Futures Give Back Gains Overnight
Asian markets Friday morning were unimpressed by Thursday's late-day rally in the U.S. Major overseas indexes dropped sharply as investors downsized their portfolios amid worries over the turmoil in global credit markets and the Japanese yen's rally. The Japanese Nikkei 225 index (pictured) fell 5.4% to 15,273.68, its biggest one-day loss in seven years. Hong Kong's Hang Seng index fell 3.3% to below 20,000, while the Hang Seng China Enterprises Index fell 6.4%. U.S. index futures responded: Dow futures are off 118 points while S&P 500 futures are down 13 points to 1411 at 7:37 a.m. ET. Shares of Sony (-6.8%), Canon (-8.6%), Toyota (-7.2%) and Honda (-8.2%) dropped in Japan over fears their exports will be hurt by a strong yen, which gained 1.3% against the U.S. dollar, 2.7% against the Australian dollar and 1.4% over the euro in Friday trading. In an extremely volatile Thursday session characterized by sudden price swings and huge volume, buyers clawed back from greater than 300-point losses on the Dow and a 40 point drop in the S&P 500 index to end the day in or close to positive territory. The S&P 500 Index closed at 1,411.26, up 4.56 points, while the DJIA closed down 15.69 points at 12,845.78. The Nasdaq fared worse, ending the day down 7.76 points, at 2,451.07 after hitting an intraday low of 2,386.69. Countrywide Financial, which Thursday morning sent shockwaves through the markets when it said it had exhausted an $11.5 billion line of credit in order to alleviate liquidity pressures, saw its shares drop as much as 20% in intraday trading, but ended the day down a milder 4.2% at $20.38.
Sources: MarketWatch, Bloomberg
Commentary: Predicting the Market: Difficult and Dangerous • Markets Recover Slightly: Is It Time to Celebrate Yet? • Citigroup Offers A Remedy For The Painful Days of August
Stocks/ETFs to watch: DIA, SPY, AGG
Countrywide Empties $11.5B Credit Line
U.S. mortgage lender Countrywide Financial said Thursday it has drawn down its entire $11.5 billion credit line in order to fund its operations and stave off liquidity concerns, as subprime-only troubles graduate to the top names in the industry. Last week, Countrywide said it had adequate sources of liquidity. But since then, the markets where mortgage lenders resell their loans have virtually dried up as investors flee risk exposure. Compounding its problems, the cost of insuring its debt has soared 67%, indicative of increased concerns over CFC's creditworthiness. The firm also said it has significantly tightened lending standards: some 90% (up from 70%) of future loans will be limited to loans that comply with standards established by government-sponsored lenders Freddie Mac and Fanny Mae, a move it hopes will keep its loan portfolios more favorable in lenders' eyes. In a note to clients Wednesday, Citigroup analyst Bradley Bell downplayed the mortgage lender's troubles: "We believe recent weakness in CFC’s shares, linked to concerns about its access to funding in the currently dislocated market, was significantly overdone," he said. "We think CFC has sufficient short-term liquidity to weather the current storm." Going forward, the company said it is accelerating its plans to fund its production through Countrywide Bank, FSB. By the end of September, it said, "nearly all" of its volume will be originated through its bank, a move that will let Countrywide sidestep the need to sell its loans in shaky secondary markets.
Sources: Press release, MarketWatch, Dow Jones
Commentary: Merrill Downgrades Countrywide: A Look At Past Analyst Calls • Thornburg, American Home Mortgage, Countrywide Financial: Analyzing the Analysts
Stocks/ETFs to watch: CFC. Competitors: BAC, WFC
Earnings call transcript: Countrywide Q2 2007
HP Q3 Net Up 29%, Beats Street
Hewlett-Packard posted a 29% increase in fiscal Q3 net income to $1.78 billion, or $0.66/share, on revenue growth of 16% to $25.4B. Adjusted EPS totaled $0.71/share, compared to analysts' average estimate of $0.66 on sales of $24.1B. Its shares rose last up 2% to $47.08 in extended trading. In a press release, HP said it estimates Q4 adjusted EPS of $0.80-$0.81, on revenues of $27-$27.2B. Analysts had forecast $0.78 on sales of $26.46B, on average. HP's earnings call is at 5 p.m. (earnings call transcript later today). Shares of HP closed up slightly (0.04%) to $46.17 during normal trading.
