Consumer Confidence Drops Below Expectations
The Conference Board reported Tuesday its Consumer Confidence index fell for the third straight month in October. The index fell to a wrose-than-expected 95.6, down from a revised 99.5 in September. Last month's figure was the lowest level since October 2005, which was shortly after when Hurricane Katrina devastated the Gulf Coast region. Economists had expected the index to fall to 98.0. "It seems to suggest that the relative strength of the stock market is no longer enough to offset the impact of the housing disaster," said Ian Shepherdson, chief U.S. economist with High Frequency Economics. The percent of consumers who have plans to buy homes decreased to 2.7%, the lowest since November 2004. The Conference Board is a private group that collects information through 5,000 mail-in surveys. Markets dropped on the news, and finished the day down mildly.
Commentary: Credit Problems Delayed are Not Credit Problems Solved • Bill Gross: Fed Will Cut to 3.5%
Stocks to watch: SPY, DIA
Cerberus Pulls Bid for Affiliated Computer -- WSJ
The credit crunch has claimed yet another victim as Cerberus Capital Management officially pulled its $6.2B bid for Affiliated Computer Systems. Citing people familiar with the matter, the Wall Street Journal reported that Cerberus officials said in a letter to a special ACS board committee, "We regret that we must withdraw our offer to acquire the company due to the continuation of poor conditions in the debt markets." Cerberus made its original $60/share bid in March, together with ACS founder Darwin Deason, and ACS formed a special committee to negotiate the deal as well as seek other possible higher bids, but the process got bogged down. The buyers sweetened their offer to $62/share in April. "Had the special committee engaged with Cerberus and Mr. Darwin Deason on the schedule we proposed in our offer letter, we are confident that our acquisition would have been approved and closed," the Journal further quoted the letter.
Commentary: Credit-Suisse Smiles on Data Processors Accenture, Cognizant; Frowns on EDS, Affiliated • Affiliated Computer Services Receives Buyout Offer from Founder, Cerberus
Stocks to watch: ACS. Competitors: ACN, CSC, EDS
Earnings call transcript: Affiliated Computer Services F4Q07
Garmin Beats and Raises; Announces Hostile $3.3B Bid for Tele Atlas
Garmin posted a 57% increase in third-quarter net income to $193.5 million, or $0.88/share ($0.89 ex-items), easily beating analyst expectations of $0.82/share, according to Reuters Estimates. Separately, Garmin announced a proposed €24.50/share, €2.3B ($3.3B) hostile bid for Belgian navigation and mapping technology firm Tele Atlas NV, topping rival TomTom's bid by 15%. Garmin's cash offer represents a 2% premium over Tele Atlas' Tuesday close in Amsterdam, but Tele Atlas was last up 16.2% to €27.94 midday Wednesday. A Garmin-Tele Atlas deal would require two-thirds majority control of capital and antitrust approval. Analysts say Tele Atlas is a "must" acquisition for TomTom following the Nokia-Navteq deal (full story) and thus, expect a protracted bidding war. "Given the high growth and rapid change the navigation market has undergone to date, we feel that now is the right time for Garmin to move ahead with this proposed combination with Tele Atlas," commented Garmin CEO Min Kao. Meanwhile, Garmin's Q3 revenues jumped 79% to $729M and the company raised its full-year outlook for sales and earnings to $2.9B (from $2.8B) and $3.40/share (from $3.15), in-line with analysts' average forecast. Shares of Garmin lost 2.7% to $120.48 on Tuesday and were last down 5.8% to $113.47 in thin pre-market trading.
Commentary: Why Would Garmin Enter the Cell Phone Market? • 5 Reasons Why Microsoft Should Buy Garmin • AmTech Ups Garmin Rating Following Swoon On Nokia’s Deal For Navteq
Stocks to watch: GRMN, OTC:TLATF, OTCPK:TMOAF. ETFs: PTE, PPA, PWJ, PHW
Apple Sells 2M Copies of Leopard in First Three Days
Apple announced Tuesday it sold two million copies of its new Leopard operating system since it was released October 26th. The company, whose shares traded at a record high Tuesday, hopes the new operating system can boost sales of its PCs. BMO Capital Markets' analysts estimate that about 200,000 of the sales were Macs that had Leopard pre-installed, a trend Apple hopes will intensify as the holiday season approaches. The company currently owns only 8% of the PC market, but last quarter sold over two million Macs for the first time. "These numbers show the Mac user-base is growing," said Gene Munster of Piper Jaffray. "It also shows that it is an unusually active user base." Leopard sells for $129.00 and showcases over 300 new features (see link below to learn more). Apple stock gained 1.0% to $187.00.
