Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.
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Rise in Sub-Prime Defaults Leave Investors Asking Who's Next

Investors received a rude wake-up call Wednesday when instead of reporting earnings as scheduled, New Century Financial Corp., the nation's second-largest sub-prime lender, announced it was pushing off its earnings release, and that shareholders should expect a surprise loss in 4Q06 instead of the $1.06 EPS the Street was expecting. Research firm First American LoanPerformance says that in November, payments were overdue on 12.9% of sub-prime loans packaged into mortgage securities, vs. 8.1% a year earlier. New Century's announcement came less than a day after HSBC reported its sub-prime division was also under significant pressure from rising defaults. In the past sub-prime lenders stayed newafloat due to rapidly appreciating real estate prices; a house could always be turned around at a profit just months after purchase. But with housing prices experiencing steep declines, lenders and their backers have begun to bear the brunt of defaulted payments. The market punished sub-prime lenders, fearing the worst may still be ahead: shares of New Century fell $10.92 (36%) to $19.24, Accredited Home Lenders Holding Co. (-6% to $27.25), Novastar Financial Inc. (-11% to $18.31), Fremont General Corp. (-11% to $12.41) and American Home Mortgage Investment Corp. (-8.1% to $33.06). HSBC shares slid 2.65% to $89.78. Wells Fargo CEO Richard Kovacevich believes the negative implications may spread well beyond the mortgage lenders: "The assumption is that [sub-prime mortgage securities] are well-diversified. If [they're] concentrated, it's going to be a disaster."
Sources: NEW Press Release, HSBC Press release, Wall Street Journal, Bloomberg, Forbes, MarketWatch
Commentary: Questioning Sell-Side Research On The Subprime LendersDelinquencies in Sub-prime Mortgages Hit HSBC, Shares Trade LowerGeographic Distribution of House Price Risk and Gains
Stocks/ETFs to watch: New Century Financial (NEW), HSBC Holdings (HBC), Accredited Home Lenders Holding Co. (LEND), Novastar Financial Inc. (NFI), American Home Mortgage Investment Corp. (AHM), Fremont General Corp. (FMT). Competitors: Fannie Mae (FNM), Freddie Mac (FRE), Wells-Fargo (NYSE:WFC). ETFs: Vanguard REIT ETF (NYSEARCA:VNQ)


Broadcom: Q4 Net Meets, Sales Beat, $1B Buyback Announced

Shares of Broadcom ended 0.4% higher to $34.07 in extended trading (on volume of nearly 5m shares; $33.67, +0.51% normal trading close) after reporting Q4 EPS (excluding some costs) of $0.31, in-line with analysts' expectations, on revenue of $923.5 million (+13%), beating analysts' estimate of $910.5m. Net income was down 76% y-o-y to $45.1m, or $0.08/share, due to stock-based compensation costs. Broadcom-BRCM-1yr-chart-02-08-07 Broadcom credits its sales growth to strong demand for the Nintendo Wii console and bluetooth and wireless cell phone handsets. Weaker demand was experienced in cable and satellite TV set-top boxes and DSL and cable modems. Q1 revenue guidance fell short of analysts' average estimate ($890-$900m vs. $901.6m). Stock options expenses jumped nearly fivefold y-o-y to $106.4m. In a separate press release, Broadcom announced a share repurchase program for its class A common stock worth up to $1b, set to begin Monday over a 12-18 month period.
Sources: Broadcom Q4 2006 Earnings Call Transcript, Press releases [I, II], Bloomberg, Seattle Post-Intelligencer
Commentary: Broadcom: ThinkEquity Expects Weak Q1 Guidance in Earnings ReportBroadcom: AmTech Upgrades on Brighter Days AheadUBS Ups Broadcom to Buy on Networking Strength and Uses for Touch Screens
Stocks/ETFs to watch: Broadcom (BRCM). Competitors: Agere Systems (NYSE:AGR), Texas Instruments (NYSE:TXN), Intel (NASDAQ:INTC). ETFs: iShares Goldman Sachs Networking (NYSEARCA:IGN), Broadband HOLDRs (NYSE:BDH), iShares Goldman Sachs Semiconductor (IGW), SPDR S&P Semiconductor (NYSEARCA:XSD)

