Sony’s Online Games Division Ready to Break Out of the Shadows
The New York Times reports Sony Online Entertainment [SOE], a small unit within Sony's Pictures Digital Entertainment division, is set to announce three new games in development Monday and in effect, step out from behind shadows of the PlayStation 3. Sony does not provide specific financial results for SOE, but it is profitable with annual revenues around $150 million. At present, subscriptions make up 100% of revenues. EverQuest, a massively multiplayer online game and SOE's first hit (released in 1999) remains its only blockbuster to-date. Its 250,000 subscribers are dwarfed by Blizzard Entertainment's (Vivendi) World of Warcraft, which has 8 million players across the globe. SOE unit president John Smedley said he wants to diversify revenue sources to reduce dependency on subscriptions. He also wants to target a broader audience of game players including younger aged and females. SOE plans to launch games for both the PlayStation 3 and PCs.
Sources: The New York Times
Commentary: Nintendo Wii/DS Outsell Sony PS3/PSP 5-1 in Japan • Sony Reportedly in Talks to Acquire Club Penguin • Sony And Video Games: $100 Price Cut For PS3 Would Be Too Little, Too Late
Stocks/ETFs to watch: Sony (NYSE:SNE). Competitors: Nintendo (OTCPK:NTDOY), Microsoft (NASDAQ:MSFT), Activision (NASDAQ:ATVI), Electronic Arts (ERTS), Konami (NYSE:KNM), Midway Games (MWY), Take Two (NASDAQ:TTWO), THQ (THQI), Vivendi (OTCPK:VIVEF) [EPA: VIV]. 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: Sony Online Entertainment's Station.com
Ericsson Signs $1B Deal With China Mobile; Sony Ericsson Signs $600m Deal
Ericsson and China Mobile Communications signed a $1 billion wireless networking equipment deal on Sunday, during a visit by Chinese president Hu Jintao -- the first state visit to Sweden ever by a Chinese president. Ericsson will supply core and radio network equipment and technical support/services. China Mobile plans to expand its GSM coverage in 19 regions within China. Deliveries of equipment have already started. Shares of Ericsson were up nearly 1% in morning trading in Stockholm. Its ADRs gained 1.2% to $37.14 Friday. Shares of China Mobile rose 0.76% in Hong Kong. Its ADRs gained 2.4% to $46.85 Friday. Ericsson CEO Carl-Henric Svanberg told reporters the company has a third of the telecom market in China. In a statement, Ericsson said it sourced up to $2.5b in China in '06 and exported $1.6b worth of products. In a separate deal, Sony Ericsson and China Postel Mobile Comm. announced a $600m mobile phone purchasing agreement.
Sources: Press release, MarketWatch, Reuters
Commentary: Ericsson Execs Discuss 2G, 3G in China • Global Handset Sales Gain 14% Year/Year • Sony Ericsson to Target Lower-end Cell Phone Segment
Stocks/ETFs to watch: Ericsson (NASDAQ:ERIC), China Mobile (NYSE:CHL), Sony (SNE). Competitors: China Unicom (NYSE:CHU), Motorola (MOT), Nokia (NYSE:NOK). ETFs: iShares MSCI Sweden Index (NYSEARCA:EWD), Wireless HOLDRS (NYSEARCA:WMH), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), PowerShares Gldn Dragon Halter USX China (NYSEARCA:PGJ)
Conference call transcripts: LM Ericsson Q1 2007, Sony F4Q06
Justice Department Throws Its Weight Behind Microsoft - NYT
The U.S. government, which attempted almost a decade ago to break up Microsoft on charges of anticompetitive conduct, is now defending the software giant against similar charges brought against it by Google. The volte face marks a strikingly different approach to antitrust legislation under Presidents Clinton and Bush. Google has accused Microsoft of designing its Vista OS to discourage use of rival search engines, which would violate the terms of the 2002 settlement reached in the original antitrust case. The accusation resembles the one Netscape brought against Microsoft in 1998 on which that case was based. Last month, Thomas Barnett, the government's top antitrust official, wrote to state prosecutors advising them to dismiss Google's case. Until 2004, Barnett was vice chairman of the antitrust department at the firm that represents Microsoft in such cases. Several state attorneys general have expressed surprise at Barnett's memo -- they have never before been asked by the Justice Department to drop any antitrust case -- as well as concern, since some believe Google's case has merit. Bradford L. Smith, Microsoft's general counsel, said Vista was designed to function smoothly with competing software and that a Justice Department technical committee cleared it before it was brought to market.
