Microsoft Net Up 65%; Forward Sales Guidance Ahead of Street
Microsoft Thursday posted stronger-than-expected fiscal Q3 sales of its Vista operating system and Office software and has presented optimistic guidance for the upcoming fiscal year, prompting a gain of almost 5% for the company's shares in AH trading. Net income was up 65% to $4.9 billion in the quarter ($0.50/share) against expectations of $0.46. Revenue was up 32% from a year ago to $14.4 billion, about $500 million ahead of Street forecasts. The figures were helped by a $1.7 billion carryover from last quarter related to guarantees the company had provided consumers to enable them to upgrade to Vista. Sales of Vista came in $300-400 million ahead of company expectations while its new Office 2007 suite came in $200 million ahead. Microsoft is projecting revenues for the next fiscal year of $56.5-57.5 billion, above analyst expectations of $56.2b. EPS are forecast to reach $1.68-1.72, roughly in line with expectations.
Sources: Microsoft Earnings Call Transcript F3Q07, Bloomberg, MSNBC, Wall Street Journal (I, II)
Commentary: Microsoft Beats Estimates, Stock Up After Hours • Oak Value Fund: The Long Case For Microsoft
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Google, Inc. (GOOG), Oracle Corp. (ORCL), Novell Inc. (NOVL), International Business Machines Corp. (IBM). ETFs: iShares Goldman Sachs Software Index Fund (IGV), Software HOLDRS Trust ETF (SWH), PowerShares Dynamic Software (PSJ)
Rackable Systems Drops on Earnings/Revenue Miss, Again
Rackable Systems swung to a $10.2 million ($0.36/share) loss, from a $0.23/share profit a year ago, blaming pricing pressures on its three top accounts and surging expenses. Revenue dropped 15% to $72 million. The numbers missed analyst forecasts of a $0.05 loss on $75 million, sending shares down 3.3% to $12.17 in after-hours trading. Its Q2 guidance of $75-85 million also fell short of Street estimates of $94.4 million. In its press release, the company said it has foretold of coming weakness in an April 5 conference call, but said it was, "encouraged by the progress we've made over the past thirty days in assessing our long-term business model," including a new-plan for its largest accounts, a strategy to diversify revenue, and a focus-change to high-margin products. "We believe we have the right team and strategy in place to stabilize gross margin attainment and improve long-term profitability." Shares have dropped from $50+ to a current $12.17 over the last 12 months.
Sources: Press release, AP, MarketWatch
Commentary: Rackable Systems: Tough To Be A Midget In The Land Of Giants • Rackable Systems: A One Hit Wonder? • Three Stocks That Missed the Mark [Motley Fool]
Stocks/ETFs to watch: Rackable Systems Inc. (OTC:RACK). Competitors: Dell Inc. (DELL), Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM). ETFs: SPDR Technology (XLK), iShares Goldman Sachs Technology Index Fund (IGM), iShares Dow Jones US Technology Index (IYW)
Broadcom Shares Tumble After Hours on 48% Drop in Q1 Profit
Shares of chip manufacturer Broadcom fell 6.5% to $32.61 in AH trading last night after it reported a 48% drop in Q1 profit and a sales forecast below analyst expectations. The company also said near-term visibility is obscured somewhat by the mixed demand outlooks of several of its main customers. CEO Scott McGregor declined to specify which customers, but Broadcom's biggest clients are Motorola and Cisco. Q1 net income came in at $61 million ($0.10/share), down from $117.7 million ($0.20) in Q1 2006. Revenue for the quarter was down 2% from Q4 to $901.5 million. Excluding items, profit was $175.1 million ($0.29/share) in Q1 versus $221.9 million ($0.36) a year ago. Analysts were expecting EPS of $0.27 on $897.2 million in revenue. The company is forecasting Q2 sales will be $890-905 million, shy of Street expectations of $939.2 million. R&D costs jumped 20% to $300.8 million as the company worked on smaller chips for cellphones, TVs and set-top boxes. In January, Broadcom reported the largest restatement to date in the ongoing options backdating scandal when it added $2.2 billion in costs for the period 1998-2005.
