash, likely to hit $1b within two years, to buy back up to 20% of its 67 million outstandng shares. TSO hasn't reduced its share count recently, and a buyback could have a material impact on share prices: A similar move by Ultramar Diamond Shamrock in 2001 saw shares go up 26% in 12 weeks.
  • Symantec Corp. (SYMC) lowered FQ3 profit projections last week, to the dismay of investors who promptly sold shares down 13% to $17.54. The company cited weak data-management sales, but anti-virus and security software sales may be weaker than the company let on. Pricing on its Norton line is under pressure from Microsoft Corp.'s (MSFT) foray into the field McAfee Inc.'s (MFE) rebate program. SYMC lost top managers from Veritas after its merger over internal politics, and it has yet to prove it can reel in enterprise customers. Morgan Stanley analyst Peter Kuper sees $19 as the stock's ceiling.

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: This Week: Eye On Earnings
Housing: Heads Up Real Estate Investors: Plenty of Foreclosures Available
Long Idea: Intel Corp.: Time to Buy
Short Idea: Oil Should Soon See the $40's
Internet: AOL Refuses to Raise Offer For TradeDoubler While ValueClick Surges
Networking: Lucent (Kind of) Closed at Over $1000 Thursday
Hardware: Wishful Thinking: TI Predicts 20% Handset Unit Growth in 2007
Software: Apex Code: Salesforce.com's Latest Weapon
Consumer Electronics: Motorola Makes "Pricing Moves" To Gain Market Share
Media: More On The Online Push At CBS
Biotech: Abbott Labs or GE: Who's Smarter?
Retail: Sears: The Skeptics Were Wrong
Transport: Has GM Missed Missed Its Moment?
Gold: Investing in Molybdenum
Energy: Goldman's Commodity Indexes: Conspiracy or Smart Indexing?
Financial: Citigroup's Dividend Announcement Strategy
Asia: Investment Implications of China's Satellite Killer
ETFs: ETFs vs. Oil Stocks - When to Worry and When Not
Hedge Funds: 2007: Year of Hedge/Mutual Fund Convergence?
Small-Caps: R. Brent Byrne On Dividend-Paying Small Cap Stocks
Sound Money Tips: The Week in Sound Money Tips
Jim Cramer: Latest stock picks
Conference Call Transcripts: Motorola Q4 2006, Satyam F3Q07, Citigroup Q4 2006, General Electric Q4 2006

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