Nokia Shares Surge on Solid Earnings
Nokia, #1 mobile-phone maker worldwide, said this morning its Q4 profits were up 19% to €0.32/share (€1.27 billion) from €0.28/share in Q4 2005, beating analyst forecasts of €0.28. Sales grew 13% (€11.7 billion) and 20% in 2006. Operating margin for handsets was up slightly from 17.1% to 17.8%, but overall operating margin declined from 13.2% to 13%. Handsets shipped was up 26% to 106 million, but average price dropped from €93 to €89. In 2007, Nokia said it expects industry mobile device volume to grow 10%, but also expects further average selling price declines. During 2006, NOK produced a cash-flow of €4.5b, and gave €4.9 to shareholders through dividends and share buybacks. Estimated market share y/y grew 2% to 36%, which CEO Olli-Pekka Kallasvuo attributes to strong sales of cheap phones in China, India, and Latin America -- igniting a share rally: NOK shares traded up 6.2% to €16.45 in Helsinki. Competitor Motorola saw its Q4 profit plunge 48% last week and said it plans to cut 3,500 jobs (5%); Samsung said on Jan. 12 its Q4 profit dropped on low prices; rival Sony Ericsson, which focuses on high-end phones, said last week its profit tripled on strong demand for phones with music players and cameras.
• Sources: Press Release (.pdf), MarketWatch, Bloomberg
• Related commentary: Nokia Pre-Earnings: Suffering By Implication, 10 Predictions for Wireless in 2007. Check for Nokia's Earnings Conference Call Transcript later today.
• Potentially impacted stocks and ETFs: Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Telefonaktiebolaget LM Ericsson ADR (NASDAQ:ERIC), Sony Corp. (NYSE:SNE). Suppliers: Texas Instruments Inc. (NASDAQ:TXN), Qualcomm Inc. (NASDAQ:QCOM), National Semiconductor Corp. (NYSE:NSM). ETFs: HOLDRS Wireless (NYSEARCA:WMH)
Symantec Earnings Barely Top Estimates; Next Up: Cost Cutting, Share Buybacks
Symantec Corp. released earnings for its FY 3Q07 after yesterday's close reporting net earnings and revenue topped consensus estimates. The company also announced two major moves: a plan to trim $200 million from its cost structure and a new $1 billion share buyback plan effective immediately. By the numbers, the company's net earnings for the quarter were $114 million, good for EPS of $0.12, versus earnings of $91 million (EPS of $0.08) during the year-earlier period. Revenue increased as well, to $1.31 billion from $1.15 billion. Excluding one-time charges, EPS was $0.26; Thomson First Call consensus estimates called for EPS of $0.25 on revenue of $1.3 billion. Looking to its next quarter, Symantec expects revenue to fall to between $1.24 and $1.27 billion and EPS to drop to between $0.04 and $0.06. The company's cost cutting plan will most likely include reducing employees though CEO John Thompson didn't say in what division or in what region (he did indicate it would not be in sales). The new share buyback plan replaces an older plan the company just completed. Over the past two years, Symantec has repurchased $6 billion worth of its shares, according to company data. Symantec shares rose $0.44, or 2.52% to $17.92 in after-hours trading.
