Wall Street Breakfast

by: SA Editors
SA Editors
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Palm Rolls Out Foleo, A 2.5 Pound Smartphone Sidekick

Palm Inc. unveiled Wednesday the Palm Foleo -- a two-handed laptop-like gadget with a full-size keyboard and 10-inch display that is meant to serve as a companion for its smartphones. The 2.5-pound device is slated to retail for $599 (pre introductory rebate of $100); it helps users manage and edit their e-mails and other documents by communicating with their smartphones using Bluetooth. The Foleo has Wi-Fi and internet capabilities, but no hard drive. "There are times when people need a large screen and a full-size keyboard," Palm founder Jeff Hawkins said. "As smart phones get smaller, this need increases." He said he expects initial sales numbers to be small: "It's not going to be a driver in the short term. But it allows us to rethink how you design smartphones." Some analysts questioned whether Foleo 31 05 2007consumers would want to lug around yet another device: "This is the most disappointing product I've seen in years," said Todd Kort of Gartner research. "[It's] going to hit the market with a thud." Foleo will go on sale this summer.
Sources: Press release, New York Times, Reuters, AP
Commentary: Palm Introduces Foleo “Mobile Companion”Palm Attempts To Regain Smartphone Market ShareResearch In Motion Has The Advantage Over Palm
Stocks/ETFs to watch: Palm Inc. (PALM). Competitors: Research In Motion Ltd. (RIMM), Apple Computer Inc. (NASDAQ:AAPL), Motorola Inc. (MOT). PowerShares Dynamic Telecom & Wireless ETF (PTE), HOLDRS Wireless (NYSEARCA:WMH), HOLDRS Broadband (NYSE:BDH)
Conference call transcript: Palm F3Q07 Earnings Call Transcript

Motorola Plans To Lay Off Another 4,000, Save $1 Billion Annually

For the second time this year, Motorola announced widespread workforce reductions and cost-cutting measures in an effort to return to profitability. The #2 mobile-phone maker globally, will eliminate another 4,000 jobs, in addition to the 3,500 announced in January.MOT 1-yr chart Total annual savings from the downsizing are expected to be $1 billion; the company said it expects costs of $300 million, with a negative impact of $0.08 on EPS in FY 2007, tied to the reductions. In all, Motorola is laying off 11% of its global workforce. Analysts believe the cuts won't help resolve the company's primary problem: its lagging handset division. Said RBC's Mark Sue, "For Motorola to succeed again, it will have to make some bolder moves." Handset business currently accounts for more than half of Motorola's sales. According to acting CFO Tom Meredith, "Long-term, sustainable profitability is and always has been Motorola's top priority." The company's stock price is down 30% since October. In other news, Motorola announced a shareholder "say on pay" to limit 'excessive' executive pay passed by 51.8%.
Sources: Press Release, Wall Street Journal, Bloomberg, AP, Financial Times
Commentary: IBM, Motorola Job Cuts Have Little Street ImpactMotorola's IMS Press Release: Symptom of Bigger ProblemsMotorola: Wall Street Unexcited By New Phone Offerings
Stocks/ETFs to watch: Motorola, Inc. (MOT). Competitors: Nokia Corp. (NYSE:NOK), LM Ericsson Telephone Co. (NASDAQ:ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM), Apple (AAPL). ETFs: Broadband HOLDRs (BDH), Wireless HOLDRs (WMH)
Conference call transcripts: Motorola Q1 2007 Earnings Call Transcript

