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MACRO AND HOUSING

D.R. Horton's Profit Falls 65%, Beats Estimates

D.R. Horton Inc. reported yesterday that quarterly profits fell 65% during its 2007 fiscal first quarter but shares still gained 4.6% as they came in above analyst expectations.dhi By the numbers, net income declined to $109.7 million (EPS $0.35), down from $310.1 million EPS $0.98) in the year-earlier period. Revenue slid 1.4% to $2.8 billion. D.R. Horton's slumping profits match profit declines across the board for homebuilders, amid the biggest slump in home sales in 15 years. Shares rose yesterday despite the bad earnings. With much negativity already built in and Thomson Financial analysts predicting EPS of just $0.33, the $0.35 EPS reported sent shares higher by $1.24 to a closing price of $28.37. "The results are generally favorable given the environment," said Morningstar analyst Eric Landry.
• Sources: Press Release, Wall Street Journal, New York Times, Bloomberg, MarketWatch
• Related commentary: Housing Stocks: Is the Worst Over?, Assessing the Homebuilder Stocks, Homebuilders D.R. Horton, Meritage Post Disappointing Sales
• Potentially impacted stocks and ETFs: D.R. Horton, Inc. (NYSE:DHI). Competitors: Meritage Homes Corp. (NYSE:MTH), KB Home (NYSE:KBH), Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB)

TECHNOLOGY

Feds Visit Steve Jobs At Apple HQ In Continuing Options Probe

The federal investigation into Apple CEO Steve Jobs' role in backdating nearly 6,500 options is continuing, according to people in the know.jobs First reported by The Recorder, a legal newspaper in San Francisco, federal investigators apparently visited Jobs' at his office at Apple headquarters and tried to learn more about his role in the affair, in which at least two backdated options were granted to him. An internal Apple investigation by Apple cleared Jobs of any wrongdoing. Both sides declined to comment on the ongoing investigation.
• Sources: Bloomberg, Washington Post, Reuters
• Related commentary: Apple: Jobs Knew, Apple's Options Scapegoat: Introducing Ms. Wendy Howell, Why Steve Jobs Should Resign
• Potentially impacted stocks and ETFs: Apple (NASDAQ:AAPL). Competitors: Microsoft (NASDAQ:MSFT), SanDisk (NASDAQ:SNDK), Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), Lenovo (OTCPK:LNVGY). ETFs: NASDAQ 100 Trust Shares (QQQQ), Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN), Technology Select Sector SPDR (NYSEARCA:XLK)

SAP: Warning of Lower Operating Margin in '07 Sends Stock Down Further

SAP's shares are lower by about 4.5% in mid-day trading in Germany following the firm's preliminary Q4'06 and full year '06 results. It reported higher Q4 earnings, but analysts were disappointed with margin guidance for '07. Q4 adjusted net income grew 28% to €822 million, or €0.67/share, on sales growth of 7% to €3.0b. Q4 adjusted operating margin increased 0.9% to 37.7%. SAP-1yr-chart-01-23-07 For the year, adjusted net income rose 27% to €2.0b, or €1.60/share, on 10% higher revenues of €9.4b. Operating margin fell 0.1% to 27.3%, but adjusted operating margin increased 0.5% to 28.8%. SAP says it expects full year '07 sales growth of 12% to 14%. It warns operating margin will be lower than '06, in the range of 26% to 27%, due to spending €300m to €400m over the next two years to expand its midmarket business. Ahead of today's announcement, the WSJ reported on larger software companies missing targets, including SAP, despite increased corporate spending on software, due to disruptive start-up companies. Also, it seems analysts are increasingly doubtful of SAP's premium valuation to rivals based on expected '07 earnings.
• Sources: Press release, Bloomberg, Reuters, WSJ
• Related commentary: SAP's Software Sales Widely Miss Forecast; ADRs Slump, Why Did SAP Miss?, What's The Truth Behind SAP's Share-Gain Claim? Conference call transcripts: SAP AG Q3'06
• Potentially impacted stocks and ETFs: SAP AG (NYSE:SAP). Competitors: Oracle (NYSE:ORCL), Microsoft (MSFT), International Business Machines (NYSE:IBM), Salesforce.com (NYSE:CRM). ETFs: Software HOLDRs (NYSE:SWH), iShares MSCI Germany Index (NYSEARCA:EWG), iShares Goldman Sachs Software Index (NYSEARCA:IGV)

