HP Reports Solid Q2, In-line with Estimates, Shares Trade Higher
Hewlett-Packard reported a $0.01 decline in Q2 EPS to $0.65/share ($1.78b), but excluding a positive IRS settlement in the prior period (+$0.15/share), EPS rose 27% y/y. Excluding one-time costs, HP says EPS totaled $0.70/share, beating analysts by $0.01. Revenues rose 13% to $25.5b, in-line with analysts' average forecast. HP last traded up 1.1% to $45.70 in extended trading on volume of 3.46 million, after gaining 1% to $45.21 during normal trading. In a conference call, CEO Mark Hurd declared "HP is still transforming," saying "overhead costs are still too high." Revenues and operating profit [OP] grew fastest at its software division, up 58% to $523m and jumping 15x to $42m, respectively. PC sales +24% to $8.7b, OP +68% to $417m. Server sales +8% to $4.6, OP +26% to $407m. Printing and imaging sales +6% to $7.2b, OP +20% to $1.2b. HP raised its forecast for full year revenues to $100b and now expects full year adjusted EPS of $2.75 - $2.77 (from $2.60 - $2.65).
Sources: Hewlett-Packard F2Q07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch
Commentary: Hewlett-Packard Earnings Preview: Pay Attention To Margins • Hewlett-Packard Updates Guidance, Sending Shares To Six-Year High • Credit Suisse: HP Takeover of BEA Systems 'Wishful Thinking'
Stocks/ETFs to watch: Hewlett-Packard (NYSE:HPQ). Competitors: Lenovo (OTCPK:LNVGY), Dell (NASDAQ:DELL), Gateway (GTW), Apple (NASDAQ:AAPL). ETFs: Internet Architecture HOLDRs (NYSE:IAH), Vanguard Info. Tech. ETF (NYSEARCA:VGT), iShares S&P Global Technology (NYSEARCA:IXN)
Related: HP Q2 2007 Earnings Presentation [pdf]
Apple Tanks Momentarily on False Leopard/iPhone Delay Rumor
Just before noon Wednesday, tech blog Engadget posted a story claiming Apple was about to announce another delay of Leopard (its Mac OS X operating system replacement) and the much-hyped iPhone. "This one doesn't bode well for Mac fans and the iPhone-hopeful: we have it on authority that as of today, the iPhone launch is being pushed back from June to... October (!), and Leopard is again seeing a delay, this time being pushed all the way back to January," it said. Apple shares dropped 2.2% on the news. About 20 minutes later, Engadget said it had been contacted by Apple's PR department and there would be no delay. Apple said a fake internal memo was sent to several Apple employees (one of whom, it seems, leaked the story to Engadget), and that the delivery times for iPhone and Leopard were unchanged. "This communication is fake and did not come from Apple. Apple is on track to ship iPhone in late June and Mac OS X Leopard in October." Engadget updated its headline to "False alarm: iPhone delayed until October, Leopard delayed again until January." Apple shares recovered most of their losses, closing down $0.18 to $107.34. There is speculation Apple may face litigation from shareholders who lost money on the sudden dip if the email did indeed originate from its servers.
Sources: Engadget, CNET News.com, TechCrunch, SeekingAlpha
Commentary: Emotion: The Enemy of Every Investor • Why Betting Against Apple Is Sure To Backfire • Leopard Delay, iPhone Hype - Apple Knows What It Is Doing
Stocks/ETFs to watch: Apple Computer Inc. (AAPL)
Related: See Paul Kedrosky's post for the original and redacted emails
Earnings call transcript: Apple F2Q07
Micron Proposes $1.1B Convertible Note Offering, Shares Dip
Micron Technology announced it plans to offer $1.1 billion aggregate principal amount of unsecured Convertible Senior Notes due June 1, 2014, pending market and other considerations. Morgan Stanley will be the sole bookrunner. Shares of Micron fell 2.4% to $11.85 in extended trading on volume of more than 516,000. Micron said it also intends to offer a $165m over-allotment option to underwriters. In a press release, Micron explained it plans to enter capped call option transactions in connection with the convertible bond offering, which "are expected to reduce the potential dilution upon conversion of the notes." Micron warned it expects counterparties to enter various OTC derivative transactions, which could impact its share price. Net proceeds from the convertible offering will be used to pay the cost of the capped calls, as well as for general corporate purposes to include working capital and capital expenditures. Micron gained 0.6% to $12.14 in normal trading Wednesday.