Ceridian Agrees to $5.3 Billion Buyout

Payroll processing company Ceridian Corp. has agreed to be purchased by private equity firm Thomas H. Lee Partners and Fidelity National Financial Inc., along with several other investors, for $5.3 billion. Ceridian shareholders will receive $36 per share in cash. The price represents a 5.3% premium to the shares' price prior to the announcement of the deal and a 17% premium to their price in February, just before the company began exploring strategic alternatives. Ceridian management has been at loggerheads with a major shareholder, William Ackman of the hedge fund Pershing Square Capital Management, who accused it of underperforming and demanded that the Comdata unit be spun off and the board replaced. Ceridian was also criticized by activist investment firm Relational Investors, which announced in April that it had sold off its entire holding. Ceridian provides payroll and benefits administration services to 110,000 companies in 38 countries as well as credit/debit card issuance. The company posted 2006 net income of $173.6 million ($1.20/share) on revenue of $1.57 billion. The deal is expected to close in Q4.
Sources: Wall Street Journal, Reuters, MoneyCentral
Commentary: Bigger Fish to Fry: Relational Investors Sells Remaining Stake in CeridianCeridian: 14.5% Holder Pershing Square Files SuitActivist Investors: Pay Enough and Ye Shall Be Heard
Stocks/ETFs to watch: Ceridian Corp. (NYSE:CEN). Competitors: Automatic Data Processing, Inc. (NASDAQ:ADP), First Data Corp. (NYSE:FDC), Paychex Inc. (NASDAQ:PAYX)

Madison Dearborn to Buy CDW for $7.3 Billion

Computer retailer CDW Corp. announced Wednesday it has agreed to be bought by private equity firm Madison Dearborn Partners LLC for $7.3 billion. CDW shareholders will get $87.75 in cash for each share of CDW common stock they hold. The price represents a 16.1% premium over the shares' closing price of $75.56 on May 25, 2007, the last trading day before news was published of a possible takeover. CDW's shares closed up 2.5% Wednesday at $85.17. Last month, CDW reported a better-than-forecast 24.5% rise in Q1 earnings. Results were helped by strong sales of notebook computers, storage equipment, software and video-related equipment. The company has also implemented a sales reorganization and entered a new market (customized computer systems). The transaction, which is subject to shareholder approval, is expected to close at the end of Q3 or the beginning of Q4. Company founder Michael Krasny owns about 22% of the company, and he has agreed to vote in favor of the buyout.
Sources: Bloomberg, Business Journal, Reuters
Commentary: CDW Corp. Goes Private: Investors Lose a Useful Read Into Channel Sales for Tech EquipmentCDW Corp: With Solid Earnings and Buyout Talk, Probably Little Upside LeftMadison Dearborn in Talks to Buy CDW -- WSJ
Stocks/ETFs to watch: CDW Corp. (CDWC). Competitors: Insight Enterprises Inc. (NASDAQ:NSIT), PC Connection Inc. (NASDAQ:PCCC), Dell Inc. (NASDAQ:DELL), Systemax Inc. (NYSE:SYX)
Conference call transcript: Q1 2007


Google Unveils 'Gears' To Bring Its Applications Offline

In a move that narrows the gap between the Internet and the desktop, Google announced Wednesday it is launching a new tool, "Google Gears," that will give users offline access to email, calendars, news and other services, as well as word processing applications. The plug-in will enable users to synchronize their computers with online applications and then use them offline, on planes, trains, or in remote areas. "This fills a gap for us," said Google VP Jeff Huber. "The Internet is great, but you can't always be plugged into it." Gears will be available as open-source software. Google Reader, a news reader, will be available offline as of Thursday. Eventually, Google plans to provide offline access to its word processing and spreadsheet programs as well. In a direct challenge to Microsoft, Gears will allow users to create, store and access those programs from their hard drives. Gartner research analyst David Smith: "Now the Web is becoming so good that there is less and less of a reason to build software that just runs on desktop computers."
Sources: Reuters, Mercury News, MoneyCentral
Commentary: Google Unveils "Universal Search," New FeaturesGoogle Gets Personal with 'iGoogle'Google Wants To Go Horizontal In The Applications Market
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG). Competitors: Microsoft, Inc. (NASDAQ:MSFT), Yahoo Inc. (NASDAQ:YHOO). ETFs: iShares Goldman Sachs Technology (NYSEARCA:IGM), iShares Goldman Sachs Software (NYSEARCA:IGV), First Trust Dow Jones Internet Index (NYSEARCA:FDN), First Trust IPOX-100 Index (NYSEARCA:FPX)
Conference call transcripts: Q1 2007