Seagate Profits Decline 51% On Acquisition Costs

Seagate Technology reported after yesterday's close that its FY 2Q07 profits dropped by 51% over the prior-year period, largely the result of costs stemming from its acquisition of rival Maxtor Corp.stx On a positive note, the U.S.'s largest producer of disk drives raised it's guidance for the next quarter and beyond. By the numbers, net income fell to $140 million, good for EPS of $0.23, versus earnings of $287 million, or EPS of $0.57 in the year-earlier period. Excluding one-time items, EPS was $0.39 topping Bloomberg consensus estimates of $0.32. Revenue rose 30% in the quarter to $3 billion, beating the $2.95 billion estimate of analysts surveyed by Bloomberg. Looking ahead, Seagate forecast FY 3Q07 EPS of between $0.49 and $0.53 on revenue of $2.9 to $3 billion. Excluding one-time costs, profit will be $0.56 to $0.60 a share. Analyst estimates for next quarter are for EPS of $0.55 on revenue of $2.92 billion, according to Bloomberg. Shares of Seagate, rose $1.10, or 4.2%, to $27.28 after hours after falling $0.30 cents during regular trading.
• Sources: Seagate F2Q07 (Qtr End 12/29/06) Earnings Call Transcript, Press Release, TheStreet.com, Business Week, Bloomberg
• Related commentary: Seagate: "Our Market Presence and Visibility Has Never Been Stronger", Competition Driving the Disk Makers, Seagate Gearing up for 300 Terabyte Hard Drive
• Potentially impacted stocks and ETFs: Seagate Technology (NASDAQ:STX). Competitors: Western Digital (NASDAQ:WDC), Hitachi (HIT)

Sun Posts First Profit After Five Quarterly Losses

Shares of server manufacturer Sun Microsystems surged 9.5% yesterday as the company posted its first profit since mid-2005. The company reported fiscal Q2 profit of $126 million, or $0.03/share, versus a year-ago loss of $223 million, or $0.07/share. Revenue was up 7% to $3.57 billion. Analysts had forecast EPS of $0.01 on revenues of $3.52 billion. Sales were up 6.9% to $3.57 billion. Sun's strong results Sun Microsystems 24 01 2007 Chartreflect the positive impact of product upgrades and strategic price cuts that have helped the company poach customers from rivals Hewlett-Packard and Dell. The company also announced that an investment fund owned by Kohlberg Kravis Roberts is investing $700 million in Sun and will take a seat on its board, a deal Sun CEO Jonathan Schwartz terms an "opportunistic" transaction. In a bid to ensure the best prices, Sun will begin using chips made by Intel this year rather than relying exclusively on AMD chips.
• Sources: MarketWatch (I, II), Bloomberg (I, II), Wall Street Journal. Conference call transcripts: F2Q07 (Qtr End 12/31/06)
• Related commentary: Sun Set to Announce Deal to Use Intel Chips in Servers, Sun Microsystems Has a New Sales Approach (And It's Working), KKR To Invest $700 Million in Sun Microsystems
• Potentially impacted stocks and ETFs: Sun Microsystems, Inc. (SUNW). Competitors: Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Microsoft Corp. (MSFT), Dell Inc. (DELL). ETFs: Internet Architecture HOLDRs (IAH), PowerShares Dynamic Hardware & Consumer Electronics (PHW)

