Wall Street Breakfast

by: SA Editors
SA Editors
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Google Tanks on Unexpected Margin Drop

Google shares were down 7.5% in AH trading after the company said second-quarter earnings fell just short of analyst estimates, while profit margins missed expectations by over four basis points. Net income jumped over 28% to $925.1 million ($2.93/share), up from $721.1 million ($2.33) a year ago, while revenue surged 63% to $2.72 billion. Excluding stock options costs EPS were $3.56, shy of analyst consensus estimates of $3.59/share, while revenues were slightly ahead of analyst calls of $2.68 billion. In a note to clients, Citigroup analyst Mark Mahaney said Google's negative margin trends were the key issue. Pro-forma operating income was about $1.35 billion (50% margin) vs. estimates of $1.45B (54.4%). Year-over-year, its margins have dropped five basis points. In 10 GOOG 19 7 07of its 11 previous quarters as a publicly-traded company, Google has beaten estimates. Google continues to dominate the search market, cornering 52.7% of all U.S. search queries in June, up from 49.4% y/y. Rival Yahoo saw its market share drop from 23% to 20.2%. "Our performance once again demonstrates the strength of our core search and ads business," said CEO Eric Schmidt. The other time Google missed was in January 2006. At the time shares tanked 15%, in what later proved to be a buying opportunity. Google is holding an earnings conference call at 4:30 ET (see Google Earnings Call Transcript (later today)).
Sources: Press release, MarketWatch, Bloomberg, TheStreet.com
Commentary: Google Expecting Yet Another Stellar Growth QuarterAnalyst Predicts The FTC Will Block Google’s Acquisition Of DoubleclickGoogle Gets Over 75% Of Search Spending In Q2
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG). Competitors: Microsoft Corp. (NASDAQ:MSFT), Yahoo! Inc. (NASDAQ:YHOO), News Corp. (NASDAQ:NWS)

Microsoft Posts Higher Q4 Profit Despite Xbox Charges, Down 1.3% in AH

Microsoft was last down 1.3% to $31.09 in extended trading. It reported fiscal Q4 profit increased 7.4% to $3.04 billion, or $0.31/share on 13.3% revenue growth to $13.37b. Adjusted EPS totaled $0.39, in-line with analysts' average estimate. Microsoft previously announced it would take a $1b (-$0.08/share) charge in Q4 for enhanced Xbox game console warranties. For the quarter that began July 1, Microsoft said it expects EPS of $0.38 - $0.40, on sales of $12.4b - $12.6b. Microsoft-EarningsChart-7-20-2007 Analysts had forecast EPS of $0.38, on sales of $12.4b. Microsoft raised its full year guidance [EPS of $1.69 - $1.73 on sales of $56.8b - $57.8b], but the revised numbers are still below analysts' average estimate of $1.72 and $57.9b. For the full year ended June 30, Microsoft reported sales of $51.12b, the first time it has exceeded $50b. Shares of Microsoft gained 1.9% to $31.51 during normal trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Xbox Could Hit Microsoft's Revenue In Report ThursdayInsider Trading Hasn't Affected Microsoft Stock - YetMicrosoft Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Google, Inc. (GOOG), Oracle Corp. (NASDAQ:ORCL), Red Hat Inc. (NYSE:RHT). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ), PowerShares QQQ (QQQQ)

AMD Gains on Revenue Beat Despite Big Q2 Loss

Advanced Micro Devices Inc. [AMD] said it lost $1.09/share (-$600 million) in Q2, reversing an $0.18/share ($89M) profit a year ago, but shares surged 4.7% AH on a surprising revenue increase. Excluding a $0.24/share one-time charge related to its $5.6 billion acquisition of graphics chipmaker ATI, it lost $0.85/share -- worse than the $0.82 loss analysts were expecting. Revenue of $1.38B was up 13.5% and 10% higher than the $1.25B analysts forecast. After picking up substantial market share from archrival Intel in 2005 and part of 2006, AMD's chips have since fallen out of favor after Intel introduced more powerful new processors and slashed prices. The ensuing price war has hurt both companies' bottom lines. Tuesday, Intel posted a 44% gain in Q2 profits, but shares fell 5% after the company said a decline in AMD 20 07 2007 EarningsChartmicroprocessor prices hurt its profit margins (see full story). "While we made solid progress in the second quarter across a number of fronts, we must improve our financial results," said CFO Robert Rivet. He said the number-two PC and server chipmaker was focused on streamlining its operations. In August, AMD begins shipping its much-anticipated quad-core Barcelona server processor. Its quad-core Phenom desktop chip is scheduled to ship at a later date. AMD hopes the new chips will help renew its waning favor. In a July 11 note, Citigroup wrote: "AMD targets to regain market share but the prospects remain lackluster. We think current competitive conditions continue to favor Intel given the latter's success in regaining market share." AMD has scheduled a 5:00 ET earnings call (see AMD's Earnings Call Transcript later today). Shares are down 22.5% YTD. Intel shares have gained almost 25% over the same period.
Sources: Press release, Dow Jones, MarketWatch
Commentary: Intel Quarter Hints At AMD Trainwreck Coming ThursdayIntel and AMD: Do The Margins Really Reflect the Risks?Intel Reports 44% Q2 Profit Rise; Margins Disappoint
Stocks/ETFs to watch: Advanced Micro Devices Inc. (NYSE:AMD). Competitors: Intel Corp. (NASDAQ:INTC)

