Beazer Homes Plummets on Fraud Investigation
Beazer Homes shares fell by over 15% in late trading Tuesday on comments from an FBI spokesman that the FBI, the IRS and the Department of Housing and Urban Development are investigating the homebuilder's lending practices. A report published last week in the Charlotte Observer alleged that Beazer's aggressive sales tactics were "producing an unusually high rate of foreclosures in many of its Charlotte-area developments". In a statement, Beazer said: "At this time, Beazer Homes can not comment on or verify any investigation... The allegations by the Charlotte Observer focused primarily on one Charlotte subdivision, Southern Chase. In that subdivision, Beazer Mortgage Corporation originated the loans for the borrowers and served as a broker, not a lender... Based on our internal investigations to date, we have not found any evidence to support the allegations in the Charlotte Observer." Beazer's CFO announced last week that he was resigning to become CEO of Kaydon Corp; in an SEC filing last month, Beazer said its General Counsel had been terminated for cause. The Beazer news pulled down housing stocks after-hours, adding to the damage caused by Lennar's statement earlier in the day that it couldn't forecast when the housing market would stabilize and its retraction of its earlier guidance. Housing related stocks also suffered from news that furniture retailer Ethan Allan Interiors missed the consensus EPS estimate of $0.59 by three cents.
Sources: Press Release, Charlotte Observer, Business Week, Wall Street Journal
Commentary: Lennar's Profit Takes a 73% Hit; Shares Lower • S&P: Subprime Meltdown Could Affect Car Loans • Yale's Shiller Calls for Further 20-30% Housing Price Declines • Asset Manager Sy Jacobs' Subprime Longs and Shorts
Stocks/ETFs to watch: Beazer Homes (BZH). Competitors: KB Home (KBH), Lennar Corp. (LEN), D.R. Horton Inc. (DHI). ETFs: iShares Dow Jones US Home Construction (ITB), SPDR Homebuilders (XHB)
HP Sues Acer Over PC Patent Infringement
PC giant Hewlett-Packard has sued Taiwanese PC manufacturer Acer Inc. for infringement of five patents. The patents cover several proprietary technologies, including power management and clock switching. H-P's suit, filed yesterday in Texas, aims to ban Acer from selling certain "desktops, notebooks, media centers and related products for home and business use" in the U.S. The company will also be seeking cash compensation. "This action was necessary because HP believes Acer has been selling computer products that use HP's patented technologies without permission," the company said in a statement. "H-P respects the intellectual property rights of others and expects the same treatment in return." In Q4 2006, H-P held a world-leading 18.1% share of the global PC market to Acer's fourth-place, 7.1% share.
Sources: MarketWatch, Bloomberg
Commentary: Hewlett-Packard: Back in the Game • The Decline of the PC: Computers No Longer a Growth Industry • Report: Gateway May Be Acer Target - Shares Climb
Stocks/ETFs to watch: Hewlett-Packard Co. (HPQ), Acer Inc. [TPE:2353]. Competitors: Dell Inc. (DELL), International Business Machines (IBM). ETFs: Internet Architecture HOLDRs (IAH), Vanguard Information Technology ETF (VGT), iShares S&P Global Technology (IXN)
Conference call transcripts: Hewlett-Packard F1Q07 (Qtr End 1/31/07)
Microsoft to Offer 'Elite' Version of Xbox 360
Microsoft announced a new, high-end model of its Xbox 360 video game console yesterday, which will hit stores in N. America on Apr. 29, priced at $479.99. It is particularly emphasizing the Elite's 120GB hard drive both for playing games and watching movies. The drive will also be sold separately for $179.99, for those who already own an Xbox 360 but want more storage. Other new features include an HDMI port and cable and a premium black finish. Peter Moore, VP of Microsoft's Interactive Entertainment Business, commented, "Xbox 360 Elite’s larger hard drive and premium accessories will allow our community to enjoy all that the next generation of entertainment has to offer." Kotaku.com, a popular video game news site, says a Sony senior marketing executive said Microsoft is playing catch up to the PlayStation 3, which already offers a future-proof experience among all of its models. The Elite is $20 cheaper than Sony's cheapest PS3 offering, and $80 more than the Xbox 360 Pro (20GB HD). The Financial Times reports Microsoft's decision not to include an HD-DVD drive with the Elite, is a blow to Toshiba, which is battling Sony's Blu-ray standard. Wedbush Morgan analyst Michael Pachter says he thinks, "If nothing else, this is an acknowledgement that Blu-ray is going to win [the standards war]." Microsoft's shares lost 1.8% to $27.72 yesterday and were unchanged in after-hours activity on volume of more than two million.
