AT&T Compensating Apple Handsomely for iPhone -- TheStreet
TheStreet.com reports Apple is being paid between $150 - $200 by AT&T, which has an exclusive five-year service provider deal for the iPhone, for every iPhone sold, plus $9/month per phone, for the duration of the typical two-year customer contract, according to people close to the companies. Although neither company commented on the payment system, analysts apparently have not figured the bounty into their earnings models for Apple. One money manager is quoted saying, "This is unheard of, no one has this plugged this into their models." In fact, last Friday, Piper Jaffray raised its target for Apple to $205 from $140, based on iPhone booked revenue and its estimate that AT&T is paying Apple $3/month for new iPhone customer contracts and $8 for new subscribers that transfer service to AT&T. Still, the impact from the revenue sharing may be lessened if CIBC is correct in its observation this morning that "demand for the iPhone has seen a significant decline in the past 10 days." Shares of Apple fell slightly on Monday to $143.70.
Commentary: CIBC: iPhone Demand Has Seen Significant Decline • Apple To Announce Earnings: Will iPhones Overshadow Macs & iPods? • Apple Stock Will Hit $205 On iPhone Strength - Piper
Stocks/ETFs to watch: Apple Inc. (AAPL), AT&T Inc. (T). Competitors: Nokia Corp. (NOK), Motorola Inc. (MOT), Ericsson ADR (ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM), Verizon Comm. Inc. (VZ), Sprint Nextel Corp. (S), Microsoft Corp. (MSFT). ETFs: Internet Architecture HOLDRs (IAH), PowerShares QQQ (QQQQ), Technology Select Sector SPDR (XLK), iShares DJ U.S. Telecom Sector Index ETF (IYZ)
Earnings call transcripts: Apple F2Q07
Texas Instruments Down 3% in AH on In-Line Earnings, Soft Guidance
Texas Instruments [TI] fell 3% to $37.04 in the after-hours following its Q2 earnings release. Net income declined 74% to $610m, or $0.42/share, matching the Street's average estimate. Current quarter sales guidance of $3.49b - $3.79b was less than the mid-point of analysts' forecast, although it doesn't include some sales from its DSL unit which is being sold. TI projected EPS of $0.46 - $0.52 share, compared to analysts' average estimate of $0.49. TI had substantially higher earnings in Q2'06 due to a tax refund and royalty settlement. Orders totaled $3.45b, up 8% sequentially, but down 11.7% y/y. Q2 sales declined 7.4% to $3.42b, against analysts' average forecast of $3.4b, as TI reported a record gross profit margin of 52.1%. TI cited "lower demand across a broad base of products." Separately, TI announced an alliance with Ericsson to make parts for 3G phones. Shares of TI rose 0.45% to $38.18 in normal trading.
Sources: Texas Instruments Q2 2007 Earnings Call Transcript, Press release, Bloomberg, MarketWatch
Commentary: Texas Instruments: Wall St. Is Not Impressed • Texas Instruments Benefits From Probable iPhone Win • TI Narrows Guidance, Shares Fall 2% in After-hours Trading
Stocks/ETFs to watch: Texas Instruments Inc. (TXN). Competitors: National Semiconductor Corp. (NSM), Analog Devices Inc. (ADI), Microchip Technology Inc. (MCHP), QUALCOMM Inc. (QCOM), STMicroelectronics NV (STM). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semi. (PSI)
Buyout Speculation Lifts Tellabs
Speculation that Tellabs may be acquired by Nokia Siemens sent shares of the telecom-equipment supplier to a 52-week high Monday. The stock rose as high as $13.67, and shares were at $12.30 in AH trading amid reports that the network-equipment maker, which is a joint venture of Finland's Nokia and Germany's Siemens, is willing to offer up to $7 billion, or $16 to $17 a share for the company. TheStreet.com said, however, that a source indicated a deal could take a while to complete because Tellabs' decision "is not imminent." The possibility of a deal comes in the wake of Swedish firm Ericsson's $2.1B takeover of Redback last year. TheStreet.com says Nokia Siemens originally began talks for Tellabs last year that ended, but that sources indicate the deal is back on, because Tellabs "is not recovering" from some recent setbacks. Analysts such as those at Credit Suisse called the speculated price "expensive," but said a deal would represent a "strategically and financially sound" move for Nokia Siemens by strengthening its North American position and beefing up its wireline portfolio. UBS, meanwhile, speculated that a bid for Tellabs might pressure Nortel to get into the market, and suggested 3Com and Sonus Networks as possible targets.
