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TECHNOLOGY

$1.53 Billion Judgment Against Microsoft Overturned

In a blow to telecom equipment manufacturer Alcatel-Lucent, a federal judge has overturned a $1.53 billion judgment against Microsoft for infringing digital music technology patents, the largest patent damages award in history. The case concerned the MP3 digital encoding format, the most common means of distributing music online. The decision could thus affect Apple, the world leader in digital music hardware and software, as well as many other companies involved in music distribution over the Internet. Microsoft licenses its MP3 technology from a German research institution that was involved in its original design, along with Bell Labs, which later became part of Lucent. Judge Rudi Brewster said one of the patents was not infringed by Microsoft and that ownership of the second was "questionable" and might require a new trial. Alcatel plans to appeal. "This reversal of the judge’s own pretrial and post-trial rulings is shocking and disturbing, especially since — after a three-week trial and four MSFT 07 08 2007 Chart ALU 07 08 2007 Chartdays of careful deliberation — the jury unanimously agreed with us," said Alcatel-Lucent spokeswoman Mary Lou Ambrus. Microsoft general counsel Brad Smith called the decision "a victory for consumers of digital music and a triumph for common sense in the patent system."
Sources: Financial Times, New York Times
Commentary: Microsoft Gets Boost in Alcatel Patent BattleMicrosoft Takes Next Round in Battle with Alcatel-LucentAlcatel-Lucent Wins $1.52 Billion Patent Judgment Against Microsoft
Stocks/ETFs to watch: MSFT, ALU, AAPL, GTW, DELL
Earnings call transcripts: Microsoft F4Q07, Alcatel-Lucent Q2 2007

Bush Administration Upholds QUALCOMM Import Ban

As expected, the Bush administration upheld a U.S. International Trade Commission ban on imported 3G cell phones using QUALCOMM chips, set to go into effect Tuesday. In a statement, QUALCOMM said it will appeal the ruling and renew its request for a stay on the ban, adding that none of Broadcom's patent claims are valid or were infringed upon. In the meantime, QUALCOMM has been developing a software workaround with carriers, which it acknowledges could be challenged by Broadcom. Sprint is reportedly most at risk, but has been using the software workaround and is also appealing the ITC. U.S. Trade Representative Susan Schwab said a second carrier has reached a settlement with Broadcom, without providing details. The Wall Street Journal reports one person familiar with the matter said AT&T and Broadcom reached a licensing deal. Verizon Wireless agreed to pay as much as $200 million to Broadcom in a settlement reached in July to allow it to continue importing phones with QUALCOMM chips. Shares of QUALCOMM gained 2.5% to $41.78 during normal trading, but fell 0.7% to $41.50 in extended activity. Broadcom rose 1.5% to $33.44 in the regular session and added 0.6% to $33.65 in the after-hours.
Sources: Press release, Associated Press, Wall Street Journal
Commentary: Qualcomm Prospering From Sales Outside U.S., Despite Bush RebuffQUALCOMM Shares Up 2.5% on Q3 Beat and Revised GuidanceITC Slaps Partial Ban on QUALCOMM, Shares Rally on Plans to Appeal
Stocks/ETFs to watch: QCOM, BRCM. Wireless carriers: VZ, T, S, DT. ETFs: BDH, WMH, IGN
Earnings call transcripts: QUALCOMM F3Q07, Broadcom Q2 2007

Microsoft Drops Xbox 360 Prices

Microsoft's Xbox 360 video game console will be up to $50 cheaper beginning Wednesday, the company said, confirming rumors leaked by bloggers in July. A 20GB Xbox will now cost $349, Xbox Elite will drop $30 to $449, while the basic console will be $20 cheaper at $279. Competitor Sony cut the price of its 60GB PlayStation 3 Xbox vs plays vs wii 07 08 2007by $100 to $499 in July (full summary), leading to widespread speculation an Xbox price cut would be forthcoming (full summary). Microsoft says, however, that the cut was planned months ago, and had nothing to do with Sony's decision. "The first phase was capturing the core audience, which we've done successfully. Now as we enter our third holiday [season], we're aiming to expand [our] audience," a spokesman said. Nintendo's Wii costs just $250, and has been outselling Xbox and PlayStation by a large margin. The price cut was leaked by bloggers who found blurred ad images of upcoming weekend circulars reflecting the cuts on the internet. Microsoft says the price drop was timed to coincide with Electronic Arts' Aug. 14 release of its blockbuster Madden NFL 08 video game: "The fact that we have been able to keep our launch price longer than any other console while retaining our leadership position demonstrates that consumers believe in the value of Xbox 360," a spokesman said. In July Microsoft was forced to take a $1.15 billion charge to cover an 'unacceptable' number of defects found in the Xbox 360 (full summary). "Hopefully, [the price cut] takes the focus away from [the] warranty issue and refocuses it on platform," Gartner analyst Van Baker said.
Sources: Press release, New York Times, Wall Street Journal
Commentary: Take-Two Plummets On 'Grand Theft' Delay; Sony, Microsoft May Be AffectedMicrosoft Investment Requires Too Much Patience - Barron's
Stocks/ETFs to watch: MSFT, SNE, NTDOY
Earnings call transcripts: Microsoft F4Q07, Sony F1Q07

