Intel Reports In-line Earnings; Shares Rise On Gross Margin Outlook
Intel shares rose 2% after the company announced profits rose 19% during the first quarter, following a 1.4% gain for shares during regular trading, in anticipation of the earnings release. Net income was $1.61 billion and EPS $0.27, up from $1.36 billion and EPS of $0.23 a year earlier. Revenue was off slightly, down 1%, to $8.85 billion, showing Intel had done much to control falling revenue, which had down 9% the previous year. A March tax settlement with the IRS lifted Intel's earnings by $0.05 a share; Thomson Financial consensus estimates called for EPS of $0.22 with revenue of $8.9 billion. Gross margins came in above guidance (50.1% vs. 49%) and the company predicted continued improvement in the second half, with average gross margins for the year of 51%. According to Atlantic Trust Group analyst Fred Weiss, "It was a relief that they came in with good gross margin and good gross margin guidance. They have their costs well under control." Projections for second-quarter revenue were in a range of $8.2-$8.8 billion, below consensus of $8.8 billion. The Wall Street Journal believes Intel's results "reflect the impact of a [pricing] war with AMD," which has forced Intel to cut prices and develop "new products at a faster clip." Intel also said yesterday that it has completed its restructuring plan a full quarter ahead of schedule, cutting its workforce by 6,000 to a total of 92,000.
Sources: Intel Q1 2007 Earnings Call Transcript, Press Release, Wall Street Journal, Bloomberg, MarketWatch, Reuters
Commentary: Peeking At Intel’s Data Center Strategy • Intel: No End In Sight To Profit-Draining Price War • Intel Unveils New Products Including System-On-A-Chip Processors
Stocks/ETFs to watch: Intel (INTC). Competitors: Advanced Micro Devices (AMD), International Business Machines (IBM). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), SPDR Semiconductor (XSD)
IBM Q1 Earnings In-line, Shares Down in After-hours; Goldman Cuts to Neutral
IBM reported Q1 net income increased 8% to $1.84 billion, or $1.21/share, on revenue growth of 7% to $22b. The consensus analysts' estimate was $1.21/share on sales of $21.9b. IBM does not provide current quarter guidance, but did say it sees full-year EPS increasing 11% (to $6.73). Q1 revenues in the Americas were "disappointing" at +1% to $9.1b, hurt by slower capital spending in the U.S. Goldman Sachs subsequently downgraded IBM to "neutral" from "buy", citing weakness in the U.S. (its largest market), commenting: "This and IBM's comment about a weaker U.S. spending environment, coupled with similar comments from other companies, make it unlikely that the stock will be able to outperform in the near term." Sales in Europe/Middle East/Africa increased 13% to $7.6b and Asia-Pacific was +10% to $4.5b. Services accounted for over 56% of global revenue, up more than 7.5% year-over-year. Shares of IBM gained 1% to $97.12 during normal trading, but last traded 0.8% lower to $96.33 in the after-hours (range: $95.80 - $99.25), following its earnings release, on volume of about 1.25 million.
Sources: IBM Q1'07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch [i, ii], The Wall Street Journal
Commentary: IBM and Yahoo: A Look At Post-Earnings Performance • IBM Earnings Preview: Citi Expects EPS Below Consensus • IBM Announces 3-D Chip Stacking
Stocks/ETFs to watch: International Business Machines (IBM). Competitors: Hewlett-Packard (HPQ), Microsoft (MSFT), Electronic Data Systems (EDS). ETFs: Internet Architecture HOLDRs (IAH), DIAMONDS Trust, Series 1 DIA, iShares Goldman Sachs Technology (IGM)
Related: Earnings presentation and prepared remarks [pdf]
Seagate: Q3 Earnings Miss, Outlook Disappoints, Shares Slip 5% in After-hours
Seagate reported Q3 net income fell 23% to $212 million, or $0.37/share, missing analysts' average EPS estimate of $0.50, despite revenues growing nearly 24% to $2.83b, above the Street's $2.8b estimate. However, Q4 EPS guidance of $0.34 - $0.38 was well short of the consensus $0.50 estimate. Forecast Q4 sales of $2.65b - $2.75b, also missed analysts' expectations ($2.81b). Seagate cited pricing challenges, slack demand, and acquisition costs. An analyst at American Technology Research said Seagate's earnings look "pretty bad" adding, "The guidance is worse than expected, and I think that's why the market is reacting the way it is." Seagate's CEO called Q3 "disappointing" saying, "We clearly miscalculated the market ....", but noted the "fundamentals of Seagate's business and that of the industry remained solid." Seagate downward revised full-year guidance for EPS to $0.92 - $0.96 (from $1.27 - $1.32) on sales of $11.3b - $11.4b (from $11.5 - $11.7b). Shares of Seagate lost 1.7% to $22.15 during normal trading and fell another 5.3% to $20.98 in the after-hours (range: $20.58 - $22.44) on volume of over 1.4 million.