EBay Buys StumbleUpon For $75 Million

EBay said Wednesday it acquired StumbleUpon, a company that helps people discover and share online content, for $75 million. StumbleUpon 2.3 million members currently add over five million recommendations of websites, videos etc. a day; its user base is growing by 150% annually. StumbleUpon's founders and management team will remain in place, eBay said. While Wall Street Journal says the acquisition is the latest sign eBay wants to expand beyond its online-auction business through acquisitions, it isn't clear exactly how StumbleUpon fits into eBay's plans. Red Herring speculates the company may use the acquisition to steer eBay users to buyers’/sellers' favorite web sites, or add other eBay users to one’s StumbleUpon friends, similar to how a user can rate another buyer or eBay 31 05 2007 Chartseller and see their past purchases. This would increase eBay page views and traction, and make it more of a social destination rather than just a place to buy stuff. EBay director Michael Buhr said in its press release, "StumbleUpon is a great fit within our goal of pioneering new communities based on commerce and sustained by trust." EBay could also recommend products based on one’s friends. In February, eBay acquired online ticket vendor StubHub Inc., and has previously acquired transaction facilitator Paypal and VOIP vendor Skype.
Sources: Press release, Wall Street Journal, Red Herring
Commentary: eBay Finally Stumbles Upon Media AcquisitionsTechCrunchIn Search of Auction StocksEvaluating Skype's Actual Contribution To eBay
Stocks/ETFs to watch: eBay Inc. (NASDAQ:EBAY). Competitors: Amazon.com Inc. (NASDAQ:AMZN), Google Inc. (GOOG), Yahoo! Inc. (YHOO). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (FDN), NASDAQ 100 Trust Shares ETF (QQQQ)

Yahoo CTO Resigns, Brain Drain Continues

Yahoo said Wednesday its Chief Technology Officer Farzad Nazem is resigning to spend more time with family -- leaving two of the company's top posts unmanned; shares fell almost 2%. Yahoo said co-founder Jerry Yang will head the company's tech team until a new chief is appointed. The resignation fuels concerns Yahoo will be unable to hold on to key talent in its struggle with Google and Microsoft for a bigger piece of the online ad market pie. "It's probably another chapter in Yahoo's brain-drain story," a Piper Jaffray Yahoo Inc 31 05 2007 Chartanalyst wrote. Nazem was in charge of Yahoo's new advertising program, called Project Panama. Earlier this year, Chief Operating Officer Daniel Rosensweig resigned. Separately, Yahoo launched an advertising platform across Europe that is says will improve search results and bolster ad revenues. Yahoo has begun upgrading major European advertisers to the platform. Yahoo shares fell 1.9% in after-hours trading Wednesday following the announcement.
Sources: 8-K SEC filing, Bloomberg, Wall Street Journal
Commentary: Yahoo CTO Resigns: More Turmoil in the Tech Ranks?Yahoo CTO Steps DownSearch Market Share Value: Doing the Math
Stocks/ETFs to watch: Yahoo! Inc. (YHOO). Competitors: Google Inc. (GOOG), Microsoft Corp. (MSFT), IAC/InterActiveCorp (IACI)
Conference call transcript: Yahoo! Q1 2007 Earnings Call Transcript