Sources: Press release [I, II], Kotaku.com, CNET, The New York Times, The Wall Street Journal, Financial Times
Commentary: Microsoft vs. Sony vs. Nintendo: Demand Doesn’t Lie • Nintendo Wii Wins Console Sales Battle in February • Game Consoles: Microsoft's Search for the Killer App
Stocks/ETFs to watch: Microsoft (MSFT), Toshiba (TOSBF.PK). Competitors: Nintendo (NTDOY.PK), Sony (SNE). Gaming software publishers: Electronic Arts (ERTS), Activision (ATVI), Konami (KNM), Take Two (TTWO), THQ (THQI). ETFs: Software HOLDRs (SWH), iShares Goldman Sachs Software Index (IGV), Technology Select Sector SPDR (XLK)
Related: Video interview about the Xbox 360 Elite with Albert Penello of Microsoft; Xbox.com
Sun Microsystems Relaunches Sparc Chip Unit
Software and server manufacturer Sun Microsystems has announced it is relaunching its Sparc microelectronics group, which will develop chips for the network, cryptography and high-performance computing markets. It will also supply the company's systems businesses and do business with OEMs around the world. The unit will be run by EVP David Yen, currently head of Sun's storage business and previously in charge of the Sparc group. In the 1990s, Sun Microelectronics sold Sparc chips to other companies that built servers around them as well as to Sun itself, but the company eventually altered its strategy and sold the chips only internally. The new shift outward is consistent with the philosophy of Sun CEO Jonathan Schwartz, who promotes the use of Sun technology together with competitors' products. "Sun's innovations have value and appeal beyond our own servers and storage products," he said. "As with our software, decoupling our silicon from a strict reliance on Sun's systems raises our profile and opportunity globally." Sun has returned to profitability after years of struggle, in part because of the success of its UltraSparc IV+ systems and UltraSparc T1 Niagara processor.
Sources: News.com, TheStreet.com, Business Week
Commentary: Sun: Too Much Risk, Too Little Reward • Sun Microsystems: 'What Doesn't Kill Us Makes Us Stronger'
Stocks/ETFs to watch: Sun Microsystems, Inc. (SUNW). Competitors: Silicon Graphics Inc. (SGIC), Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Microsoft Corp. (MSFT). ETFs: Internet Architecture HOLDRs (IAH), First Trust NASDAQ-100-Tech Index (QTEC), First Trust NASDAQ-100 Equal Weight Idx (QQEW)
Conference call transcripts: F2Q07 (Qtr End 12/31/06)
SAP Unit to Defend Itself 'Vigorously' against Oracle Lawsuit
The Wall Street Journal reports Andrew Nelson, CEO of TomorrowNow -- the SAP subsidiary accused of corporate theft in a lawsuit by Oracle -- says he believes his firm has "done absolutely nothing wrong." He called the firm's business model "appropriate" and "legal." Last week in its suit filed in the U.S. District Court in San Francisco, Oracle said SAP-TomorrowNow engaged in "corporate theft on a grand scale" in a series of "high-tech raids." TomorrowNow allegedly gained access to proprietary information on Oracle's servers, in some instances by using its own customers' expired log-in information. CEO Nelson did not comment any specific allegations. The Journal said an Oracle spokeswoman declined to comment. Reuters quotes a former U.S. prosecutor in charge of computer crimes, who says a key point is whether individuals were acting alone or if SAP played any role in the alleged actions. A cyber security consultant questioned SAP's use of its own servers if it is in fact a case of corporate espionage. Separately, FTN Midwest analyst Doug Ashton wrote in a note Tuesday that he is "hearing about a potential blockbuster" deal in which SAP would acquire Amdocs, a company which provides customer management software systems to the telecom and cable sectors.
