Nokia in Talks to Buy Navteq - WSJ
Mobile phone manufacturer Nokia is in advanced talks to buy navigation software maker Navteq Corp., the Wall Street Journal reported Monday. Chicago-based Navteq, which has a market cap of $7.61 billion, is a leader in electronic mapping used for car navigation and mobile phone applications like shopping, emergency services and advertising. Although Nokia sells more than a third of all handsets sold around the world, it is facing mounting competition from Asian competitors who offer handsets at lower prices. To fend off that threat, Nokia has been assembling a suite of mobile services. The purchase of Navteq, which trades at 54x earnings -- substantially higher than the music and games services Nokia has already bought -- would represent what the Journal calls a "vigorous move into the mobile-services arena." Navteq posted Q2 net income of $40.9 million on revenue of $202.3 million. Its stock price has more than doubled this year; Nokia's is up almost 90%.
Sources: Wall Street Journal
Commentary: Navteq Driven By Place and Location Services Growth • Garmin, Navteq Soaring; GPS Is Hot • Nokia Buys Cellphone Ad Firm Enpocket
Stocks/ETFs to watch: NOK, NVT. Competitors: GRMN, ERIC, MOT. ETFs: FVI, PYH, DSC
Earnings call transcript: Nokia Q2 2007, Navteq Q2 2007
Sony Financial IPO Raises $2.8B; OLED TVs Coming Soon
Sony raised ¥320 billion ($2.77B) from its insurance unit's IPO priced at ¥400,000/share, at the top end of a lowered range from ¥415,000. Sony sold a 34.5% stake of Sony Financial, and expects to book an annual profit of ¥14B from the sale. Sony Financial's businesses include life and auto insurance and online banking. Sony Financial is scheduled to begin trading on Oct. 11. Sony plans to use the proceeds to increase LCD TV production and fund its Games division, which is in the red due to PlayStation 3 development costs. One analyst called the IPO price "acceptable" considering the lingering impact of subprime, while another analyst said the offering is "expensive" and "too big" for the current market. Separately, Sony said it will start selling organic-light emitting diode [OLED] TVs from Dec. 1 in Japan. Sony is the first company to offer an OLED TV. It plans to make only 2,000 units per month. The display will be 11", only 3mm thick, and cost ¥200,000 ($1,700). Ordinary shares of Sony gained 1.4% to ¥5,650 on Monday, before the IPO announcement was made. Sony's ADRs lost 0.6% to $48.06 on Friday.
Sources: Bloomberg, MarketWatch
Commentary: Sony's Q1 Profit Doubles Despite Widening Game Losses • Japan: Nomura's September Individual Investor Survey • Japan: Don't Waste Your Time and Money
Stocks/ETFs to watch: SNE. ETFs: ADRA, EWJ
Earnings call transcript: Sony F1Q07
Microsoft to Offer Online Services to Corporate Customers
In a significant departure from its traditional business model, Microsoft announced Sunday it will introduce new online services aimed at corporate clients to be sold on a monthly subscription basis rather than on a licensing fee basis. This will be the first time Microsoft will deliver software online to its "bread-and-butter corporate customers." The applications to be offered over the next few months will include e-mail, instant messaging and collaboration software. They will run on servers inside Microsoft's data centers and be accessed online by users. "We'll look back on this announcement and say that's when Microsoft really started to provide software plus services," said John Rymer, senior analyst at Forrester Research. "It's the first step and there is so much more to come." Microsoft is competing on this front with Salesforce.com and Google, which offer online services to corporations that replace traditional software. Microsoft also announced Office Live Workspace on Sunday, a combination of software and services that will allow corporate employees to share Word, Excel and PowerPoint documents online for free. Exchange Online, Office SharePoint Online and Office Communications Online are the respective brandnames of Microsoft's new email, collaboration and IM software.
Commentary: GOOG Starts to Monetize Google Apps, "Brutal" Timing for Microsoft • Microsoft to Embrace Online Office Slowly; Enhances Search Privacy • Microsoft Overhauls Internet Unit
Stocks/ETFs to watch: MSFT. Competitors: GOOG, CRM, IBM, ORCL. ETFs: IXN, PRFQ, SWH
Earnings call transcript: Microsoft F4Q07
Acxiom Buyers May Pull Out -- WSJ
Acxiom Corp. and ValueAct Capital Partners and Silver Lake Partners, the private-equity buyers who have agreed to purchase the data-management company, are in talks about terminating the proposed $2.25B deal. According to the Wall Street Journal, the two sides are looking to work out a settlement to end the process with a likely payment of $65M, rather than the $110M termination fee spelled out in the agreement. The two firms were expected to pay $15M-$20M each, while Morgan Stanley and UBS AG, two of financing banks, will foot the rest of the bill. Bank of America, which also was to participate in the financing, has refused to contribute to the termination fee, according to people familiar with the situation. The Journal report said the reversal comes in the wake of a disappointing earnings report for the fiscal quarter ended in June and expectations the current quarter will be even worse. Acxiom shares closed Friday at $19.79, well below the $27.10 agreed upon in May. Tensions between ValueAct and Silver Lake also, apparently, contributed to the desired break-up. Silver Lake declined to comment; ValueAct and Acxiom didn't return requests for comments.