Commentary: Apple's Payoff on Leopard 'Family Pack' Upgrade • Inside The Apple Money Machine
Stocks to watch: AAPL. Competitors: DELL, HPQ. ETFs: IAH, VGT
Earnings call transcript: Apple F4Q07 (Qtr End 9/29/07)
Related: Leopard's New Features
Dell Restates Results, Loses $92M in Profits
Dell on Tuesday filed restated results for fiscal years 2003, 2004, 2005, 2006 and the first quarter of fiscal 2007 with the SEC, which resulted in a decline of less than 1% in profit and revenue from prior totals, or a loss of $92M ($0.03/share) and $359M from previously reported profits and sales, respectively. In August, the company had said the restatements could result in a $50M-$150M reduction in net income. The restatements follow a year-long internal investigation that found employees manipulated the PC-maker's financial results to meet earnings goals, sometimes at the request of senior officials. Michael Dell revamped the management team when he returned as CEO in January. The company believes the restatements should bring it back into compliance with Nasdaq listing requirements. It plans to resume its stock buyback program, which was suspended in September 2006 pending the outcome of the probe, after it releases third-quarter results November 29. Investigations by the SEC, which began looking into the accounting in 2005, and the Justice Department are ongoing.
Commentary: Goldman Adds Dell To Buy List, Bumping HP • Michael Dell’s Role in Accounting Scandal Still Unclear • Wall Street Downplays Dell’s Wayward Bookkeeping
Stocks to watch: DELL. Competitors: HPQ, IBM, GTW. ETFs: IAH, PRFQ, ROM
Earnings call transcript: Dell Q2 2007
Alcatel-Lucent Takes Q3 Loss, Will Cut Another 4,000 Jobs
Global telecom equipment-maker Alcatel-Lucent announced Wednesday it will cut 4,000 more jobs and target a further $577 million (€400M) in cost savings after posting a worse-than-expected Q3 loss and lowering its full-year revenue forecast. Investors cheered the move, lifting shares as much as 4% in Paris trading. The widely-anticipated measures bring the firm's total job cuts to 16,500 and €1.7B in savings by 2009. Alcatel swung to a quarterly loss of €345M on poor U.S. wireless sales and strong competition. "The conditions in the market are such that the volumes we are seeing are not what had been expected," CEO Patricia Russo said (full earnings call transcript later today). Analysts polled by Dow Jones were expecting a milder €209M. Adjusted operating profit, which discounts restructuring and acquisition costs and other items, was €70M. The company now sees flat revenue for 2007, down from "flat to slightly up"; as recently as June it was still forecasting 5% growth. "We are seeing fairly recently some further signs of softness with respect to spending, again predominantly in North America," Russo told reporters. "What investors were interested in were the benefits from the cost-cutting program and the first fruits were found in the third-quarter results," BNP Paribas analyst Alexander Peterc said. Alcatel is the number-one global provider of ADSL fixed-line equipment for broadband internet, telephony and TV, and number-three for mobile infrastructure. Addressing calls for it to exit the high-speed mobile market, Alcatel said it would not, calling it "strategic."
Commentary: A Comparison of WiMax, 3G and Wi-Fi • Alcatel-Lucent's CEO Needs Bold Plan To Keep Her Job
Stocks to watch: ALU. Competitors: NT, ERIC, SI, CSCO. ETFs: BDH
Earnings call transcript: Alcatel-Lucent Q2 2007
Syntax-Brillian Gets $250M Credit Line, Sees 60-80% Revenue Growth
Shares of Syntax-Brillian gained 1.8% in Tuesday after the maker of Olevia TVs said it secured a $250 million credit facility, which it said will help it achieve revenue growth targets of 60% to 80% in calendar 2008. "The financing strengthens the company's balance sheet and is expected to measurably enhance our ability to take advantage of rapidly growing demand for LCD televisions worldwide," said CEO James Li. The facility will also be used to repay $80M in debt. It was arranged by Silver Point Finance, with commitments from Citi, CIT, Wells Fargo Foothill, and Wachovia. "We anticipate that the net new funds available will allow us to meet national big-box retailers' expected demand for product through the end of our fiscal year 2008, as well as provide the resources to enable us to achieve year-over-year revenue growth of 60% to 80% in calendar 2008, compared to estimates of approximately 35% for the industry as a whole. In addition, this strategic financing gives Syntax-Brillian the opportunity to further develop direct relationships with institutions of the caliber of those participating in this financing." On Monday, Syntax announced Wired Magazine declared its Olevia 747i LCD HDTV the "best of test" TV in the 38" to 49" category.
Commentary: Syntax-Brillian: Destroying Shareholder Confidence and Value • Is Syntax-Brillian a Bargain?