PC Sales Jump on Demand for Vista

Market research firm Current Analysis reports sales of PCs at U.S. retailers in the week ended Feb. 3 were 67% higher year-over-year and increased 173% week-over-week. Two key findings are consumers prefer Windows Vista Home Premium to Vista Home Basic and Hewlett-Packard is dominating sales. Vista Premium accounted for 70% of Vista sales in Vista's first week on the market (Basic was at 22%), but the most expensive consumer version, Vista Ultimate, only had a 1.2% share of sales. Laptops with the premium version installed were in higher demand than desktops (76% vs. 59%). HP recorded more than half of all PC sales in retail stores with 53% of Vista Premium and 54% of Vista Basic unit sales. The director of research at Current Analysis expects Vista Ultimate sales to improve with time. He also points out the data is only for one first week and notes PCs were not even the focus for retailers because HD TVs were top priority for the Super Bowl.
Sources: PC World-IDG, The Wall Street Journal
Commentary: Microsoft Vista: The Good, the Bad and the Boring - Barron'sVista Sales Beat Forecasts, MSFT Shares ClimbHewlett-Packard Extends Lead Over Dell in PC Market
Stocks/ETFs to watch: Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL), Gateway (GTW), Hewlett-Packard (NYSE:HPQ), Lenovo (OTCPK:LNVGY). ETFs: Technology Select Sector SPDR (NYSEARCA:XLK), Software HOLDRs (NYSE:SWH), Internet Architecture HOLDRs (NYSE:IAH), iShares Goldman Sachs Software Index (NYSEARCA:IGV), iShares S&P Global Technology (NYSEARCA:IXN)


Napster Beats Estimates - Shares Lower on Soft Guidance

Napster reported better than expected 3Q07 results on strong subscription growth.naps By the numbers, Napster reported a net loss of $9.5 million, good for EPS of -$0.22, versus a loss of $17 million, (EPS of -$0.40) in the year earlier period. Analysts were expecting an EPS loss of $0.29 on revenue of $28 million. Looking to next quarter, management expects revenue to pass $26 million coupled with declining operating expenses; the Street was expecting revenue of $28.9 million and a per share loss of $0.24. Napster expects to add several hundred thousand subscribers due to a deal to become AOL's exclusive online music download service though the revenue impact of these new subscribers won't be reflected until its June quarter. Shares traded lower by $0.21, or 5.13%, to $3.88 in after hours action.
Sources: Napster F3Q07 (Qtr End 12/31/06) Earnings Call Transcript, Press Release, Forbes, CNN Money/Reuters
Commentary: Will All the Napster M&A Talk Ever Amount To Anything?, Napster Optimistic About Its Future, No Growth In Digital Music Sales?
Stocks/ETFs to watch: Napster (NAPS), Time Warner (NYSE:TWX). Competitors: Apple (NASDAQ:AAPL), RealNetworks Inc. (NASDAQ:RNWK)

