Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

MACRO AND HOUSING

Housing to Hold Fed's Attention for Years, Pimco's Gross Says

In the wake of the Federal Reserve's aggressive half-point interest rate cut to 4.75% last month and expectations more are in store as it deals with the subprime crisis, Bill Gross, manager of the world's largest bond fund, said the central bank's fixation on housing wasn't likely to end soon. "The downward path of home prices ... will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market" by their holders, Gross, the chief investment officer at PIMCO (Pacific Investment Management Co.), said in his monthly report to investors. He believes the Fed probably will cut the fed funds rate further to 3.75% within the next six-to-12 months. If rates don't fall enough, he said, Fed Chairman Ben Bernanke "risks exacerbating a housing crisis," noting that after nearly 12 months of declines "only now is the Fed responding to an unfolding crisis." Possibly delaying any cuts, he said, are "false hopes" of a housing bottom or fears of a dollar crisis or misinterpreted indications of economic strength.
Sources: Reuters, MarketWatch, Bloomberg
Commentary: Housing Prices Will Continue to Fall - GreenspanWhat Credit Markets Say About The Next Fed MoveThings Have Normalized... Or Have They?
ETFs: SPY, DIA, AGG

TECHNOLOGY

Polycom Offers Q3 Guidance Slightly Below Expectations

Video conferencing systems manufacturer Polycom said Tuesday it expects flat-to-higher EPS on higher Q3 revenue as relatively weak U.S. sales growth undercut strength in international markets. The company forecasts that it will post EPS under GAAP rules in the $0.19-0.21 range versus $0.19 a year ago. On a non-GAAP basis, Polycom expects EPS in the $0.33-0.35 range against $0.27 last year. Q3 revenue is projected to rise 36-38% to $235-239 million from $173.2 million a year ago. Analysts had been forecasting EPS of $0.35 on revenue of $244.5 million. "Our results for the quarter were driven by strength in key international markets across our entire product line, offset by less than typical seasonal growth in U.S. sales," said CEO Robert Hagerty. Polycom will report Q3 results on October 17.
Sources: MarketWatch, Reuters
Commentary: Polycom To Benefit From Online Video GrowthThe Risk/Return Tradeoff For Technology Stocks
Stocks/ETFs to watch: PLCM. Competitors: ASUR, SNE. ETFs: IWO, UKK, UWM
Earnings call transcript: Polycom Q2 2007

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GADGETS

Palm Posts Q1 Loss, Lowers Guidance; Stock Down 4.7%

Shares of Treo manufacturer Palm Inc., which is struggling to compete with Research in Motion's Blackberry and Apple's iPhone, shed 4.69% to $15.25 in AH trading Monday after the company announced it had swung to its first quarterly loss in more than three years. The company also issued lower-than-expected guidance for Q2. Palm reported a net loss for fiscal Q1 of $841,000 (-$0.01/share) versus earnings of $16.5 million ($0.16) in the year-ago quarter (see conference call transcript). Excluding items, earnings were $9.7 million ($0.09/share). Revenue came in at $360.8 million, up 1% from $355.8 million last year. Consensus analyst expectations were for EPS of $0.08 on revenue of $360.3 million. Palm is projecting Q2 revenue in the range of $370-380 million and EPS of $0.06-0.08, disappointing analysts who had forecast $0.11 on $413.5 million. Palm said the weak results are partly the result of new products "being introduced at aggressive price points to expand our reach into the market." "They need new products out as soon as possible," said Global Crown Capital analyst Pablo Perez-Fernandez. Palm recently unveiled the Centro, a $99 thin smartphone scheduled for an October release. Research in Motion will report quarterly results Thursday.
Sources: MarketWatch, Forbes, Bloomberg
Commentary: Palm Says It May Post Q1 LossWill Palm's Centro Cannibalize Its Pricier Models?Trouble Expected To Continue For Palm Despite New Products
Stocks/ETFs to watch: PALM. Competitors: MOT, NOK, RIMM, AAPL. ETFs: BDH, FVI, WMH
Earnings call transcript: Palm F1Q08

Analysts Bullish on Apple Thanks to Macbook, iPhone

Analysts at Caris & Co. and Deutsche Bank gave Apple a boost Monday when they said they see rising demand for MacBooks, iPods and iPhones. Caris analyst Shebly Seyrafi raised his target on Apple by $10 to $175 per share on strong Mac sales, particularly MacBook laptops. Deutsche Bank's Chris Whitmore added that sales of the iPhone appear to have accelerated since Apple cut the price by $200. Apple shares gained 1.9% to close at $156.34.
Sources: MarketWatch
Commentary: Apple Stock Soars on Surging Mac SalesiPhone Demand Jumps Sharply After Price Cut
Stocks/ETFs to watch: AAPL. Competitors: VZ, S, MOT, RIMM, PALM. ETFs: IAH, QLD, VGT
Earnings call transcript: Apple F3Q07