Sources: Press release, Reuters
Commentary: Hewlett-Packard Slips Ahead Of Earnings Report Thursday • Good News For Dell, HP: Cheaper Component Costs And Strong Consumer Demand
Stocks/ETFs to watch: HPQ. Competitors: LNVGY.PK, DELL, GTW, AAPL. ETFs: IAH, VGT, IXN
IBM to Sell Sun's Solaris
IBM said Thursday it will begin selling Sun Microsystem's Solaris operating system, the first major hardware vendor to do so. Sun's Solaris will be an option on selected Big Blue servers, and may later become available on IBM's mainframes. IBM's Bill Zeitler called the joint effort "a sea change for the hardware business," while Sun CEO Jonathan Schwartz said relationship was its only "tier-one relationship" and a "tectonic plate shift" that would accelerate the adoption of Solaris. IBM also offers three home-grown operating systems, two Linux distributions, and the ubiquitous Microsoft Windows. Bob Djurdjevic of market researcher Annex Research said he believes IBM will quickly move to put Solaris on non-x86 machines because the it has a much wider audience than IBM's AIX. Zeitler said developers have already successfully run Solaris on IBM mainframes.
Sources: Press release, Wall Street Journal
Commentary: IBM To Expand Support for Sun’s Solaris 10 • Sun’s Jonathan Schwartz Speaks Out On Monetizing Free Software
Stocks/ETFs to watch: IBM, SUNW. Competitors: MSFT, NOVL, RHT, AAPL, HPQ, DELL
Nokia Seeks to Block U.S. Import of Qualcomm Chips
Nokia filed a complaint Friday with the U.S. International Trade Commission requesting that imports be blocked of several Qualcomm CDMA and WCDMA/GSM chipsets on the grounds that they violate five Nokia patents. "The patents in question relate to technologies that improve the performance and efficiency of wireless communication devices as well as enabling lower manufacturing costs, smaller product size and increased battery life," Nokia said. The company is also requesting that handsets containing the chipsets be barred from entry. "There is significant evidence to warrant an ITC investigation into Qualcomm's business conduct," said Nokia CFO Rick Simonson. "We are seeking the same remedies Qualcomm has sought against Nokia in multiple venues around the world. Nokia will continue to ensure its rights and competitive advantage is protected." Qualcomm filed a similar complaint against Nokia last year, seeking to block import of Nokia handsets that allegedly infringe Qualcomm patents. Nokia and Qualcomm are already embroiled in a dispute over how much Qualcomm is entitled to receive in royalties for third-generation Internet-accessible phones. A cross-licensing agreement expired April 9, and Nokia argues that it should now pay Qualcomm lower fees.
Sources: Reuters, LA Times, Bloomberg, Dow Jones
Commentary: Nokia Arms The Competition Against Qualcomm • Nokia Shares Higher on New Chip Strategy, Despite InterDigital Patent Claim • Qualcomm: Friend and Foe Alike Keeping Their Distance
Stocks/ETFs to watch: NOK, QCOM. Competitors: MOT, ERIC. ETFs: FVI
Earnings call transcripts: Nokia Q2 2007, QUALCOMM F3Q07
Dell Admits Falsifying Results; Will Restate Four Years of Earnings
PC manufacturer Dell admitted Thursday that senior management manipulated quarterly results from 2003 through 2006 to make it appear the company had met its objectives. Dell will accordingly restate results for fiscal 2003, 2004, 2005, 2006 and Q1 2007. The restatement could reduce net income by $50-150 million ($0.02-0.07/share) over the period and reduce revenue by 1% or less for each of the four years. The severest earnings cuts are expected in Q1 2003 and Q2 2004, which will each drop 10-13%. Dell said there is evidence that at the close of quarters, improper adjustments were deliberately made that "appear to have been motivated by the objective of attaining financial targets." Firings, reassignments, reprimands and fines will be implemented in the wake of the investigation. The audit began last August and involved examination of over 5 million documents. The SEC is continuing its own probe into Dell's accounting and reporting practices. "The magnitude of this stuff is very small," said Roger Kay, president of Endpoint Technologies Associates. "I don't think it's anything that's going to rise to the level of criminality, but then again, I'm not the SEC."