Sources: New York Times, Reuters, MarketWatch
Commentary: Betting On A Strong Vista Surge • Pondering A World With Too Many Windows • Companies With The Most Analyst Attention & Affection
Stocks/ETFs to watch: Microsoft Corp. (MSFT), Google Inc. (NASDAQ:GOOG). ETFs: iShares S&P Global Technology (NYSEARCA:IXN), PowerShares FTSE RAFI Telecom & Tech (PRFQ), Software HOLDRs (NYSE:SWH)
Conference call transcripts: Microsoft F3Q07, Google Q1 2007
Microsoft, GE Considered Dow Jones Bid -- WSJ
General Electric and Microsoft considered making a rival bid for Dow Jones & Co. but have abandoned the idea, according to the Wall Street Journal. GE and Microsoft already work together on the MSNBC cable news network. Their intention was to combine Dow Jones with parts of GE's NBC Universal. Rupert Murdoch has bid $60 per share ($5 billion) for Dow Jones, an offer the controlling Bancroft family is reluctant to accept despite the significant premium. GE is said to be concerned that if Murdoch's bid is accepted, the purchase will strengthen News Corp.'s planned TV financial-news channel, which will compete directly with GE's CNBC. GE and Microsoft are believed to have discussed a matching $60-per-share offer. Now that talks with Microsoft have broken down, GE might pursue another partner. Dow Jones and CNBC are committed to an exclusive content-sharing deal that will last until 2012. According to that agreement, The Wall Street Journal -- Dow Jones's central property -- provides content to CNBC.
Sources: Wall Street Journal, Reuters, MarketWatch
Commentary: Rupert Murdoch On Resisting Google, Making The WSJ Free and Digital Investment • Philadelphia Inquirer's Tierney Mulls Dow Jones Bid -- WSJ • Ron Burkle to Work with Dow Jones Union on Alternatives to Murdoch Bid
Stocks/ETFs to watch: Dow Jones & Company, Inc. (DJ), News Corp. (NASDAQ:NWS), Microsoft Corp. (MSFT), General Electric Co. (NYSE:GE). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07, General Electric Q1 2007, Microsoft F3Q07
Small World After All: Disney Teams Up With India's Yash Raj Films
Disney, meet Bollywood. The Wall Street Journal is reporting The Walt Disney Company is pursuing a new strategy in foreign film distribution. Fiercely independent in its marketing and distribution of its films in foreign markets until now, Disney's lack of success abroad has caused it to seek alternatives. As such, the company has entered a deal with India's Yash Raj Films, in which the company will produce Disney-branded films with the voices of well known Indian stars. The subcontinent currently has more people under the age of 14 than the entire U.S. population. The move marks a refocusing of Disney's strategy in high growth international markets in which it will seek to join up with local partners in much the way it is doing with Yash Raj. Disney's foreign operations currently account for roughly 25% of its total profit; CEO Robert Iger wants Disney to ultimately earn half its profit from overseas operations. Disney shares have fallen 7% since hitting multi-year highs in May.
Sources: Wall Street Journal, Reuters, MartketWatch
Commentary: Disney Walks The Line Between Direct Online Selling and Working With Partners • What Is Disney Stock Actually Worth? • Disney: Iger’s Arrowheads Now Pointing Right
Stocks/ETFs to watch: The Walt Disney Company (NYSE:DIS). Competitors: Viacom (NYSE:VIA), Time Warner (NYSE:TWX), General Electric [NBC Universal] (GE), Sony (SNE). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ), Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)
Conference call transcripts: Walt Disney F2Q07 (Qtr End 03/31/07) Earnings Call Transcript
Related: Yash Raj Films
Apple in Talks with Hollywood Studios About Video-on-Demand -- FT
In a challenge to cable and satellite TV providers, Apple is talking seriously with major Hollywood studios about initiating an online video-on-demand rental service, the Financial Times reported Sunday. Apple already has deals in place with Walt Disney and Paramount that allow it to sell movies for digital download. Other studios have been reluctant to enter into such an arrangement on concerns that downloads that give the user permanent ownership will negatively affect DVD sales. Analysts believe that by contrast, a video-for-rent partnership holds significant appeal. The service would allow users to download movies for 30 days at a cost of $2.99. They would be viewable on a digital device like a video iPod or the forthcoming iPhone. Sony Pictures, 20th Century Fox, MGM, and Warner Bros. have not commented, but are believed to be enthusiastic. "When you think about Apple customers they are so connected to the brand they will try anything to do with it," said an unnamed senior studio executive. Apple is said to be targeting a fall release.
