Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

MACRO AND HOUSING

Home Depot Facing Difficulties Selling Supply Unit -- Report

An article by the New York Post says the softening housing market, as well as other complications such as acquisition-led growth, are slowing Home Depot's efforts to sell its Supply unit. In its Q1 earnings release on May 15, Home Depot said it was still reviewing strategic alternatives for its Supply segment. "It's always tougher to sell a business when it's in a downturn," commented one source. Interested parties are said to be conducting more due diligence than usual, given the number of acquisitions by HD Supply, including 12 last year costing around $4.4 billion. A Sanford Bernstein analyst called it a "hairball -- a roll up of a roll up." Three teams of private equity groups consisting of the biggest names in the industry are HD Quote and Chart 22 05 2007considering making a bid. The unit is believed to be worth $10b - $11b, however, the NY Post says funds intended for facilities upgrades have been reallocated to make its financials look more attractive.
Sources: New York Post
Commentary: Home Depot's Q1 Profit Down 30%, Misses Estimates, Shares Trade LowerThree Groups May Compete for Home Depot's Wholesale Unit -- FTHome Depot: Growth For Growth's Sake Does Not Equal Prosperity
Stocks/ETFs to watch: The Home Depot Inc. (NYSE:HD). Competitors: Lowe's Companies Inc. (NYSE:LOW). ETFs: Retail HOLDRs (NYSEARCA:RTH), Consumer Discretionary SPDR (NYSEARCA:XLY), SPDR S&P Homebuilders (NYSEARCA:XHB)
Conference call transcripts: The Home Depot F1Q07

TECHNOLOGY

Shares of The9 Shine on EA Investment, Earnings Beat

Shares of The9 Ltd., one of China's largest online game operators, soared more than 10% to $43.54 to a new all-time high during normal trading, on news of a $167 million investment (15% stake) from Electronic Arts. After announcing better-than-expected earnings, The9 added another 2% to $44.40 in extended trading on light volume of just over 34,000. The9 gained as much as 17.7% to $46.46 intra-day, recouping recent losses following a May 11 high of $43.20. In addition to its equity investment, EA and The9 announced a licensing agreement giving The9 exclusive publishing rights for EA SPORTS FIFA Online in mainland China. "We are seeing strong interest in online sports games in China with the upcoming 2008 Beijing Olympics and the FIFA World Cup in 2010, and FIFA Online is set to be a top favorite in the Chinese market," said Jun Zhu, CEO of The9. The Company's Q1 net income increased 13% to $8.6m, or $0.34/share, beating analysts' average estimate of $0.32/share. Revenues rose 27% to $35m, compared to analysts' average forecast of $35.8m. Sales from the "World of Warcraft" by Vivendi's Blizzard Entertainment accounted for nearly 99% of its revenues. Shares of EA gained 1.3% to $49.21.
Sources: Electronic-Arts-ERTS-chart-05-21-07 The9-NCTY-chart-05-21-07 The9 Q1 2007 Earnings Call Transcript, Press releases [EA-The9, Q1'07 Earnings]
Commentary: The9 Q1 Earnings Preview: Expecting EPS Drop; New Games Should Fuel Solid Growth10 China Stocks To Consider Buying NowElectronic Arts Beats Expectations, Shares Drop on Weak Guidance
Stocks/ETFs to watch: Electronic Arts Inc. (ERTS), The9 Ltd. (NASDAQ:NCTY). Competitors: Netease.com Inc. (NASDAQ:NTES), Shanda Interactive Entertainment Ltd. (NASDAQ:SNDA), Sina Corp. (NASDAQ:SINA), Activision Inc. (NASDAQ:ATVI), TakeTwo Interactive Software Inc. (NASDAQ:TTWO), THQ Inc. (THQI). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV)