Sources: Seagate F3Q07 Earnings Call Transcript, Press release, Associated Press, Reuters
Commentary: Seagate Issues Q3 Sales Warning • Bad News from Seagate Technology Presents Opportunity in Western Digital • Seagate: My Favorite Photo Storage Solution
Stocks/ETFs to watch: Seagate Technology (STX). Competitors: Western Digital Corp. (WDC), Fujitsu Ltd. [ADR] (OTCPK:FJTSY), Hitachi (HIT). ETFs: Vanguard Mid-Cap Value (VOE), Vanguard Mid Cap (VO)
Sony to Cut Up To 160 Jobs at Its European PlayStation Unit
Bloomberg reports that Sony Corp. may eliminate up to 8% of its PlayStation unit in Europe in an effort to reduce costs. Sony Computer Entertainment Europe Ltd. sent e-mails to employees that restructuring measures, including possible job cuts, are needed to trim expenses. Sony warned in January that PlayStation losses would be bigger than expected (it had previously forecasted a 200 billion yen [$1.6 billion) loss] because of price cuts; Nintendo's Wii currently outsells PlayStation 3 two-to-one in Japan and the U.S. Sony shares were up 0.3% in Tokyo, while Nintendo shares dropped 1.3%.
Commentary: Nintendo vs. Sony: Like Atari vs. Betamax All Over Again • Howard Stringer of Sony: The Corporate Version of Britney Spears? • Nintendo's Wii Leaves Sony's PS3 In the Dust
Stocks/ETFs to watch: Sony Corp. (SNE). Competitors: Nintendo (OTCPK:NTDOY), Microsoft Corp. (MSFT)
Yahoo Shares Take Hit on 11% Q1 Profit Drop
Yahoo shares slid 8.2% to $29.51 in AH trading last night after the company reported an 11% drop in Q1 profit. Q1 net income fell to $142 million ($0.10/share) from $159.9 million ($0.11) a year ago, just shy of Street expectations of $0.11. Q1 sales were up 7% to $1.67 billion on higher demand for Yahoo's graphical display and text-only search ads. That rise compares with 13% in Q4, 19% in Q3 and 26% in Q2 from the year-earlier periods. Excluding fees, sales came in at $1.18 billion, up 9% from last year but less than analysts' forecast of $1.21 billion. Yahoo's new Panama ad technology boosted sales, but they were undercut by operating expenses that rose to $789.2 million (47% of sales) from $707.9 million (45%) last year. Profits were also hit by a 7% drop in revenue generated by searches on Yahoo's engine. CFO Sue Decker expects growth to accelerate on the international rollout of Panama and on Yahoo's new mobile services, but the company is maintaining its 2007 revenue forecast of $4.95-5.45 billion. Yahoo announced on the earnings call that as of yesterday, eBay's PayPal shopping cart icon will appear on Yahoo search results beside sites that accept PayPal's Express Checkout.
Sources: Conference call transcripts: Q1 2007, MarketWatch (I, II, III, IV ), Wall Street Journal, New York Times, Bloomberg
Commentary: Yahoo: Still a Solid Turnaround Story Despite Dissatisfactory Results • Heading Into Internet Sector Earnings: Buy Yahoo, Hold eBay, Sell Google? • Yahoo: Estimates Up On Success Of Panama
Stocks/ETFs to watch: Yahoo! Inc. (YHOO), eBay Inc. (EBAY). Competitors: Google Inc. (GOOG). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN), Morgan Stanley Technology ETF (MTK)
Google Still Ahead in Search Share, but MSN Makes Small Gain
Google remains ahead of Yahoo and Microsoft's MSN in U.S. search engine market share, according to data released yesterday by comScore for the month of March. Google ticked up 0.2% in March, giving it 48.3% of the market. Yahoo came in second with 27.5%, followed by MSN (10.9%), Ask Network (5.2%) and Time Warner Network (5.0%). U.S. users conducted 7.3 billion Internet searches in March, 6% more than in February and 14% more than in March 2006. Of those, Google had 3.5 billion searches, Yahoo 2.0 billion, MSN 798 million, Ask Network 379 million and Time Warner Network 368 million. Though it remains in third place, MSN posted a third consecutive incremental increase after a string of monthly losses of share. Its 10.9% result represents a 0.4 percentage point rise, the largest increase of all the search engines (Google gained 0.2 points and Yahoo is down 0.6 points). On a y-o-y basis, however, Microsoft is down 2.3 percentage points, Google is up 5.6 and Yahoo is up 0.5.