Sources: TheStreet.com, MarketWatch
Commentary: Nokia Reportedly Makes $7 Billion Takeover Bid For Tellabs • Tellabs Warns Badly; Stock A Buy On Bounce?
Stocks/ETFs to watch: Tellabs Inc. (TLAB), Nokia Corp. (NOK), Siemens AG (SI), Nortel Networks Corp. (NT), 3Com Corp. (COMS), Sonus Networks Inc. (SONS)
Earnings call transcript: Tellabs Q1 2007
Corning Announces Breakthrough Optical Fiber for FTTH
Corning unveiled a new optical fiber design on Monday that allows for cabled fiber to be bent around corners with very limited signal loss, seemingly solving the problem of installing fiber-to-the-home [FTTH] networks. The new design is particularly meaningful to those living in apartments, which pose the biggest challenge to current optical fiber installations. "We have developed an optical fiber cable that is as rugged as copper cable but with all of the bandwidth benefits of fiber ... the technology achieves this while maintaining compatibility with industry performance standards, existing manufacturing processes and installation procedures," commented Corning president Peter F. Volanakis. In a press release, Volanakis noted there are 680 million apartment homes globally, including 25m in the United States. Corning is working with Verizon Communications to provide optical fiber connectivity on a mass scale in the U.S. Verizon is reportedly spending $23b to lay 80,000 miles of fiber to as many as 18m of its customers. Shares of Corning rose 0.7% to $26.71 on Monday.
Sources: Press release, Associated Press, Fortune
Commentary: Corning Claims Optical Fiber Breakthrough • Monday's Options Report • Corning Raises 2006-08 Glass Demand Forecast • The Skinny on Flat Panels: Reduced Capacity Could Mean a Strong '08
Stocks/ETFs to watch: Corning Inc. (GLW), Verizon Communications Inc. (VZ). ETFs: Broadband HOLDRS (BDH), iShares S&P GSTI Networking (IGN)
Earnings call transcripts: Corning Q1 2007, Verizon Q1 2007
Altera Tops Estimates, Boosts Outlook
Altera reported Q2 results that bested analyst expectations amid cost reductions and increased new product sales. The microchip maker said it earned $80.5 million ($0.22/share), up from $77.3M ($0.21) a year ago, and $0.03/share above the average analyst forecast of $0.19. Sales came in at $320M, down from $334M in 2006, but better than the $313M analysts had expected. Helping boost earnings were lower costs as the company cut operating expenses by 7%. Sales of new products rose 26% from the previous quarter. Looking ahead, Altera said it now sees third-quarter revenue flat to 3% percent higher sequentially. Analysts had been expecting revenue of $322.6M. Despite the strong showing, some analysts remained neutral on the shares: "We would like to see more evidence of a sustained recovery in the communications market segment before we become more positive on the stock," Morgan Stanley analyst Louis P. Gerhardy wrote in a research note. Likewise, Citigroup analyst Glen Yeung told clients that revenue growth in enterprise networking hasn't been enough to offset weakness in the rest of the communications business. Yeung did, however, raise his price target to $28 from $23. Altera also said it was negotiating for a long-term credit facility of up to $750M, of which it plans to use $500M to buy back stock. Shares gained 0.8% in AH trading Monday.