Sources: Press release
Commentary: Conflicting Signals On Upcoming Semi Equipment Orders • Micron: Estimates Down On Sharper Fall In DRAM Pricing • Micron Posts Q2 Loss, Misses Estimates, but Shares Up on Bullish Forecast
Stocks/ETFs to watch: Micron Technology (NASDAQ:MU). Competitors: OmniVision Technologies (NASDAQ:OVTI), Qimonda AG (QI), SanDisk (SNDK), Sony (NYSE:SNE), STMicroelectronics NV (NYSE:STM), Toshiba (OTCPK:TOSBF). ETFs: iShares Goldman Sachs Semiconductor (IGW), Semiconductor HOLDRs (NYSEARCA:SMH), SPDR Semiconductor (NYSEARCA:XSD)
Conference call transcripts: Micron Technology F2Q07
Silver Lake, ValueAct to Buy Acxiom for $2.25 Billion
Data management firm Acxiom has agreed to be purchased by private equity firms Silver Lake Partners and ValueAct Capital Partners for $2.25 billion. ValueAct and Silver Lake will pay $27.10 per share, a 14% premium to the shares' Wednesday close, and will take on approximately $750 million in debt. ValueAct is Acxiom's largest shareholder, with a 14% stake. ValueAct and Acxiom waged a proxy fight last summer that concluded with ValueAct's managing partner, Jeffrey Ubben, taking a seat on Acxiom's board. Acxiom has the right to consider other bids for the next two months. Acxiom creates databases about American consumers that are used by clients to suit their marketing to particular constituencies. Its purchase is one of a series of tech company buyouts by private equity, which also includes KKR's purchase of First Data. In related news, Acxiom posted a 73% drop in fiscal Q4 net income to $6.27 million ($0.08/share) from $23.1 million ($0.26) in the year-ago quarter. Excluding one-time charges, EPS were $0.20. Q4 revenue grew 3.8% to $357.3 million from $344.3 million. The company has also named Chris Wolf as CFO, succeeding Frank Cotroneo, who resigned three months ago.
Sources: Bloomberg, Reuters, Wall Street Journal, MarketWatch, Digital50
Commentary: KKR To Buy First Data For $29 Billion; Shares Jump 25% • Affiliated Computer Services Receives Buyout Offer from Founder, Cerebus
Stocks/ETFs to watch: Acxiom Corp. (NASDAQ:ACXM). Competitors: Dun & Bradstreet Corp. (NYSE:DNB), Harte-Hanks Inc. (NYSE:HHS). ETFs: PowerShares Dynamic Technology (NYSEARCA:PTF), Morgan Stanley Technology ETF (NYSEARCA:MTK)
Corning Raises 2006-08 Glass Demand Forecast
Corning Inc., the world-leading manufacturer of liquid crystal display glass for flat-screen TVs, said Wednesday it is increasing its glass market volume growth forecast to 32% from 30% from 2006 to 2008 on stronger demand for LCD TVs. The company is maintaining its 2007 growth estimate of 35-40%. It now anticipates LCD TVs will constitute 47% of total TV sales in 2008 versus its earlier 45% projection. In April, Corning forecast Q2 EPS excluding items in the $0.30-0.33 range on sales of $1.40-1.45 billion, in line with analyst expectations of $0.32 EPS on sales of $1.44 billion. Corning met with investors at the Deutsche Bank Technology Conference in San Francisco on Wednesday.