Sources: Press release, Seattle PI, LiveSide, Axcess News
Commentary: Google Continues to Dominate Internet Search • Comscore: Most Popular Web Sites Aren't Always the Stickiest • Google Claims More Internet Search Share in February
Stocks/ETFs to watch: Google, Inc. (GOOG), Microsoft Corp. (MSFT), Yahoo! Inc. (YHOO), Time Warner Inc. (TWX). ETFs: First Trust Dow Jones Internet Index (FDN), iShares KLD 400 Social Index (DSI), Internet HOLDRs (HHH)
Conference call transcripts: Google Q4 2006, Yahoo Q1 2007, Microsoft F2Q07 (Qtr End 12/31/06), Time Warner Q4 2006
Massive System Failure Halts Blackberry Emails -- WNBC.com
WNBC.com reports that a massive system failure at mobile email provider Research In Motion is affecting all Blackberry users in the Western Hemisphere. The infrastructure failed around 8 p.m. ET Tuesday, and emails were not being delivered to Blackberry handheld devices on Tuesday night. Company officials say they are trying to reset the system, but that the problem would likely carry into Wednesday morning. Officials also said that they are concerned a data backlog, which will rush through the system when it comes back on line, "could cause a bigger problem."
Sources: WNBC.com, Reuters
Commentary: Brave Enough To Short Research In Motion? I'm Not • Research In Motion Has The Advantage Over Palm • RIMM Sentiment Was Too High - But It Was There To See
Stocks/ETFs to watch: Research In Motion Ltd. (RIMM)
Conference call transcript: Research In Motion F4Q07 (Qtr End 3/3/07) Earnings Call Transcript
Google to Roll Out "Claim Your Content" on YouTube
Google CEO Eric Schmidt said yesterday that the company will shortly release content-filtering software that will keep copyright-protected videos off YouTube, Google's video-sharing site. The tool, called "Claim Your Content," should be available within a few weeks, Schmidt said at the Web 2.0 Expo in San Francisco. According to Schmidt, the tool will render irrelevant the copyright-infringement issues that led entertainment company Viacom to sue Google for $1 billion last month. In principle, Google will no longer be susceptible to charges that it tolerates piracy by users who upload material to the site. It remains unclear, however, whether the software will automatically detect and block copyrighted material or simply issue automated takedown notices for unauthorized content, a solution unlikely to placate irate media companies. In other news, Schmidt announced the imminent rollout of free presentation software designed to rival Microsoft's PowerPoint application. The program, to be called Google Presents, will be part of Google Docs and Spreadsheets, the company's Internet-based office suite. Sources: MarketWatch (I, II), CNN.com, MoneyCentral, Red Herring
Commentary: YouTube Close to Copyright Filter; Why It Won't Work [PC Magazine] • How Strong is Viacom’s $1 bn Claim Against Google's YouTube? • Why Google Office Matters And Other Microsoft Competitors Don't
Stocks/ETFs to watch: Google, Inc. (GOOG). Competitors: Microsoft, Inc. (MSFT), Yahoo! Inc. (YHOO). ETFs: First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX), iShares S&P Global Technology (IXN)
Conference call transcripts: Q4 2006
Time Warner Plans Chain of Multiplexes in India -- Economic Times
The Economic Times reports entertainment giant Time Warner is in talks with Indian real estate developers to set up a chain of multiplexes across India, but that talks are still at a nascent stage. Foreign entertainment players favor teaming with Indian realty companies, which helps them get prime locations in major cities. Industry watchers say that despite their hoopla, multiplex owners often fail to build a profitable business -- average occupancy levels are around 40%. The paper says deals are likely to be struck in the next 6-12 months, and multiplexes could be operational within two years.
