Intel's Three New Chips for Emerging Markets
Intel told analysts Thursday it plans to develop chips for new varieties of hand-helds, consumer electronic products, and portable computers for emerging market economies. It said each of the three lines has the potential for $10 billion in revenues per year. The gadgets and their chips, geared to poorer economies, will require the chipmaker to improve effiency in order to keep profit margins up, CEO Paul Otellini said. An example: The Silverthorne microchip, which uses a quarter of the space and power of today's laptop chips. The chip will be used in mobile internet devices [MIDs], and as many as 2,500 of them can be made on one silicon wafer (compared with only hundreds of standard chips). "We think we can drive our architecture and our franchise into new marketplaces," Otellini said. He also said the company will likely continue to cut jobs, shaving $2 billion in costs in 2007 and onther $3 billion in 2008. Shares dropped 0.4% yesterday to $21.74; they are up 8.8% over the past year.
Sources: Wall Street Journal
Commentary: Intel's A Long Term Buy From This Beaten-Down Price • Intel's A Long Term Buy From This Beaten-Down Price • 6 Reasons To Buy Intel Right Now
Stocks/ETFs to watch: Intel Corp. (INTC). Competitors: Advanced Micro Devices Inc. (AMD), Texas Instruments Inc. (TXN). ETFs: HOLDRS Semiconductors (SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (PSI)
Conference call transcript: Intel Q1 2007 Earnings Call Transcript
Nortel Shaves Losses, Guides Flat
Nortel Networks Q1 loss narrowed and sales revenues rose as the company said its cost-cutting efforts begin to bear fruits. Its $103 million net loss ($0.23/share) is down from $171 million ($0.39) a year ago; analysts were expected a $0.24/share loss. The quarter also included one-time charges of $54 million for shareholder litigation and $80 for restructuring. Revenue was up 4% to $2.48 billion and gross margin went to 40.4% from 38.7%. North America's #1 telephone equipment manufacturer said that for Q2 and full-year 2007, revenue should be flat to down slightly. CEO Mike Zafirovski said, "While our first quarter results demonstrated significantly improved financial performance, we must and will continue our relentless pursuit of customer satisfaction and business transformation to deliver on our 2007 business plan." Shares are down 5% over the past year, and were flat in after-hours trading following the announcement.
Sources: Earnings call transcript, Press release, Wall Street Journal, Bloomberg
Commentary: Analysts Mixed On Nortel Following Partial Earnings Release • Nortel, Cisco: The SMB Battle is Just Beginning • Nortel: Building Wi-Max Momentum
Stocks/ETFs to watch: Nortel Networks Corp. (NT). Competitors: Alcatel-Lucent ADR (ALU), Cisco Systems Inc. (CSCO), Juniper Networks Inc. (JNPR), Siemens AG (SI), Telefonaktiebolaget LM Ericsson ADR (ERIC)
EDS: Net Beats Street, But Sales Miss and Cut Guidance Send Shares Lower
Electronic Data Systems reported fiscal Q1 net income jumped nearly sevenfold to $164 million, or $0.31/share, easily beating the Street's estimate of $0.21/share. Sales growth of 3% to $5.22b however, came up short of analysts' average estimate of $5.26b. Q1 net income was helped by earlier-than-expected contract revenue realization (+$0.04 impact on EPS) and delays in severance payments (+$0.02). Subsequently, however, EDS was forced to downward revise its Q2 guidance, causing its shares to fall 2.9% to $28.60 in the after-hours on volume of more than 500,000. EDS had gained 0.20% to $29.45 in normal trading. EDS expects Q2 adjusted EPS between $0.22 - $0.27 on sales of $5.3b - $5.5b, compared to analysts' average forecast of $0.33/share on sales of $5.44b. Q1 sales grew fastest in Asia, +25% to $409m with a 57% increase in operating profit to $38m (Americas: sales +3% to $2.62b, operating profit +20% to $405m; Europe, the Middle East and Africa: sales -9% to $1.45b, operating profit +1% to $179m).
