Friday, May 22, 2015
- A Florida federal judge has granted an Ericsson (NASDAQ:ERIC) motion for summary judgment on three 4G patents asserted by WiLAN (NASDAQ:WILN). Ericsson was ruled not to infringe two of the patents, and the third was deemed invalid. The trial for the related case has been cancelled.
- WiLAN says it's reviewing the decision with its trial counsel, and notes the counsel's preliminary view is that "there are grounds to appeal" the ruling to a federal appeals court (the CAFC).
- WiLAN fell to $2.02 in regular trading (its 52-week low). The company had sued both Ericsson and Alcatel-Lucent for infringing the aforementioned patents; Alcatel had settled.
- FXCM (FXCM -6.9%) will assume the vast majority of margin forex accounts of CitiFX Pro, which traded over $30B on average per month in 2014. The transfer will take place after the close of trade on June 26.
- The stock's sharp decline today looks to be the continuation of a trend rather than having anything to do with this news (FXCM likely got a pretty decent deal).
- SEC Form 8-K
- HP (NYSE:HPQ) has rallied towards $35 after beating FQ2 EPS estimates (while missing on revenue) with the help of spending declines made possible by job cuts, and providing in-line FY15 EPS guidance.
- Also going over well: 1) HP forecast its PC/printing spinoff will yield "dis-synergies" of $400M-$450M, less than many expected. 2) CFO Cathy Lesjak stated on the CC (transcript) HP aims to "take up to $2 billion of gross annualized costs" out of its struggling enterprise services ops (-16% Y/Y in FQ2) over the next 3 years.
- Morgan Stanley (Overweight rating) notes that while PC revenue fell 5% Y/Y, units rose 2% thanks to share gains, and that HP also appears to be gaining server share; x86 server revenue was up 11% Y/Y, while high-end systems fell 15%.
- Wells Fargo (Outperform): "We believe the split should realize greater value and provide more nimble structures for decision making. We believe both entities will have room to lever up to return cash to shareholders or drive growth/cash flow through M&A,"
- Needham (Hold) is more worried about top-line weakness, even if some "pockets of positives" existed. "At surface level, it was another quarter (14 out of the last 15) where revenue has fallen yoy with this time in every division (sigh)."
- Lesjak noted printing sales were "pressured by a highly competitive market and aggressive pricing," thanks in part to forex. CEO Meg Whitman stated IT outsourcing sales (-20% in FQ2) have been hurt by "large-scale secular trends" such as austerity programs, data center automation, and a shift towards a consumption sales model from a contract model; cloud services adoption might also be a factor.
- Alpha Natural Resources (ANR -2.5%) says it is idling mining and processing operations at its Rockspring Development's Camp Creek underground coal mine and plant in West Virginia, resulting in the loss of nearly 450 jobs.
- ANR says three other affiliated mine operators also would see workforce reductions.
- Imperial Capital recently suggested investors sell several of ANR’s bonds, despite yields of 40% or higher, on worries that recovery in bankruptcy would be minimal.
- Murray Energy reportedly is set to announce layoffs of ~1,800 workers at nine locations, dealing another blow to the coal mining industry in Appalachia.
- Though no major news has arrived, VirnetX (VHC -5.5%) has gradually sold off this week to its lowest levels since January. Volume has generally been moderate.
- The security/communications IP licensing firm is 11 days removed from seeing an unfavorable USPTO ruling and announcing it has hired IP monetization firm IPVALUE, and 8 days removed from launching its Gabriel secure collaboration suite.
- Down in AH trading yesterday after providing mixed FQ2 results and light FQ3 revenue guidance thanks to soft SAN product sales, Brocade (NASDAQ:BRCD) is doing much better today. Shares are within $0.40 of a 52-week high of $12.96.
- Likely helping: CEO Lloyd Carney stated on the CC (transcript) Brocade thinks its IP networking revenue (+19% Y/Y in FQ2, expected to grow 9%-13% Q/Q in FQ3) will now likely beat an 8%-12% target growth range in FY15 (ends Oct. '15). Strong sales to U.S. federal and service provider clients, as is router sales growth.
- SVP Jason Nolet mentioned Brocade received 62% of its FQ2 IP networking revenue from data center sales (as opposed to campus sales), an all-time high. He added strong demand for high-density 10G/100G blades boosted router demand (+40% Y/Y), and that Brocade's VDX Ethernet switch line (+14%) is benefiting from new switch launches and EMC IP storage deployments.