• Sources: Symantec F3Q07 (Qtr End 12/29/06) Earnings Call Transcript, Press Release, Bloomberg, Red Herring, AP, MarketWatch
• Related commentary: Symantec Shares Nosedive on Q3 and Full-Year Warning, Sorting Symantec's Mess: Investors Concerned More Bad News To Follow, Symantec's A Short Following Weak Data Point. Conference call transcripts: Symantec F3Q06 (Qtr Ending Dec 31, 2005)
• Potentially impacted stocks and ETFs: Symantec (NASDAQ:SYMC). Competitors: McAfee Inc. (MFE), Microsoft Corp. (NASDAQ:MSFT), CA, Inc. (NASDAQ:CA). ETFs: iShares Goldman Sachs Software Index (NYSEARCA:IGV), Software HOLDRs (NYSE:SWH), streetTRACKS Morgan Stanley Technology (NYSEARCA:MTK), Internet Architecture HOLDRs (NYSE:IAH)
Nintendo's Profit Surges on Strong DS and Wii Sales
Nintendo's 9-month (period ended Dec. '06) net income jumped 43.1% to ¥131.92 billion ($1.1b) on sales growth of 72.8% to ¥712.6b ($5.9b). It did not provide a quarterly breakdown, but Bloomberg calculates Q3 net income climbed 40% to ¥77.6b ($644m) on a 75% increase in sales to ¥413.8b ($3.4b). Nintendo cited "very strong sales" of both DS hardware and software. Demand for DS hardware continues to exceed supply. Nintendo says Wii hardware "got off to a favorable start" and software "enjoyed brisk sales as well." It maintained its guidance provided on Jan. 10 for full fiscal year (ending Mar. '07) net income of ¥120b ($1b) on sales of ¥900b ($7.5b), despite already exceeding the full-year net income figure, due to the possible impact of currency fluctuations in Q4. Analysts note the Wii is outselling Sony's PS3 by about 2:1 in Japan and the U.S. Nintendo has sold 3.19m Wiis so far and still expects to sell 6m by March. Its ordinary shares gained 1.5% to ¥33,500 ($34.75 ADR equiv. at ¥120.5/$1 vs. $34.25 ADR close yesterday) ahead of its earnings announcement.
• Sources: Earnings press release [pdf], Bloomberg
• Related commentary: A Look at Nintendo Ahead of Earnings, Sony PS2: Top-Selling Game Console During Holidays, Game Points: Game Console and Software Stock Update
• Potentially impacted stocks and ETFs: Nintendo (OTCPK:NTDOY). Competitors: Microsoft (MSFT), Sony (SNE). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)
QualComm Inches Past Forecasts; Shares Rise
QualComm shares rose 3% yesterday when the company reported its fiscal Q1 profit had edged past forecasts. The company benefited from increased consumer interest in technology that enables cellphones to surf the Internet and download videos. Adjusted net income came in at $722 million, or $0.43/share, up 2% sequentially and 8% above a year ago. Analysts were expecting EPS of $0.42. Quarterly sales were $2.02 billion, flat with last quarter and up 16% from the year-ago level, against analyst expectations of $2.07 billion. QualComm is in a legal battle with Nokia over royalties on license agreements that will expire on April 9. Nokia is trying to slash the royalties it pays for its CDMA and WCDMA licenses, and any failure to pay those royalties could cut into QualComm's EPS. The company forecasts a rise in the average selling price for CDMA phones to about $217 this quarter, up from prior guidance of $205. Qualcomm is forecasting adjusted earnings for fiscal Q2 flat with Q1 at $0.43 on revenues of $2.05 billion versus Street expectations of $0.43 on $2.1 billion. QualComm is offering full-year guidance of about $1.43 in pro forma EPS on $8.35 billion. Analysts are forecasting $1.78 in adjusted profit on $8.55 billion in revenue for fiscal 2007.
• Sources: Bloomberg, TheStreet.com, Wall Street Journal, MarketWatch (I, II [press release]). Conference call transcripts: F1Q07 (Qtr End 12/31/06)
• Related commentary: Nokia-QUALCOMM's Battle Royale, Qualcomm's Empire Is Under Siege, Cell Phone Makers: Nokia May Run, But Qualcomm's On An End Run
• Potentially impacted stocks and ETFs: QualComm Inc. (QCOM). Competitors: Texas Instruments Inc. (TXN), Broadcom Corp. (NASDAQ:BRCM). ETFs: Broadband HOLDRs (NYSE:BDH), Wireless HOLDRs (WMH), NASDAQ 100 Trust Shares (QQQQ), Vanguard Information Technology ETF (NYSEARCA:VGT)
Siemens to Buy UGS for $3.5 Billion, Sources Claim
Engineering conglomerate Siemens AG is close to purchasing UGS Corp., a Texan manufacturer of product lifecycle management software, for $3.5 billion including debt, according to the Wall Street Journal. UGS, which is privately owned, had revenues just shy of $1.2 billion and $241 million in operating profit in fiscal 2005. Siemens will also sell a minority stake in VDO Automotive, its automotive-electronics unit, through an IPO. VDO Automotive made €10 billion ($13 billion) in revenue and €669 million in operating profit in the most recent fiscal year ended Sept. 30. These moves are part of an overall restructuring of Siemens begun in January 2005 by CEO Klaus Kleinfeld, who has already made acquisitions worth about $10 billion, including the €4.2 billion purchase of Bayer AG's medical-diagnostics division last June. The restructuring is designed to sharpen the company's focus on three areas: energy and environment, automation in public and private infrastructure, and healthcare. UGS will become part of Siemens's highly profitable factory-automation unit. Siemens is in the midst of a fraud investigation that has temporarily scuppered a telecommunications equipment JV with Nokia.