Cisco to Buy Social Networking Sitebuilder

Cisco Systems announced this morning it has agreed to buyout Five Across Inc., whose platform (Connect Community Builder) allows companies to augment their websites with full-featured communities and user-generated content such as audio/video/photo sharing, blogs, podcasts, and profiles. Cisco 09 02 2007 ChartThe eleven-person Five Across team received broad recognition when it helped the National Hockey League build its social-networking site NHL Connect last year. In January, Cisco CEO John Chambers said his company would make a push into the consumer market by acquiring more companies focused in that sector -- a move driven by the company's strong growth in the area, but one that has raised concerns about falling profit margins. The deal is expected to close in April. Cisco has acquired over 100 companies since going public in 1990. Yesterday, MarketWatch reported Cisco plans to replace its two current consumer brands -- Scientific Atlanta and Linksys -- within two years.
Sources: Press Release, Wall Street Journal,MarketWatch I, II
Commentary: Cisco's Consumer Push Will Be Double-Edged Sword [MarketWatch]Great Conference Call Moments: Cisco's John ChambersCisco's Chambers Hints At More Consumer Deals [MarketWatch]
Stocks/ETFs to watch: Cisco Systems Inc. (NASDAQ:CSCO). Competitors: News Corp. (NASDAQ:NWS)
Related: Five Across Inc. Website, NHL Connect, Cisco Systems F2Q07 Earnings Call Transcript

McAfee Suffers 9% Profit Drop; Annual Report Will Be Late

Security software manufacturer McAfee had a 9% drop in Q4 profit and will fail to meet a NYSE extension of its annual report deadline. Profit for the quarter ended Dec. 31 fell to $35 million ($0.21/share) from $38.6 million ($0.23) a year earlier. Sales rose 20% to $305.2 million, ahead of Street forecasts of $291 million. The results are only preliminary because the company will be restating its financials McAfee Inc 09 02 2007 Chartin the wake of a scandal in which up to $150 million in options were improperly accounted for. CEO George Samenuk, who resigned when the scandal broke, will receive a $1.4 million bonus and cash payout. McAfee will not be able to file its 2006 annual report by the revised NYSE deadline of March 16 and will thus be subject to late filer regulations. The delayed filing has resulted in the possibly temporary cancellation of a $246 million stock repurchase plan that was supposed to last through October 2007. For Q1 2007, McAfee is projecting EPS of $0.17-0.22 on sales of $280-300 million. Excluding expenses, it forecasts EPS of $0.31-0.36. Analysts have forecast $0.35 EPS on $291 million in revenue.
Sources: MarketWatch, Business Week, The Street.com, Reuters. Conference call transcript: Q4 2006
Commentary: Options Scandal Investigations Heat Up With McAfee, CNET Firings, McAfee: Takeover Target With Options Issue Behind It?, Barron's: Picks and Pans Among Tech Stocks
Stocks/ETFs to watch: McAfee, Inc. (MFE). Competitors: CA, Inc. (NASDAQ:CA), Microsoft Corp. (MSFT), Symantec Corp. (NASDAQ:SYMC). ETFs: PowerShares Dynamic Networking (NYSEARCA:PXQ), Internet HOLDRs (NYSE:HHH)


WSJ: Steve Jobs May Have Helped Pixar Director With Suspect Options Grant

The Wall Street Journal reports that in 2001, Apple CEO Steve Jobs helped Pixar Inc. negotiate film director John Lasseter's contract, which included a large and exceptionally well-timed stock-options grant. Dated three months before the contract was signed, the grant carries the lowest share price of the previous year, and was signed by Jobs who was then Pixar CEO and Chairman. The contract was an early renewal of a 1997 contract, Apple Inc 09 02 2007 Chartsweetening the pot to keep competitors from snatching up the world's #1 animation director. It included a $5 million signing bonus, $2.5m per year, and one million stock options that were not priced on the date of the contract. The options were dated Dec. 6, 2000 -- the bottom of an extended slide. The Journal reports that by March 20, the day before the contract was signed, Pixar shares were up 24%, giving Lasseter an unrealized profit of $6.4m. On March 12, nine days before signing the new contract, Lasseter filed a SEC Form 4 reporting the sale of previously-owned Pixar shares, but made no disclosure of the December grant. Edwin Catmull, then Pixar president and currently president of Disney and Pixar, also received 500,000 options dated Dec. 6, 2000 which he didn't disclose until Feb. 13, 2001, despite having made other Form 4 filings in the interim. Walt Disney Co., Pixar's current owner, is conducting an internal probe into its options dating practices, and "people familiar with the matter" say federal prosecutors are awaiting its conclusion. Jobs sits on Disney's board and is its biggest shareholder. The SEC is already investigating Jobs's role in options backdating at Apple; an internal probe recently cleared him of wrongdoing, but said he "was aware or recommended the selection of some favorable grant dates."
Sources: Wall Street Journal
Commentary: Polishing The Apple: Steve Jobs and The Options AffairApple's Corporate Miscues May Tarnish Its ImageApple Computer: Should CEO Steve Jobs Resign?
Stocks/ETFs to watch: Apple Computer Inc. (AAPL), Walt Disney Company (NYSE:DIS)