SanDisk Jumps 6.3% on Adjusted EPS Beat, Optimistic Outlook

Shares of SanDisk were last up 6.3% to $59.47 in extended trading following its Q2 earnings release, which despite a 71% drop in profit, offered promise to investors as the company said it expects gross margins to improve over the remainder of 2007. SanDisk earned $28 million, or $0.12/share on revenue growth of 15% to $827m. Adjusted EPS of $0.30 easily beat analysts' $0.15 average estimate. "Product gross margins stabilized despite substantial price reductions in the second SNDK 20 07 2007 EarningsChartquarter. We expect product gross margins to improve gradually in the second half of the year, driven by more moderate price declines resulting from an expected improvement in the balance between demand and supply, declining manufacturing costs and strength in our income from royalties," commented SanDisk CEO Eli Harari. SanDisk expects Q3 revenues between $855m - $940m, compared to the Street's $909m average estimate. Shares of SanDisk lost 2.1% to $55.96 during normal trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Earnings Upside Already Baked Into SanDiskAmdocs and SanDisk: Why I Disagree With UBS' Cooler RatingsSanDisk Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: SanDisk Corp. (SNDK). Competitors: Micron Technology Inc. (NASDAQ:MU), Intel Corp. (INTC), Toshiba Corp. (OTCPK:TOSBF). ETFs: HOLDRS Semiconductors (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (NYSEARCA:PSI)

Broadcom Reports Q2 Profit Drop, In-line with Estimates

Broadcom rallied 2.5% to $34.85 in extended trading, in spite of a 68% decline in net income to $34.3 million, or $0.06/share. Adjusted EPS of $0.27 matched the Street's average estimate. Sales fell 4.6% to $897.9m, coming up short of analysts' forecast of $900.5m. Broadcom expects Q3 sales between $915m - Broadcom-EarningsChart-7-20-2007$940m, compared to analysts' average estimate of $954.7m. Q3 net income guidance was not provided. A Pacific Growth Equities analyst said Q2 earnings were "all in line," and said a sequential decline in inventory indicates Broadcom could recover in the current quarter. Shares of Broadcom gained 5.0% to $33.99 during the regular session, on news Verizon Wireless agreed to pay the company as much as $200m in an unexpected settlement to bypass a ban imposed on QUALCOMM-made chips (involved in ongoing patent litigation with Broadcom) by the U.S. International Trade Commission. Verizon said it will drop its opposition to the ITC ban. Also, Broadcom and Verizon announced a broad-based strategic alliance.
Sources: Broadcom Q2 2007 Earnings Call Transcript, Press release I, II, Associated Press, Bloomberg
Commentary: Broadcom's iPhone Win Should Bring More BusinessQualcomm, Broadcom and the ITC Ruling: What It Means For Investors
Stocks/ETFs to watch: Broadcom Corp. (BRCM). Competitors: Conexant Systems, Inc. (NYSEARCA:CNXT), Intel Corp. (INTC), Texas Instruments Inc. (NYSE:TXN). ETFs: Broadband HOLDRs (NYSE:BDH), iShares Goldman Sachs Networking (NYSEARCA:IGN), iShares Goldman Sachs Semiconductor (IGW)