Sources: Electronic Data Systems Q1 2007 Earnings Call Transcript, Press release, Bloomberg, MarketWatch
Commentary: Recent Earnings Strength Tied to International Exposure • EDS: Verizon Will Reel In Its IT Services • EDS: An Untapped Play on Outsourcing
Stocks/ETFs to watch: Electronic Data Systems Corp. (EDS). Competitors: Accenture Ltd. (ACN), International Business Machines Corp. (IBM), Affiliated Computer Services (ACS), Computer Sciences Corporation (CSC), Perot Systems Corporation (PER). ETFs: PowerShares Dynamic Mid Cap Value (PWP)
QLogic Net Drops 43%, Misses Estimates, Shares Drop
QLogic, a supplier of storage networking solutions, reported a 43% decline in fiscal Q4 net income to $18.4 million, or $0.12/share. Excluding certain items EPS totaled $0.22, or a penny better than last year, but a cent short of analysts' average estimate. Revenues rose 12.7% to $147.1m, but also missed analysts' forecast ($151m). Shares of QLogic gained 1.4% to $17.82 during normal trading. However, they last traded down 7.4% to $16.50 in the after-hours on volume of more than 370,000. QLogic faced higher development and marketing costs y/y, in addition to stock option compensation expenses. The company said it repurchased $77.1m of outstanding common stock during the quarter and had about $544m in cash and short-term marketable securities as of April 1.
Sources: Press release, MarketWatch
Commentary: Is QLogic Corporation Looking For A Run? • QLogic: Recent Stock Slump Overdone • Recent Earnings Strength Tied to International Exposure • QLogic Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: QLogic (QLGC). Competitors: Emulex (ELX), Brocade Communications Systems (BRCD), Broadcom (BRCM). ETFs: PowerShares Dynamic OTC (PWO)
Microsoft is Going After Yahoo! -- New York Post
The New York Post says Microsoft has asked internet giant Yahoo! to enter formal merger negotiations. The Post says the two have had informal talks over the years, but stung by Google's acquisition of internet advertising firm DoubleClick, Microsoft's proposal has taken on a new sense of urgency. "They're getting tired of being left at the altar," said one source who has talked with Microsoft. Wall Street sources put a $50 billion price tag on the deal, a 24% premium on Yahoo's current $38b market cap. A combined company would command a 27% market share in internet search (vs. Google's 65%) and would narrow the gap in overall online ads to just 13%. More importantly, a source said, a merger would create "the dominant force on the internet" in terms of overall content. MSN with its news focus tends to draw a more mature crowd, while Yahoo! focuses on the younger demographic. Besides potential cost savings, a deal might also open opportunities to provide exclusive Yahoo! content on Microsoft devices such as Zune and Xbox. Sources say Microsoft is working with Goldman Sachs.
Sources: New York Post
Commentary: Wouldn't It Be Crazy If This Happened? • Yahoo !/AOL Merger Implications for Google • Microsoft's Web Prosperity is Forever Just Around the Corner • Yahoo: The Overvalued, But Core, Internet Holding
Stocks/ETFs to watch: Microsoft Corp. (MSFT), Yahoo! Inc. (YHOO). Competitors: Google Inc. (GOOG), Time Warner Inc. (TWX)
Conference call transcript: Microsoft F3Q07 Earnings Call Transcript, Yahoo! Q1 2007 Earnings Call Transcript
Reuters Shares Fly on Takeout Approach
Reuters shares are up as much as 30% in London trading Friday morning after rumors the company may be the target of a 600p bid. Traders mentioned Canadian firm Thomson Corp. as a possible buyer, as well as News Corp., who earlier this week made a thus-far unsuccessful bid for the Dow Jones Company. Reuters subsequently confirmed it has received a preliminary takeover approach from an unidentified suitor: "The board of Reuters confirms it has received a preliminary approach from a third party which may or may not lead to an offer being made for Reuters... There is no certainty an offer will be made or necessary approvals, including those required under Reuters constitution, will be received." Under Reuters ownership structure, a single golden share held by The Reuters Founder Share Co., run by 15 trustees, can block a hostile bid. Numis Securities analysts said in a reasearch not they believe Thomson is the most likely bidder, and said the bid was likely to be in the range of 610-660p. Shares were trading at 634p (+29%) at 5:56am ET.