INTERNET

Online Ad Spending to Overtake Print by 2011 -- Study

Online advertising sales will overtake print advertising by 2011, according to Veronis Suhler Stevenson's widely-watched annual study published Tuesday. VSS forecasts annual online advertising growth of more than 21%, reaching $62 billion in 2011, vs. print advertising's forecasted $60B. TV ad revenues, it says, will still hold the top spot at a predicted $80B in 2011. "The path of online advertising and newspaper advertising is a continuation of what we’ve been observing for many years, but it is finally getting to the point where the lines will cross," said VSS's James Rutherfurd. The study notes that in 2007, the amount of time spent reading online will overtake time spent reading newspapers for the first time. Overall media use was down 0.5% in 2006 to 3,530/hrs per person, while workplace media usage jumped 3.2% to 260/hrs per employee per year. “Knowledge and information industries drive the US economy, meaning that information is a critical tool,” Rutherfurd said. "Companies are prepared to pay a lot of money to get that information."
Sources: Financial Times
Commentary: A Look At ValueClick's Future11 Advertising Stocks That You Might Be Tempted to BuyIs Internet Advertising Really Worth Billions?
Stocks/ETFs to watch: GOOG, YHOO, MSFT, TWX, AQNT, VCLK
Related: VSS website

RETAIL

Wynn Resorts Jumps On Strong Earnings Beat

Wynn Resorts' shares shot up 6.25% in anticipation of earnings in composite trading Monday, then gained an additional 10.25% after hours on a strong beat quarter (earnings call transcript).wynn Adjusted EPS were $0.92 (adjusted net income of $100.8 million), versus a net loss of $0.05 a share a year earlier. Revenue increased 151% to $687.5 million on strength in both Las Vegas operations as well as the Wynn Macau, which was not yet open in the previous year period. Consensus analyst estimates were for adjusted EPS of $0.53 on revenue of $604 million. By region, Wynn's net revenues rose 40% to $159.4 million in Las Vegas on greater casino wins and higher revenue per available room, as well as strength in food and beverage sales. Wynn Macau generated $352.5 million in revenue, up from $304.6 million in the prior quarter, on a higher than expected 3.3% win percentage at the Chinese casino's VIP tables. The Wynn Macau opened its doors in September 2006; plans are underway to double the size of the gaming area at the Wynn Macau by 2008.
Sources: Press Release, Reuters, Bloomberg, TheStreet.com, MarketWatch
Commentary: Wynn Resorts: Price Levels and Buyback Create a Winning CombinationWynn Resorts Leveraging Two Key Gaming ThemesMacau Resort Leads Wynn to Earnings Beat
Stocks/ETFs to watch: WYNN. Competitors: LVS, TRMP, MGM, HET
Earnings call transcripts: Wynn Resorts Q2 2007

FINANCIAL

NovaStar Shares Rally on Resumption of Originations

Shares of subprime mortgage lender NovaStar Financial gained nearly 6% to close at $6.78 Monday after the company announced its wholesale unit will resume mortgage originations, which had been suspended the previous Friday. The halt, which was prompted by difficulties the company was NFI 07 08 2007 Charthaving selling mortgages in the secondary market, sent its shares skidding 35% in Monday morning trading on fears the move was a precursor to bankruptcy protection. Secondary-market sales are essential to generate the funds needed to make more loans. NovaStar said late Monday it is adjusting pricing and will be able to fund new mortgages Tuesday. "NovaStar has continued to honor all existing commitments and fund all loans that have already been approved and committed for closing," the company said in a statement. "We believe we can best serve the interests of our shareholders and the mortgage market by making prudent economic decisions on loans we originate in the current market environment." The news follows the adjusting by Friedman, Billings, Ramsey analyst Scott Valentin of his price target on NovaStar to zero. "The likelihood of subprime mortgage market conditions improving in the near term (is) very low," he wrote, adding that "there is a high likelihood NovaStar will be unable to continue operations."
Sources: Reuters, MarketWatch I, II, Dow Jones, Wall Street Journal
Commentary: Novastar Proves Virtues of a Reverse SplitNovaStar: Analyst Lowers Price Target To ZeroNovastar Financial: The Last Refuge of a Corporate Scoundrel
Stocks/ETFs to watch: NFI