TiVo Posts Q1 Profit, Beats Street, But Subscriber Growth Slows

TiVo reported Q1 net income of $835,000, or $0.01/share -- its first-ever profitable quarter -- compared to a net loss of $10.7m (-0.13/share) last year, beating analysts' average estimate of a loss of $0.02/share. Sales rose 6% to $60.4m, also topping analysts' forecast ($58m). Total subscribers declined 1.7% to 4.34m, hurt by lower DirecTV subs, which are expected to be offset from August by new Comcast subs. TIVO-chart-05-30-07 TiVo-owned subscribers increased by 57,000 (vs. 91,000 y/y) to 1.7m total. TiVo's quarterly earnings benefited from a reduced subsidy on its hardware and higher subscription prices. TiVo forecast a Q2 net loss of $5m - $8m (est. -$0.05 to -$0.08/share based on 97.35m shares outstanding), on sales of $57m - $59m. Analysts on average expect a loss of $0.02/share on sales of $58.8m. Shares of TiVo last traded up about half a percent to $6.39 in after-hours activity on volume approaching half a million. TiVo gained 4.1% to $6.36 during normal trading.
Sources: TiVo F1Q08 (Qtr End 4/30/07) Earnings Call Transcript, Press release, Bloomberg, MarketWatch
Commentary: TiVo Slides Upon Report of Subscriber LossesTiVo Threatened By Cable Operators' 'Switched Digital Video' TechnologyTiVo Continues To Innovate With New Ad Blitz
Stocks/ETFs to watch: TiVo (NASDAQ:TIVO), Amazon (AMZN), Comcast (NASDAQ:CMCSA), DirecTV (DTV), EarthLink (NASDAQ:ELNK), Echostar Communications (NASDAQ:DISH), Netflix (NASDAQ:NFLX)


Circuit City To 'Double Down' On TV Sales, Firedog Unit To Power Comeback

In an exclusive interview with the Wall Street Journal, Circuit City CEO and Chairman Philip Schoonover said the changes being made to his company's structure are the "middle act of a three-act play."cc Though the company plans to lay off approximately 850 employees, eliminating an average of one management position at each of its 650 plus U.S. locations (the focus of both Reuters and MarketWatch's pieces summarizing the WSJ story), Schoonover said the company will actually be adding more jobs than it eliminates, due to another 150 planned location openings, as well a 50% increase in the size of its Firedog TV and computer installation and services unit. Circuit City plans to focus heavily on TV sales and ad-ons, currently 32% of its total sales (vs. just 20% for rival Best Buy) in its attempt to return to profitability. Weak TV sales dragged the company into the black during its latest fiscal year, with the prices of top models falling by as much as 40%. According to Schoonover, "There are only 10% of households that have true high-definition TV service today. This is a massive opportunity."
Sources: Wall Street Journal, Reuters, MarketWatch
Commentary: Circuit City Short Circuits On Weak Flat TV SalesCircuit City: Firing Best Sales Staff Not Good PlanWal-Mart Leans on Electronics Retailers; Brings Skype to Stores
Stocks/ETFs to watch: Circuit City Stores Inc. (NYSE:CC). Competitors: Best Buy Co. Inc. (NYSE:BBY), RadioShack Corp. (NYSE:RSH), Wal-Mart Stores Inc. (NYSE:WMT), Costco Wholesale Corp. (NASDAQ:COST). ETFs: Consumer Discretionary SPDR (NYSEARCA:XLY), PowerShares Dynamic Consumer Discretionary (NYSEARCA:PEZ), Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR)
Conference call transcripts: Circuit City F4Q07 (Qtr End 2/28/07) Earnings Call Transcript
Related: Firedog

Costco Posts 4.9% Drop in Q3 Net

Warehouse club Costco Wholesale Corp. posted a 4.9% drop in fiscal Q3 earnings Thursday, in line with expectations, on a charge related to an increased return reserve. Net income fell to $224 million ($0.49/share) from $235.6 million ($0.49) in the year-ago quarter. Net sales came in at $14.34 billion from $13.01 billion. Sales were reduced by $228.2 million on an increased reserve for customer returns. Before-tax expenses of $48.1 million primarily reflected a narrowed gross margin on future returns. Excluding the new reserve, EPS were $0.56 versus $0.49. Analysts were expecting $0.56 on sales of $14.68 billion. Membership fees were up to $318 million from $276 million, and quarterly same-store sales rose 7%. Costco is the nation's largest warehouse club operator, followed by Wal-Mart's Sam's Club and BJ's Wholesale Club Inc.
Sources: MarketWatch, Reuters, Bloomberg
Commentary: Retail Madness: Dump Wal-Mart, Buy Target and CostcoCostco: A Good Business at a Fair Price - Barron's
Stocks/ETFs to watch: Costco Wholesale Corp. (COST). Competitors: Target Corp. (NYSE:TGT), Wal-Mart Stores Inc. (WMT), BJ's Wholesale Club Inc. (NYSE:BJ). ETFs: Retail HOLDRs (NYSEARCA:RTH)
Conference call transcripts: F2Q07