Garmin Tanks On Nokia-Navteq News

Shares of navigational device manufacturer Garmin sank 14.6% before closing down 10.2% at $107.23 Monday on news that digital map maker Navteq is to be bought by Nokia for $8.1 billion, or $78/share (full story). Prior to the announcement, the market had speculated that Garmin might purchase Navteq, its main map supplier. Speculation intensified when TomTom, a Dutch competitor of Garmin's, announced in July that it is buying map supplier Tele Atlas for €1.8 billion ($2.6 billion). Though Navteq shares closed down 2% at $76.45, call options to buy the company's shares at $80 by mid-January were active, suggesting investors believe a counteroffer is possible. "[S]ome are speculating that, in order to preserve its existing relationship, there is now a chance that Garmin might make a higher bid for Navteq," said Frederic Ruffy of Optionetics. CIBC World market analyst Yair Reiner said the Nokia-Navteq deal "could have profound implications for the navigation and wireless markets" because it could make Nokia a leader in the fast-growing navigation business and limit Garmin's influence over Navteq's design decisions. The transaction "validates this market segment and...means that the combination of TomTom and Tele Atlas is maybe a takeover target in itself," said Fortis analyst Felix Oberdorfer. Google, which is rumored to be designing a phone, could be a suitor, according to an unnamed industry executive quoted by Reuters. "If Google turns out to be a Nokia competitor in six months, it could be a worry for Google (not to have the same access to digital maps)," he said.
Sources: Reuters I, II
Commentary: Nokia to Buy NavteqGarmin Looks Great, But…Garmin, Navteq: Two Navigation Stocks to Consider
Stocks/ETFs to watch: NVT, GRMN, NOK, GOOG. ETFs: FVI, PTE, DSC
Earnings call transcripts: Navteq Q2 2007, Garmin Q2 2007, Nokia Q2 2007, Google Q2 2007

MEDIA

BSkyB Holding in ITV Hurts Competition, Regulator Says

The U.K. Competition Commission said Tuesday it is consulting on "possible remedies," including a possible sale, after a provisional determination that British Sky Broadcasting PLC's 17.9% holding in ITV plc restricts competition and is against the public interest. According to the regulatory agency, the holding gives BSkyB, which is the country's biggest pay-television company, the opportunity to influence the strategy of ITV, the largest commercial broadcaster. "BSkyB would be able to influence ITV's key strategic decisions, particularly relating to investment, whether in content, capacity or new technology," said Competition Commission Chairman Peter Freeman. It also would have "the ability and incentive to take advantage of opportunities to weaken ITV or prevent it from taking actions that would threaten BSkyB's interests." The Commission intends to submit its final report in December. BSkyB said, in response, it will "continue to engage with the Commission during the remainder of this process." BSkyB bought the ITV stake for £940M last November to block its purchase by cable operator Richard Branson's NTL Inc., which is now known as Virgin Media. BSkyB is 39% owned by Rupert Murdoch's News Corp.
Sources: Bloomberg, MarketWatch, Wall Street Journal
Commentary: British Sky: Plenty of Opportunity Left Even Before Penetration Of PayTVVirgin Media and Sky: Report From The BattlefieldThe UK's PayTV Market Investigation
Stocks/ETFs to watch: BSY, ITV. Competitors: VMED

TRANSPORT AND AEROSPACE

AMR Announces Early Debt Payment

Shares of American Airlines parent AMR Corp. closed up 4.3% at $23.25 Monday after the company announced it will prepay $545 million in aircraft debt in Q4. The payment will be in addition to $1.3 billion in scheduled debt payments for 2007. The prepayment is forecast to slash $25 million in annual net interest expense as well as release 16 aircraft used to secure the loan, which has been outstanding since December 2002 and is set to mature in December 2012. The company also announced that subsidiary American Eagle Airlines made a $32 million debt prepayment in Q3. AMR, which has a market cap of $5.76 billion, expects to close Q4 with total debt of $16.6 billion. "With our improving financial performance, we have bolstered our liquidity position and we have opportunistically strengthened our balance sheet by reducing debt," said AMR CFO Thomas W. Horton. Net interest expense for the first three quarters was approximately $130 million lower than in the year-ago period. AMR estimates that it closed Q3 with $5.7 billion in cash and short-term investments, up from $5.5 billion last year. The company was profitable in 2006 for the first time since 2000, but remains under pressure from shareholders. A week ago, Icelandic investment fund FL Group, which holds a 9.14% stake in AMR, urged the company to consider strategic alternatives, including the possible spinoff of the AAdavantage frequent-flier program.
Sources: Wall Street Journal, Forbes, TheStreet.com, Reuters
Commentary: AMR Ready for Take Off - Barron'sAMR Urged to Spin Off Frequent Flyer ProgramRussell 1,000 Stocks With the Lowest PE/Growth Ratios
Stocks/ETFs to watch: AMR. Competitors: DAL, NWA, UAUA. ETFs: PPA, ITA
Earnings call transcript: AMR Q2 2007