Symantec to Form JV with China's Huawei Tech

Symantec and Huawei Technologies announced plans to establish a joint venture to develop and distribute security and storage appliances to global telecom carriers and enterprises. Huawei will control a 51% stake and contribute resources and know-how from its storage and security businesses. Symantec will invest $150 million and provide selected software licenses and management expertise. The JV will be headquartered in Chengdu, China, and is expected to close later this year pending SYMC Quote and Chart 22 05 2007customary approvals. In a press release, it is mentioned the global security and storage appliance market is $23b today, with China forecast to exceed $1b, according to IDC research. Shares of Symantec lost 0.35% to $19.79 during normal trading and traded slightly lower in extended activity to $19.76 on volume of more than 707,000.
Sources: Press release
Commentary: Symantec Beats, Guides Higher; Shares Respond in KindRecent Earnings Strength Tied to International ExposureChina's Triple Whammy: Will it Matter?
Stocks/ETFs to watch: Symantec Corp. (NASDAQ:SYMC). Competitors: Microsoft Corp. (NASDAQ:MSFT), McAfee Inc. (MFE), CA, Inc. (NASDAQ:CA). ETFs: Software HOLDRs (NYSE:SWH), iShares Goldman Sachs Software (IGV)
Conference call transcripts: F4Q07

INTERNET

Search Ratings: Google Gains, MSN Slips, Yahoo Stays Same

Nielsen//NetRatings reported Monday April data for the top U.S. search providers (see inset). Google captured 55.2% of all internet searches, Yahoo was second with 21.9% and MSN/Windows Live took third spot with 9%. Google logged 3.77 billion queries in April, up 42.1% from April 2006, while Yahoo logged 1.5 billion searches, up 28.1% from the same period last year. Microsoft's 9% was down from 10.1% in March, Google was up from 53.7%, while Yahoo Netratings May 2007gained slightly in April going from 21.8% to 21.9%. Rounding up the top five, AOL slipped from 5.8% to 5.4%, while Ask.com was stead at 1.8%. Google shares gained $0.41 to $470.73 Monday, Yahoo shares fell $0.27 to $29.48, and Microsoft shares were up $0.17 to $31.
Sources: Press release, MarketWatch, AP, ZDNet
Commentary: Google Unveils "Universal Search ," New FeaturesApril Online Search : Yahoo Gains, Outpaces GoogleMicrosoft-Yahoo! Merger Wouldn't Vanquish Google
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corp. (MSFT), AOL owner Time Warner Inc. (NYSE:TWX), Ask.com owner IAC/InterActiveCorp (IACI)
Conference call transcript: Google Q1 2007, Yahoo! Q1 2007, News Corporation F3Q07, IAC/InterActiveCorp Q1 2007

MEDIA

McClatchy's April Ad Revenue Drops 7.6%

Newspaper publisher McClatchy Company reported that April revenue fell 7.6% on slumping print and Internet advertising. Total revenue in the month was down 5.5% to $225.1 million from $238.3 million. April ad revenue came in at $187.5 million versus $203.1 million a year ago. According to CFO Pat Talamantes, April results were hurt by the fact that Easter fell early this year: $2-2.5 million in print advertising thus appeared in March rather than April. Internet advertising fell 2.1% to $15.3 million because of a recently inked affiliate agreement with CareerBuilder.com for online job ads. Retail ad revenue was off 5% to $80.8 million. Within the classified category, which collectively fell 12% to $73 million, auto fell 16%, real estate MNI Quote and Chart 22 05 200715.8%, and employment 9%. Circulation revenue dropped 4.2% to $27.1 million. Ad revenue at the company's California papers fell 12.1% to $35.6 million and 19.5% in Florida to $28.3 million. McClatchy warned that further declines are likely. “We have our most difficult advertising comparison of the second quarter in May,” said Talamantes.
Sources: Press release, MarketWatch, Forbes, Editor & Publisher
Commentary: Daily Newspaper Circulation Drops 2.1%McClatchy Posts Steep Profit Drop; Misses EstimatesRussell 1,000's Best, Worst Performing Stocks Since March 5 Bottom
Stocks/ETFs to watch: The McClatchy Company (NYSE:MNI). Competitors: Gannett Co., Inc. (NYSE:GCI), Media General Inc. (NYSE:MEG), The New York Times Company (NYSE:NYT), Washington Post Co. (WPO), Dow Jones & Company Inc. (DJ)
Conference call transcripts: Q1 2007