Sources: Conference call transcripts: Q1 2007, Bloomberg, MarketWatch, TheStreet.com, Forbes
Commentary: The Long Case for Semi Stocks • Barron's Expects Broadcom To Recover And Rally • Making Sense of Semis: Does the Industry Still Have What it Takes?
Stocks/ETFs to watch: Broadcom Corp. (BRCM). Competitors: Conexant Systems, Inc. (CNXT), Intel Corp. (INTC), Texas Instruments Inc. (TXN). ETFs: Broadband HOLDRs (BDH), iShares Goldman Sachs Networking (IGN), iShares Goldman Sachs Semiconductor (IGW)
KKR and Goldman Capital Take Out Harman International Industries For $8 Billion
Harman International Industries' board unanimously approved a buyout by private equity firm Kohlberg Kravis Roberts and Goldman Sachs' private equity division GS Capital Partners, for approximately $8 billion. The offer represents a 17% premium over Wednesday's closing price; shares shot up $19.94, or 19.44%, to $122.50 in trading Thursday, above the offer price of $120 per share. Shareholders have two alternatives: they can either take $120 per share they own, or as an alternative, Harman shareholders can exchange their stake for shares in the new corporation to be incorporated by KKR and GS Capital Partners, not to exceed 8.3 million shares, or $1 billion in equity. Harman's board now has 50 days to solicit higher buyout offers. The company said it won't disclose developments in the solicitation process until something has been finalized. Dr. Sidney Harman, Founder and Executive Chairman, will continue to lead the company after its sale. Harman believes the agreement "is in the best interest of our stockholders, presenting them with excellent value for their shares and the opportunity to participate in Harman's future growth."
Sources: Press Release, Bloomberg, New York Times, MarketWatch, Financial Times, Business Week
Commentary: Harman International Looks Ready To Rock • Harman International: An Untold Auto Parts Growth Story • Cramer's Take on HAR
Stocks/ETFs to watch: Harman International Industries Inc. (HAR), Goldman Sachs (GS)
SanDisk Shares Fall on Q1 Loss
Shares of flash-memory chip manufacturer SanDisk tumbled 6.2% to $42.41 in AH trading yesterday after the company reported a Q1 loss. The quarter saw an earnings loss of $575,000, or breakeven, versus a profit of $35.1 million ($0.17/share) last year. Revenue was up 26% from the year-ago quarter at $786 million. Excluding items, income came in at $45 million ($0.19/share) versus $90 million ($0.44) last year. Analysts were expecting EPS of $0.17 on revenue of $757 million. SanDisk CEO Eli Harari cited "excess supply, sharp price declines and depressed margins" to explain the poor quarter. He expects high inventories and depressed prices to continue to plague the company through Q2, despite a likely pickup in demand in the second half of that quarter. Margins could continue to be pressured into the summer, he warned. Gross margin, a critical gauge of profitability, fell to 14.2% in Q1 from 28.4% a year ago. To cut costs, SanDisk will eliminate 10% of its workforce and trim executive salaries."Our outlook is optimistic for renewed growth heading into the fourth quarter of 2007 and forward to 2008," Harari said.
Sources: Conference call transcripts: Q1 2007, TheStreet.com, MoneyCentral, Reuters, MarketWatch
Commentary: SanDisk Blames Weak Earnings On 'Difficult Market Conditions' • Four Reasons To Buy SanDisk Now • Have Chip Stocks Lost Their Magic?
Stocks/ETFs to watch: SanDisk Corp. (SNDK). Competitors: Micron Tech. (MU), Intel (INTC), Toshiba (OTC:TOSBF). ETFs: HOLDRS Semiconductors (SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (PSI)
KLA-Tencor Profit Up 60%, Beats, Guidance Ahead of Estimates
KLA-Tencor reported a 60% increase in Q3 net income to $154.8 million, or $0.76/share. Reuters reports EPS was $0.88 when excluding certain items, beating analysts' average estimate of $0.78/share. Revenue growth of 38% to $716.2m topped analysts' forecast of $709m. Orders decreased 5% to $689m and are expected to be off by a similar amount in Q4, according to the firm's CEO in its earnings conference call. Taiwan accounted for 31% of Q3 orders, ahead of a 20% historical average, but U.S. orders at 17%, were under a historical average of 25%. KLA-Tencor offered Q4 EPS guidance of $0.84 - $0.86, on sales of $700m - $715m -- both forecasts are higher than analysts' average estimates of $0.76/share on $698m of sales, based on a survey by Bloomberg. Shares of KLA-Tencor gained 1.4% to $55.58 in normal trading, but lost 0.25% to $55.44 in after-hours activity on volume of nearly 250,000.