Sources: The Wall Street Journal, Reuters, Barron's
Commentary: Is Oracle Unwittingly Handing SAP The Winning Card? • Oracle Sues SAP for Corporate Theft • Oracle-SAP Lawsuit Shows Ugly Side of Enterprise Software
Stocks/ETFs to watch: SAP AG (SAG), Oracle (ORCL), Amdocs (DOX). Competitors: Microsoft (MSFT), International Business Machines (IBM). ETFs: Software HOLDRs (SWH), Vanguard Information Technology (VGT), iShares MSCI Germany Index (EWG)
Related: The lawsuit [pdf, Wall Street Journal]
Accenture Shares Up on Beat Quarter and Raised Guidance
Bermuda-based IT consulting company Accenture Ltd. beat Q2 expectations and raised full-year guidance, sending its shares up 2.3% in AH trading to $37.04. Q2 net income rose to $296.7 million ($0.47/share) from $69.7 million ($0.11/share) a year earlier, when it booked a $450 million provision for anticipated losses from a failed contract. Revenue excluding reimbursements was up to $4.75 billion from $4.1 billion a year ago. The Street was expecting EPS of $0.42 on $4.69 billion in revenue. Edward Jones analyst Andy Miedler: "It was a fantastic quarter for them, with strong results across the entire business -- particularly in consulting." Management consulting sales grew 22% in the quarter in Europe, the Middle East and Africa, reflecting economic globalization. For Q3, the company is forecasting revenue of $4.9-5.1 billion, ahead of analysts' expectations of $4.87 billion. For fiscal 2007, Accenture now says it expects revenue growth to come in at the high end of its 9-12% estimate. The company has also raised its full-year EPS forecast to $1.88-1.93 from $1.80-1.85. Analysts were forecasting EPS of $1.87 on revenue of $18.82 billion for fiscal 2007.
Sources: Reuters, Wall Street Journal, TheStreet.com, Bloomberg
Commentary: Accenture's Strong Quarter: Second Half Guidance Below Analyst Forecasts • Is Globalization Driving Accenture's Consultant Hiring Frenzy? • Accenture's Share Buyback Plan Just a Drop in the Bucket
Stocks/ETFs to watch: Accenture Ltd. (ACN). Competitors: Electronic Data Systems Corp. (EDS), International Business Machines Corp. (IBM). ETFs: Morgan Stanley Technology ETF (MTK)
Conference call transcripts: F1Q07 (Qtr End 11/30/06)
DoubleClick Exploring a Possible Sale -- WSJ
Online ad company DoubleClick is in talks with Microsoft and other potential suitors about a sale, according to the Wall Street Journal. The company has engaged Morgan Stanley to assist it in exploring strategic options, including a possible stock market listing. DoubleClick is majority-owned by private equity firm Hellman & Friedman, which purchased it in 2005 for about $1.1 billion. Hellman is now seeking at least $2 billion for the company. DoubleClick, which manages, delivers and measures online advertising for advertisers, ad agencies and Web publishers, had about $150 million in revenue last year. Its services would help Microsoft gain ground on Google, which is far ahead on ad delivery. DoubleClick was founded in 1996, and its business suffered when online advertising fell out of favor in the wake of the dot-com crash. Online ads have enjoyed sharp growth since 2005, however, in part because of Google's success. DoubleClick is now an attractive buy not only to Microsoft but also to other companies that want to strengthen their ties to Web publishers and advertisers. Sources say IAC/InterActive Corp. might also have have an interest in the company.