EchoStar Defeats Forgent's Patent Suit

A Texas jury has found in favor of EchoStar Communications Corp. in a patent infringement case brought against it by Forgent Networks Inc. on the grounds that the patent in question is invalid. Forgent had requested over $200 million in damages as well as an injunction against sales of products that infringed the patent. Forgent, a manufacturer of scheduling software that also licenses intellectual property, is settling with DirecTV, another of the 15 defendants in the case. According to the settlement agreement, which was effective May 13, DirecTV will pay Forgent $8 million and Forgent will grant DirecTV a patent license. On April 26, Forgent settled with nine other defendants for a total sum of $20 million. "While others had settled, we always believed Forgent's patent was invalid, and we appreciate the efforts of Judge Davis and of the jury vindicating our position," said EchoStar's general counsel. DISH Quote and Chart 22 05 2007Forgent's shares gained 2.3% to $1.32.
Sources: Press release, Reuters, Forbes, MarketWatch
Commentary: Supreme Court Attacks Patent Licensing CompaniesSupreme Court Sides with Innovators Over Patent HoldersDirectTV, EchoStar Enjoy Free Cash Flow Growth
Stocks/ETFs to watch: EchoStar Communications Corp. (NASDAQ:DISH). Competitors: Comcast Corp. (NASDAQ:CMCSA), DirecTV Group Inc. (DTV), Microsoft Corp. (MSFT), WebEx Communications Inc. (WEBX). ETFs: PowerShares Aerospace & Defense (NYSEARCA:PPA), PowerShares Dynamic Telecom & Wireless (PTE)
Conference call transcripts: EchoStar Q4 2006, DirecTV Q1 2007

RETAIL

Tracinda in Talks with MGM Mirage to Buy Bellagio, CityCenter

Billionaire investor Kirk Kerkorian's Tracinda Corp. is initiating talks with MGM Mirage to buy its Bellagio Hotel and Casino and CityCenter properties. Speculation that the whole company is for sale sent its shares up 17% in AH trading Monday. Kerkorian owns 56% of Las Vegas-based MGM Mirage. According to a regulatory filing, Tracinda is investigating strategic alternatives for that investment that could include "financial restructuring transactions involving all or a substantial portion of the remainder of the company." "This will put them in play," said Innovation Capital analyst Matt Sodl. "It's a very aggressive move." Kerkorian's proposal "stinks of an inside deal," according to Hayground Cove Asset Management president Jason Ader. "He is trying to cherry-pick the best assets and growth from the public company." CityCenter is a $7.4 billion MGM Quote and Chart 22 05 2007complex of hotels and condos that MGM is building on 66 acres. MGM already owns 10 casinos and 760 acres on the Las Vegas Strip. Casino companies' cash flow has made them attractive buyout candidates, and Las Vegas real estate prices are soaring. Last week, New Frontier Hotel & Casino sold to Israeli billionaire Yitzhak Tshuva for almost $35 million an acre. MGM is holding its annual meeting Tuesday.
Sources: Wall Street Journal, MarketWatch, Bloomberg, TheStreet.com
Commentary: Kerkorian Sells Off 25% of His GM Stake In Exchange for MGM MirageA Closer Look at Casino StocksMGM Delivers Earnings In Spades
Stocks/ETFs to watch: MGM Mirage (NYSE:MGM). Competitors: Harrah's Entertainment Inc. (HET), Las Vegas Sands Corp. (NYSE:LVS), Trump Entertainment Resorts Inc. (TRMP). ETFs: Claymore/Sabrient Insider (NYSEARCA:NFO)