Sources: KLA-Tencor F3Q07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch, Reuters
Commentary: KLA-Tencor: Concerns Over June Orders • Semi Cap Equipment: Bad News Is Bad News, For A Change • Making Sense of Semis: Does the Industry Still Have What it Takes?
Stocks/ETFs to watch: KLA-Tencor Corporation (KLAC). Competitors: Applied Materials (AMAT). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), SPDR Semiconductor (XSD), Technology Select Sector SPDR (XLK)
Baidu: Profit and Sales More than Double, Beat Estimates, Shares Surge
Baidu.com reported Q1 net income jumped 143% to 85.5 million yuan ($11.1m), or 2.47 yuan/share ($0.32). Excluding certain costs, EPS came in at 2.82 yuan/share ($0.37), beating analysts' average estimates of $0.33 (Thomson) - $0.36 (Bloomberg). Revenues climbed 103% to 275.6m yuan ($35.7m), topping analysts' forecast of $34.4m. Baidu said it expects Q2 sales of 378m - 388m yuan ($48.9m - $50.2m) -- a 97% - 103% y-o-y increase -- ahead of analysts' forecast of $43.5m, in a survey by Bloomberg. An analyst at Susquehanna Financial Group commented, "The perception about the numbers was so negative heading into the quarter that the fact they beat really gave a big boost to the stock price." Shares of Baidu gained 4.5% to $109.37 during normal trading and shot up another 25% to $134 in after-hours activity on volume of 2.37 million. On Jan. 11 this year, Baidu traded at an all-time intra-day high of $134.10, closing at $131.18.
Sources: Baidu.com Q1 2007 Earnings Call Transcript, Press release, Bloomberg, MarketWatch, Reuters
Commentary: Setting the Record Straight: Baidu is No Google • Alleviating Concern Over Baidu's New Query Tracking • China's Earnings Season: What to Expect in April
Stocks/ETFs to watch: Baidu.com Inc. ADR (BIDU). Competitors: Yahoo! Inc. (YHOO), Google, Inc. (GOOG), Microsoft Corp. (MSFT), Sina Corp. (SINA), Sohu.com Inc. (SOHU), TOM Online Inc. (TOMO). ETFs: PowerShares Gldn Dragon Halter USX China (PGJ)
News Corp. Finds a Way to Update DVR Ads
News Corp. says it plans to patent a technology that will allow it to update ads to video content recorded for playback on a digital video recorder [DVR]. With 17% of U.S. homes now boasting DVRs [according to data released Thursday by Nielsen Media], time sensative ads for companies like retailers and movie studios are often outdated by the time customers get around to viewing pre-recorded digital content. The technology would allow the network to update the ads; Jon Nesvig, sales president of Fox Broadcasting, says Fox is exploring a TiVo partnership to use the new technology. Of course, muses the Wall Street Journal, this still doesn't solve advertisers main issue with DVRs -- users skipping over ads entirely.