Sources: Wall Street Journal, Reuters
Commentary: Google: Focused on Better Targeted Advertising • Google, Yahoo, AOL, MSN: Big on Internet Advertising • Google CPA Ads Could Be Expanded To Search Platform
Stocks/ETFs to watch: Microsoft Inc. (MSFT), Google Inc. (GOOG), IAC/InterActiveCorp (IACI), Morgan Stanley (MS). ETFs: SPDR DJ Wilshire Large Cap (ELR), First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX)
Conference call transcripts: Microsoft F2Q07 (Qtr End 12/31/06), Google Q4 2006
Sprint Nextel Expands Mobile Cable/Telephone Partnership
Sprint Nextel Corp. is expanding its mobile phone alliance with cable companies Comcast Corporation, Time Warner Cable, Cox Communications and Advance/Newhouse Communications by adding 32 new cities to the eight that already have "Pivot." The Pivot service allows mobile phone users to link to their home phones, high speed internet and digital cable service, enabling mobile TV watching, email and voicemail access and unlimited calls between land, wireless and cable lines. Sprint also announced Monday a $2.5-3 billion investment in its high-speed WiMAX multimedia infrastructure. Pivot is part of the cable/Sprint partnership's ultimate plan to sell bundled video, internet and phone services to small businesses, enticing them away from local phone companies. Comcast announced in January its plans to capture 20% of the small business market with bundled wireless services. The joint venture's head, John Garcia, said it's already being tested in an unnamed city, calling small businesses "the next market."
Sources: Wall Street Journal, Mercury News, Kansas City Business Journal, Trading Markets
Commentary: Sprint-Nextel LBO Speculation Resurfaces: Why Now? • Sprint Loses More Subscribers Than Expected • Will Sprint Join the MobileTV Bandwagon?
Stocks/ETFs to watch: Sprint (S), Comcast Corporation (CMCSA), Time Warner Cable (TWC). Competitors: Verizon Wireless (VZ). ETFs: iShares Dow Jones U.S. Telecommunications Index (IYZ), PowerShares Dynamic Telecommunications & Wireless (PTE), PowerShares FTSE RAFI Telecommunications & Technology Portfolio (PRFQ), Vanguard Telecommunications ETF (VOX)
Conference call transcripts: Sprint Nextel Q4 2006, Comcast Q4 2006
Tribune Near Acceptance of Zell's $8 Billion Offer -- Bloomberg
Sources close to the negotiations say the Tribune Co. is likely to accept Sam Zell's offer of an $8 billion buyout, according to Bloomberg. Zell's $33 per share offer is 6% above yesterday's close. If successful, Zell's offer will have beaten bids by the Chandler family (the company's largest shareholder [20%]) and L.A. billionaires Ron Burkle and Eli Broad. It will also mark the end of the Tribune's attempts to construct a "self-help" reorganization plan that would spin off its TV stations and pay shareholders a one-time dividend. The Tribune has been on the block for six months, during which time the stock has lost 8.4% of its value as revenue has declined. Zell has said he wants to keep the company's TV stations and newspapers intact. "My intention is not to break it up," he said on March 12. Credit-default swaps based on $10 million of the company's bonds leaped $35,000 to $194,000 yesterday, suggesting the market expects the Tribune to accept Zell's offer and thereby take on substantial new debt.
Commentary: Will a Buyout Save The Tribune Company? • Zell's Offer for Tribune Gaining Favor • A Sam Zell Takeover May Be Tribune's Best Bet - Barron's
Stocks/ETFs to watch: The Tribune Company (TRB). Competitors: Gannett Co. (GCI), The New York Times Co. (NYT), The Washington Post Co. (WPO), The McClatchy Company (MNI)
Conference call transcripts: Q4 2006
TRANSPORT AND AEROSPACE
GM Unlikely To Make Chrysler Bid After First Offer Was Rebuffed
Reuters is reporting unnamed sources who claim GM will not make a bid for DaimlerChrysler's North American unit during the first round of bidding. That leaves only auto partsmaker Magna International and private equity to bid on the struggling company. Bear Stearns and Lehman Bros. analysts recently said GM would be required to divest some or all of Chrysler's light truck division to skirt anti-trust regulations. Bids for the company are due to be submitted no later than this Friday. Meanwhile, the AP is reporting GM offered to buy Chrysler in January, prompting its parent company to investigate a sale of the profit bleeding unit. GM's terms were apparently too low and entirely unacceptable to DaimlerChrysler, who wanted upwards of the less than 10% stake GM was offering. GM also wanted to be paid more than a billion dollars to defray Chrysler's health care costs.