Sources: Reuters, Forbes, MarketWatch
Commentary: The Skinny on Flat Panels: Reduced Capacity Could Mean a Strong '08 • Goldman Upgrades Corning: “Better Late Than Never" • Corning Shares Gain On Earnings Beat, Strong Guidance
Stocks/ETFs to watch: Corning Inc. (NYSE:GLW), AU Optronics (NYSE:AUO), LG Philips (NYSE:LPL), Philips Electronics (NYSE:PHG), Sony (SNE). ETFs: Broadband HOLDRS (NYSE:BDH)
Conference call transcripts: Q1 2007
Sun to Buyback $3B in Stock, Offset Options Dilution, Shares Trade Higher
Sun Microsystems says it plans to repurchase $3 billion of its common stock to "increase shareholder value and reduce the dilutive effect of Sun's equity compensation programs." Shares of Sun rose nearly 3% to $5.27 on volume of more than 4.7 million in extended trading, after losing 0.4% to $5.12 during normal trading. In a press release, Sun said it has over $5.4b in cash and marketable debt securities. Based on its last quote in the after-hours and having 3.55 billion shares outstanding, the $3b buyback equals approximately 16% of shares outstanding. Sun terminated its previous share repurchase program authorized in February 2001, and said the new program does not have an expiration date. Separately, Chairman Scott McNealy said the Company is committed to spending $2b annually on R&D, while speaking at a company sponsored event in Mumbai.
Sources: Press release, Bloomberg [i, ii]
Commentary: Sun Swings to Profit but Misses on Sales, Guidance -- Shares Drop 6.5% • Sun Microsystem CEO Reaches Out to Open Source Crowd • Is Sun Alienating Its Own Resellers?
Stocks/ETFs to watch: Sun Microsystems Inc. (NASDAQ:SUNW). Competitors: International Business Machines Corp. (NYSE:IBM), Hewlett-Packard Co. (HPQ), Dell Inc. (DELL), EMC Corp. (NYSE:EMC), Silicon Graphics Inc. (SGIC), Oracle Corp. (NYSE:ORCL). ETFs: HOLDRS Internet Architecture (IAH)
Conference call transcripts: Sun Microsystems F3Q07 Earnings Call Transcript
Salesforce.com Swings to Q1 Profit
Customer relationship management [CRM] software manufacturer Salesforce.com reported Wednesday that it swung to a Q1 profit from a year-ago loss and beat the Street's revenue expectations. Q1 earnings, including stock-based compensation, rose to $730,000 (0.01/share) from a loss of $229,000 (break-even) in the year-ago quarter. Revenue was up to $162.41 million from $104.69 million. Analysts were expecting EPS of $0.01 on revenue of $157.8 million. Salesforce is projecting Q2 revenue of $171-173 million, with net EPS of break-even to $0.01, including stock-based compensation. For fiscal 2008, the company has raised its forecast to $722-728 million and reiterated its EPS projection of $0.07-0.09. Analysts have forecast Q2 EPS of $0.01 on revenue of $172.1 million and 2008 EPS of $0.08 on revenue of $722.1 million. Salesforce has benefited from increased demand for web-based software, which is frequently easier to use and maintain than physically installed software. Rivals Microsoft, Oracle and SAP AG are all pushing into the web-based software space.
Sources: Salesforce.com F1Q08 Earnings Call Transcript, Press release, MarketWatch, Reuters, Forbes
Commentary: The Short Case on Salesforce - Risk Not Priced Into Stock • Salesforce: Positioned to Capitalize on the Extended Enterprise Phenomenon • Salesforce Plays the VC Game - Empowering Companies to 'Bootstrap'
Stocks/ETFs to watch: Salesforce.com, Inc. (NYSE:CRM). Competitors: Oracle Corp. (ORCL), Microsoft Corp. (NASDAQ:MSFT), SAP AG (NYSE:SAP). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ)
Sony Reportedly in Talks to Acquire Club Penguin
Sony is said to be in advanced talks to acquire popular kids social gaming service provider Club Penguin, for an estimated $450 million, according to paidContent.org, which says it has access to senior inside sources. PaidContent mentions Club Penguin had approximately 4.5 million visitors in March, but there are no references to the number of paying subscribers. The $450m price tag is 7.5x estimated '07 sales of $60m. Club Penguin reportedly has an operating margin around 50%, but an issue for Sony may be the company's desire to donate a portion of earnings to charity. A monthly Club Penguin subscription costs $5.95, with cheaper rates over longer terms. There is also a free non-membership play option. The Club Penguin website says, "There is no advertising or marketing of any kind," in order to protect its young users. Ordinary shares of Sony gained 2.6% to ¥6,630 ($54.79 ADR equiv. at ¥121/$1), reaching ¥6,750 intra-day, its highest trading level since 2002. Its ADRs gained 6% to $55.85 on Wednesday.