Sources: Wall Street Journal
Commentary: Credit Squeeze Causing Activists to Back Off Merger Opposition • Silver Lake, ValueAct to Buy Acxiom for $2.25 Billion
Stocks/ETFs to watch: ACXM, UBS, MS. Competitors: DNB, HHS. ETFs: IGV, SWH, PSJ
TRANSPORT AND AEROSPACE
UPS Strikes Tentative Deal With Teamsters Union
United Parcel Service and the Teamsters union said Sunday they have reached a tentative five-year deal, putting to end what analysts had considered a serious issue for the carrier. The agreement boosts parcel workers' wages and benefits by $9/hour over five years, but allows UPS to pull out of the union's Central States Pension Fund, which covers workers at multiple trucking-industry companies, in exchange for a one-time $6.1 billion payment. In 2006, UPS, the fund's biggest contributor, payed $1.4 billion into the fund. Analysts have said a withdrawal could ease UPS's high labor costs, which currently put it at a disadvantage to FedEx, which is largely non-union. "This agreement will allow us to remain competitive in a challenging marketplace," CEO Mike Eskew said in a statement. However, UPS must create and fund a new pension plan for 43,000 of its active Central State employees, while another 185,000 unionized employees will remain in other pension funds. The company said last night overall pension contributions per employee will rise, leading some to question when and if UPS will indeed realize savings from the restructuring.
Sources: Reuters, Wall Street Journal
Commentary: UPS Posts Q2 Profit Rise on Strong International Shipments • UPS's Recent Quarter Is Bailed Out By International Strength
Stocks/ETFs to watch: UPS, FDX. ETFs: PRFN, EXI, VIS
Boeing Tops Airbus in Q3 Orders
MarketWatch reports Boeing booked 338 new orders in Q3, almost 100 more than Airbus' 240 orders, according to analyst Christine Min of Calyon Securities. Min attributes the wide difference in orders to Airbus' "very good" showing at the Paris Air Show in June, noting, "Boeing doesn't save up orders for the air show." Min estimates year-to-date Airbus has received 920 orders, boosted by 470 orders announced in June, compared to 887 YTD for Boeing. Seemingly large forthcoming announcements are expected for both companies, since, as Boeing CFO James Bell mentioned earlier in September, legacy carriers in the U.S. and EU "have yet to place meaningful orders, yet they will soon need to replace and modernize their fleets." Shares of Boeing lost 0.45% to $104.99 on Friday, but gained most of it back in light extended trading. Airbus parent EADS was last down 0.65% to €21.42 in midday trading in Paris.
Commentary: Boeing Claims It Can Deliver 787 Dreamliner On Time • Options Trader: Plays on Dow Components • Boeing Gets $1.1B Contract, Says 787 on Track
Stocks/ETFs to watch: BA, EADS (Paris: 005730). ETFs: ITA, PPA, DDM
Earnings call transcript: Boeing Q2 2007
ENERGY AND MATERIALS
End of Ethanol Boom in Sight - NY Times
The ethanol boom of recent years may be receding sooner-than-expected after companies and farmers have flooded the market with distilleries, and distribution fails to keep pace with production, the New York Times reported Sunday. Spot ethanol prices have fallen 30% since peaking in May, with the drop escalating sharply in recent weeks. "The end of the ethanol boom is possibly in sight and may already be here," said Iowa State economics professor and industry consultant Neil E. Harl. "This is a dangerous time for" investors. The ethanol boom began in 2005 after Congress legislated the use of renewable fuel -- 7.5 billion gallons a year by 2012 -- vs. just 3.5 billion in 2004. But producers are expected to outpace that mandate by the end of this year, reaching 7.8B gallons, and 11.5B by 2009. Ethanol can only be moved by train, truck and barge, and there is a huge backlog in orders for specialized ethanol rail cars. Iowa State University professor Philip Baumel says producers ramped up production rapidly, but failed to pay adequate attention to transportation and distribution needs. Bulls say a new energy law that increases consumption and potentially government subsidies is inevitable, and that lower ethanol prices will lead to refiners blending more ethanol into their gasoline. "This is an industry that is going to continue to grow," said Hawkeye Renewables CEO Bruce Rastetter. "Once you see an energy bill, I think you will see the industry respond." In the meantime, Rastetter shelved his plans to build a fifth distillery and take Hawkeye public.