Sources: Economic Times, MarketWatch
Commentary: The Irony! Time Warner Considers Selling Cable To Focus On Internet • Movie Theaters May Move to Satellite Downloads • There's No Business Like Show Business, and Hardly Any Dividends
Stocks/ETFs to watch: Time Warner Inc. (TWX). Competitors: IMAX Corp. (IMAX), News Corp. (NWS), Lions Gate Entertainment Corp. (LGF), Regal Entertainment Group (RGC). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
Conference call transcript: Time Warner Q4 2006 Earnings Call Transcript
Private Equity Pair Raises Clear Channel Bid to $39 a Share -- NYT
The New York Times reports that private equity firms Bain Capital and Thomas H. Lee Partners yesterday raised their offer for Clear Channel Communications Inc. by over $1.5 billion, despite having insisted for months they could not pay more, according to unnamed people involved in the negotiations. The bid increase came one day ahead of the scheduled shareholders vote, who were expected to refuse the previous $37.60/share offer. The new offer, which amounts to $39/share, should appease some shareholders, but it remains unclear whether the bid increase will suffice to push the deal through. Some shareholders, like Fidelity which owns 9% of Clear Channel, have said they want at least $40. The vote will likely be postponed in order to allow shareholders who already voted on the previous deal to change their votes. Previously, the firms had offered to allow public shareholders to retain a small stake in the company, but the proposal was rejected by Clear Channel's board. Shares closed up 1% yesterday to $36.72.
Sources: New York Times
Commentary: Clear Channel Communications: Get Up, Stand Up - Shareholders Fight Back • Clear Channel Buyout Vote: No Is the Way to Go - Barron's • In Clear Channel Buyout Talks, Billboards Loom Large
Stocks/ETFs to watch: Clear Channel Communications Inc. (CCU). Competitors: XM Satellite Radio Holdings Inc. (XMSR), Sirius Satellite Radio Inc. (SIRI), Citadel Broadcasting Corp. (CDL), Cumulus Media Inc. (CMLS). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
Conference call transcript: Clear Channel Q3 2006 Earnings Call Transcript
TRANSPORT AND AEROSPACE
CSX Corp. Earnings Are In-line; CEO Expects Strong Results Going Forward
CSX Corp. saw its earnings drop slightly in the first quarter with EPS falling $0.01, the company reported after yesterday's closing bell. Although revenue rose 4% from the year earlier period, to $2.4 thanks to strong pricing, a costly derailment coupled with lower shipping demand from the struggling homebuilder and auto sectors lowered overall freight volume by 4% and cut into profit gains. Net earnings were $240 million, good for EPS of $0.52, down from a year ago's profit of $245 million (EPS of $0.53). The derailment cost the company $28 million. Consensus estimates called for EPS of $0.53 on revenue of $2.38 billion. CEO Michael Ward said CSX expects "strong financial results for the rest of the year and over the long-term." Shares rose slightly in after hours action on the results, climbing $0.17, or 0.39%, to $43.50.
Sources: Press Release, TheStreet.com, Reuters, MarketWatch
Commentary: Railroads: Why Not A REIT? • Railroad Stocks Right on Track • Crasmer's Take on CSX
Stocks/ETFs to watch: CSX Corporation (CSX). Competitors: Providence & Worcester Railroad Company (PWX), Union Pacific (UNP), Norfolk Southern (NSC), Burlington Northern Santa Fe (BNI), Kansas City Southern (KSU) and Florida East Coast Industries (FLA). ETFs: iShares Dow Jones Transport. (IYT)
General Dynamics Wins Final Phase of $5 Billion Wireless Network
General Dynamics, the #4 U.S. defense contractor, announced yesterday it had been selected by the Department of Justice to implement wireless communication services as part of the Integrated Wireless Network [IWN] program linking the Justice, Homeland Security and Treasury departments. The network will allow over 80,000 government agents to securely transmit voice and data throughout the U.S. and its territories. Yesterday's contract was the third and final phase of the program -- General Dynamics was awarded the previous two contracts in the $5 billion project. Also on the GD team are IBM, Nortel Government Solutions, and Verizon Wireless. General Dynamics beat out the #1 defense contractor, Lockheed Martin, who also bid on the contract. Defense contractors have been focusing on IT contracts as weapons spending is expected to decline in coming years. Terms of yesterday's deal were not disclosed.