Sources: CNET News Blog, paidContent.org
Commentary: PC Games Making a Comeback • The Growing Importance of Online Gaming for Nextgen Consoles • Sony's Q4 Loss Widens, but Issues Strong FY 2007 Guidance
Stocks/ETFs to watch: Sony (SNE). Competitors: Microsoft (MSFT), Nintendo (OTCPK:NTDOY). ETFs: BLDRS Asia 50 ADR Index (NASDAQ:ADRA), iShares S&P/TOPIX 150 Index (ITF), iShares MSCI Japan Index (NYSEARCA:EWJ)
Conference call transcripts: Sony F4Q06
Related: Club Penguin website and blog
Google Unveils "Universal Search," New Features
Google shares rose 3.2% to close at $472.51 Wednesday after the company announced it is unifying its search results into a "Universal Search" that will provide users with results including websites, videos, news items, images, and books. Previously, users had to use several Google functions to collect such a wide range of results. Universal Search will pull results from any site indexed by Google, including YouTube and Google Video, as well as third-party sites like Metacafe and Revver. Google is also adding features, including a new navigational toolbar that lets users jump from one tool to another (email to calendar to docs, for instance). It is improving the precision with which its search engine understands queries. In addition, Google's search engine will now translate all non-English queries into English, perform the search, then translate the results into the language of the query. Some analysts believe the rise in Google's share price reflects optimism that advertisers will pay more for ads that accompany video links.
Sources: Press release, MarketWatch, Reuters, TheStreet.com, Wired
Commentary: Google Gets Personal with 'iGoogle' • April Online Search: Yahoo Gains, Outpaces Google • Google: Believe It or Not, The Stock Looks Cheap
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG). Competitors: Yahoo! Inc. (NASDAQ:YHOO). ETFs: First Trust IPOX-100 Index (NYSEARCA:FPX), First Trust Dow Jones Internet Index (NYSEARCA:FDN), iShares S&P Global Technology (IXN)
Conference call transcripts: Q1 2007
Amazon.com's DRM-Free Music Store May Reshape Market
Online retailer Amazon.com announced Wednesday it plans to launch a DRM-free [Digital Rights Management] music store, offering millions of songs from over 12,000 record labels, including EMI's digital catalog. The music, coded with the ubiquitous MP3 standard, can be played on an array of devices, such as PCs and iPods, and burnt to CD for personal use. Amazon said the store will launch 'later this year,' but some analysts say the company plans to go online as soon as possible; June/July is seen as a likely timeframe. Amazon is said to be offering lower pricing, with full-album downloads from $4.99-8.99 and singles from $0.89 to $0.99. Apple's iTunes store uses the DRM-protected AAC format, which many say offers quality and file-size advantages over MP3. Apple announced a similar deal with EMI in April; it plans to sell DRM-protected music for $0.99 a tune and DRM-free music for $1.29. Warner Music has said it sees no reason to drop DRM, but that it is testing the DRM-free model, as is Vivendi's Universal Music. Many analysts say Amazon can compete with Apple's iTunes for a share of the $2 billion/year digital-music market, due to its position as the largest and most active internet retailer, and the fact that it's already one of the largest online CD sellers. Others don't think even Amazon can break Apple's dominance.
Sources: Press release, MarketWatch I II, hypebot, CNET News.com I, II
Commentary: Other Shoe Drops: Amazon to Launch Digital Music Sales • Amazon.com DRM-Free Service Won't Kill Apple • Why Amazon Will Never Really Be Profitable
Stocks/ETFs to watch: Amazon.com Inc. (NASDAQ:AMZN), Apple Computer Inc. (AAPL), Warner Music Group Corp. (NYSE:WMG)
Major Shareholders to Back Clear Channel Buyout -- WSJ
Major shareholders are now in agreement with the current terms of the long-negotiated Clear Channel Communications buyout, Wall Street Journal reports, quoting people familiar with the matter. The private equity team of Bain Capital and Thomas H. Lee Partners recently sweetened its buyout proposal by $0.20/share to $39.20, and offered current shareholders the opportunity to own up to 30% of the new company. On May 3, the company said the bid was rejected by the board, noting it was only 0.5% above the previous bid. Now, sources say, shareholders Highfields Capital Management (3.2%) and Fidelity Investments (9.7%) are on board with the proposal, giving it a far greater chance of shareholder approval than previously thought. Regulatory issues connected with the stock-issue to current shareholders will likely delay the final vote until August, the sources said.