ENERGY AND MATERIALS

ArcelorMittal to Launch Bid for the Rest of Acindar

World-leading steel producer ArcelorMittal will offer $542 million in cash to acquire the remaining 34.7% of Argentinian steelmaker Acindar it does not own, the company announced Tuesday. The company is offering AR$5.75 (US$1.83) per share, a 19.5% premium over Acindar's Monday close and 38.3% above the shares' average close over the past six months. The bid, which will be launched within the next four months pending regulatory approval, is being made by subsidiary ArcelorMittal Spain. "The offer is designed to help ArcelorMittal strengthen its position in Argentina and reinforce its commitment to enhancing its business in the country," the company said in a statement. "Latin America is a very important steel market with great potential for further growth and one which we have identified as a key region for expansion," said CEO Lakshmi Mittal.
Sources: Press release, MarketWatch, Reuters, Forbes
Commentary: 10 Steel and Iron Stocks to Strengthen Your PortfolioAntitrust Concerns Will Likely Nix Mittal Takeover of AK Steel17 Ways to Invest in The Netherlands
Stocks/ETFs to watch: MT. Competitors: X, NUE, RTP, RIO, BHP. ETFs: SLX, XME

HEALTHCARE/BIOTECH

GE, Eli Lilly Team Up on Cancer Research

GE's global research and healthcare units have entered into a 50-50, three-year venture with Eli Lilly to develop in-vitro diagnostic tools to be used to predict patient responses to cancer treatment, the companies announced Monday. Financial terms were not disclosed. About 40% of cancer patients do not respond to the treatments they are given. The pact stipulates that GE will have access to tissue samples from donors who took part in Lilly's clinical trials and Lilly will have access to some of GE's technology. GE will assist Lilly in finding patients for future trials and will provide tools that can reduce the time and expense involved in developing the drugs. "Using what we understand about the drug activity at the molecular level, we will be able to understand what patients should get the drug," said Jeremy Graff, a cancer research adviser to Lilly. GE's healthcare unit is forecast to generate approximately $17 billion in revenue in 2007, or 10% of the company's total. GE's healthcare efforts have been focused on "early health" -- the promotion of early diagnosis of conditions -- including treatments that can be used to detect Alzheimer's disease in patients before symptoms appear. Lilly closed up 2.5% at $58.35; GE closed up 1.5% at $42.02.
Sources: MarketWatch, Thomson Financial, Reuters
Commentary: Cancer Stocks: Tracking the MarketOptions Trader: Plays on Dow ComponentsGE Reiterates Earnings Guidance
Stocks/ETFs to watch: LLY, GE. Competitors: C, SI, GSK, NVO. ETFs: PPH, IHE, EXI, PRFN
Earnings call transcripts: Eli Lilly Q2 2007, General Electric Q2 2007

INTERNATIONAL

Nintendo Dominates H1 Gaming Market in Japan

A market survey covering the six-month period from Mar. 23 - Sept. 23 in Japan by gaming magazine publisher Enterbrain, shows Nintendo's Wii outsold Sony's PlayStation 3 by more than four-to-one at approximately 1.6 million units vs. 385,500 units. In addition, Nintendo had the top-3 selling software titles across all consoles. Microsoft sold about 82,520 units of its Xbox 360. Among handheld consoles, Nintendo's DS line registered nearly 3.48M unit sales compared to 1.07M units for Sony's PSP. "Mario Party 8" for the Wii was the best-selling software title with over 819,000 units sold. Enterbrain also said the value of the overall Japanese gaming market grew 21.7% year-over-year to ¥292.8B ($2.5B) during the six month period (tracking most of Japan's fiscal first-half). The value of the hardware market rose 33.5% to ¥138.3B, while software increased 12.8% to ¥154.5B. Ordinary shares of Nintendo climbed 5.2% to ¥62,600 on Tuesday, a new all-time, as expectations rise for an upward guidance revision, something the company has done early in October each of the past three years. Sony gained 4.3% to ¥5,890, as the Nikkei rose 1.2% to a two-month high.

Sources: Reuters, Thomson-AFX
Commentary: Cramer's Way Late To The Nintendo, EA StoriesMicrosoft Banks $170 Million in First Day of Halo 3 ReleaseAugust Video Game Sales Better Than Expected
Stocks/ETFs to watch: OTCPK:NTDOY, SNE, MSFT

MUST-READS ON SEEKING ALPHA TODAY


Internet: eBay's Skype Deal Bombs, But So What?
Hardware: University Students Responsible For Booming Mac Sales
Wireless: Garmin Will Recover From Navteq-Based Selloff
Software: The Long Case For Omniture
Gadgets: Much More In Store For Apple TV
Media: What are Sirius and XM Satellite Radio Really Worth?
Biotech: Nine Stem Cell Stocks to Add to Your Portfolio
Transport: Electric Cars and Hybrids: Silicon Valley vs. Detroit
Energy: A Solar Technology For Every Application
Financial: Citibank’s Earnings Warning: Blame it on the Credit Markets
Sound Money: Reduce Medication Costs
Jim Cramer: Latest stock picks
Transcripts: Palm F1Q08AngioDynamics F1Q08Prospect Capital F4Q07Walgreen F4Q07
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