Commentary: Reuters Interested in Dow Jones' Newswires, Indexes [SmartMoney] • Dow Jones Takes No Action on News Corp. Bid; Murdoch Considers Next Tack • Reuters To Launch Algorithmic News Sentiment Tool; Acquires Israeli Digital Text Solutions Developer • Reuters Invests in Pluck, Commits To Blogs
Stocks/ETFs to watch: Reuters Group plc (RTRSY), Thomson Corp. (TOC), News Corp. (NWS). Competitors: Dow Jones & Company Inc. (DJ), The New York Times Co. (NYT)
Starbucks Reports and Guides In Line; Shares Gain
Starbucks reported in line earnings and revenue in its latest quarter (2Q07), posting an 18% rise in profit and 20% rise in sales. Shares rose 1.01% to $31.94 after hours on heavy volume of 1.91 million shares. Starbucks reported net income of $150.8 million, good for EPS of $0.19 cents a share, versus EPS of $16 a year earlier. Revenue climbed to $2.26 billion from $1.89 billion. Consensus estimates gathered by Thomson Financial predicted EPS of $0.19 on revenue of $2.3 billion. Same-store sales for outlets open a minimum of one year came in a bit on the weak side, rising 4%, versus consensus estimates of a 4.56% gain. Starbucks attributed the 4% gain to a 3% increase in average transaction price and a 1% rise in transaction volume. Internationally, same-store growth was a stronger 7%. It opened 560 new stores in the quarter and plans to open another 2,400 before FY2007 ends. According to William Trent, who owns Starbucks shares, "In contrast to many of the technology stocks we follow, Starbucks actually managed to reduce inventory in the first six months of its fiscal year, despite opening a thousand-odd new stores." Looking ahead, the company is targeting total revenue growth of about 20% for the full year on same-store sales growth of 3%-4%. It reiterated its forecast of EPS in a range of $0.87-$0.89 for the year; Wall Street's forecast is for EPS of $0.89. The company also authorized the buyback of 25 million shares. In other company news, Ethiopian government officials said Thursday they agreed in principle to sign a licensing, distribution and marketing agreement, so long as Starbucks recognizes the importance of Ethiopia's specialty-coffee names. According to Wikipedia, coffee first appeared anywhere in the highlands of Ethiopia in the 9th century.
Sources: Starbucks F2Q07 (Qtr End 4/1/07) Earnings Call Transcript, Press Release, Bloomberg, TheStreet.com, MarketWatch, Wall Street Journal
Commentary: Starbucks Should Teach Tech Companies About Inventory Management and Growth • Supersize that Latte? McDonald's to Offer Upscale Coffee Drinks • Coffee Stocks: Not Just Starbucks
Stocks/ETFs to watch: Starbucks (SBUX). Competitors: McDonald's Corporation (MCD), Green Mountain Coffee Roasters Inc. (GMCR), Krispy Kreme Doughnuts (KKD). ETFs: Vanguard Consumer Discretionary ETF (VCR), iShares Dow Jones US Consumer Services (IYC), PowerShares Dynamic Food & Beverage (PBJ)
Related: SBUX Investor Relations • Wikipedia: Coffee
Crocs Almost Quadruples Q1 Net; Raises Guidance
Shares of plastic shoe manufacturer Crocs surged 15% to $65.95 Thursday after the company reported strong Q1 earnings and provided Q2 and full-year guidance well above analyst expectations. The company also announced a 2-for-1 stock split. Crocs posted earnings of $25 million ($0.61/share) for Q1, up from $6.4 million ($0.17) in the year-ago quarter. Revenue rose to $142 million from $44.8 million last year. Analysts were expecting EPS of $0.49 on $114 million in revenue. Crocs gave Q2 EPS guidance of $0.80-0.85 on revenue of $180-190 million against Street expectations of $0.63 profit on $136 million revenue. For full-year 2007, the company raised its EPS guidance to $2.90-2.95 from $2.33 on $670-680 million in revenue, up from $515 million. Analysts were expecting EPS of $2.42 on revenue of $540 million. Results benefited from strong domestic sales of the new spring/summer collection as well as the new licensed and Jibbitz businesses. International sales are also growing rapidly of both classic and newer models. Investors appear unsure whether the company's extraordinary growth is sustainable: 23% of the company's shares were shorted as of April 13, while some analysts and investors believe there remains significant upside in the shares as the brand is rolled out around the world.