ENERGY AND MATERIALS

Halliburton Seeking Investors; Considering $80 Billion in Projects Over 5 Years

Halliburton CEO Dave Lesar said at a briefing Tuesday the company is seeking investors to take long-term stakes in its eastern hemisphere operation. Halliburton also wants to pursue $80 billion in oil service projects around the world over the next five years and is evaluating 60 such projects. The company recently moved its corporate HQ to Dubai in the U.A.E. and is now contemplating a dual listing on the Dubai International Financial Exchange. Lesar told the briefing the company would HAL Quote and Chart 22 05 2007"welcome a Middle East investor taking a major equity stake." Addressing the 60 projects Halliburton is interested in, Lesar said the company will not bid for any new work in Iran or Iraq. The company plans to hire up to 14,000 new employees this year. Lesar also forecast higher revenue numbers for Halliburton this year, reflecting strong market conditions.
Sources: Reuters, MarketWatch
Commentary: Ten Stock Picks From Barbara Marcin of Gamco InvestorsHalliburton: Move to Dubai Will Turn Off Many An InvestorHalliburton: Is Its Discount Warranted?
Stocks/ETFs to watch: Halliburton Co. (NYSE:HAL). Competitors: Schlumberger Limited (NYSE:SLB), Technip (TKP). ETFs: Oil Services HOLDRs (NYSEARCA:OIH), iShares Dow Jones US Oil Equipment Index (NYSEARCA:IEZ), PowerShares Dynamic Oil & Gas Services (NYSEARCA:PXJ)
Conference call transcripts: Q4 2006

GE Sells Plastics Unit to Sabic for $11.6 Billion

Saudi Basic Industries Corp. (Sabic) has agreed to purchase GE's plastics division for $11.6 billion in cash, the biggest-ever acquisition by a Middle Eastern company. GE plans to use the proceeds to increase its buyback program and finance restructuring. Riyadh-based Sabic expects the purchase to boost sales 29% from $23 billion last year. Sabic has doubled its sales since 2002, in part because of its access, via state-owned Aramco, to huge reserves of oil and natural gas, which are raw materials for plastics. GE, conversely, was pushed to sell the unit because of the high cost of crude. The purchase brings Sabic into the specialties market and gives it "a material presence in the U.S., the world's biggest market for petrochemicals," according to Peter Hutton, an analyst at HSBC Holdings. Sabic CEO Mohammed Al-Mady: "It is a huge acquisition, and there are opportunities for downstream industries for the Kingdom and the private sector." GE has also signed over $2 billion in contracts for turbines and desalination systems for Saudi Arabia. GE CEO Jeffrey Immelt has green-lighted $80 billion in acquisitions in GE Quote and Chart 22 05 2007fast-growing businesses like healthcare while divesting $35 billion of assets in volatile or expensive businesses like insurance. Sabic, which plans to invest $20 billion in capacity expansion by 2009, reported a record profit in Q1 2007, when net income jumped 50%.
Sources: Wall Street Journal, Bloomberg, Reuters
Commentary: GE Near Sale of Plastics Division -- WSJTracking Money Flow in Industrial StocksStock Portfolio to Weather a Volatility Shock
Stocks/ETFs to watch: General Electric Co. (NYSE:GE). Competitors: Citigroup Inc. (NYSE:C), Koninklijke Philips Electronics NV (NYSE:PHG), Siemens AG (SI). ETFs: iShares S&P Global Industrials (NYSEARCA:EXI), WisdomTree High-Yielding Equity (NYSEARCA:DHS), WisdomTree LargeCap Dividend (NYSEARCA:DLN)
Conference call transcripts: Q1 2007