Sources: Financial Times
Commentary: Free Video Downloads Will Overtake iTunes Soon -- Study • Apple Shares Continue To Rise: Here's Why • Apple: Profits Look Thin On AppleTV
Stocks/ETFs to watch: Apple Inc. (NASDAQ:AAPL). Competitors: Amazon.com (NASDAQ:AMZN), Comcast Corp. (NASDAQ:CMCSA), DirecTV Group, Inc. (DTV), Microsoft Corp. (MSFT), TiVo Inc. (NASDAQ:TIVO). ETFs: Internet Architecture HOLDRs (NYSE:IAH), PowerShares QQQ (QQQQ), PowerShares Dynamic Hardware & Consumer Electronics (PHW)
Conference call transcripts: F2Q07
TRANSPORT AND AEROSPACE
Big 3 May Propose UAW-Run Health Fund In Talks Next Month
The U.S. 'Big 3' automakers may propose a union-run health fund, when they sit down with the United Auto Workers Union [UAW] next month to renegotiate employee contracts and benefits before they expire in September. Healthcare and retiree liabilities at the Big 3 total $114 billion; such costs are not seen as sustainable to the already struggling automakers, and resolving this issue as seen as primary on the Big 3's agenda at the talks. Though industry insiders have suggested such a plan will be a hard sell to the UAW, Morgan Keegan & Co. analysts Pete Hastings believes such a proposal is not only crucial to the Big 3 "in capping the expenses and liabilities," it also allows the UAW to "win security for its people." The Big 3 have reported record losses in recent quarterly earnings reports. Modeled on a similar plan begun by Goodyear following an 85-day United Steel Worker strike, the proposal would be funded through a one-time donation by the Big 3, after which point the UAW would be responsible for its administration. In other carmaker news, private equity firm Alchemy Partners will likely bid $5.9 billion for Ford-owned luxury brands Jaguar and Land Rover, according to the City A.M. newspaper.
Sources: Bloomberg, Reuters I, II
Commentary: Are Domestic Auto Manufacturers Losing Consumer Interest? • Notable Quotables From May's Light Vehicle Sales Report • Note to US Auto Manufacturers - Adapt or Die
Stocks/ETFs to watch: General Motors (NYSE:GM), Ford (NYSE:F), Chrysler (DCX). Competitors: Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)
Aeroflot Books Order for 22 Boeing Dreamliners
Boeing has inked a deal with Russia's state-run OAO Aeroflot carrier to supply it with 22 787-Dreamliner commercial planes. Delivery is expected to take place from 2014 through 2017. Terms of the sale were not disclosed, but current list prices imply a total price of $3.3-3.5 billion before discount. The 787 Dreamliner widebody will be the first commercial plane to be constructed primarily out of carbon-fiber composites instead of aluminum. The sale was put on hold in February after tensions rose between the U.S. government and the Putin administration; some view the deal's reanimation as a sign of a possible thaw between the governments. Aeroflot is planning to finance the deal through a syndicated loan from the U.S. Export-Import Bank. The carrier has also signed letters of intent to buy 22 350 XWB planes from Airbus, a deal that will not be affected by the Dreamliner purchase. On May 29, Russia's second-largest carrier, S7 Airlines, agreed to purchase 15 Dreamliners with an option for another ten. Air travel in Russia, a country that spans 11 time zones, is forecast to double by 2015. In related news, Boeing says it expects its airframe technology -- which utilizes the carbon fiber composites introduced in the Dreamliner 787 -- to be as critical as clean-burning engines to its development of a replacement for the single-aisle 737 aircraft. "[T]he introduction of composites has raised the ability of the airframe to make a difference . . . and really puts it on a par with the engine development," said Boeing CEO Jim McNerney.