Sources: Press release, Altera Q2 2007 earnings call trancript, TheStreet.com, Reuters, AP
Commentary: Reading Between the Lines To Spot the Next Cisco • Bear Stearns Cautions Investors On Xilinx, Altera; Sees Weakening PLD Market • The Long Case for Semi Stocks
Stocks/ETFs to watch: Altera Corp. (ALTR). Competitors: Actel Corp. (OTCQB:ACTL), Lattice Semiconductor Corp. (LSCC), Xilinx Inc. (XLNX). ETFs: SPDR S&P Semiconductor (XSD), Semiconductor HOLDRs (SMH)
Expedia Cancels 80% of Share Buyback Due to Lack of Funding
Expedia Inc. said Monday it is slashing the number of shares in its planned buyback by 80% due to a lack of acceptable funding, sending shares down 8.3% to $26.90 in early trading. On June 19, Expedia said it intends to repurchase up to 116.7 million shares (approximately 42% of common stock) at a price range of $27.50-$30.00, giving shares their biggest boost since the company went public in July 2005. Under the amended offer, Expedia now says it only willing to purchase up to 25 million shares (about 9% of the total outstanding) at the same price range, to expire August 8. "While we remain confident in Expedia's long-term prospects and will continue to be net buyers of our shares, the terms available to us in the current debt market environment were simply unacceptable," said chairman Barry Diller. "Our confidence in Expedia's future is well held, with second quarter transaction growth of 14% -- our highest in six quarters -- and our expectation of exceeding consensus estimates." Liberty Media owns a 15.7% stake in Expedia.
Sources: Press release, MarketWatch, Bloomberg, Reuters, Wall Street Journal
Commentary: Expedia: Share Buyback Affirms Hidden Value • Expedia: Diller's Buyback Plan Does Create Value • Expedia Up 16% on News of $3.5B Buyback
Stocks/ETFs to watch: Expedia Inc. (EXPE), Liberty Media Capital (LCAPA). Competitors: Travelzoo Inc. (TZOO), Priceline.com Inc. (PCLN). ETFs: PowerShares Dynamic Leisure & Entertain (PEJ)
Earnings call transcript: Expedia Q1 2007
MACRO AND HOUSING
Deutsche Bank Report Hits Homebuilders, SEC Formalizes Beazer Probe
A Deutsche Bank report issued Monday said the housing slump intensified in June as tighter loan standards and rising interest rates forced higher cancellations for homebuilders. Several homebuilder shares and ETFs fell to multi-year lows following the report. Although builders say the entry level and high ends of the housing market are faring well, 'move-up' homes are suffering from an existing homes sales glut. Deutsche says the homebuilders in its universe lost $5.4 billion in Q1 from land writedowns and impairments and more of the same is expected when several homebuilders report earnings this week. Hovnanian shares fell 7.2% to $15.25, bringing them to a 55% drop this year. Centex, reporting Tuesday, carries a 13.75% short interest. The iShares Dow Jones Home Construction ETF and the S&P Homebuilders ETF have fallen 30% and 31%, respectively, since January. In related news, the SEC has formalized its investigation of Beazer Homes for alleged securities law infringements. The FBI is also investigating Beazer for mortgage fraud at its lending arm. In June, Beazer fired CFO Michael Rand for trying to destroy evidence in the SEC probe, and the company is facing class action suits. Beazer's shares closed Monday at $18.76, a 60% drop on the year. Shares fell further to $17.77 in AH trading.