• Sources: Bloomberg, Wall Street Journal, MarketWatch
• Related commentary: Nokia-Siemens Telecom JV Delayed, But Not Dead, Siemens and IBM Ink Joint IT Deal with German Army, Siemens Fuel Cell Test Results Exceed SECA Requirements
• Potentially impacted stocks and ETFs: Siemens Aktiengesellschaft (SI). Competitors: Alcatel-Lucent (NYSE:ALU), General Electric Co. (NYSE:GE), Hitachi Ltd. (HIT)
EBay Profit Up 24%; Sales Beat Street
EBay shares rose 12.8% to $33.88 in extended trading yesterday when the company announced a 24% jump in Q4 earnings. The company posted EPS of $0.25 for Q4, or $346 million. Revenues jumped 29% to $1.7 billion, beating Street expectations of $1.67 billion. Excluding expenses, eBay made $0.31 in EPS, ahead of the $0.28 Street forecast. For the full year, eBay projects EPS of $1.25-1.29 on revenues of $7.05-7.3 billion versus Street forecasts $1.23 EPS on $7.15 billion in revenue. EBay altered its Marketplaces business this quarter to positive effect: the unit showed $1.2 billion in Q4 revenue, 24% over last year. eBay's gross merchandise volume, or amount of goods sold, reached $14.4 billion, a 20% y/y gain. PayPal, eBay's payment service, saw quarterly revenue of $417 million, a 37% y/y growth rate. PayPal performed well despite the launch of rival Google's Checkout service. EBay's telephony service, Skype, enjoyed 164% y/y revenue growth to $66 million. The company benefited from holiday shopping for popular items, like the Nintendo Wii, that were hard to find elsewhere. EBay's board has approved a repurchase of up to $2 billion of the company's stock over the next two years. Earlier this month, eBay bought online ticket-reseller StubHub for $310 million, a purchase expected to add up to $120 million to 2007 revenue.
• Sources: MarketWatch [press release]), TheStreet.com, Bloomberg, Wall Street Journal. Conference call transcripts: Q4 2006
• Related commentary: eBay's PayPal Dominates Over Google Checkout, eBay Acquires Online Ticket Broker StubHub, Can eBay Stay Ahead?
• Potentially impacted stocks and ETFs: eBay Inc. (NASDAQ:EBAY). Competitors: Amazon.com Inc. (NASDAQ:AMZN), Google Inc. (NASDAQ:GOOG), uBid.com Holdings, Inc. (UBHI.OB). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN)
Netflix's Beat and Raise Quarter Sends Shares Flying
Netflix Inc. reported 4Q06 profits that although much lower than the previous-year quarter, topped consensus estimates and sent the stock flying in after hours action. The strength of its most recent quarter can largely be pinned on the addition of 654,000 new. That amounted to net earnings of $14.9 million, good for EPS of $0.21 versus the year-earlier period when Netflix reported profits of $38.2 million, EPS of $0.57), bolstered by a tax gain of $34.9 million accounting for $0.52 of the quarter's EPS. Average analyst EPS estimates totaled just $0.15. Revenue shot up as a result of the new subscribers, totaling $277.2 million, a 44% gain versus the prio-year period ($193 million). The large number of new subscribers brings Netflix's customer count to 6.3 million through December 2006. The company expects to end 2007 with between 8-8.4 million subscribers on revenue of $1.25 billion-$1.3 billion. Looking towards next quarter, Netflix projected net income of $9-$13 million (EPS of $0.13-$0.18) exceeding analysts' estimates of $0.11 a share. Netflix shares surged $2.50, or 10.99%, to $25.25 in after-hours trading after gaining $0.99, or 4.55%, to $22.75 during regular trading yesterday.