Sources: Press release, Wall Street Journal, AP
Commentary: DoD's FY-08 Budget: The Largest in US History • Build an Anti-Terrorism Portfolio to Protect Your Investments • Defense Stocks Should Continue to Outperform in 2007 -- NY Times
Stocks/ETFs to watch: General Dynamics Corp. (GD), Lockheed Martin Corp. (LMT), International Business Machines Corp. (IBM), Nortel Networks Corp. (NT), Verizon Communications Inc. (VZ). ETFs: PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)
ENERGY AND MATERIALS
Tanker Company OMI to Be Bought for $2.2 Billion
OMI Corp., the second-largest U.S. oil-tanker owner, has agreed to be purchased by Teekay Shipping Corp. and Denmark's D/S Torm A/S for $2.2 billion including debt. OMI shareholders will receive $29.25 in cash per share held, representing a 5.4% premium to yesterday's close. The cost of the acquisition will be divided equally between the purchasers. OMI offers Teekay and D/S Torm a fleet of Suezmax crude oil tankers and other vessels used to transport refined oil products like gasoline. The price of a new Suezmax has risen 75% since 2003 and a used one over 90%. According to Dahlman Rose & Co. analyst Omar Nokta, OMI's fleet is worth approximately $2 billion. Teekay will acquire OMI's nine Suezmax tankers to add to the 15 already in its fleet, as well as eight refined oil product tankers. Torm will acquire the company's remaining 26 oil product tankers. OMI's tankers are among the youngest in the world, with an average age of 3.3 years.
Sources: Press release, Bloomberg, Reuters, Forbes
Commentary: OMI Corp. Might Be for Sale - WSJ • Sinking Ships? Tanker Stocks' Difficult Week and Why They Should Soon Rebound • Everything You Wanted To Know About Shipping And Were Afraid To Ask
Stocks/ETFs to watch: OMI Corp. (OMM), Teekay Shipping Corp. (TK), A/S Dampskibsselskabet TORM (TRMD). Competitors: General Maritime Corp. (GMR), Overseas Shipholding Group Inc. (OSG)
Washington Mutual's Shares Rise on Better-than-Expected Q1 Results
Shares of Washington Mutual, the country's largest savings and loan, rose 2.9% to $41.47 in AH trading last night after the company reported a smaller-than-expected decline in Q1 profit. The company posted a 20% drop in net income and a $113 million loss for its home loans group, due in part to subprime lending exposure. Quarterly net income came in at $784 million ($0.86/share), down from $985 million ($0.98/share) a year ago. Revenue, including net interest income and noninterest income, was $3.62 billion, up from $3.59 billion last year. Analysts were expecting EPS of $0.83 on $3.6 billion in revenue. Weakness in the home loans unit was compensated for by strong results in the retail banking, card services and commercial groups. The value of the company's subprime mortgage residual portfolio fell $88 million to $105 million. CEO Kerry Killinger: The bank has seen "unprecedented deterioration in the subprime mortgage business," but it has raised its underwriting standards on subprime loans and is already seeing better results.
Sources: Bloomberg, MarketWatch, Reuters, Business Week, TheStreet.com
Commentary: Washington Mutual: Riskiest Portfolio in U.S. - WSJ • Financial Sector: Sometimes Bad Gets Worse • Subprime Horror Stories: Mortgage Market Carnage, Foreclosure Hype and More
Stocks/ETFs to watch: Washington Mutual, Inc. (WM). Competitors: Bank of America Corp. (BAC), Wachovia Corp. (WB), Wells Fargo & Co. (WFC). ETFs: iShares Dow Jones US Regional Banks (IAT), KBW Bank ETF (KBE), PowerShares HighYield Dividend Achievers (PEY)
Introgen Reports Positive Result in FUS1 Clinical Trial
Biotech company Introgen Therapeutics Inc. reported yesterday that it has had positive results in a Phase I clinical trial of FUS1, a treatment candidate for metastatic non-small cell lung cancer. The trial was conducted at the University of Texas M. D. Anderson Cancer Center and involved 13 stage-IV lung cancer patients. The results indicate that FUS1, a cancer-suppressing gene, successfully entered the patients' tumors via INGN 401, Introgen's intravenously administered lipid nanoparticle product candidate. The treatment, which caused no significant side effects, resulted in a median survival time of 14.6 months, compared with a 7-month rate for patients receiving second-line therapy. This is the first demonstration that a gene can be injected intravenously and then be expressed in significant levels in cancer cells elsewhere in the body. The company's shares rose $0.24, or 4.7%, to $5.40 in AH trading after rising $0.28, or 5.7%, to close at $5.16.
Sources: Press release, Business Week, MoneyCentral
Commentary: Why Introgen is a Terminal Case • Unanswered Questions Support a Short Position in Introgen • Introgen: Setting The Record Straight On Its Biomarker Claims
Stocks/ETFs to watch: Introgen Therapeutics, Inc. (INGN). Competitors: Onyx Pharmaceuticals Inc. (ONXX), Valentis Inc. (VLTS), Vical Inc. (VICL). ETFs: iShares NASDAQ Biotechnology Index ETF (IBB), HOLDRS Biotech (BBH), PowerShares Dynamic Biotech & Genome (PBE)
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