GM Outsells Toyota Globally In Q2

General Motors narrowed the global auto sales gap with Toyota in the second quarter, outselling Japan's #1 car maker after Toyota topped GM for the first time ever in Q1. During the first half of the year, Toyota sold 4.72 million cars to GM's 4.67. GM sold 2.41 vehicles globally in the recent quarter, a gain of 0.4% y/y, while Toyota sold 2.37 million vehicles in the June-ended period, for 7% growth y/y. GM sales were weakest in North America, declining 7%, while rising 8.2% in the Asia-Pacific region, 4.7% in Europe and 20% in Latin America, Africa and the Middle East. For the full year, Toyota is projecting global sales of 9.34 million units to GM's projection of 9.2 million. GM shares fell 1.72% Thursday and are up 15% this year. Toyota's NYSE-traded ADR shares gained 0.9%, and are down nearly 8% year-to-date. TM 20 07 2007 Chart GM 20 07 2007 Chart
Sources: AP, Bloomberg, Reuters, MarketWatch
Commentary: GM Turns Diesel, Buying a 50% Stake In Italian Engine Maker VM MotoriGeneral Motors: This Stock is Out of GasBig Three Automakers Lose Ground to Japanese in June
Stocks/ETFs to watch: General Motors (NYSE:GM), Toyota (NYSE:TM). Competitors: Ford (NYSE:F), DaimlerChrysler (DCX), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)
Earnings call transcripts: General Motors Q1


China's Central Bank Hikes After Bullish GDP Report

After Thursday's report that China's Q2 GDP grew 11.9%, the fastest rate in twelve years, analysts were convinced the People's Bank of China [PBoC] would act quickly to raise interest rates. They were right, as the PBoC hiked late Friday by 0.27% to 6.84%. Despite an imminent hike, the Shanghai Composite gained 3.7% to recover the 4,000 level. Shanghai-Composite-Chart-7-20-2007 The PBoC's one year target rate is its highest in eight years. This is the bank's third rate hike this year. It has also raised bank reserve requirements five times. Bank deposit rates will increase to 3.33%, but are still below the 4.4% annual inflation rate. A Hong Kong-based Goldman Sachs economist called the hike a "positive move to help contain overheating pressures," but said the "27 basis point hike is insufficient and we continue to expect one more hike in the remainder of the year." Separately, The Wall Street Journal reports T. Boone Pickens is traveling in China, evaluating local partners for a possible retail natural gas fueling station business venture, similar to the operations of Clean Energy Fuels Corp. in the U.S., which he co-founded. Pickens said switching to natural gas offers benefits over oil, such as being cheaper and helping reduce pollution.
Sources: Bloomberg, Reuters, Wall Street Journal I, II
Commentary: China's Q2 GDP Highest in 12 Years, Inflation ClimbsGDP Index Weighting For China Would Likely BackfireAs Long As China's Excess Money Supply Remains, Keep Buying
Stocks/ETFs to watch: Clean Energy Fuels Corp. (NASDAQ:CLNE). Bond funds: 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 (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ)


  • BEA Systems (BEAS) is likely to become a takeover target over the next few months, according to a Credit Suisse note published by Barron's. Oracle (ORCL) is a more likely acquirer than the oft-mentioned HP (NYSE:HPQ), it said. (Source)
  • Wireless providers Clearwire (CLWR) and Sprint Nextel (NYSE:S) said they would partner in provide roaming broadband service to each other's WiMax customers, and develop WiMax products and services under one brand. Clearwire gets the right to use Sprint's existing broadband network [EVDO] in non-WiMax areas, instantly giving it much broader reach. CLWR was up 34% and S was down 0.5%. (Source)
  • Dow Jones (DJ) board member and heir to a German publishing empire Dieter von Holtzbrinck resigned to protest its decision to endorse a $5B sale to News Corp. (NWS). "I'm very worried that Dow Jones unique journalistic values will long-term strongly suffer after the proposed sale," he said. His protest may affect the decision of the controlling (64% voting share) Bancroft family, who is to vote on the sale next week. (Source)
  • Ericsson (NASDAQ:ERIC) missed earnings forecasts by 5.1%, posting pretax profits of 9.3B kroner ($1.4B) vs. estimates of 9.8B. (Source)
  • First Data Corp. (NYSE:FDC) posted EPS of $0.31, in line with estimates but down 77% from a year ago. (Source)
  • Gilead Sciences (NASDAQ:GILD) Q2 EPS after items were $0.46, up 48%, beating estimates of $0.43. (Source)
  • German and Korean companies InkTec GmbH and PCE Group admitted they infringed on Hewlett-Packard's (HPQ) ink cartridge patents and said they will withdraw their products and pay HP an undisclosed amount. HPQ shares gained 2.7%. (Source)
  • Monster Worldwide (NASDAQ:MNST) founder and former CEO Andrew McKelvey is accused of personal involvement in options backdating. An amended court complaint demonstrates the "enormous pressure" he was under to keep share prices up. (Source)
  • Travel website Orbitz Worldwide's (NYSE:OWW) IPO priced at $15/share, below its expected $16-18/share range, raising $510M. Owner Blackstone Group (NYSE:BX) took it public to capitalize on a global travel boon. "Investors are becoming a little gun-shy about the bailout mentality that surrounds private-equity firms," analyst David Menlow said. (Source)
  • Seagate (NASDAQ:STX) FQ4 2007 EPS of $0.43 beat analyst estimates of $0.36. It lowered Q1 2008 EPS guidance to $0.40-0.44 from an expected $0.45. (Source)
  • Wall Street Journal says Viacom (NYSE:VIA) chief 84-year-old Sumner Redstone has lost confidence in his daughter and heir-apparent Shari Redstone, raising questions about future control of the media conglomerate. Shares gained 2.9% on the possibility holdings will be sold on his death. (Source)
  • Xilinx Inc. (NASDAQ:XLNX) FQ1 2008 EPS gained 17% to $0.28, missing estimates by $0.01. (Source)