• Sources: Netflix Q4 2006, Press Release, Bloomberg, Wall Street Journal, MarketWatch
• Related commentary: Video On Demand: The Real Threat To Netflix and Blockbuster?, Total Access Gives Blockbuster Credibility To Compete With Netflix, Coming Soon to Your PC: Netflix Movies. Conference call transcripts: Netflix Q4 2005 Earnings Conference Call Transcript (NASDAQ:NFLX)
• Potentially impacted stocks and ETFs: Netflix Inc. (NFLX). Competitors: Apple, Inc. (NASDAQ:AAPL), Amazon.com Inc. (AMZN), Blockbuster Inc. (BBI), Hastings Entertainment Inc. (NASDAQ:HAST), Movie Gallery Inc. (MOVI)
Wal-Mart Reshuffles Marketing Team
Wal-Mart has reshuffled its U. S. marketing team in hopes of stimulating sales growth after a year of costly merchandising errors. Chief Marketing Officer John Fleming, architect of the company's failed attempt to appeal to more up-market consumers, will be shifted to the position of Chief Merchandising Officer. In that capacity, he will be responsible for the company's grocery, entertainment, home and clothing divisions. Senior marketing VP Stephen Quinn will assume Fleming's former role, in what is perceived to be a move toward more promotional marketing. Claire Watts, formerly executive VP of apparel and home merchandising, will now be responsible only for apparel. The company has also selected two new ad agencies to replace agencies that were awkwardly hired and fired last year. The reshuffled executives will report to Eduardo Castro-Wright, who became president of Wal-Mart's U.S. unit last October. Wal-Mart will also make new appointments in food, entertainment and home decor. Three individuals have resigned over the past few weeks: the head of procurement, head of marketing for Sam's Club, and corporate treasurer for Sam's Club. The pharmacy and optical division will remain under the management of Bill Simon, the prime mover behind Wal-Mart's $4 prescription generic-drug program.
• Sources: MarketWatch (I, II [press release], III, IV)
• Related commentary: Walmart: Looking Forward to Better Times, Retail Sector Closes the Year on (Mostly) Down Note, Wal-Mart: Priced At a Discount With Room to Grow
• Potentially impacted stocks and ETFs: Wal-Mart Stores, Inc. (NYSE:WMT). Competitors: Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT). ETFs: Retail HOLDRs (NYSEARCA:RTH), Vanguard Consumer Staples ETF (NYSEARCA:VDC), Market 2000 HOLDRs (NYSEARCA:MKH), iShares Russell 1000 Growth Index (NYSEARCA:IWF)
TRANSPORT AND AEROSPACE
Boeing Decides to Abandon Wireless in 787: Speed Bump or Speed Boost?
The Wall Street Journal reports Boeing plans to scrap plans to install wireless in-flight entertainment in its 787 "Dreamliner," which is scheduled for its first flight in May 2008. While this could raise concerns over other development issues, the Seattle Post-Intelligencer reports Mike Sinnett, director of 787 systems, said it will not delay delivery and instead, "... will actually make it easier for us." Two issues forced Boeing into abandoning its wireless plans: (1) bandwidth limitations and (2) regulatory difficulties in receiving approval with some countries for use of certain wireless frequencies. Sinnett said Boeing will reduce equipment weight by 150 pounds using traditional wiring and the configuration will allow carriers to change seat layouts. Separately, Bloomberg reports UAE-based Emirates plans to order 12 additional Boeing 777-300ERs valued at $3b due to delays for the Airbus A380, adding to its 54 777s already on order. Emirates is the A380s biggest customer with 45 planes on order. Boeing's shares have faced selling pressure after a downgrade by Wachovia on Monday. Boeing reports Q4 and full-year earnings Jan. 31 before the market opens.