ESPN To Be Exclusive Sports Content Provider For Verizon V Cast

Verizon Wireless and Disney-owned ESPN have inked a deal in which ESPN will be the sole sports content provider to Verizon's V Cast subscribers. The terms of the deal were left undisclosed including when the exclusivity clause comes to an end. while subscribers to other mobile content services can still access ESPN online, the imperfections of streaming video off of sites not specifically suited to mobile content will mean only Verizon's V Cast subscribers will have access to ESPN's specially modified mobile content. Of Verizon Wireless' 59 million subscribers, roughly a third have V Cast enabled technology on their handsets. V Cast offers an array of multimedia applications and costs $15 a month; the new ESPN sports news and video highlights service will be included free of additional charge to V Cast subscribers.
Sources: Business Week, Washington Post, Cnet
Commentary: Verizon Happily Rejected Chance To Be Sole iPhone Service Provider, Verizon's New Mobile TV Service Announced At CES, Is A Disney-Apple Wireless Alliance Brewing?
Stocks/ETFs to watch: Verizon (NYSE:VZ), Vodafone (NASDAQ:VOD), Disney (DIS). Competitors: AT&T (NYSE:T), Sprint Nextel (NYSE:S). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), Wireless HOLDRS (NYSEARCA:WMH)

News Corp Announces Q4 Launch of Fox Business Channel

Rupert Murdoch announced yesterday that the much-anticipated Fox Business Channel will launch in Q4 2007. The "business-friendly" channel will go head-to-head with General Electric's CNBC. News Corp. will distribute the channel to 30 million homes through arrangements with Time Warner, Comcast, Charter Communications and DirectTV. The channel will be run by Roger Ailes, chairman and CEO of Fox News. Since the shuttering of CNNfn in 2004, CNBC has had only Bloomberg Television as a competitor in cable business news. Media analysts remain to be convinced whether the market wants three 24-hour business channels, although the enormously successful Fox TV, which debuted in 1985 to compete with ABC, NBC and CBS, was initially met with similar doubts. Fox News fixture Neil Cavuto will be responsible for news coverage at the new channel. In related news, Mr. Murdoch stated that News Corp. will now turn its attention to providing TV content to be broadcast on the screens of mobile phones.
Sources: New York Times, MarketWatch, Reuters, Red Herring, Press release
Commentary: CNBC Stars Could Hit the Jackpot On New Fox Business Channel, Time Warner Cable Agrees To Carry Future Fox Business Channel, Fox Business Channel Ready For Action in 2007
Stocks/ETFs to watch: News Corp. (NWS), General Electric (NYSE:GE), Comcast (NASDAQ:CMCSA), Liberty Media (LINTA), DIRECTV Group (DTV), Time Warner Inc. (TWX). ETFs: PowerShares Dynamic Media Portfolio (NYSEARCA:PBS), iShares Dow Jones US Consumer Services (NYSEARCA:IYC), PowerShares Dynamic Large Cap Growth (NYSEARCA:PWB), Vanguard Consumer Discretionary ETF (NYSEARCA:VCR), Consumer Discretionary SPDR (NYSEARCA:XLY)