- Digitimes reports Samsung "has stepped up" its purchases of chips from Himax (NASDAQ:HIMX) and other Taiwanese suppliers. The site adds Himax, traditionally an LCD driver supplier to Samsung, will begin shipping OLED drivers to the company in Q3.
- Soft early-2015 sales to Samsung and Chinese smartphone OEMs have weighed on Himax. There have also been concerns Himax will lose share at Samsung as the latter begins more widely using OLEDs (long a staple on its high-end phones) within cheaper phones.
- Shares are up 8.4% since Rosenblatt upgraded on Wednesday morning.
- CNBC's David Faber reports Microsoft (MSFT -0.7%) held "significant talks" earlier this spring about acquiring Salesforce (CRM +2.4%), but the companies "remained far apart on a price." Microsoft was reportedly willing to offer $55B for Salesforce (current market cap of $49.3B); Salesforce CEO Marc Benioff is said to have wanted as much as $70B.
- Faber adds the talks aren't expected to restart anytime soon. Aside from the price difference, Satya Nadella was reportedly "somewhat reluctant to pull the trigger on a deal of such size and consequence for his company."
- Bloomberg reported on May 5 Microsoft is "evaluating a bid" for the cloud CRM software giant - Microsoft's name had already loomed large in speculation about a rumored suitor. Reuters reported soon afterwards Microsoft wasn't currently weighing an offer.
- Salesforce has spiked higher on the report. Shares are up 6.3% since the company posted an FQ1 beat and reported 31% Y/Y deferred revenue growth on Wednesday afternoon.
- ArcelorMittal (MT -1.6%) says it will explore the possibility of building an auto-grade steel mill with state-run Steel Authority of India, as the two companies sign a memorandum of understanding and plan to form a joint venture for the project.
- The companies say the planned collaboration will address rising demand in India, which is projected to become the world’s fourth-largest automobile manufacturing nation by 2020.
- As part of a broader chip stock coverage launch, Mizuho's Vijay Rakesh has assigned Buy ratings to Micron (MU +2.2%), Avago (AVGO +1.8%), and Synaptics (SYNA +2.6%). His targets are respectively $39, $150, and $115.
- Like other bulls, Rakesh sees Micron's PC DRAM sales (recently under pressure) improving in 2H15, aided by the launch of Windows 10 and Intel's 14nm Skylake CPU platform. He also downplays concerns about Micron's 20nm DRAM transition, thinks tri-level cell (TLC) and 3D NAND ramps will drive NAND gross margin improvement, and likes the hiring of Ernie Maddock as CFO.
- Rakesh forecasts Avago will continue benefiting from strong FBAR filter sales (boosted by 4G phone growth), growing smartphone dollar content, and the Chinese 4G ramp (aided by recent carrier tariff cuts). "AVGO is completely booked on its FBAR filter capacity through 2015 and the ramp of its industry leading 8-inch FBAR wafer capacity will likely lead to significant operational efficiencies versus its peers"
- He also notes Cisco is seeing strong sales for its ASR 9000 edge router line, which Avago has exposure to, and expects the Emulex deal to boost margins and EPS.
- TDDI (integrated touch/display driver) ICs, fingerprint sensor sales, and Chinese 4G demand are expected to act as tailwinds for Synaptics. Rakesh forecasts the company will produce FY16 (ends June '16) free cash flow of $304M, and thinks this could pave the way for buybacks.
- Synaptics has made fresh highs, and Avago is within $5 of a high of $136.28. Micron remains 25% below a high of $36.59.
- Brazil stocks are sharply lower after Eletrobras (EBR -4.5%), the country’s largest utility by revenue, was cut to junk by Moody’s.
- While EBR showed “some financial improvement” in its Q1 earnings, its credit metrics remain too weak to remain at investment grade, Moody’s said, also citing an investigation on alleged bribes involving the former head of a subsidiary.
- Meanwhile, Pres. Rousseff is trying to salvage her presidency as things go from bad to worse amid the Petrobras (PBR -3.8%) corruption scandal, with a new poll finding that 63% of Brazilians favor impeachment proceedings.
- Brazilian opposition lawmakers are considering impeachment, either as an accessory to the corruption or for crimes of “irresponsibility” with finances.
- Also: PBR.A -3.8%, EBR.B -6.6%, VALE -0.2%, ELP -1.2%, CIG -3.3%, CPL -2%, SBS -4.7%, BSBR -2.7%, BBD -2.6%, ITUB -2.3%.
- ETFs: EWZ, BRF, BRZU, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ
- The Shanghai exchange rose 2.8% overnight to a 7-year high, and has once more taken U.S.-traded Chinese Internet/mobile names higher with it.