Sources: Bloomberg I,II, MarketWatch, CNN Money, Wall St. Journal, The Street.com, Big Charts Detailed Quotes, Reuters
Commentary: The American Dream Is Overbought and Overbuilt • From a Homebuilder's Perspective, Resale Market Is the Problem • Brief Foreclosure History & Mortgage Delinquency Maps
Stocks/ETFs to watch: Centex Corp. (CTX), Hovnanian Enterprises (HOV), Beazer Homes USA (BZH), Meritage Homes (MTH), Standard Pacific Corp. (SPF), Ryland Homes (RYL), M.D.C. Holdings (MDC), KB Homes (KBH), Toll Brothers (TOL), iShares Dow Jones U.S. Home Construction (ITB), SPDR Homebuilders (XHB), PowerShares Dynamic Building & Construction (PKB)
Earnings call transcripts: Hovnanian Enterprises F2Q07 • KB Home F2Q07 • Toll Brothers F2Q07
Netflix Drops Guidance as Subscriber Growth Skids
Netflix Inc. lowered quarterly and full-year guidance as Q2 numbers confirmed that competition is taking a toll. Net income after items rose 26% to $21.4 million ($0.31/share), beating analyst estimates of $0.23. Revenue rose 27% to $303.7 million, falling short of expectations of $307.8 million. Netflix ended the quarter with 6.7 million subscribers, down 1% from last quarter. Gross subscriber additions fell 32%. "As expected, second-quarter revenue and subscriber growth reflected the impact of intense competition, as we delivered subscribers and revenue at the low end of our guidance range," said CEO Reed Hastings. EPS guidance for Q3 and Q4 and full-year 2007 was weak: $0.11-0.19, ($0.01)-0.06 and $0.62-0.76 respectively. Analysts had been calling for $0.19, $0.20 and $0.76. The report came a day after Netflix cut prices on two of its most popular plans. Netflix is "choosing to lower price and reduce marketing as the most efficient means of sub growth and retention in the current competitive environment," Hastings said. "If they've lost subs, there are only two explanations," said Wedbush Morgan analyst Michael Pachter. "One, Blockbuster's taking share from them; or two, the market's just not as big as Netflix thought it was. I think it's both." Shares lost 12% Monday on the price drop, and shed another 4.5% after-hours to $16.50 on the guidance.
Sources: Press release, MarketWatch, Wall Street Journal, Reuters
Commentary: Netflix Slides Ahead Of Earnings Report Monday After Cutting Subscription Prices • Blockbuster Closing 282 Stores; Netflix Cuts Price of 2-DVD Plan • Netflix’s 'Watch Now' Leads Online Movie Industry
Stocks/ETFs to watch: Netflix, Inc. (NFLX). Competitors: Blockbuster Inc. (BBI), Hastings Entertainment Inc. (HAST), Movie Gallery Inc. (MOVI). ETFs: PowerShares Dynamic Leisure & Entertainment ETF (PEJ)
Earnings call transcripts: Netflix Q2 2007, Blockbuster Q1 2007
Sirius-XM Radio Would Provide A La Carte Pricing
Sirius Satellite Radio CEO Mel Karmazin said Monday that Sirius and XM Satellite Radio Holdings will provide subscribers with a la carte programming once their $3.23 billion merger is completed, a proposal that might hasten the merger's approval by the Department of Justice and the FCC. The plan will be submitted to the FCC Tuesday. FCC Chairman Kevin Martin has urged cable companies to allow customers a choice of channels, so he is expected to look with favor on the plan. Subscribers will be able to choose from eight programming packages, including 50 channels for $6.99 a month or 100 channels for $14.99 a month. The companies currently charge customers $12.95 a month. They hope to have radios capable of receiving both signals available within a year of the merger's approval. Sirius and XM are the only two satellite radio companies in the country, so their proposed merger has attracted particularly close regulatory scrutiny. "Policymakers should not be hoodwinked by today's announcement, since nothing is stopping either XM or Sirius from individually offering consumers a more affordable choice in limited program packages,'' said National Association of Broadcasters spokesman Dennis Wharton. Sirius shares gained 2.9% to $3.21; XM shares shed less than 1% to $12.55.