U.S. Market: Dow Component Performance and Impact On Overall Index Gains
Housing: Alliance Bancorp Files for Liquidation: Alt-A Companies Suffer in Sympathy
Long Idea: 24 Cheap Stocks With 'Magical' Momentum
Short Idea: The Chubb Corporation: Stellar Growth, Priced Too High
Internet: Google Earnings Should Be Put Into Perspective
Hardware: IBM's Strong Quarter Underscores Value of EMC's VMWare
Chips: Why I've Decided to Sell MEMC Electronic Materials and Cryo-Sell
Software: Peter Moore's Move To EA: Has He Learned From His Mistakes At Microsoft?
Gadgets: Does Apple's iPhone Live Up to Its Hype?
Media: Newspapers Confront The Digital Media Revolution
Healthcare: Expecting Downside in IMS Health
Retail: Don't Get Caught With Your Crocs Down
Transport: Dry Bulk Shipping Valuations Approach “Bubble” Proportions
Gold: Brush Engineered Materials, Ash Grove Cement: The Battle's Already Been Won
Energy: Why Oil Is Actually Cheap At $75
Financial: Moody's 'Tough Stance' - Just The Easy Way Out
Asia: Wipro Expected to Post Lower First Quarter Profits
ETFs: Getting Bullish On Germany
Hedge Funds: Citadel to Gemstar-TV Guide: Potential Buyer Must Overpay
Small-Caps: Delta Apparel Reasonably Priced Even After Restructuring Charges
IPO Analysis: MF Global: IPOs Not Easy Money
Sound Money Tips: Choose the Best Travel Agent
Jim Cramer: Latest stock picks
Earnings Transcripts: Google Q2 2007Microsoft F4Q07Harley-Davidson Q2 2007SAP Q2 2007Broadcom Q2 2007Gilead Sciences Q2 2007Freescale Semiconductor Q2 2007Logitech F1Q08V.F. Corporation Q2 2007Motorola Q2 2007Danaher Q2 2007Hershey Co. Q2 2007Wyeth Q2 2007Bank of America Q2 2007Baxter International Q2 2007TD Ameritrade Holding F3Q07UnitedHealth Group Q2 2007Honeywell Q2 2007Fifth Third Bancorp Q2 2007The Bank of New York Mellon Q2 2007KeyCorp Q2 2007SunTrust Banks Q2 2007DST Systems Q2 2007Fairchild Semiconductor International Q2 2007Safeway Q2 2007The Nasdaq Stock Market Q2 2007Allstate Q2 2007International Game Technology F3Q07Dow Jones Q2 2007 Earnings CallThe McClatchy Company Q2 2007Wipro F1Q07Continental Airlines Q2 2007SunPower Q2 2007Teradyne Q2 2007Sherwin-Williams Q2 2007BB&T Q2 2007PNC Financial Services Q2 2007Net Servicos de Comunicacao Q2 2007Cypress Semiconductor Q2 2007Noble Corp. Q2 2007Xilinx F1Q08AMD Q2 2007Capital One Financial Q1 2007Stryker Q2 2007Intuitive Surgical Q2 2007Spansion Q2 2007SanDisk Q2 2007Seagate F4Q07
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