Morgan Stanley to Acquire Australia's Investa for $3.9B

Morgan Stanley Real Estate has entered an agreement to buy Australia's Investa Property Management Group for A$4.7 billion (US$3.9b) in an all-cash transaction valuing it at A$3.08/share, or a 14% premium to Wednesday's close. Investa's Board unanimously recommended the deal. Morgan-Stanley-MS-chart-05-30-07 Morgan Stanley will finance the purchase using cash and debt. It has purchased commercial property in Berlin, Dallas and Las Vegas over the past two weeks and manages $55.6 billion in real estate assets, according to MarketWatch. Investa has A$7b in assets under management, A$4b of which is commercial offices. Bloomberg notes growing interest in real estate among investment banks and a booming M&A market within the industry overall, as $233.2b in deals have been announced year-to-date, more than double the amount in the same period last year. Shares of Morgan Stanley rose 0.6% to $85.82 during normal trading Wednesday.
Sources: Press release [pdf], Bloomberg, MarketWatch
Commentary: Tishman & Lehman Near Agreement to Acquire Archstone-Smith REIT for Over $20 BillionMorgan Stanley to Buy 13 Japanese HotelsInvestment Bank Stocks Diverging - Bear Stearns and Lehman Lag
Stocks/ETFs to watch: Morgan Stanley (NYSE:MS). Competitors: Goldman Sachs Group Inc. (NYSE:GS), Merrill Lynch & Co. Inc. (MER), Lehman Brothers Holdings Inc. (LEH). ETFs: iShares Dow Jones US Broker-Dealers (NYSEARCA:IAI), KBW Capital Markets (NYSEARCA:KCE), Financial Select Sector SPDR (NYSEARCA:XLF)
Conference call transcripts: Morgan Stanley F1Q07

RBS-Led Consortium and Bank of America Near Deal on LaSalle -- WSJ

The consortium vying with Barclays for Dutch bank ABN Amro was close to a deal with Bank of America concerning LaSalle Bank, ABN's U.S. holding, before talks had to be halted to allow the consortium to make a formal bid for ABN, the Wall Street Journal reported Thursday. ABN agreed in April to sell LaSalle to BofA for $21 billion. A buyout by Barclays bank, to which ABN had also agreed, was linked to that sale. A Dutch court froze the LaSalle sale and ordered that it be subjected to a shareholder vote. RBS is anxious to acquire all or part of LaSalle, and its offer for ABN is contingent on the cancellation of ABN's deal with BofA. BofA has sued ABN to enforce the sale. According to the Journal, RBS and BofA discussed dividing LaSalle between them. The banks were near agreement on price and were evaluating tax considerations when talks had to be suspended so RBS could make its €71.1 billion ($95.6 billion) bid for ABN. Negotiations are expected to resume, and RBS CEO Fred Goodwin said he "hopes and expects" to reach an agreement with BofA. The deal would reportedly give RBS LaSalle's commercial business, Michigan branches, HQ building and brand name. BofA would take the 141 LaSalle retail branches based in Chicago.
Sources: Wall Street Journal, MarketWatch
Commentary: ABN Mulling RBS Consortium Bid; Supervisory Board Enters Takeover FrayABN Amro Opposes RBS-Led Rival Bid for LaSalleABN Shareholders Determined to Thwart LaSalle Sale to BoA; RBS-Led Consortium Reiterates Rival Bid
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (NYSE:BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (NYSE:BAC). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (NYSE:DB), UBS AG (NYSE:UBS). ETFs: First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares Intl Dividend Achievers (NYSEARCA:PID), iShares MSCI Netherlands Index (NYSEARCA:EWN)


