Wall Street Breakfast: Must-Know News

U.S. MARKETS

• U.S. markets fell sharply Friday. The Nasdaq dropped a whopping 3.77%, its worst fall in almost five years. S&P -2.46%. Dow fared best, -1.96%. Treasury 10-year notes were flat. Oil fell $1.27 to $97.91. Gold was off $3.40 to $865.70/ounce. Futures are up (Dow +50) in overnight trading.
• The national vacancy rate for office buildings rose in Q4 for the first time in four years. Declining commercial real estate figures, combined with last week's underwhelming employment numbers, paint an increasingly gloomy picture of the nation's economy.
• A Reuters survey shows Wall Street analysts now expect S&P 500 companies' earnings to fall 8.4% in Q4, worse than the 6.1% decline forecasted last week and original expectations of 11.5% growth.
• Xerox (XRX) CEO Anne Mulcahy warned that companies are cutting IT spending amid economic uncertainties. "We see the financial services industry tightening their belts," she said, but added Xerox was well positioned to weather the storm.

GLOBAL MARKETS

• Monday in Asia: Japan's Nikkei -1.30%. Hang Seng -1.24%. Losers included China Unicom (CHU -3.3%), Canon (CAJ -3.2%) and CNOOC (CEO -2.9%). Sony (SNE) was up 0.7% on news of Warner's defection to Blu-Ray (see below).
• Europe: Indices posted mild gains in morning trading. FTSE +0.32%. CAC +0.45%. Dax +0.41%. SAP (SAP) -2.3%. BP (BP) +2.1%.

MUST-KNOW NEWS FOR MONDAY

• Sony (SNE) dealt Toshiba's (TOSBF) HD DVD format a crushing blow Friday by signing big-fish Warner Bros. (TWX) as an exclusive user of its Blu-ray technology. HD DVD now holds only 25% of the video market, vs. almost half before the deal was signed. Toshiba's Akiyo Ozaka says that although Toshiba is "very disappointed," HD DVD "has not lost."
• McDonald's (MCD) is taking aim at Starbucks (SBUX) with new coffee-bar offerings, including a frappe designed to compete with Starbucks' famed Frappucino. McDonald's says the new beverage menu, which will also include smoothies and bottled drinks, will add $1 billion in annual sales.
• A private-equity consortium has taken a 21% stake in CNet Networks (CNET), and wants to take over the board. On Friday, Lehman (LEH) reported a 6.1% passive stake in CNet. So much for Henry Blodget's reverse buyout.
• CNBC (GE) and The New York Times (NYT) will share material on their websites, including CNBC posting Times articles on its site, and CNBC video being carried on NYT's site. The deal unites the principal competitors of News Corp.'s (NWS) Wall Street Journal and Fox Business Network.
• Credit Suisse (CS) faces additional writedowns of $2.3B in its commercial mortgage and leveraged-finance business. Shares fell 3% in Zurich trading.
• Comcast (CMCSA) and Panasonic will reveal a portable digital video recorder [DVR] that allows users to take TV recordings with them when they travel, and a plasma TV with a built-in set-top box that eliminates the need to rent one. The latter could adversely affect Motorola (MOT) and Cisco (CSCO), the two major set-top box suppliers. Both will work with standardized software now being deployed by major cable companies; Comcast CEO Brian Roberts believes open standards will give cable a leg up on telecoms.
• Liberty Media (LCAPA) is expected to announce it has taken a controlling stake in Bodybuilding.com, a sports-nutrition and fitness website. Liberty is believed to be paying over $100 million.
• Goldman Sachs (GS) could unveil as early as this week a £15 billion financing package for use by bidders trying to rescue Northern Rock. The move will put pressure on other advisers, particularly Citigroup (C).
• Microsoft (MSFT) has inked deals with NBC Universal (GE), Walt Disney (DIS), Metro-Goldwyn-Mayer Studios, and CBS Corp.'s (CBS) Showtime Networks to place movie and TV content on its Xbox Live and MSN online services. The agreements position Microsoft to compete more aggressively with Apple's (AAPL) iTunes. Microsoft also passed the 100 million license-mark for Windows Vista and has signed an agreement with NBC to manage a website for the 2008 Beijing Olympics.
• Napster (NAPS) will start selling its entire download catalog in MP3 format. But remember that Napster's main revenue stream comes from flat-rate subscriptions, which remain DRM.
• Boeing's (BA) new 787 Dreamliner may have a serious vulnerability that would allow passengers to access the plane's control systems.
• Motorola (MOT) will acquire Soundbuzz, Asia's largest online and mobile music company. It also unveiled the Rokr E8 music phone, and announced the Moto Z1O video phone that stores 24 hours of footage and allows editing.
• China National Aviation Corp. said it would offer at least HK$5/share for the same stake in China Eastern Airlines (CEA) if shareholders refuse Singapore Air's HK$3.80 bid.
• Systemax (SYX) will acquire selected remaining assets and as many as 16 retail stores of CompUSA.

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