Sources: Reuters, Bloomberg, AP
Commentary: DailmerChrysler: In The Firm Embrace of Magna International • Chrysler Sale Looms Nearer, Will Maintain Ties - WSJ • Financial Times: Chrysler Considering An All-Equity Deal With GM
Stocks/ETFs to watch: DaimlerChrysler (DCX), General Motors (GM), Magna International Inc. (MGA). Competitors: Ford (F), Toyota (TM), Honda (HMC), Nissan (NSANY)
ITT to Pay U.S. Gov't $100 Million, Plead Guilty of Illegal Military Exports
ITT said late Tuesday it had reached a plea agreement to pay the U.S. Government $100 million for illegally sharing classified night vision technology with companies in Singapore, China and Britain. The company will also plead guilty for covering up its actions to the State Department. According to U.S. Attorney John Brownlee, "ITT has put in jeopardy our military nighttime tactical advantages and America's national security." Prosecuted under the Arms Export Control Act of 1976, the $100 million fine will be broken down as follows: $20 million to the State Department who it blatantly lied to, $2 million in fines and $28 million to the government to cover the cost of the investigation. The company must also spend an additional $50 million to develop a new generation of night-vision technology, as well as to cover the cost of government monitors who assure they don't again pass on sensitive technology. An ITT spokesman said the company "was anxious to put this behind us." The night-vision technology ITT passed on was classified as "Secret — No foreign" by the State Department, meaning it could not be shared even with friendly governments like Britain, and certainly not with the likes of strategic threats like China. ITT never sought permission to export the technology, in a pattern of blatant violations of export laws dating to 1980, according to investigators. No individuals have as of yet been charged, but Brownlee said the investigation was still in progress. Shares of ITT fell $0.37 to $60.82 in trading yesterday; they fell an additional $0.31 in after-hours action.
Sources: Press Release, Reuters, AP, USA Today
Commentary: ITT Corporation Is Making the Most of Its Market • Cramer's Take on ITT
Stocks/ETFs to watch: ITT Corporation (ITT). Competitors: Raytheon Company (RTN), Harris Corporation (HRS), Molex, Inc. (MOLX), Honeywell International Inc. (HON). ETFs: PowerShares Water Resources (PHO), PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)
AtheroGenics' Heart Drug Shows Promise on Secondary Goals
Shares of AtheroGenics spiked 20% in early trading yesterday on the news that its anti-oxidant, anti-inflammatory heart disease medication AGI-1067, which was recently reported to have failed to meet its primary goal, has met several secondary goals. Last week, the shares lost almost 61% on news of the drug's primary goal failure. As of last month, 51% of its shares had been shorted on expectations of bad news. The study's primary goal was to show that the drug reduced the risk of a set of "major cardiovascular events" by 20% among high-risk heart patients. Though the drug did not meet that goal, it did reduce by 19% the risk of cardiovascular death, heart attack and stroke. Unexpectedly, the drug also reduced diabetes risk by 64%. AstraZeneca, which has a JV with AtheroGenics, has 45 days after the conclusion of its analysis of the data to decide if it wishes to pursue further clinical studies. It has the option to pay up to $1 billion for exclusive rights to the drug.
Sources: Reuters, MarketWatch
Commentary: AtheroGenics' Uncertainty Continues, Will Remain for Some Time • AtheroGenics' Heart Drug Misses Primary Endpoint, Shares Plummet • Atherogenics Inc. Rebounds As the Shorts Cash In
Stocks/ETFs to watch: AtheroGenics, Inc. (AGIX), AstraZeneca plc [ADR] (AZN). Competitors: Glaxosmithkline plc (GSK), Novartis AG (NVS), Pfizer Inc. (PFE). ETFs: iShares MSCI EAFE Growth Index (EFG), Market 2000 HOLDRs (MKH), iShares S&P Global Healthcare (IXJ)
Have Wall Street Breakfast emailed to you every morning before the market opens.