Sources: Dow Jones, The Utility Belt, AP, Bloomberg, MarketWatch
Commentary: XM/Sirius to Reply to FCC Comments Monday • BOA, Cowen Analysts See Sirius/XM Merger Odds Improving • A Timeline For the Sirius/XM Satellite Radio Merger
Stocks/ETFs to watch: Sirius Satellite Radio Inc. (SIRI), XM Satellite Radio Holdings Inc. (XMSR). Competitors: Clear Channel Communications Inc. (CCU), Cumulus Media Inc. (CMLS)
Earnings call transcripts: XM Satellite Radio Q1 2007, Sirius Satellite Radio Q1 2007
Bancroft Decision on Murdoch Bid Too Close to Call
The Bancroft family, which controls 64% of the voting power at Dow Jones, met Monday in Boston to deliberate on Rupert Murdoch's $5 billion offer for the company. Divisions among family members make the ultimate decision impossible to call. Christopher Bancroft, a staunch opponent of the sale, said he expects the family to decide by Friday. Jane MacElree, a family trustee who holds 15% of the company's voting power and had been considered a swing vote, told the family she will oppose the sale. Her vote will run in opposition to those of several of her seven children. The Cook branch of the family, which controls 23% of voting power, is expected to vote in favor. Opponents of the sale remain unconvinced that The Wall Street Journal's editorial integrity will be maintained under Murdoch, even with agreed-upon guidelines in place. Two Denver trustees, who control 9.1% of voting power, want the bid bumped up 10-20% for the family's supervoting shares, though Murdoch has indicated he will not sweeten his offer. If the family cannot decide, Murdoch might put down an "exploding offer" with a date of expiration. Because most non-Bancroft shareholders favor the buyout, Murdoch needs only about half the Bancrofts' shares to clinch the deal.
Sources: Wall Street Journal, CNBC
Commentary: Dow Jones Board Approves Murdoch Bid; Bancrofts to Decide • Brad Greenspan Takes Case to Dow Jones Shareholders • At Long Last, Dow Jones And News Corp. Reach (Possible) Deal
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Earnings call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Lee Enterprises Fails to Arrest Falling Ad Revenues
Local-market newspaper publisher Lee Enterprises said FQ3 profits fell 1% to $22.5 million from $22.7M last year on drooping advertising sales. EPS of $0.49 was $0.01 less than a year ago, and in line with analyst estimates. Same-property sales (revenues at papers owned at least a year) were down 4.1% in June. Total operating revenue including circulation was down 3.1% to $281.6M, falling short of analyst estimates of $287M. Online revenue jumped 61.2% to $16.2M. In a June 18 note, Wachovia Capital Markets said, "Lee has developed a reputation as an excellent operator, acquirer, and integrator of newspaper assets in small to midsize markets. Owing to its training and market exposure, LEE has historically and recently posted ad growth ahead of the industry," adding that earnings may experience pressure over the next few quarters as small markets begin to experience the pressures now impacting larger markets. "Real estate is in a down cycle, taking retail home improvement and furniture store advertising with it," CEO Mary Junck said. "National advertising is also in a trough. In addition, some of our bigger department store customers are working through competitive and branding issues, and the auto industry is undergoing structural changes." Shares have plummeted 40% YTD.
Sources: Press release, AP I, II
Commentary: Newspapers Confront The Digital Media Revolution • Lee Enterprises: Online Gains Fail to Offset Print Weakness
Stocks/ETFs to watch: Lee Enterprises Inc. (LEE). Competitors: Gannett Co. Inc. (GCI), Journal Communications Inc. (JRN)
Starbucks to Raise Beverage Prices
Starbucks said Monday it will raise the prices of beverages at company-owned U.S. outlets by an average of $0.09 on July 31 due to rising costs, particularly in dairy products. This will be the company's second round of hikes within a year. The increase will vary depending on beverage and region and will not affect whole beans or bottled drinks. "[G]iven the rising cost environment we're operating in, we think this is an appropriate time for a price increase," said company spokesman Brandon Borrman. Although the hike is being instituted only in the 6,300 company-owned stores in the U.S., Borrman noted the 3,500 licensed stores "usually follow what the company-operated stores do." CFO Michael Casey warned last month it would be "very challenging" for the chain to meet the high end of its 2007 earnings forecast, partly due to rising dairy prices. Deutsche Bank analyst Marc Greenberg called the increase a positive step in offsetting the higher costs in dairy, energy and rent. "In the short term it may pose a headwind to transaction volumes, but in the long term...[i]t exploits SBUX' leading brand strength and improves cost leverage and quality of growth," he wrote in a note. Starbucks last raised prices in October 2006.