HEALTHCARE/BIOTECH

Glaxo's Shares Fall on NEJM Report of Avandia Risk

GlaxoSmithKline's ADRs sank 8% to $53.08 on heavy volume Monday after the New England Journal of Medicine published an article stating its Type-2 diabetes drug Avandia might increase the risk of heart attack. Last quarter, Avandia products represented over 7% of Glaxo's $10.96 billion in sales. The NEJM article, based on research conducted at the Cleveland Clinic, says Avandia (rosiglitazone) increases the risk of death from heart failure by 64% and the risk of heart attack by 43%. "Unfortunately, rosiglitazone appears to increase, rather than decrease, the most serious complication of diabetes, heart disease," said Dr. Steven Nissen, chairman of cardiovascular medicine at the Clinic. Nissen is the same physician who sounded the initial warnings about Vioxx, Merck's withdrawn painkiller. The Clinic's research was a "meta-analysis" of 42 clinical trials. Glaxo, which is adamantly defending Avandia, claims meta-analysis is inherently inferior to long-term clinical trials. The FDA has not yet confirmed the article's conclusions and is not expected to make any immediate recommendations about Avandia's GSK Quote and Chart 22 05 2007use or label. Paul Diggle, industry analyst at Nomura Code Securities: "Unless this [study] can be refuted, which I rather doubt, then this is going to seriously damage one of the cornerstones of Glaxo going forward." Diabetes drugs that could benefit from increased safety concerns about Avandia include Takeda's Actos and Merck's Januvia.
Sources: NEJM article on rosiglitazone [May 21, 2007], Wall Street Journal, Reuters, MoneyCentral, TheStreet.com
Commentary: Glaxo's Sales Drop as Patents Expire, Guides UpbeatFarewell Fully Valued Abbott Labs, Hello Glaxo SmithklineGlaxoSmithKline: Why This Year Will Be the Healthiest Yet
Stocks/ETFs to watch: GlaxoSmithKline plc [ADR] (NYSE:GSK). Competitors: Merck & Co., Inc. (NYSE:MRK), Novartis AG (NYSE:NVS), Sanofi-Aventis (NYSE:SNY). ETFs: WisdomTree International Health Care (DBR), WisdomTree International Consumer Non-Cyclical (DPN), WisdomTree Europe Total Dividend (DEB)
Related: WSJ health blogger Jacob Goldstein discusses the NEJM article on Avandia [video], NEJM editorial: "Rosiglitazone and Cardiovascular Risk" [May 21, 2007]

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: S&P 500: The Pause that Refreshes?
Housing: Tony Soprano Meets Subprime Lending
Long Idea: Amazon: Back in the Limelight and Ready to Roll
Short Idea: Salesforce.com Doing Well: So Why Am I Buying Put Options?
Internet: Is Think Partnership More Valuable Than ValueClick?
Telecom: Telenor: Political Risk in Thailand
Chips: Citi: DRAM Sector Is Bleeding To Death
Software: Google/Salesforce.com Linkup: A Whole That is Greater Than the Parts
Gadgets: Halo 3 Will Be Profitable For Microsoft, But Not Transformational
Media: News Corp.: Will Pearson Be Murdoch's Next Object of Affection?
Healthcare: Syneron Medical: An Attractive Baby Boomer Investment
Biotech: Pfizer's Petition for Rehearing in Norvasc Case Denied
Retail: Shorts Push Crocs, Amazon Higher
Gold: Is a Bottom in Store For Gold Miners?
Energy: US Oil Fund ETF Fails Investors Consistently
Financial: SunTrust Banks Anyone?
Asia: China Automotive: Brilliance is an Understatement
ETFs: Vanguard Launches Assault On Barclays' ETF Dominance With New MSCI EAFE Fund
Hedge Funds: Light-Touch Hedge Fund Regulation Is the Answer
IPO Analysis: This Week's IPOs Part II
Sound Money Tips: Find Cool Handmade Items
Jim Cramer: Latest stock picks
Earnings Transcripts: Trina Solar Q1 2007NetEase.com Q1 2007KongZhong Q1 2007Home Inns & Hotels Management Q1 2007The9 Q1 2007
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