- Major gainers include Renren (RENN +10.4%), Youku (YOKU +14.1%), SouFun (SFUN +10.8%), Weibo (WB +4.4%), Dangdang (DANG +7.9%), Momo (MOMO +9.7%), and iDreamSky (DSKY +4.9%). Ctrip and eLong are also up sharply, following news an investor group featuring Ctrip bought a 62.4% stake in eLong from Expedia.
- Renren, whose stable of online P2P lending investments has been drawing attention, is now up 31% since its May 12 Q1 report. Youku is up 33% since providing strong Q2 guidance to go with mixed Q1 results on Wednesday evening. Momo is up 44% since delivering market-pleasing Q1 results on Monday afternoon.
- ETFs: KWEB, CQQQ, QQQC
- The confident tone from management at Aeropostale (ARO -14%) on the upcoming back-to-school season isn't helping sentiment on the retailer.
- "We expect that the back-to-school period will represent a time when all of our efforts over the last nine months to change the trajectory of our business should come to fruition," said CEO Julian Eiger on yesterday's earnings call.
- Investors are selling off Aeropostale as the weak Q1 earnings report and Q2 guidance shows cost-cutting and a reduction in store count haven't been quite enough to turn around profitability.
- Investment firms Jeffries, Janney Montgomery Scott, Telsey Advisory Group, Mizuho, and FBR Capital have all dropped their price targets today on ARO.
- Aeropostale earnings call transcript
- Previously: Aeropostale misses by $0.01, misses on revenue (May. 21 2015)
- Previously: Comps limp along at Aeropostale in Q1 (May. 21 2015)
- France's Altice (OTC:ATCEY) is advancing its ambitions for a purchase of Time Warner Cable (NYSE:TWC) by talking with banks about raising debt for a bid for the highly-targeted cableco, Reuters reports.
- The company is talking with JPMorgan Chase, Nomura, BNP Paribas, SocGen, Barclays and RBC among others.
- If Altice were to go forward, it would try not to burden its balance sheet unnecessarily, sources tell Reuters, and financing could include a high-yield bond as well as loans.
- It's not a light concern. With Altice's agreement to buy Suddenlink for $9.1B, not to mention the recent purchase of SFR, the company is taking on debt in a hurry. The Suddenlink deal is expected to be financed in dollar-denominated debt that would be ringfenced at Suddenlink: "It is a purely US business so it would make sense to raise the debt in dollars," says a banker.
- Altice says total leverage, including full synergies, will be 6.1x 2014 EBITDA.
- TWC, meanwhile, seems to be moving on the news of each day: With chatter that a bid could come in at $170/share, TWC is up 2.7%, to $170.
- Previously: Altice enters the U.S. with Suddenlink stake (May. 20 2015)
- Previously: Cable M&A: Altice reportedly looking at TWC as well as Suddenlink (May. 19 2015)
- Previously: Vivendi chooses to sell SFR to Altice in €17B+ deal (Apr. 06 2014)
- Shopify (Pending:SHOP) is now up 76% from its $17 IPO price, and 7% above a post-IPO opening trade of $28.00. The Canadian e-commerce software/payment service provider's valuation is up to $2.2B, or a steep 21x 2014 sales.
- SA author West Coast Growth Picks was bullish going into the IPO, noting Shopify has nearly doubled its merchant base each of the last 3 years and still gets 84% of its revenue from the U.S., U.K., and Canada (leaving plenty of room for international growth)
- Lior Ronen has been more cautious on account of Shopify's valuation, arguing SMB Web services provider Wix (WIX +0.2%) is a better deal given its far lower P/S multiple. Though not a direct Shopify rival, Ronen sees Wix benefiting from the launch of e-commerce services aimed at getting smaller merchants to upgrade to premium subscriptions.
- Prior Shopify coverage
- Update: Don Dion, who recommended buying into the IPO, is now closing out his position.
10:46 AM| 2 Comments
- While appearing on CNBC to discuss her company's FQ2 report, HP CEO Meg Whitman gave FireEye (NASDAQ:FEYE) a shout-out. HP and FireEye are just a month removed from partnering to offer "a comprehensive suite of security remediation services underpinned by FireEye's advanced threat detection, intelligence, methodologies and incident response expertise."
- Meanwhile, DeWalt appeared yesterday evening on Jim Cramer's Mad Money to once more talk up FireEye's ability to benefit from corporate/government cybersecurity spending following a slew of well-publicized hacking incidents.
- Though still well below its early-2014 highs, FireEye is less than $1.50 away from a 52-week high of $46.44.
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