Sources: Reuters, Dow Jones, Wall Street Journal
Commentary: Starbucks Falls on CFO's Guidance Statement • Starbucks Reverses Downward Trend • Starbucks Fairly Valued at Current Price
Stocks/ETFs to watch: Starbucks Corp. (SBUX). Competitors: Tim Hortons Inc. (THI), Peet's Coffee & Tea Inc. (PEET), McDonald's Corp. (MCD), Green Mountain Coffee Roasters Inc. (GMCR), Krispy Kreme Doughnuts (KKD). ETFs: Vanguard Consumer Discretionary ETF (VCR), iShares DJ US Consumer Services (IYC), PowerShares Dynamic Food & Beverage (PBJ)
Earnings call transcript: F2Q07
TRANSPORT AND AEROSPACE
Top Shareholder Urges Midwest To 'Seriously Engage' AirTran's Offer
Octavian Management LLC, the top shareholder of Midwest Air Group Inc., has urged the company's management in a recent letter to engage in serious negotiations with AirTran Holdings Inc. who made a $389 million bid for Midwest last October. Octavian, a hedge fund with a 7.5% stake in Midwest, is upset the company's management has repeatedly rejected AirTran's sweetened bids, despite shareholders recently electing three directors sympathetic to AirTran to the company's nine-member board. In a letter dated July 18, Octavian CEO Richard Hurowitz told Midwest's Chairman and CEO Tim Hoeksema that it was "irresponsible and wrong for the company not to abide by its fiduciary responsibility to engage with AirTran" in serious negotiations. Midwest's shares rose 2.56% in composite trading Monday while AirTran's shares fell 0.19%.
Sources: Wall Street Journal, AP, Reuters
Commentary: 21 Airline Stocks to Keep You Flying High This Summer • Midwest Air /AirTran Merger Update • Midwest Air: Octavian Would Support Higher Offer From AirTran
Stocks/ETFs to watch: Midwest Air Group, Inc. (MEH), AirTran Holdings, Inc. (AAI). Competitors: Southwest Airlines Co. (LUV), UAL Corp. (UAUA), Northwest Airlines (NWA). Delta (DAL), Continental (CAL)
American Express Posts 12% Q2 Profit Rise, But Shares Fall
American Express reported Q2 earnings in line with expectations, helped by higher spending and a tax benefit. The company's shares nevertheless shed 2% to $64.66 in AH trading Monday evening. The company reported Q2 net income of $1.06 billion ($0.88/share), a 12% rise from $945 million ($0.76) in the year-ago quarter. The result includes a $65 million tax benefit. Analysts were expecting $0.86. Revenue came in at $7.13 billion, a 9% gain, shy of analyst expectations of $7.54 billion. Higher spending among corporate and international cardholders led to a 4% rise to $2.2 billion in revenue net of interest expense at the international card and global commercial services unit. That unit also posted a 22% rise in net income to $277 million. Interest expense increased 44% to $1.07 billion, and loss provisions surged 85% to $993 million. "Interest costs increased and provisions rebounded from the exceptionally low levels of last year," said CEO Kenneth Chenault. "We dealt with this short-term challenge by controlling discretionary expenses and carefully targeting our marketing investments."
Sources: Press release, American Express Q2 2007 Earnings Call Transcript, AP, Bloomberg, MarketWatch, Reuters
Commentary: Still Some Value Plays Among The Dow 30 • Five Credit Card Stocks to Consider When Making Your Next Purchase • The Little Stock that Beats the Market: Joel Greenblatt's Winning Plan
Stocks/ETFs to watch: American Express Co. (AXP). Competitors: Mastercard Inc. (MA). ETFs: DIAMONDS Trust, Series 1 (DIA), PowerShares Dynamic Large Cap Growth (PWB), iShares KLD Select Social Index (KLD)
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