IBM to Win $200M Supercomputer Contract -- NY Times
The National Science Foundation will award IBM a $200 million contract to build the world's fastest supercomputer at the National Center for Supercomputing Applications at the University of Illinois, according to documents that were accidentally posted on a government Web site last week, The New York Times reported. The machine will cost at least $200 million and could go over $400 million during its five-year lifetime, the Times said. The decision must still be ratified by the National Science Board on Monday. The award was sought after by a number of supercomputer centers and state governments. Word of the IBM win created some concern among some computer scientists who said the decision might raise questions about impartiality and political influence, seeing as the computer is intended for use by the Pentagon’s Defense Advanced Research Projects Agency. The computer will be the first capable of one thousand trillion mathematical operations a second, known as a petaflop. Computer scientist Jack Dongarra, one of the researchers who has helped rank the world’s fastest supercomputers, said the new computer will be “like the Hubble telescope."
Sources: New York Times
Commentary: IBM Announces 3-D Chip Stacking
Stocks/ETFs to watch: IBM. Competitors: CRAY, SUNW, SGIC
Bidding War for Barneys Heats Up
The battle for Barneys, the luxury menswear chain, heated up over the weekend after Dubai's Istithmar boosted its $825M bid for the retailer to $900M. That offer was quickly surpassed by Japan's Fast Retailing Co., which increased its $900M bid to $950M. Jones Apparel, which owns Barneys, said Istithmar has until August 8 to make another offer "at least as favorable" as the Fast bid. The bidding for Barneys started in late June, and under the agreement with Istithmar, Jones can explore bids for the whole company through August 11. If Jones ends the deal with Istithmar to accept the Fast bid, Jones would be required to pay the Dubai firm a $22.7M termination fee. If Istithmar succeeds, it likely would open stores in China, the Middle East and emerging tourist locations such as Macau. Jones bought Barneys in 2004 for $291.3M and $106M in debt. Fast is Asia's biggest clothing retailer.
Sources: Bloomberg, Reuters, Wall Street Journal, MarketWatch
Commentary: Jones Apparel Gets Unsolicited $900M Counter-Bid for Barneys • Jones Apparel Group: No Catalysts In Sight to Boost Ailing Stock • Jones Apparel: Room to Grow -- Barron's
Stocks/ETFs to watch: JNY. Competitors: ANN, BWS, LIZ. ETFs: RTH
TRANSPORT AND AEROSPACE
Pentagon Says Splitting $40B Refueling Tanker Order Too Costly
Sue Payton, head of U.S. Air Force acquisitions, delivered bad news for Airbus this weekend when she said the Air Force will not split its initial $40 billion order of 80 refueling tankers in a contract to be issued later this year. Boeing is expected to win the contract based on its tanker experience. Payton said the Air Force cannot afford to fund more than one company's tanker through development and then into procurement. An aerospace expert at the Teal Group consultancy said the decision would be a blow for Airbus parent EADS, since "losing the tanker bid would follow the Joint Cargo Aircraft loss, .... [leaving] the Light Utility Helicopter and Coastguard patrol planes as their flagship programs, with few U.S. opportunities on the horizon." The winner of the contract stands to receive a follow-on order of 99 tankers as the Air Force replaces its aged fleet. Shares of Boeing lost 1.6% to $104.24 on Friday. EADS is down 0.7% to €21.76 in early afternoon trading in Paris.
Commentary: Boeing's 787 Dreamliner Faces Hurdles -- Business Week • Boeing Posts Strong Beat, Lifts Outlook • Boeing Company: Inconsistent Fundamentals, Stock Severely Overpriced • Boeing, Airbus Duel Continues at Paris Air Show, Air Force Tanker Contract at Stake
Stocks/ETFs to watch: BA, NOC, LMT, GE, EADS (Paris: 005730). ETFs: ITA, PPA
Earnings call transcripts: Boeing Q2 2007
Cerberus Plays Executive Musical Chairs At Chrysler; Bob Nardelli New CEO
For the second time in a little less than a year, an auto industry outsider has been appointed to head one of the 'Big Three' U.S. auto companies. Cerberus Capital Management LP, which recently purchased 80% of Chrysler from German carmaker Daimler (Daimler retained ownership of the remaining 20%) appointed ousted Home Depot CEO Robert Nardelli to head up Chrysler. (Another industry outsider, Alan Mulally, was appointed CEO of Ford last September, after serving at Boeing.) The move means a demotion for current CEO Tom LaSorda, who will now become President. Chief Operating Officer Eric Ridenour will leave the company entirely as a result of Nardelli's appointment. Nardelli was ousted over outrage regarding his pay package at Home Depot, which culminated in a $210 million, one-time, severance package. While Nardelli profited heftily off Home Depot during his years there, its stock remained essentially flat. Lasorda said of Nardelli's addition to the Chrysler team, "Bob has a proven track record of success and an unwavering focus on performance, and brings deep operational experience and a broad industry background to Chrysler. His background in operations will provide valuable knowledge as we continue Chrysler's turnaround." Chrysler posted a $680 million net loss for 2006 prompting owner Daimler to sell to Cerberus.