Sources: Wall Street Journal, Forbes, MarketWatch, Bloomberg, MoneyCentral
Commentary: Boeing Taken Apart By The Little Parts • Defense Stocks: P/E Isn't the Only Consideration • Tracking Money Flow in Industrial Stocks
Stocks/ETFs to watch: The Boeing Company (NYSE:BA). Competitors: Lockheed Martin Corp. (NYSE:LMT), Northrop Grumman Corp. (NYSE:NOC), General Dynamics Corp. (NYSE:GD). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA), PowerShares Dynamic Large Cap Growth (NYSEARCA:PWB)
Conference call transcripts: Boeing Q1 2007
Atticus Fund to Barclays: Drop Your Bid for ABN Amro
Hedge fund Atticus Capital LP has built a position in Barclays Bank and is now urging it to drop its €65 billion bid for Dutch banking giant ABN Amro. Barclays' shares spiked over 3% on speculation that the hedge fund's opposition will make the sale less likely. The fund said it would vote against the purchase and encourage other shareholders to do the same. Atticus's stake in Barclays is estimated at approximately $1 billion, or 1%. This is not the first time an activist hedge fund has affected the fate of ABN: in February, TCI Fund Management LLP, which holds a 2% stake in ABN, demanded it either sell itself or break itself up. That demand led to the Barclays offer, which was accepted by ABN and then topped by a bid from a consortium of three European banks, led by the Royal Bank of Scotland [RBS]. Atticus believes Barclays is undervalued and expects its shares to rise if the ABN bid is suspended. "The views expressed by Atticus...are not representative of the feedback we have received from shareholders who remain supportive of our strategy," Barclays said in a statement Sunday. In related news, U.S. private equity investor Christopher Flowers has become a central player in the negotiations between the RBS-led consortium and Bank of America, which has agreed to purchase ABN's U.S. holding LaSalle Bank -- a holding RBS wants.
Sources: MoneyCentral (I, II), Reuters, Wall Street Journal
Commentary: ABN Mulling RBS Consortium Bid; Supervisory Board Enters Takeover Fray • ABN Amro Agrees to Sell Itself to Barclays for $91 Billion • Hedge Fund Threatens Legal Action Unless ABN AMRO Listens to All Offers
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). ETFs: First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares Intl Dividend Achievers (NYSEARCA:PID), iShares MSCI Netherlands Index (NYSEARCA:EWN)
China's May Surplus Surges 73%, Yuan Falls, Shanghai Retests 4,000
Xinhua News Agency reports China's May trade surplus soared 73% to $22.45 billion, one of the highest on record, and well ahead of economists' average estimate of $19.5b, based on a poll by Bloomberg. The yuan fell 0.2% to 7.669 against the US$ in Shanghai, its biggest drop in 10 months. The Shanghai Composite gained 2.1%, closing less than five points shy of 4,000. However, B-shares in Shanghai lost 0.2%, while those in Shenzhen gained 1.8%. Meanwhile, the Hang Seng rose 0.5% to 20,615; H-shares +0.7%. May exports increased 28.7% y/y and imports rose 19.1%. In the year-to-date through May, China's trade surplus is up 84% to $85.72b. China reported a record trade surplus of $177.5b in 2006. It was +$232.5b against the United States. The Financial Times reported the U.S. Senate will introduce a bill later this week to pressure China to strengthen its currency, according to people close to the situation.
Sources: Associated Press, Bloomberg, Financial Times
Commentary: A Symbiotic Relationship Between the United States and China • U.S. Global Investors: "Rise of the Chinese Consumer" Webcast Transcript • Keeping a Close Eye on China • U.S.-China Strategic Dialogue Concludes, Both Parties Cite 'Tangible Results'
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT). Currency funds: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY). China funds: Morgan Stanley China A (NYSE:CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Tech Trader Eric Savitz says that despite the recent spat of acquisitions of internet advertisers, we won't likely see much-rumored takeouts of internet content providers such as WebMD Health Corp. (NASDAQ:WBMD), CNet Networks Inc. (NASDAQ:CNET), TheStreet.com Inc. (TSCM), PlanetOut Inc. (LGBT), Answers Corp. (NASDAQ:ANSW) or The Knot Inc. (KNOT). Buyers want user-generated content, not paid-content creators, and will pay a premium to invest in tools that help users create content for fellow users because they keep users coming back. Analyst Spencer Wang says traffic to the six most-popular user-generated sites already accounts for 13% of all U.S. internet traffic, vs. 7% last year and under-1% in 2004. "We have met the content," Savitz says, "and it is us."