Sources: Reuters, Seattle Times, New York Times, Dow Jones, Bloomberg
Commentary: Dell Confesses To Cooking The Books • Dell Finds Evidence That Books Were Cooked • Citigroup Recommends Buying Dell on Current Weakness
Stocks/ETFs to watch: DELL. Competitors: HPQ, IBM. ETFs: IAH, PRFQ, ROM
Earnings call transcripts: Dell Q2 2007
Sprint Nextel Spells Out WiMax Targets
Number-three U.S. wireless carrier Sprint Nextel said Thursday it will spend up to $5 billion through 2010 on its WiMax high-speed wireless network. The company forecasts it will derive $5 billion in revenue from the network -- to be branded "Xohm" -- by 2011. Sprint also said its WiMax expenditures through 2008 will be lower than expected because of its agreement to connect the network with provider Clearwire Corp. Sprint is betting that consumers will want fast wireless Internet access not only for their phones but also for their videogame players, cameras and other electronics. "I find it hard to believe customers will be willing to pay for a broadband connection to their digital camera or their DVD player," said Surterre Research analyst Todd Rethemeier. Competitors AT&T, Verizon and Vodafone have not yet committed to WiMax, but Sprint sees it as an advantage to be first in the field. "WiMAX has the ability to transform the marketplace," said Sprint CFO Paul Saleh. It is less expensive and supplies more customers than Verizon's FiOS fiber project or AT&T's U-Verse Internet TV service, he said.
Sources: Press release, Wall Street Journal, Reuters
Commentary: Clearwire, Sprint Near WiMax Deal -- WSJ • Sprint Nextel Seeks Help With WiMax -- WSJ • Sprint Nextel's Downward Spiral Continues
Stocks/ETFs to watch: S, CLWR. Competitors: T, VZ, VOD. ETFs: WMH, TTH, VOX
Earnings call transcripts: Sprint Nextel Q2 2007
Nordstrom Posts Beat Q2 Profit, Guides Higher
High-end department store Nordstrom Inc. reported a rise in Q2 earnings on the back of stronger-than-expected same-store sales. The company also raised guidance for the full year. Q2 net profit reached $180.4 million ($0.71/share) from $178.8 million ($0.67) in the year-ago period. (See full earnings transcript.) Revenues were up 5.2% to $2.39 billion on demand for designer apparel, accessories and menswear. Analysts were expecting EPS of $0.69 on revenue of $2.38 billion. Same-store sales rose 5.9% in Q2, above the company's forecast of a low single-digit rise. The annual anniversary "sales event," held in July, recorded a same-store sales increase of 7.9% in stores carrying the company's full line. "By giving our customers compelling reasons to buy something new, our July sales volume approaches levels we see in December," said Nordstrom President Blake Nordstrom. The company raised its full-year 2007 EPS forecast to $2.91-2.97 from $2.81-2.90. Analysts had been expecting EPS of $2.92. For Q3, Nordstrom is projecting EPS of $0.61-0.64, excluding a gain from the company's pending sale of its Façonnable line but including a $0.01 gain from non-comparable operating items. The Street had been forecasting Q3 EPS of $0.63.
Sources: Forbes, Reuters, MarketWatch, Dow Jones
Commentary: Nordstrom Near Agreement to Sell Façonnable Line -- WSJ • July Same-Store Sales Roundup • Number One Retail Category: Online Clothing Sales
Stocks/ETFs to watch: JWN. Competitors: M, SKS, JNY, ANN. ETFs: PMR, VOT
Judge Refuses to Block Whole Foods-Wild Oats Merger
Shares of Wild Oats soared 18.3% to close at $18.00 in AH trading Thursday after a U.S. District Court judge refused to grant the FTC's request to block Whole Foods' pending $565 million acquisition of its smaller rival. Whole Foods gained 8.3% to $44.60 on the news. If the FTC elects not to pursue an emergency appeal, the deal could be completed by next week. The FTC argued the merger would inhibit competition in the already narrow organic and natural foods sector, but Judge Paul Friedman decided it would not violate antitrust laws. Whole Foods' Chairman and CEO John Mackey hailed the judge's decision, calling it "a winning scenario for all stakeholders." Mackey is under fire for having anonymously touted his company's stock and derided Wild Oats on a Yahoo message board over an eight-year period. The SEC and Whole Foods are investigating the postings, and Mackey has apologized for his "error in judgment." Mackey also sent an email to his board claiming the merger would help Whole Foods eliminate "almost forever" the threat that a rival could enter the organic space. "Even with all that documentary evidence that suggested Whole Foods viewed Wild Oats as its main competitor and wanted to eliminate it, the government still didn't win its case,'' said Washington antitrust lawyer Charles Rule. The FTC, meanwhile, has improperly released confidential documents related to the case, and is being investigated by Whole Foods for the blunder.