Sources: Press Release, Wall Street Journal, The New York Times, Bloomberg
Commentary: Cerberus' Acquisition Makes Chrysler Circle The Wagons • Home Depot CEO Bob Nardelli Resigns, Shares Up Strongly • Home Depot's Board Is to Blame for The Nardelli Affair
Stocks/ETFs to watch: DCX. Competitors: GM, F, TM, HMC, NSANY
Earnings call transcripts: DaimlerChrysler Q2 2007
ENERGY AND MATERIALS
House OKs Alternative Energy Incentives, $16B in Taxes on Oil Industry
The House of Representatives on Saturday approved billions of dollars in tax breaks and incentives for alternative energy and energy efficiency, while imposing $16B in taxes on big oil. They did not, however call on automakers to make vehicles more fuel-efficient; some such measures may be included in the final version of the bill. The legislation would repeal tax breaks given to oil companies and end tax breaks for fuel-guzzling SUVs. Massachusetts Democrat Rep. Ed Markey called it "an historic turn away from a fossil fuel agenda and toward a renewable energy agenda for America." Republicans, however, claimed the bills ignored the need to produce more domestic oil, natural gas and coal. Included in the bills was the requirement that investor-owned electric utilities generate at least 15% of their electricity from renewable sources such as wind or biofuels. That had been a hotly contested issue, with utilities and business interests arguing that it would raise electricity prices in areas that do not have abundant wind energy, while environmentalists claimed it would encourage investments in renewable fuels and help address global warming. The bill also calls for stricter energy efficiency standards for appliances and lighting and incentives for building more energy-efficient "green" buildings. They extend renewable energy production tax credits to 2012. The provisions will be merged with legislation passed by the Senate in June. The White House said it might veto the bill because it made "no serious attempts to increase our energy security or address high energy costs."
Sources: MarketWatch, Reuters, AP
Commentary: Book Review: A Thousand Barrels a Second • Rising Crude Oil Is Driving the Dollar Down • Oil Demand to Overtake Supply by 2030 -- Report
Stocks/ETFs to watch: USO, OIL, PBW
Bear Stearns Co-President Warren Spector Resigns as Hedge Fund Woes Continue
Bear Stearns co-president Warren Spector's fate was decided last Wednesday, when he reportedly was asked to resign by CEO James Cayne. Over the weekend, Bear Stearns announced Spector's resignation, following S&P's downgrade of its credit outlook from "A+" to "junk" on Friday. Spector was head of fixed income and asset management, and thus, is being held responsible for the firm's hedge fund losses, which now extend across three funds, two of which have filed for bankruptcy (see full summary). Shares of Bear Stearns continued to free fall Friday, dropping 6.3% to $108.35. They are now down 28% since June -- when the hedge fund woes were publicly acknowledged -- and 33% year-to-date. An analyst at Punk, Ziegel & Co. in Florida told Bloomberg that by ousting Spector, management is acting as if it "didn't know what was going on, and that is just totally unsupportable. If there is no oversight system, people should be looking at Jimmy Cayne." Co-president and investment banker Alan Schwartz has been appointed president.
Sources: Press release, Bloomberg, TheStreet.com, Wall Street Journal
Commentary: Another Bear Stearns Hedge Fund Hit with Margin Calls • Brokers Are The New Homebuilders - Forget The Bailouts • Risky Business: Hedge Funds Can Freeze Redemptions
Stocks/ETFs to watch: BSC. Competitors: GS, LEH, MER. ETFs: IAI, KCE
Berkshire's Net Rises 33% On 13% Revenue Growth
Berkshire Hathaway saw its net income climb 33% during 2Q07 on a strong performance by its insurance-underwriting business. Revenue climbed just 13% but a 70% jump in its insurance-underwriting operating income helped pad earnings growth. Weakness in Berkshire's U.S. construction and housing-related businesses tempered what would have been even further gains. Total net was $3.118 billion, good for EPS of $2,018, versus consensus estimates of just $1,444.18 a share. Revenue during the quarter was $27.35 billion, compared with $24.19 billion a year earlier. Revenue from insurance businesses Geico and General Re was $2.21 billion, up 32% from a year ago, while its manufacturing, service and retailing units posted pretax earnings of $1.09 billion (vs. $896 million a year ago). The company's stock purchases climbed to $11.46 billion (versus just $4.65 billion a year earlier), while cash positions grew to $46.95 billion, versus $42.07 billion a year earlier. Morningstar analyst Justin Fuller believes "Berkshire Hathaway is really like a put option on a market decline. If there's any kind of tumult or volatility in the market, Berkshire stands ready to deploy its capital at what would be very attractive asset prices." Its shares are up nearly 20% over the recent 12-month period; Berkshire A shares closed at $109,900 Friday, before earnings were announced.
Sources: Press Release, Wall Street Journal, MarketWatch, Bloomberg, Reuters
Commentary: Buffett Takes a Stake in Kraft • Is Berkshire Hathaway a Buy at $111,000? • Dispelling The Fallacy of "Buffett Can't Buy More"
Stocks/ETFs to watch: BRK.A, BRK.B. ETFs: ELG, PRFF
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