Sources: Wall Street Journal, TheStreet.com, Forbes, Digital50
Commentary: Strong Global Interest Bodes Well For Crocs' Brand • The Secret Behind Crocs' Success • Jim Cramer's Mad Money Lightning Round Picks, April 13
Stocks/ETFs to watch: Crocs, Inc. (CROX). Competitors: Deckers Outdoor Corp. (DECK), Nike Inc. (NKE), Timberland Co. (TBL)
Tim Hortons Posts 7% Drop in Quarterly Profit
Canadian coffee and doughnut chain Tim Hortons Inc. posted a 7% drop in Q1 earnings Thursday due to a higher tax rate. Revenue and operating profit both improved. Tim Hortons, a spin-off of U.S. burger chain Wendy's International, reported earnings of C$59.3 million ($53.4 million), or C$0.31/share, versus C$63.6 million (C$0.39) in the year-ago quarter. Analysts were expecting EPS of C$0.32. The tax rate in the quarter just ended went up to 34.6% from 14.8% a year ago. Revenue was up 13.9% to C$424.6 million from C$372.8 million in Q1 2006. Same-store sales rose 6.3% percent in Canada, ahead of company expectations, and 4% in the U.S., behind expectations. Operating income was up to C$94.2 million from C$83.1 million. In related news, Tim Hortons' board of directors approved a dividend of C$0.07 (US$0.06) to be paid May 30 to shareholders of record as of May 14. [N.B.: US$1=C$1.11]
Sources: Press release, MarketWatch, Forbes, Reuters
Commentary: Tim Hortons: Special Dividend On the Way? • UBS: Tim Hortons' Speedpay Plan Should Accelerate Gains • Tim Hortons: Tight Lipped On Its Shrinking Operating Margins
Stocks/ETFs to watch: Tim Hortons Inc. (THI). Competitors: McDonald's Corp. (MCD), Starbucks Corp. (SBUX)
Sears Holdings Warns on Q1 Earnings
Shares of Sears Holdings fell 5.2% to $178.56 in AH trading Thursday after the company announced it expects to report worse-than-forecast Q1 earnings and drops in same-store sales at its Kmart and U.S. Sears stores. Sears is forecasting Q1 earnings of $1.30-1.53 and net income of $200-235 million, reflecting a legal settlement and an investment dividend, among other items. Excluding those items, EPS should come in at $1.03-1.26, well behind analyst expectations of $1.46. The one-time gains are expected to be offset in part by losses in the company's swap investments, a risky derivative instrument that has performed well for Sears in the past. Same-store sales fell 4.7% at Kmart in the first 12 weeks of the 13-week quarter on lower transaction volumes. Same-store sales at Sears stores fell 2.4%, mainly on lower home appliance sales the company attributes to the slow housing market and increased competition. Sears Holdings has suffered ongoing decreases in same-store sales as CEO Ed Lampert, a hedge fund manager, has focused on cost-cutting rather than sales development. The company says it will have cash totaling $3 billion by the end of the quarter.
Sources: Press release, MarketWatch, Reuters, TheStreet.com
Commentary: What Will Sears Holding Do With All That Cash? • Time vs. Risk on Sears: The Inverse Relationship • Sears' Lampert 'Just Says No' to Wall Street Convention
Stocks/ETFs to watch: Sears Holdings Corp. (SHLD). Competitors: Wal-Mart Stores Inc. (WMT), Target Corp. (TGT). ETFs: PowerShares Dynamic Retail (PMR), Claymore/Zacks Sector Rotation (XRO)
TRANSPORT AND AEROSPACE
GM Unit Pursued by Private Equity
Reuters reports at least three private equity firms are pursuing General Motors' Allison Transmissions unit, including Blackstone Group and Centerbridge Capital Partners, who have an active bid going for Chrysler and the Carlyle Group. GM CFO Fritz Henderson said Thursday "there are a number of parties that are interested and we're running a pretty disciplined process for looking at the business." According to unnamed sources, Allison's cash flow is more than $500 million and its price tag will be about $3 billion. Indiana-based Allison makes transmissions and hybrid propulsion systems for commercial trucks, buses and military vehicles.