Sources: New York Times
Commentary: Everything You Wanted To Know About Ethanol Production But Were Afraid to Ask • Ethanol Producers Feel The Impact of Higher Corn Prices
Ethanol producers: ADM, VSE, USBE, AVR, ANDE, PEIX. ETFs: PBW, PUW
UBS to Post Q3 Loss; Cut Jobs
In a fresh indication of the global impact of the U.S. subprime-mortgage collapse, Swiss banking giant UBS said Monday it will write down $3.4 billion (4 billion Swiss francs) in losses on mortgage-backed securities, resulting in a Q3 loss of 600-800 million Swiss francs. This will be UBS's first loss in nine years, and the first reported this year by any of the world's big banks. UBS reported a net profit of 2.2 billion Swiss francs in the year-ago quarter. The bank will also cut 1,500 jobs at its investment banking division and remove investment bank head Huw Jenkins and Group CFO Clive Standish. CEO Marcel Rohner will take over Jenkins's responsibilities. UBS, which has ventured out in recent years from its central private banking business, has been hit harder than other banks that were exposed to the U.S. subprime meltdown. Goldman Sachs, Lehman Brothers, Morgan Stanley and Bear Stearns all recently posted Q3 profits (although Merrill Lynch, which has yet to report, could face a Q3 writedown of up to $4 billion, according to an analyst cited by the WSJ). Rohner, who took the reins in July following the shutdown of UBS's internal hedge fund, Dillon Read Capital Management, is adopting a more conservative strategy for the bank, including placing new limits on the investment banking business.
Sources: Wall Street Journal, Reuters, Bloomberg, MarketWatch
Commentary: UBS Beats, Warns H2 Profits Could Fall • UBS Ousts CEO Wuffli; Replaces Him with Rohner • UBS Accused of 'Running Hedge Fund Hotel' After Offering Half-Priced Snacks
Stocks/ETFs to watch: UBS. Competitors: C, CS, HBC, DB. ETFs: EKH, EWL, IXG
Earnings call transcript: UBS Q2 2007
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
• With gold prices near a 30-year high at $750/oz., gold fund manager John Hathaway doesn't believe it will take much to get the precious metal up to the magical $1,000 mark. Among the stocks poised to benefit from gold's rise, he says, are Newmont Mining (NEM), Gold Fields (GFI), Ivanhoe Mines (IVN), and Randgold Resources (GOLD). (Full summary)
• Dismal earnings reports from homebuilders Lennar (LEN) and KB Home (KBH) leads Barron's to speculate the downward housing cycle may not end until some of the weakest players face bankruptcy. One analyst says that by Q4 many builders may not be generating enough cash flow to cover interest payments. Those interested in taking a chance on the sector should stick with builders with the strongest balance sheets such as NVR (NVR) and MDC Holdings (MDC). Even better is to buy the industry's senior bonds, which are a safer bet than the shares. (Full summary)
• Nordson Corp.'s (NDSN) shares are down on fears it overpaid for a 2006 acquisition of British semi-conductor parts-maker Dage Group. But Q3 sales were up 20% in that unit, and a sector-wide uptrend is yielding sunny forecasts for Nordson's circuit-board assembly and testing division. The company has increased its dividend every year for 43 years, and usually leaves some cash to spare. The Street forecasts a 30% rise in 2008 earnings, and bulls see $62 shares by 2008 -- a 20% gain. (Full summary)
• Whether or not AMR Corp. (AMR) heeds last week's call for a spin-off of its frequent flier assets by an Icelandic Investment firm, Barron's says there's value to be had in its shares, which trade at just 6X analysts' forecasts for 2008, while the company is "solidly" profitable after a dry spell from 2001-2005. It also has a great route network and valuable non-airline assets. Barron's thinks the shares could rise 50% or more over the next year. (Full summary)
• Auto parts-maker BorgWarner (BWA) should be suffering from slumping U.S. auto sales and recession fears. But industry-leading products like dual-transmissions and fuel-emissions reducers for diesel engines are increasingly popular, protecting it from industry cycles and price wars. Plus, Europe and Asia account for 63% of its sales and growing. Fuel efficiency systems and turbochargers have made diesels cleaner, stronger, cheaper at the pump and more enticing to Americans in the face of rising gas prices. Goldman Sachs calls it a recession-defense stock. Shares have risen 50% this year to $91.92; bulls say it's worth $105-$110. (Full summary)
MUST-READS ON SEEKING ALPHA TODAY
Have Wall Street Breakfast emailed to you every morning before the market opens.