AMD Reports Q4 Loss as Price War with Intel Crushes Margins

AMD shares dropped 5% to $16.60 last night after the company reported a precipitous decline in Q4 gross profit margin due to a price war with rival Intel on server chips. Shipments rose 26% on notebook chip demand, but server chip shipments were flat with Q3 and their prices sharply lower. Gross profit margin dropped from 57% in the year-ago quarter to 36%. The company reported a net loss of $574 million, or AMD 24 01 2007 Chart$1.08/share, against a profit of $95.6 million, or $0.21/share, a year ago. Revenue fell 3.5% to $1.77 billion from $1.84 billion last year. Results also reflect $550 million, or $1.04/share, in charges related to the company's October acquisition of graphic chip maker ATI Technologies. AMD forecasts a Q1 2007 revenue range of $1.6-1.7 billion versus a Street forecast of $1.82 billion. Last week, Intel reported a 39% slide in net income from a year earlier and a 5% drop in revenue. The diminishing fortunes of AMD and Intel contrast with those of server manufacturer Sun Microsystems, which just reported its first profit after years in the red. Sun has been taking back share of the server market on systems powered by its own chips as well as chips made by AMD. This week, Sun announced it will start using Intel chips.
• Sources: Wall Street Journal (I, II), MarketWatch, Bloomberg . Conference call transcripts: Q4 2006
• Related commentary: The Intel/AMD Price War Doesn't Make Sense, AMD Issues Q4 Earnings Warning, Shares Tumble in Extended Trading, Intel Back In Server Driver's Seat After Sun Deal
• Potentially impacted stocks and ETFs: Advanced Micro Devices, Inc. (NYSE:AMD), Sun Microsystems (SUNW), Intel Corp. (NASDAQ:INTC). ETFs: iShares Morningstar Mid Core Index (NYSEARCA:JKG), iShares S&P Global Technology (IXN), Internet Architecture HOLDRs (IAH)

INTERNET

Yahoo Suffers 61% Hit to Profits, but Panama Boosts Shares

Yahoo reported yesterday that Q4 profit was off 61% from last year, but its shares rose 5.6% on news that Panama, its long-awaited new ad software, will be rolled out next month. Net income dropped to $269 million, or $0.19/share, from $683 million, or $0.46, a year earlier, when it had a $340 million one-time gain. The EPS report beat Street estimates of $0.13. Sales met forecasts with a 13% rise to $1.7 Yahoo 24 01 2007 Chartbillion, but were still the slowest Yahoo has experienced in years. Results reflected tough competition from Google as well as stratospheric costs for employee stock options, which were $56 million versus $11 million last year. Newly restructured Yahoo will take on Google head-on with the February 5 rollout of Panama, a feature that allows Yahoo to sort search ads by relevance. Yahoo expects Panama to boost revenue per search 10% by H2 2007. The rollout was delayed from July to October and then to March due to technical difficulties in upgrading clients -- difficulties that persist, particularly among smaller customers. Yahoo provided Q1 net revenue guidance of $1.12-1.23 billion, behind the $1.28 billion Street estimate. For full-year 2007, Yahoo provided sales guidance of $4.95-5.45 billion, also shy of analyst forecasts. In related news, Yahoo Japan Corp. today reported a 20% rise in quarterly profit on the increased popularity of its auction site and online mall. Net income rose to 15.2 billion yen ($125 million) versus 12.7 billion yen a year ago, at the high end of company forecasts and slightly behind analyst estimates. Yahoo Japan is one-third owned by U.S. Yahoo.
• Sources: Wall Street Journal (I, II), Bloomberg, MarketWatch Conference call transcripts: Q4 2006
• Related commentary: Yahoo Issues Weak Forward Guidance, Announces Early 'Panama' Roll Out, Yahoo: The Real Problem With Panama, Yahoo's Report Tonight Unlikely To Impress
• Potentially impacted stocks and ETFs: Yahoo! Inc. (NASDAQ:YHOO). Competitors: Google Inc. (NASDAQ:GOOG). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN)

ENERGY AND MATERIALS

Crude Oil Price Rebounds on U.S. Reserve Plan

The crude oil price leaped 4.7% to $55.04 a barrel in response to President Bush's plan, announced last night in his State of the Union address, to double the country's strategic oil reserve. The plan, which also includes an overhauling of fuel economy standards and increases in federal targets for renewable and alternative fuel use, is designed to wean the country from its oil addiction and protect it Oil 24 01 2007 Chartfrom cut-offs by foreign suppliers. The ultimate goal is a 20% reduction in U.S. gas consumption over ten years. The Strategic Petroleum Reserve will be increased from 727 million barrels to 1.5 billion by buying 100,000 barrels of oil a day for 20 years, a process set to begin this spring. The increased reserve will constitute an equivalent of 97 days of foreign imports. Crude for March delivery closed at $55.04 a barrel on the Merc, its highest price since January 9 and biggest one-day gain since the September 2005 hurricane season. The oil price was also boosted by a drop in temperatures in the U.S. Northeast and a fresh spate of kidnappings of foreign nationals in Nigeria.
• Sources: Bloomberg, Wall Street Journal, White House Summary of Initiatives [pdf; Wall Street Journal]
• Related commentary: Crude Bounces Back Thanks To New Petroleum Reserve Plan, Crude Ready To Bounce Back?, Crude Oil Might Be Nearing a Bottom
• Potentially impacted stocks and ETFs: ConocoPhillips (NYSE:COP), Chevron Corp. (NYSE:CVX), ExxonMobil (NYSE:XOM), BP plc (NYSE:BP), Royal Dutch Shell (NYSE:RDS.A), Marathon Oil (NYSE:MRO). ETFs: Oil Service HOLDRs Trust (NYSEARCA:OIH), United States Oil Fund LP (NYSEARCA:USO), PowerShares DB Oil (NYSEARCA:DBO), Claymore MacroShares Oil Up Tradeable (UCR), Claymore MacroShares Oil Down Tradeable (DCR), iPath Goldman Sachs Crude Oil ETN (NYSEARCA:OIL), iShares Dow Jones U.S. Oil & Gas Exploration Index (NYSEARCA:IEO)