Northrop to Bid on $40 Billion Air Force Contract

Northrop Grumman, together with partner European Aeronautic Defence and Space Co. [EADS], has agreed to challenge Boeing for the contract to replace 179 refueling tanker aircraft for the U.S. Air Force -- the first time the rivals will compete in the military market. The $40 billion contract is part one of a three-part deal estimated at $100 billion. Northrop, concerned its KC-30 -- which is based on the Airbus A330-200 -- would not be considered on the grounds that it is bigger and more expensive than the Boeing 767, declined to commit to the Northrop Grumman 09 02 2007 Chartcompetition until language was added to the contract indicating the Air Force would consider aircraft with "significant" cargo space. Northrop is also hoping to win a $100 billion contract to upgrade the Air Force's fleet of B-2 bombers, a prospect it does not want to jeopardize by delaying the tanker program. Boeing might submit a tanker based on its 777 jumbo-jet instead of its 767, a matter it will address at a press briefing on Monday. Boeing lost the original tanker contract after it was revealed that former defense department official Darleen Druyan and former Boeing CFO Mike Sears had conspired to ensure Boeing would win the contract.
Sources: Forbes, MarketWatch, MSNBC
Commentary: Northrop Threats to Abandon Bidding Jeopardize Critical Air Force Program, Airbus Hopes To Land Big U.S. Tanker Contract, Lower Supply Costs, Northrop/EADS Win $560 Million German Defense Contract
Stocks/ETFs to watch: Northrop Grumman Corp. (NYSE:NOC). Competitors: Boeing Co. (NYSE:BA), General Dynamics Corp. (NYSE:GD), Lockheed Martin Corp. (NYSE:LMT). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)


U.S. Markets: Growth Stocks Start Year Strongly, But Value Should Reassert Itself
Housing: For Whom the Bell Tolls: Perchance for a Home-Builder?
Long Idea: Buying Dell On Michael's Return
Short Idea: CEF Long-Short Pair Trade: Premiums vs. Discounts
Internet: VeriSign Fortifying Its Network, Aiming At More Consulting
Telecom: EDS: Verizon Will Reel In Its IT Services
Networking: Alcatel-Lucent: Low Valuation Balanced by Merger Risks
Hardware: Dell's "New" CEO: The Beginning of a Renaissance?
Chips: Tower Semi: Finding Its Niche Amidst The Chip Giants
Software: Why Google Office Matters And Other Microsoft Competitors Don't
Consumer Electronics: Will Kodak 'Print' Money?
Media: Disney Flicks Doing Very Well On iTunes
Healthcare: Kaufman Sees Upside In NutriSystem From Reactivation
Biotech: Glaxo and the Making of a Blockbuster Drug
Retail: Tim Hortons: Analysts See Limited Upside
Transport: AutoNation: Better Auto Retail Investments Remain
Gold: Metal Miners Break Out
Energy: PowerShares Progressive Energy ETF: Awaiting An Entry Point
Financial: I-Banks At Risk From Hedge Fund Over-Exposure?
Asia: Nomura's Individual Investor Survey for February
ETFs: Cleantech ETFs: Feast Or Famine
Small-Caps: Continucare Corporation: Touched By Midas?
IPO Analysis: The Gloves Are Off At Virgin Media
Sound Money Tips: Tips on Free Budgeting Tools and Software
Jim Cramer: Latest stock picks
Conference Call Transcripts: Maxim Integrated Products F2Q07Activision F3Q07Walt Disney F1Q07SINA Q4 2006Tribune Q4 2006Warner Music Group F1Q07Qwest Communications Q4 2006PepsiCo Q4 2006Regal Entertainment Group Q4 2006BMC Software F3Q07Gateway Q4 2006Napster F3Q07United Online Q4 2006Tucows Q4 2006Digital River Q4 2006NAVTEQ Q4 2006McAfee Q4 2006Silicon Image Q4 2006LivePerson Q4 2006Broadcom Q4 2006
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