Fannie Mae, Freddie Mac Soar on Possible Easing of Portfolio Limits

Government-backed mortgage lenders Fannie Mae and Freddie Mac surged 10.4% to $62.50 and 7.7% to $60.00, respectively, Monday, on news that Fannie Mae has approached the Office of Federal Housing Enterprise Oversight [Ofheo] to request permission to take on more mortgage assets. The rise was Fannie Mae's biggest in five years, and accompanied a 2.4% rise in the broader S&P 500. An assent by the regulator to relax lending restrictions would enable the lender to provide more market liquidity. "There is significant pressure coming from lenders to the regulators asking for steps like that," said mortgage-industry consultant Howard Glaser. "Lenders themselves are requesting Ofheo allow Fannie Mae and Freddie Mac to step in." Ofheo currently restricts Fannie Mae's FRE 07 08 2007 Chart FNM 07 08 2007 Chartportfolio to $727.2 billion, its level on Dec. 31, 2005, and Freddie Mac must restrict annual growth of its $712.1 billion portfolio to 2%. Easing the restrictions "would constitute a much more precise and effective...liquidity injection than would a rate cut by" the Fed, said T.J. Marta, a bond strategist at RBC Capital Markets. The Fed's FOMC meets Tuesday.
Sources: Reuters, Wall Street Journal, CNBC, Bloomberg, Financial Times
Commentary: The Short Case On Fannie MaeFannie, Freddie and WaMu Spearhead Subprime Borrower HelpFreddie Mac Misses on Trading, Credit Guarantee Losses
Stocks/ETFs to watch: FNM, FRE
Earnings call transcripts: Freddie Mac Q1 2007

Bear Stearns May Attract Big Banks; Shares Rally on Renewed Analyst Confidence

JPMorgan, Wachovia, Bank of America and HSBC are among the banks that might scoop up Wall Street's number-five broker Bear Stearns, analysts say. Shares are down 30% YTD, making it a potential bargain for a suitor, but at the same time giving Bear management a disincentive to sell itself. JPMorgan lags peers in prime brokerage BSC 07 08 2007 Chart(financing and clearing hedge fund trades), a hole a BSC acquisition would fill. Bank of America could use BSC to beef up its investment banking, which is weaker than that of rivals Citigroup and JPM. And HSBC's potential pursuit could be due to the companies' similar approach in heavy-handed cost-control management. During the past month, two BSC hedge funds that invested in subprime securities folded, while a third blocked investor redemptions (full summary). In a Friday conference call, Bear assured investors of its viability, but also said the current lending environment was the worst it had seen in 22 years. On Sunday, co-president Warren Spector resigned (full summary). On Monday, the Wall Street Journal reported BSC had talked with Chinese investors about buying a stake in the company, but that Blackstone's sale of a $3B stake in China had kindled the interest of other Wall Street Banks and brokers, making Bear a less appealing option. Financial Times reports CEO Jimmy Cayne has been soliciting other Wall Street banks to help it head off a confidence crisis by reassuring investors of its financial stability. Shares fell in early trading Monday following Spector's resignation, but rallied to close up 5% after analysts made some reassuring comments, and S&P analyst Scott Sprinzen said the market had overreacted to his company's Friday note saying it might downgrade BSC's credit rating.
Sources: Reuters, MarketWatch, Financial Times I, II
Commentary: A Dissenting View on The Bear Stearns CallBear Stearns: Watching and Waiting for a Buy SignalI-Bank Stocks Are Falling Knives
Stocks/ETFs to watch: BSC, JPM, WB, BAC, HBC, C. ETFs: IAI, KCE

MUST-READS ON SEEKING ALPHA TODAY

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Internet: 4 Reasons To Spin-Off PayPal
Telecom: Telefonica: 2007 Q2 update
Networking: Nortel Still Lacks Focus - Genuity
Hardware: New iMacs Likely To Boost Apple
Software: Placing a Small Bet on Adobe
Gadgets: The Nokia E61i Doesn't Deliver On Its Promises
Media: Murdoch, Free The Wall Street Journal Online
Healthcare: Almost Family Inc. Trading Under the Radar
Biotech: RNAi: Seeking a Cure at the Flick of a Switch
Retail: Starbucks Price Increase: Much Ado About Nine Cents
Transport: Bob Nardelli: What His Appointment Means For Chrysler
Gold: Teck Cominco: Q2 2007 Update
Energy: Wavefront Energy: Improving Oil Recovery
Financial: OptionsXpress Holdings: Overall Market Declines Could Spell Trouble
Asia: Valuation Analysis: China 3C Group
ETFs: BGI's New International REIT ETF Is Heavy On Japan
Small-Caps: Frontier Airlines: There's Change in the Air
IPO Analysis: VMware, A Virtualization Pioneer
Sound Money Tips: Prepare for Disaster
Jim Cramer: Latest stock picks
Earnings Transcripts: Tim Hortons Q2 2007National Interstate Q2 2007 Earning Call TranscriptGateway Inc. Q2 2007Blue Nile Q2 2007BMC Software F1Q08Wynn Resorts Q2 2007Quality Systems F1Q07Ctrip.com Q2 2007SINA Q2 2007

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