Sources: Wall Street Journal
Commentary: Nielsen Unveils DVR Stats - Time To Rethink Ads • TV Habits: So Much is On, So Little is Actually Watched • TiVo 's Payoff: No Fast Forward Button Available • News Corp: The Bewildered Digital Media Pioneer
Stocks/ETFs to watch: News Corp. (NWS). Competitors: Time Warner Inc. (TWX), CBS Corp. (CBS), Viacom Inc. (VIA), Walt Disney Company (DIS). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Conference call transcript: News Corporation F2Q07 (Qtr End 12/31/06) Earnings Call Transcript
TRANSPORT AND AEROSPACE
GM Suspends Development in Two Plants After UAW Breaks Off Negotiations
In what may be a prelude to the Big 3 automakers' negotiations with the United Auto Workers [UAW] union in two months, General Motors suspended development activities in two plants after the UAW broke off negotiations with the U.S.'s biggest carmaker. GM had requested cost-cutting agreements from the UAW, at its Fairfax, Kan. and Lordstown, Ohio, plants, where it is currently developing smaller, more gas efficient cars. This summer GM, Ford and Chrysler will sit down with the UAW to ask for substantial health-care cost savings in order to better compete with their Japanese counterparts. The companies are walking a fine line between cost cutting and angering the UAW, which could lead to labor disruptions and production delays. According to Bill Smith, whose asset management company owns 72,000 GM shares, "It's unbelievably important that GM goes to the mat with the UAW in summer negotiations. It's vital to the life of the company that it gets major concessions."
Sources: Wall Street Journal, Reuters
Commentary: GM Unveils Fuel Cell Version of Volt • Toyota Threatens GM's Reign as Biggest Automaker • Cramer's Take on GM
Stocks/ETFs to watch: General Motors (GM). Competitors: Ford (F), DaimlerChrysler (DCX), Toyota (TM), Honda (HMC), Nissan (OTC:NSANY)
Conference call transcripts: General Motors Q4 2006 Earnings Call Transcript
Citigroup Wins 61% Stake in Nikko Cordial
Citigroup has acquired 61% of Japanese brokerage Nikko Cordial for $7.7 billion (¥920 billion) in cash, its largest-ever Asian acquisition. Several institutional investors with large stakes in Nikko opposed Citigroup's ¥1,700/share bid but were unable to block it outright. In order to merge or divest units of the company without the approval of shareholders, Citigroup will have to raise its stake to 2/3. "We couldn't purchase all outstanding shares but we will look to increase our holdings,'' Citigroup said. The bank also indicated it might attempt to make Nikko, Japan's third-largest brokerage, a wholly owned subsidiary, a prospect that gave Nikko's shares a 2.8% boost to close at ¥1,738. Nikko made a net profit of ¥78.12 billion in the fiscal year ended March 31, down 11% from the year before. Citigroup will now be able to expand its Japanese investment banking business through its JV with Nikko and offer wealth management services to Nikko's clients, who have a combined ¥40 trillion in assets. In December, Nikko was accused of inflating its earnings, precipitating a 30% drop in its stock price by February 1. Nikko shares closed at 1,179 yen on March 5, one day before Citigroup made its original ¥1,350/share bid.
Sources: Reuters, Bloomberg
Commentary: Citigroup Plays Japanese Poker • Nikko Cordial: Citigroup May Fail to Gain Full Control Of Company • Nikko Cordial: Shareholders Join Campaign Against Citigroup's Takeover Bid
Stocks/ETFs to watch: Nikko Cordial (OTC:NIKOY), Citigroup (C). Competitors: Mitsubishi UFJ Financial Group (MTU), Nomura Holdings (NMR), Daiwa Securities Group (OTC:DSECY). ETFs: iShares S&P Global Financial Index Fund (IXG), iShares Dow Jones US Financial Services (IYG), Financial Select Sector SPDR (XLF)
Conference call transcripts: Citigroup Q1 2007
GE Shares Could Gain 26% Through Split-Up -- Citigroup
In a research note Friday morning, Citigroup analysts said General Electric Co. should sell some of its units - including NBC and GE Money and real estate businesses -- and focus on infrastructure. The move could lift shares by 26%, they said. "We believe GE's size and complexity is working against investor interest in the stock and has contributed to further valuation erosion... [the company] needs to be more focused." The note said NBC has "no meaningful synergy" with the company, and while GE Money's insurance, loans, and credit card businesses have been "a true success story," the unit is now so big that further growth would upset the company's finance/non-finance earnings mix. Shares of GE, the world's #2 company, are down 3.7% in 2007 while those of rival Tyco, which plans to split into three, are up 7%.