Sources: Reuters, Financial Times Alphaville
Commentary: Subprime Fallout Hits General Motors • Hit By Subprime Woes, GM Misses On EPS By a Wide Margin • April U.S. Auto Sales Suffer Worst Decline Since 1998
Stocks/ETFs to watch: General Motors (GM). Competitors: DaimlerChrysler (DCX), Ford (F)
Conference call transcripts: General Motors Q1 2007 Earnings Call Transcript
Related: Allison Transmissions
ENERGY AND MATERIALS
PetroChina's ADRs Gain 6% on China's Biggest Oil Find in Decades
Shares of PetroChina were gassed up Thursday, on news of the biggest oil discovery in China in reportedly as much as half-a-century. Intra-day in Hong Kong it soared 16.4%, before ending the day +14% for its highest close since early January, on nearly 8x average volume. PetroChina's Bohai Bay (NE China) find is believed to have over 1 billion metric tons of oil (or 7.5b barrels). The director of research for China oil and gas at CLSA in Hong Kong said, "The potential net asset value boost from the Jidong discovery is too big to ignore." He cited SEC reserves classification requirements, which could propel the discovery ahead of rival Cnooc's total reserves. The Wall Street Journal mentions analysts said Chinese demand for crude imports may ease, and companies are also likely to become less willing to pay high prices for upstream assets available globally. PetroChina's ADRs gained 5.65% to $121.26 on more than four times average volume.
Sources: Bloomberg, The Wall Street Journal
Commentary: PetroChina: Government Takes Gains, But Patience Probably Pays • Chinese Energy Sector Plays: Oil and Gas Good, Coal Not So Good • PetroChina's Annual Earnings Rise, But Fall Short of Estimates
Stocks/ETFs to watch: PetroChina (PTR). Competitors: Chevron (CVX), CNOOC (CEO), Sinopec (SHI). ETFs: iShares FTSE/Xinhua China 25 Index (FXI), PowerShares Gldn Dragon Halter USX China (PGJ), BLDRS Emerging Markets 50 ADR Index (ADRE), Claymore/BNY BRIC (EEB)
Judge Orders Freeze of ABN Sale of LaSalle to BoA
A judge at the Dutch commercial court has ordered ABN Amro to halt its $21 billion sale of LaSalle Bank to Bank of America on the grounds that shareholders need to be consulted. The decision could scupper a related €66.31 billion all-stock takeover offer from Barclays for the whole of ABN. If Barclays' bid fails, Barclays itself could become a takeover target. The ruling constitutes a victory for a rival triumvirate, led by Royal Bank of Scotland [RBS], that has made a cash-and-stock offer of €72.27 billion for ABN. RBS, which is seeking to expand its U.S. presence, is preparing a rival bid for Chicago-based LaSalle. The terms of the transaction dictate that BoA will be owed a $200 million breakup fee if ABN accepts a rival bid for LaSalle. Some contend it is in BoA's interest to accept the exit, since the federally mandated 10% cap on a single bank's share of the U.S. deposit market would require BoA to reduce its share in stronger regions to buy LaSalle's weak Detroit market. BoA has at least two legal options before it: 1) to sue ABN for breach of contract; and 2) to sue RBS for contract interference. ABN has declined comment on a report that CEO Rijkman Groenink will meet with the RBS consortium on Friday. ABN shares closed up 1.9% Thursday at €36.60, valuing the bank at about $95.5 billion.
Sources: MarketWatch, Wall Street Journal, TheStreet.com
Commentary: Dutch Court to Decide Thursday on ABN's Sale of LaSalle to BoA • ABN Shareholders Determined to Thwart LaSalle Sale to BoA; RBS-Led Consortium Reiterates Rival Bid • Memo to Barclays: ABN Amro's US Banks Are a Mixed Bag
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)
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