Sources: MarketWatch, Bloomberg, Reuters, TheStreet.com, The Motley Fool, Wall Street Journal
Commentary: FTC Lets Whole Foods Trade Secrets Out Via Microsoft Word • Whole Foods-Wild Oats Merger Goes Before Court • FTC Case Strong Against Whole Foods/Wild Oats Merger -- Analyst
Stocks/ETFs to watch: WFMI, OATS. Competitors: KR, SVU, SWY. ETFs: XLP, VDC, PSL
Earnings call transcripts: Whole Foods Market F3Q07
Borse Dubai Trumps Nasdaq's OMX Bid
Borse Dubai, which owns both of the emirate's stock exchanges, said Friday it made an unsolicited 27.7 billion kronor (230 kronor/share -- $3.96 billion, $32.81/share) cash offer for Sweden's OMX AB exchange, trumping a 202.3 kronor/share cash-and-stock bid it excepted from Nasdaq Stock Market Inc. in May by 14%. Dubai is using billions of dollars of oil revenue to invest in financial services and lure companies to the area. Borse Dubai is a new holding company set up by the government to carry its stakes in the two exchanges. Acquiring OMX, it said, will give investors "access to one of the largest liquidity pools in the world" and create the world's fifth largest stock exchange. Nasdaq gave up on its aspirations to acquire the London Stock Exchange amid opposition from the LSE's shareholders and board, and CEO Robert Greifeld has since turned his attention to the OMX, hoping to gain a foothold in European markets and acquire OMX's exchange-running software. Its software runs the Hong Kong, Singapore and ISE exchanges. Nasdaq's May 25 offer consists of 94.3 kronor/share cash and 0.502 of its shares for each OMX share. Under the terms of their agreement, OMX is not permitted to actively seek other offers, but is required to evaluate any bids that it receives. Borse Dubai said it bought a 4.9% stake in OMX on Aug. 9, and has entered into option agreements to purchase another 23.5%. In a statement Friday morning, the Nasdaq said it remains 'fully committed' to its offer, which, it said, "provides superior long-term value [and] will strengthen the Nordic region." In an Aug. 9 interview, Greifeld said Nasdaq could be "flexible with regard to the structure of the offer. We certainly have the financial wherewithal to consider other alternatives."
Sources: Nasdaq statement, Wall Street Journal, Bloomberg
Commentary: Nasdaq -OMX Merger Threatened by DIFC - Report • The Nasdaq Is a Buy on Valuation and Growth Catalysts
Stocks/ETFs to watch: NDAQ. Competitors: NYX, CME, ISE, ICE
Boston Scientific Puts More Units Up for Sale
Boston Scientific said late Thursday it is looking to sell its cardiac surgery and vascular surgery units, this after previously announcing it is considering selling its fluid managment unit and some non-core assets. The San Jose-based cardiac surgery unit, acquired from Guidant Corp. in April 2006, produces equipment for less invasive heart surgery prodcedures. Sales are approximately $189 million. The Wayne, N.J.-based vascular surgery unit, acquired in 1995, makes synthetic grafts and patches to repair abdominal aortic aneurysms and peripheral vascular anatomy, and produces revenue of about $86 million. "We are in discussions with several potential buyers, and we expect the process to take a number of months," CEO Paul LaViolette said in a press release. The company is apparently launching the efforts in order to shore up its balance sheet, which has taken a hit amid slowdowns in its coated stent and implantable defibrillator businesses. The company’s debt ratings were recently fell to junk levels, although the New York Times writes it is in no immediate danger of running out of cash. Potential terms were not disclosed, but based on a modest multiple of sales, it could raise $600-$700 million, the Times writes. "Anything the company can do to cut costs, raise capital and help focus their business is good at this point," BMO analyst Joanne Wuensch told Bloomberg Thursday. "I don't think they have their backs against a wall, but there are some warning signals." Shares climbed 1.3% AH to $12.91.
Sources: Press release, MarketWatch, New York Times, Bloomberg
Commentary: Boston Scientific: A Buyout Waiting to Happen • The Long Case for Boston Scientific
Stocks/ETFs to watch: BSX. Competitors: JNJ, MDT, STJ
Earnings call transcript: BSX Q2 2007
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