Stocks to watch: BRLC. Competitors: PHG, SNE. ETFs: PZI
Google in Talks with Verizon, Sprint on Phone Software
Google is in advanced talks with Verizon Wireless to put its applications on Verizon phones, according to sources close to the negotiations. The Wall Street Journal reports that Google is also talking to Sprint Nextel. According to the Journal, Google should announce new software and services within two weeks, to be used by handset manufacturers to make "customized Google-powered phones." The Journal notes that such partnerships could allow handset companies to charge less for phones, since Google will likely charge below-standard licensing fees for its software and OS. Google would gain a wide audience for its platform, since Verizon and Sprint are the number 2 and number 3 carriers by subscriber in the U.S. The prospect of a Verizon-Google partnership is somewhat surprising in view of the companies' wrangling over FCC radio spectrum rules. Sprint, on the other hand, already has a working relationship with Google on software for the carrier's new high-speed WiMAX network. The research firm IDC forecasts that approximately 1 billion Web-enabled phones will be sold by 2011. "Many people in the next five to 10 years -- their first experience in the Internet will be through a mobile phone," Google CEO Eric Schmidt said in May. Google shares rose 2.3% to close at $694.77 Tuesday.
Commentary: Google to Announce Wireless Plans in Two Weeks...Maybe • Can Google Convince Wireless Carriers That It Is A Partner And Not A Foe? • Verizon Sues The FCC As Wireless Auction Showdown Looms • FCC Spectrum Rules Favor New Entrants Over Incumbents -- Source
Stocks to watch: GOOG, VZ, VOD, S, AAPL, T. ETFs: FPX, FDN, TTH, IXP, VOX
Earnings call transcript: Google Q3 2007, Verizon Q3 2007, Vodafone Group FY 2006, Sprint Nextel Q2 2007
Google-Led Open Alliance to Challenge Facebook - NY Times
Following news last week that Microsoft will take a $240M stake in popular social networking site Facebook (full story), The New York Times reports Google and several social networking sites including LinkedIn, hi5, Friendster, Plaxo and Ning, will form an alliance to create common standards for software developers to write applications for the sites. Facebook opened its service to outside programmers this past spring and has generated heavy buzz over the thousands of available programs being shared across its estimated 50M users. The Google-led alliance dubbed "OpenSocial," with twice as many users as Facebook, is set to be announced Thursday. An anonymous source told the Times the alliance "is going to forestall Facebook's ability to get everyone writing just for Facebook." Meanwhile, Silicon Valley pundits are calling the move a "desperate" ploy by Google after being outbid by Microsoft for the minority stake in Facebook, noting Google will not earn any advertisement or referral revenues from the applications. Still, Google stands to benefit from greater exposure of Orkut, its social site and Brazil's most-popular, and it seemingly can generate more traditional ad revenue pending the growth of OpenSocial sites.
Commentary: Microsoft to Take $240M Facebook Stake, Become Exclusive Ad Platform • The Lawsuit That Could Cripple Google: Will American Airlines Ruin Everything? • Google in Talks with Verizon, Sprint on Phone Software
Stocks to watch: GOOG. Competitors: MSFT, YHOO
Earnings call transcript: Google Q3 2007, Microsoft F1Q08
Macau Helps Lift Wynn Above Forecasts
Wynn Resorts reported third-quarter results that bested Wall Street's expectations as sales doubled on strong contributions from the Macau casino, which opened late last year. Nevertheless, shares fell 4.8% to $159.77 AH, building on a 2.9% drop in the regular trading session. Although the company's table games win percentage came in above expectations, slot volume declined 4.7% in Las Vegas, suggesting softness in the business. Wynn said it earned $44.7M ($0.41/share) in the quarter, which was down from the $715.7M ($6.43/share) profit a year ago, which included a $779M gain from the sale of rights to develop the Macau casino. On an adjusted basis, earnings were $73.4M ($0.67/share) vs. a loss of $1.3M ($0.01/share) in 2006, topping average analyst expectations for earnings of $0.63/share. Revenue surged to $653.4M from $318.1M last year, including a $347.7M contribution from the Macau facility. Analysts had expected revenue of $637M, on average. Earnings before interest, taxes, depreciation and amortization at Macau, came in at $92.8M, topping Deutsche Bank's $84M forecast (full earnings call transcript later today).