• Sources: Bloomberg, Seattle P-I, WSJ
• Related commentary: Boeing Shares Fall on Wachovia Downgrade, Airbus Should Get Cracking On a Regional Jet Program, Boeing Sets New Order Records in '06
• Potentially impacted stocks and ETFs: Boeing (NYSE:BA). Competitor: EADS (Paris: 005730). ETFs: DIAMONDS Trust, Series 1 (NYSEARCA:DIA), iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), Vanguard Industrials (NYSEARCA:VIS), Industrial Select Sector SPDR (NYSEARCA:XLI)
Sony Financial IPO Talks Heat Up; PS3 Launch Date Set for Europe
The Wall Street Journal reports "speculation is growing" that Sony will sell shares of its financial arm, Sony Financial Holdings, as early as April, in a long-awaited IPO that could reach ¥400b ($3.3b). Bloomberg says it may have a market value of ¥960b ($8b) noting Sony's corporate rules require it keep at least a 50% stake. This could be one of the largest IPOs in Japan this year, similar in size to last year's ¥380b Aozora Bank IPO, the largest in Japan in eight years. It is unclear exactly when the IPO will happen, but Bloomberg reports a Sony spokesman said it could be as early as Apr. 1. The WSJ cites sources who say Nomura Securities and JP Morgan Sec. are the underwriters. The IPO is part of Sony's strategy to focus more on its core electronics businesses. Separately, Sony announced today its PlayStation 3 will launch in Europe and Australasia on Mar. 23 for €599/£425/A$999.95/NZ$1199.95. Initially only the 60GB version will be available based on expected consumer demand. Also, Sony announced Sony Life Insurance Co. will establish a 50/50 JV in Japan with Aegon NV, the second-largest Dutch insurer. Operations are expected to begin early next year pending final agreement and approval. A Japan-based Merrill Lynch analyst responded to the news saying, "It's a growing area and a positive move. Still, it seems the timing is a bit late and I don't get a strong impression from Aegon in this business."
• Sources: WSJ, Bloomberg, Sony press releases [I, II]
• Related commentary: Sony Ericsson Triples Profits in 4Q06, Sony PS2: Top-Selling Game Console During Holidays, Sony Soars on Goldman Upgrade
• Potentially impacted stocks and ETFs: Sony (SNE), Aegon NV (NYSE:AEG), Nomura Holdings (NYSE:NMR), JP Morgan (NYSE:JPM)
AIG Offers Cash Buyout For 21st Century
Insurance conglomerate AIG has offered to buy out the remaining 38.1% of 21st Century public shares it doesn't already own at $19.75/share in cash or $690 million, a 19% premium to yesterday's price. AIG says it is offering a "full and fair value" (at 19.6 P/E) for the outstanding shares, and that it won't sell off 21st century, because its direct personal auto insurance business is one AIG "knows well" and wants to expand into. Bank of America insurance analyst Tamara Kravec recently said insurers like AIG had a banner year due to good weather, so AIG looks to be using its windfall for acquisitions in the U.S. and in Europe: An AIG subsidiary signed an IT agreement yesterday with Accenture to expand property and casualty businesses in Europe. Cliff Gallant of Keefe Bruyette & Woods said that despite strong earnings, he's not recommending personal auto insurers because a potential price war could impact future earnings.
• Sources: Reuters.com; The Street;MarketWatch; Houston Chronicle (I, II); Consultant News; AIG Press Release
• Related commentary: Short and Longer Term Directions For American International Group; Insurance Sector Looks Cheap; Insurance Stocks: Wall Street's Biggest Secret; Cramer On AIG (Jan. 4)
• Potentially impacted stocks and ETFs: American International Group (NYSE:AIG), 21st Century (NYSE:TW), Berkshire Hathaway (BRK), Wells Fargo (NYSE:WFC), Allianz SE (AZ), AXA (AXA), iShares Dow Jones U.S. Insurance (NYSEARCA:IAK)
ADDITIONAL EARNINGS COVERAGE
- Novellus: Q4 EPS Tops Guidance
- Qimonda Beats on Earnings
- Earnings Roundup: KOMG, TRID, ISIL, ARBA, FFIV, PCOM [Barron's]
- WhisperNumber.com Earnings Estimates: At Odds With Traditional Analyst Estimates
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