Sources: Wall Street Journal
Commentary: Clear Channel Buyout Vote: No Is the Way to Go - Barron's • The Consolidation of Local Media • Google and Clear Channel Set to Announce Advertising Deal
Stocks/ETFs to watch: Clear Channel Communications Inc. (NYSE:CCU). Competitors: Sirius Satellite Radio Inc. (NASDAQ:SIRI), Citadel Broadcasting Corp. (CDL), Radio One Inc. (NASDAQ:ROIA), Spanish Broadcasting System Inc. (NASDAQ:SBSA), CBS Corp. [CBS Outdoor] (NYSE:CBS), Cumulus Media Inc. (NASDAQ:CMLS), Cox Radio Inc. (CXR)
Conference call transcript: Clear Channel Q3 2006
Dow Jones's Board Takes No Action on Murdoch Bid
The board of publisher Dow Jones & Co. held its regularly scheduled meeting Wednesday and declined to take action on a $5 billion bid for the company made by Rupert Murdoch's News Corporation. On May 11, Murdoch sent a letter to the Bancroft family, which holds a controlling interest. In the letter, Murdoch urged family members to meet him personally and pledged to establish an editorial board for the purpose of ensuring the integrity of Dow Jones's prize property, the Wall Street Journal. At the meeting, the board discussed several matters, including the adoption of "change-of-control packages" to attract executives. Although the board has the option to consider Murdoch's offer and make a recommendation to shareholders, it has elected not to do so until the Bancrofts' opposition falls below 50% of overall voting power. Several board members have, however, expressed surprise that the Bancrofts are so resistant to such a high offer. Murdoch's bid represents a 65% premium to the shares' close the day before the offer was announced. Bancrofts who oppose the offer hold 52% of voting power; the Ottaway family, which holds 5.2%, also opposes the deal.
Sources: MarketWatch, Reuters, Wall Street Journal
Commentary: Murdoch Writes to Bancrofts, Family Stays Mum • Is Dow Jones An Attractive Arbitrage Play? • Dow Jones: Murdoch Needs To Break Out
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NASDAQ:NWS). Competitors: Gannett Co. Inc. (NYSE:GCI), The New York Times Co. (NYSE:NYT), Washington Post Co. (WPO), Pearson plc (NYSE:PSO), Reuters Group plc (RTRSY), Lee Enterprises Inc. (NYSE:LEE), McClatchy Company (NYSE:MNI)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Genzyme's Gaucher Disease Drug Shows Promising Results
Biotech company Genzyme Corp. announced Wednesday that its experimental drug to treat genetic disorder Gaucher disease has shown encouraging results in a Phase II clinical trial. The drug, Genz-112638, is an orally-delivered medication used to treat Gaucher, an enzyme deficiency that can cause liver and spleen enlargement, anemia and brittle bones. Initial data indicate that Genz-112638 "may produce a rapid and meaningful impact on important clinical endpoints," and the company is in contact with regulatory agencies to expedite development. Gaucher is usually treated with Genzyme's drug Cerezyme, which is delivered by infusion rather than by mouth. Cerezyme generates annual revenues for the company of over $1 billion. A successful oral version would be critical for Genzyme, since Cerezyme is about to face competition from Amicus Therapeutics, a biotech that is developing its own oral Gaucher medication. Amicus, which filed for an IPO in March, is working on oral versions of other Genzyme drugs as well, including Fabrazyme, which treats the genetic disorder Fabry disease, and Myozyme, which treats the muscle disorder Pompe disease. Full results of the trial of Genz-112638 will be available in 2008.