TRANSPORT AND AEROSPACE

UAL Corp. Shares Plummet Following Earnings Miss

United Airline's parent UAL Corp., the world's second-largest carrier, posted a Q4 loss of $61 million ($0.55/share), its first loss in the three quarters since leaving court bankruptcy protection 11 months ago. It cited December storms that grounded flights and boosted costs (excluding fuel) by 1.7%, and a UAL Corp 24 1 07variety of non-cash expenses (including frequent-flier program deferrals) totalling $170m. Analysts were expecting a $0.52 loss. Sales were up 4.6% to $4.6 billion, and fares were up 3.8%. The company said it plans to expand its capacity in 2007 by about 1%, but aircraft maintenance, airport rents, and health-care benefits were likely to increase costs by up to 1.5%. UAL shares fell $3.94 (8.1%) to $44.81 in yesterday's trading.
• Sources: Bloomberg, Seattle Post Intelligencer
• Related commentary: Crude's Fall Boosted Airline Stocks, Merger Mania Grips the Airlines, Jim Cramer's Take on UAUA
• Potentially impacted stocks and ETFs: UAL Corp. (UAUA). Competitors: AMR Corp. (AMR), Southwest Airlines Co. (NYSE:LUV), Continental Airlines Corp. (CAL), JetBlue Airways Corp. (NASDAQ:JBLU), US Airways Group Inc. (LCC). ETFs: iShares Dow Jones Transportation Index ETF (NYSEARCA:IYT)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: State of the Union Address: Sectors of Focus and Stocks to Watch
Housing: Does Capital One Deserve Valuation Multiple of Bigger Banks?
Long Idea: Panera Bread: Rising To The Challenge
Short Idea: Going Long Sallie Mae? Then Short First Marblehead
Internet: Yawning over Yahoo!'s Earnings Call
Telecom: Year-End Vonage Bounce Trade Gone Awry
Networking: Alcatel-Lucent's Big Miss Leaves Merrill 'Shocked'
Hardware: Reading Between the Lines on Sun/KKR Partnership
Software: IT Services CEOs Speak: IBM and Satyam
Media: John Malone's Three Part Plan For DirecTV
Healthcare: Patience: The Prescription For Buying Teva Pharmaceuticals
Biotech: Novavax Advances Avian Flu Vaccine Despite Government Snub
Retail: Crocs: Ugly, But Appealing
Gold: Gold Stock Earnings to Shine in 2007
Energy: Desjardins Initiates Buy Recommendation on TransCanada
Financial: Citigroup: Q4 Results Promising
Asia: Large Corporations Expanding into Bangalore
ETFs: David Fry's Daily Market Outlook
Small-Caps: Novavax Should Jump On Avian Flu Results
IPO Analysis: IPO Watch: Oculus Seeks Foothold In Wound Healing
Sound Money Tips: Making International Calls for Local Charges
Jim Cramer: Latest stock picks
Conference Call Transcripts: Rediff.com F3Q07, EMC Q4 2006, Xerox Q4 2006, Brinker International F2Q07, Tellabs Q4 2006, Coach F2Q07, Sun Microsystems F2Q07, Yahoo! Q4 2006, Citrix Systems Q4 2006, Avaya F1Q07, Seagate F2Q07, AMD Q4 2006, QLogic F3Q07

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