- Master Limited Partnerships [MLPs] combine the tax benefits of a limited partnership (corporate tax avoidance) with the liquidity of a publicly-traded company. Over the past five years, the an MLP index is up 100% vs. just 40% for the DJIA. Most MLPs are pipeline companies, but E&P companies are starting to get into the act. Barron's likes: Forest Oil Corp. (NYSE:FST) [its daily energy production carries a $60,000/barrel value, vs. an average $200,000/barrel for MLP entities], Pioneer Natural Resources Company (NYSE:PXD) [up to 90% of its assets are ideal MLP candidates], Kinder Morgan Energy Partners L.P. (NYSE:KMP) [fee-based service revenues make it more reliable should oil prices fall]. Investors may also consider broad MLP funds like Tortoise Energy Infrastructure Corp. (NYSE:TYG).
- Tishman Speyer's buyout of apartment REIT Archstone (ASN) at $60.75/share (nearly $16b) and $6b of debt may signify a top for it and apartment REITs like Post Properties Inc. (NYSE:PPS) and AvalonBay Communities Inc. (NYSE:AVB). Archstone's yield of 4.3%, is lower than apartment (5.1%) and general (5.7%) REITs; including debt payments, yield could dip to just 1%. Respected managers are getting out after years of whopping returns, and Morgan Stanley's MSCI REIT index is trending downwards. Investors accepting low yields in hopes of rising property values might find the nationwide residential slump catching up to apartment REITs soon.
- Once considered a shady business, time-share is now used by industry giants like Marriott (NYSE:MAR) and Walt Disney (DIS). The industry has posted double-digit growth for most of the last twenty years. Since becoming its own entity last August at $32, Wyndham Worldwide Corp. (NYSE:WYN) shares are up only $3. Its trailing-earnings ratio is just 20x, vs. 24x for Starwood Hotels & Resorts Worldwide (NYSE:HOT) and 28x for Marriott on an underappreciation of its time-share model, and concerns over its low-priced leisure-geared hotel properties. An analyst says the overrated concerns make Wyndham an "exceptionally cheap" stock; using 12x 2007 cash flow minus net debt, he puts shares at $58, 66% above current prices.
- Limited Brands (LTD) ($26.5) is down 20% from 2006 highs due to deteriorating margins and high inventory -- with little guidance as to why. But Limited could be a value play on a pullback as it shifts its focus to its Victoria's Secret line and body pampering units. Limited's enterprise value is less than 8x Ebidta, while struggling competitor Gap (NYSE:GPS) trades at 10x. Debt levels are low, so leveraged stock buybacks beyond its current $500m are possible, and hedge funds are buying stakes. Bulls see $34.
- Plugged In editor Mark Veverka says the long-awaited promise of teleconferencing is here. Called 'telepresence,' today's versions are slick, hi-res, and CEO-proof. Veverka tested a lower-end version with a co-worker, and by the end of their meeting he claims they forgot they weren't in the same room. Vendors: Cisco Systems Inc. (NASDAQ:CSCO), Polycom Inc. (NASDAQ:PLCM), Telanetix (TNXI.PK) and HP's (NYSE:HPQ) high-end Halo.
- Amazon (AMZN) shares are up 74% in less than two months after a huge Q1 earnings beat, rising margins, falling R&D expenditures, and an increased move into China. Barron's wonders how much of Amazon's good news is already priced into the stock? Heavyweight competitors Google Inc. (GOOG) and eBay Inc. (NASDAQ:EBAY) trade for 27x and 20x forward earnings respectively vs. Amazon's astronomical 57x. It says it's time to book some profits. Analyst Dan Jones suggests a put spread, buying July 65s and selling July 60s, to hedge a short-term drop toward $60.
- Efficient Capital Structures sent a letter to Vodafone Group plc (NASDAQ:VOD) with its suggestions to unleash hidden value. Barron's says it should have done its homework better. Vodafone ADRs are up 50% in the past 12 months, suggesting 'agitating investors' should exercise patience and allow the company's strategies to pay off.
- Barron's interviews Shawn Kravetz. Normally a retail bull, Shawn is underexposed to the sector because he foresees a slowdown in consumer spending. He likes: (1) Tween Brands Inc. (TWB), whose shares ($41) should climb towards $54-60. (2) Solar is up 50% in 2006 and likely another 50% in 2007. Evergreen Solar's (ESLR) technology allows manufacturers to use less silicon, giving it a 20% cost advantage. Shares ($8) could hit $15-25. (3) The Western Union Co. (NYSE:WU) -- at 17x 2008 earnings, the stock "is just too cheap."
Have Wall Street Breakfast emailed to you every morning before the market opens.