Bausch & Lomb Posts Q1 Profit Miss

Eye-care company Bausch & Lomb reported Q1 earnings Wednesday that were shy of the preliminary results posted on May 10. The report is one of a series of restatements and late filings for the company. In May 2006, Bausch recalled its ReNu with MoistureLoc lens cleaning solution on concerns about fungal infections. The company posted Q1 2007 net income of $18.4 million ($0.34/share) versus $11.8 million ($0.21) in Q1 2006, a 56% rise. Bausch had originally projected a 63% increase in earnings to $19.2 million ($0.35). Net sales for Q1 2007 were up 6% to $578.9 million from $546.0 million, in line with the company's forecast. The ReNu recall cut Q1 2006 earnings by an expected $19.6 million ($0.35/share) and has resulted in over 400 lawsuits. Bausch has agreed to be acquired by private equity firm Warburg Pincus for about $3.67 billion, although Advanced Medical Optics -- itself troubled by a recall on safety concerns -- has also expressed interest. In addition to the ReNu suits, the company and its directors are being sued by shareholders who oppose the sale to Warburg, in part because they believe the price is too low. The company is still compiling results for Q3 2005 and Q2 and Q3 2006.
Sources: Reuters, Forbes
Commentary: Bausch & Lomb To Be Taken Private for $4.5B; Traders Anticipate Higher BidsAdvanced Medical Optics Considering Offer for Bausch & LombGoldman: Higher Bid for Bausch & Lomb Unlikely
Stocks/ETFs to watch: Bausch & Lomb Inc. (BOL), Advanced Medical Optics, Inc. (EYE). Competitors: Alcon Inc. (NYSE:ACL), Cooper Companies Inc. (NYSE:COO)


U.S. Market: Think Carefully Before Macro Hedging Your Life/Work Exposures
Housing: The Wall Street-Main Street Disconnect Continues: Three Housing Slump Tales of Woe
Long Idea: Syntax Brillian's Offering: Not That Big of a 'Struggle'
Short Idea: Potential Short Opportunity in Archer Daniels Midland
Internet: Expedia Looks Hot Going Into Summer Travel Season
Telecom: Finding A Telecom ETF With International Exposure
Networking: Open Source to Compete With Traditional Networking Firms
Hardware: Surface Computing: Microsoft's Breakthrough?
Chips: On-Track Innovations Poised for a Strong Showing in the Last Half of 2007
Software: IBM: Playing a Shell Game
Gadgets: Consumer Spending on the Rise: Benchmarking The Digital Lifestyle
Media: Apple TV Isn't Perfect - But So What?
Healthcare: Biomet Buyout Offer Was Way Too Low
Biotech: Aspect Medical Systems, CNS Response Deliver Next-Generation Psych Treatments
Retail: Crocs: The Short Squeeze Returns
Transport: GM's Balance Sheet: A Sign of Impending Doom
Gold: Southern Copper Corp: Rising Copper Prices, Attractive Dividend Yield
Energy: Scratching My Head on Ormat Technologies
Financial: Analysts Bullish On Bank of Nova Scotia Following Earnings
Asia: U.S. Markets Learn From Last Chinese Fall
ETFs: Buy-On-The-Dip Opportunity in China ETFs
Hedge Funds: Are Hedge Funds Ruining Traditional Sentiment Readings?
Small-Caps: LJ International: Underrated Chinese Gem
Sound Money Tips: Six Things To Avoid When Running Your Own Small Business
Jim Cramer: Latest stock picks
Earnings Transcripts: Solarfun Power Q1 2007Borders Group Q1 2007Polo Ralph Lauren F4Q07TiVo F1Q08Novell F2Q07China Finance Online Q1 2007
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