Commentary: Casino Stocks Dive on Macau Growth Concerns: Buy Here or Jump Ship? • Goldman Sachs Bets On Wynn, MGM and Las Vegas Sands
Stocks to watch: WYNN. Competitors: LVS, TRMP, MGM, HET
Earnings call transcript: Wynn Resorts Q2 2007
Applebee's Shareholders Approve IHOP Buyout
Applebee's International's shareholders approved the proposed $25.50 per share/$2.1 billion purchase of Applebee's by IHOP Corp. Tuesday, the companies said.The companies expect the deal to close by Nov. 29. Applebee's said about 70% of the shares were voted in favor of the acquisition. IHOP is the largest U.S. pancake-house chain. The acquisition has faced some opposition from shareholders, including several directors who felt the price, which at the time of the offer was a 4.6% premium, undervalued the company. Burton 'Skip' Sack, Applebee's largest individual shareholder and a director, said last week he would ask a court to appraise the company in an effort to get IHOP to pay a higher price. Including Sack, five directors including CEO David Goebel, opposed the acquisition; nine directors favored it. IHOP, with about 1,300 restaurants, plans to turn most of Applebee's more than 500 company-owned restaurants into franchises.
Commentary: Applebee's Q3 Shy of Forecasts; Shareholder Vote on IHOP Deal • P.F. Chang’s: Same-Store Trends Decline in Q2, But Diners May Get Cravings
Stocks to watch: APPB, IHP
Deutsche Bank's Q3: "Best-of-the-Banks"
Deutsche Bank said Wednesday its Q3 net earnings rose 31%, ahead of its own forecasts, as tax and capital gains helped offset market turbulence and a trading-loss writedown. Q3 net profit was €1.62 billion ($2.34 billion), including €182 million in tax gains and €629 million in capital gains, up from €1.24 billion last year -- besting the bank's €1.4B forecast. Like many banks this quarter, Deutsche Bank wrote down some hard-to-sell investment assets, to the tune of about €2.2B. Net revenue fell 20% to €5.1 billion, missing analyst forecasts of €5.56 billion. "The third quarter of 2007 was a period of exceptional turbulence in financial markets," CEO Josef Ackermann said. "We have made a positive start to the fourth quarter and, assuming markets function at normal levels, we reaffirm our commitment to delivering on our 2008 financial targets." Asset and wealth management saw 45% revenue growth; private and business clients climbed 15%; corporate and investment banking swung to a €179M loss from a €1B profit a year ago; and its lending unit lost €120M on a €603M leveraged-loan writedown. M&A revenue was a best-ever €269M; DB said the pipeline for M&A remains robust. "Looking forward, challenges undoubtedly remain; however, this is also a time of opportunity for Deutsche Bank. As a market leader in investment banking, and a major global asset gatherer, we stand to benefit from the flight to quality," Ackermann said. "Compared with what banks have been reporting, this is the best I have seen so far," said Pioneer Investments' Thomas Radinger. Shares rose 3.6% in overseas trading.
Commentary: The Writedown Leaderboard: Merrill Now in First • How Banks Calculate Their Write-Downs • CDOs: Waiting for the Next Shoes to Drop
Stocks to watch: DB. Competitors: C, CS, HBC, UBS. ETFs: EWG
Merrill Chief O'Neal Departs; Search Begins for Successor
Merrill Lynch announced Tuesday that it has ousted Chairman and CEO Stanley O'Neal and begun a search for his successor. Co-presidents Gregory Fleming and Ahmass Fakahany will manage the firm until O'Neal's replacement is found, and board member Alberto Cribiore will serve as non-executive chairman. O'Neal lost the confidence of the board after the company posted an $8.4 billion Q3 writedown -- well beyond Merrill's forecast of three weeks earlier -- and made an unauthorized overture to sell the firm to Wachovia. He is being denied a severance package and bonus, but is being permitted to keep past stock bonuses totalling $161.5 million. "He is walking away with a reward for risk-taking activity that, at least on the subprime side, turned out to be a disaster," said Brian Foley, MD of Brian Foley & Co. Said Henry Higdon of recruiter Higdon Partners: "Whoever they're going to ask to be CEO is going to be in a very strong bargaining position. It's a mess and it's not going to be reversed overnight." Higdon believes BlackRock CEO Laurence Fink is Merrill's first choice by some distance. In related news, investors filed a class-action lawsuit against Merrill alleging the firm made materially false and misleading statements about its exposure to CDOs containing subprime securities. O'Neal was named as a co-defendant. Merrill shares shed 2.8% to close at $65.56 Tuesday.
Commentary: Merrill CEO Stan O'Neal Is Out - WSJ • Merrill CEO Discussed Merger with Wachovia, Angering Board - NY Times • The End of the Merrill Myth
Stocks to watch: MER. Competitors: GS, MS. ETFs: IAI, KCE, IYG
Earnings call transcript: Merrill Lynch Q3 2007
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