Sources: Press release, Reuters, MoneyCentral, MarketWatch
Commentary: Millenium Ends Its Bid For AnorMED, Leaving Genzyme On Top • Searching for Value Investments in the Drug Stock Universe
Stocks/ETFs to watch: Genzyme Corp. (GENZ). Competitors: Abbott Laboratories (NYSE:ABT), Amgen Inc. (NASDAQ:AMGN), Johnson & Johnson (NYSE:JNJ). ETFs: Biotech HOLDRs (NYSEARCA:BBH), iShares Nasdaq Biotechnology (NASDAQ:IBB)
Conference call transcripts: Q1 2007
Bausch & Lomb To Be Taken Private for $4.5B; Traders Anticipate Higher Bids
Eye-care company Bausch & Lomb said Wednesday it has agreed to be acquired by private equity firm Warburg Pincus for $65/share, a 5.7% premium over Tuesday's close, and about a 26% premium to its average 30-day share price prior to media rumors of a possible buyout. Including the $830 million in debt it will assume, the total price tag amounts to about $4.5 billion. Bausch & Lomb shares are trading up 10.4% at $67.89 -- indicating investors apparently anticipate a bidding war. Robert W. Baird analyst Jeffrey D. Johnson didn't see much room for shares to move up: "This looks like a pretty fair deal... If I were a shareholder here, I would not be expecting much upside from the $67 [price]." The price tag is 29.5x 2007e EPS of $2.13 and 9.5x 2007e Ebitda [earnings before interest, taxes, depreciation and amortization]. Johnson said going private would allow the company to address its problems (product recalls and accounting issues) out of the limelight. The company last year underwent a massive recall of its ReNu with MoistureLoc contact lens solution after it was associated with a rare fungal eye infection that can cause blindness; this year it made a limited recall of its ReNu MultiPlus solution. CEO Ronald Zarrella: "As a private company, Bausch & Lomb will have greater flexibility to focus on our long-term strategic direction." The deal allows Bausch & Lomb to solicit superior offers for the next 50 days, and carries a $40 million break-up fee.
Sources: Press release (.pdf), Reuters, MarketWatch
Commentary: Bausch & Lomb Could Be Heading Toward a Buyout, But Based On What? • Fisher's Buyout Candidates • Bausch & Lomb: Overblown Concerns, Cheap Stock
Stocks/ETFs to watch: Bausch & Lomb Inc. (BOL). Competitors: Alcon Inc. (NYSE:ACL), Advanced Medical Optics Inc. (EYE), Cooper Companies Inc. (NYSE:COO)
BoJ Holds at 0.5%, GDP Slows, Nikkei Trades Slightly Lower
The Bank of Japan voted unanimously to keep its overnight call rate target unchanged at 0.5%. Annualized Q1 GDP growth of 2.4%, announced before the BoJ's decision, was a sharp sequential decline from a revised 5.0% (previously 5.5%) and lower than economists' average estimate of 2.7% (Bloomberg). The yen was last trading near 120 against the US$, its weakest level since prior to the late-Feb. global stock sell-off. The Nikkei 225 lost 0.2% to 17,498.60, while the broader TOPIX declined 0.3% to 1,707.27. Richard Jerram, chief economist for Macquarie Securities in Tokyo, commented: "It is a mistake to interpret it as poor figures being a sign of a new trend." Jerram believes the BoJ will hold at 0.5% over the next three to six months, since there is no hurry to hike while consumer prices are still falling. As for Q1 GDP, a larger-than-expected rise in consumer spending helped offset an unexpected fall in capital investment. "The drop in capital spending does reflect concern about the outlook for the U.S. economy, but it's also a correction from several quarters of very strong spending figures," said Takuji Aida, chief Japan economist at Barclays Capital in Tokyo.
Sources: Associated Press, Bloomberg
Commentary: Japan: Weekly ETF and CEF Performance • The Yen Carry Trade: Ready to Repatriate? • BoJ Holds at 0.5%, CPI, Production and Retail Data Weak
Stocks/ETFs to watch: Mitsubishi UFJ Financial Group (NYSE:MTU), Mizuho Financial Group (NYSE:MFG). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)
Related: Bank of Japan's Monthly Report of Recent Economic and Financial Developments
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