Commentary: GE's Q1 Earnings Up 8% on Strong Global Growth • Goldman on GE: Now is Prime Buying Opportunity • General Electric: Flaw In The Bullish Case?
Stocks/ETFs to watch: General Electric Co. (GE), Tyco International Ltd. (TYC)
Conference call transcript: General Electric Q1 2007 Earnings Call Transcript
ABN Shareholders Determined to Thwart LaSalle Sale to BoA; RBS-Led Consortium Reiterates Rival Bid
At a tumultuous annual meeting of ABN Amro shareholders yesterday in the Hague, at which the head of Dutch investment group VEB charged the stage and was forcibly removed by guards, shareholders confirmed they will sue to obstruct the sale of LaSalle Bank to Bank of America, a deal ABN agreed as part of a $91 billion takeover by Barclays. VEB, together with activist investor TCI Fund, claims the $21 billion sale of LaSalle to BoA -- which was concluded without consulting ABN shareholders -- will deter rival bidders for ABN. ABN CEO Rijkman Groenink contends a shareholder vote was not required, as the unit accounts for less than 30% of the bank's total assets. VEB Chairman Peter Paul de Vries calls Groenink's move a "sleazy trick." TCI Fund put forward a motion at the meeting in favor of a sale or breakup of ABN -- implicitly a motion in support of the $98.5 billion counterbid by a three-bank consortium led by Royal Bank of Scotland -- and 68% of shareholders present voted in favor. VEB has announced it is going to Commercial Court for an injunction to "freeze...the sale of LaSalle." Separately, the Royal Bank of Scotland consortium said Friday morning it plans to follow through with its hostile €98.5 billion bid for ABN Amro in a move aimed at bettering Barclays' friendly offer. "The banks continue to believe that their proposals offer materially higher value for ABN Amro's shareholders and benefits to customers and employees compared with the recommended offer from Barclays," they said in a joint statement. Their proposal has the LaSalle unit remaining within the ABN Amro group. The consortium is expected to break up ABN if it wins.
Sources: MSNBC, Reuters, Bloomberg, Wall Street Journal
Commentary: ABN Amro Now Seeking Rival Bids for LaSalle • ABN Amro Takeover: Rival Trio Tops Barclays with $98.5 Billion Bid • ABN-Barclays Merger: Rival Bidders and Investors Query LaSalle Sale
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (BAC). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (DB), UBS AG (UBS). ETFs: First Trust Morningstar Div Leaders Idx (FDL), PowerShares Intl Dividend Achievers (PID), iShares MSCI Netherlands Index (EWN)
BoJ Holds at 0.5%, CPI, Production and Retail Data Weak
As expected, the Bank of Japan voted unanimously to keep its benchmark interest rate at 0.5%. In addition, weaker-than-expected core CPI, -0.3% vs. -0.2% (expected), a surprising negative read on industrial output, -0.6% vs. +0.9%, and a sixth consecutive monthly decline (-0.7%) in retail sales, all raised expectations there will be no chance of a rate hike before the upper house elections in July. The drop in CPI was the largest in two years. However, the closely watched core CPI in Tokyo was flat. March unemployment was unchanged at 4.0%. In its semi-annual outlook, the BoJ said it expects core CPI to rise 0.1% over the next year ending in March and 0.5% in the twelve months following that. Previously it had expected core CPI to increase 0.5% this year. BoJ Governor Toshihiko Fukui commented, "Rate adjustments need to be made if the economy's expansionary trend remains intact and price trends in the long term are expected to be firm, even if prices are falling in the short term." Concerns about weakness in the U.S. economy linger, but the BoJ noted a difficult housing market has not "so far spilled over into the wider economy, as evidenced by continued firmness in private consumption."
Sources: Press release [pdf], Bloomberg [i, ii]
Commentary: Preparing For the Deluge of Japanese Data • Can Japan's Newest Real Estate Boom Be Sustained? • Yen Carry Trade: How Much is Too Much?
Stocks/ETFs to watch: Mitsubishi UFJ Financial Group (MTU), Mizuho Financial Group (MFG). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (FXY)
Related: Bank of Japan's Outlook for Economic Activity and Prices
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