Daily Archives: April 4, 2007

Free Microsoft Software

Getting a free version of the new Microsoft (MSFT) Vista OS would be fairly hard. But the European Union wants the world’s largest software company to hand over extensive information about its Windows operating system to key competitors. The move would be part of the EU’s antitrust settlement which would allow software from Microsoft’s rivals to work better with Windows.

Documents obtained by the FT show that Microsoft would like to charge a royalty of 5.95% for the software. But, the EU is suggesting that the license revenue to MSFT be closer to zero. Several companies have been reviewing the proposals–Sun Microsystems (SUNW), IBM (IBM), and Oracle (ORCL). Their position would appear to be that a high license fee would prevent them from developing profitable products to interact with Windows.

The EU dispute with Microsoft seems to have gone on forever. And, if its antitrust arm wants to leave Microsoft with nothing in exchange for its cooperation, the tug of war could continue for several more years. It is easy to say that Microsoft will face huge fines if it does not cooperate. But, giving away the store may be worse.

Douglas A. McIntyre

Posted on: April 4, 2007 – 8:27 pm in Software

Apple Put 500 Housepower Engine In Mac

For computer users who have $4,000 or more to spare, Apple (AAPL) will now sell a Mac Pro version with two Intel (INTC) quad-core chips. It will have about enough computing power to run the Pentagon.

This may be an example of the marketing philosophy that if someone builds it, someone will buy it. But, Apple can afford a little of that now.

Perhaps an iPod that will store one million songs will be next.

Douglas A. McIntyre

Posted on: April 4, 2007 – 7:02 pm in PC Companies

Intel And AMD: Let’s Fight While Our Investors Lose Their Money

Advanced Micro Devices (AMD) says its chips are better than Intel’s (INTC) and is taking out expensive full-page ads in newspapers to say so. AMD claims its Opteron model is 15% faster than the comparable Intel Xeon.

The AMD chip in question is not available to manufacturers yet, making the argument even more absurd.

The fight even extends from the current dual-core chips used in most PCs and servers now to quad-core chips. Intel has a quad-core chip out already and AMD will have one shortly.

All of this goes on as more and more Wall St. analysts predict that AMD is running low on cash and will have to raise $1 billion this year. The stock is down over 60%.

The only solace Intel can offer it shareholders is that its stock is flat. That isn’t a lot of comfort.

The massive damage done to AMD shareholders has to raise the question of whether CEO Hector Ruiz should be shown the door. Very few large cap companies can boast of such a larger destruction of shareholder value in such a short time. Fighting for market share by sacrificing margins has been a bad idea. So was buying ATI.

Douglas A. McIntyre

Posted on: April 4, 2007 – 6:00 pm in Uncategorized

Jim Cramer on Dendreon (DNDN)

Cramer in a question from a student tonight on CNBC’s MAD MONEY was actually asked about the recently wild Dendreon (DNDN-NASDAQ).  What he said was that he thinks it can still go up and that it will probably still go higher.  He was very explicit though about the risks after such a huge week last week and even this week that it is very speculative and very risky.  He noted how CNBC’s Mike Huckman called it right about the risk-reward being so huge with upside.  DNDN closed up almost 3% at $15.08 on over 13 million shares, and it ticked up a bit less than 1% to $15.19 after he cautiously was positive on it.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 5:45 pm in Biotech, Cramer, , ,

Cramer at Indiana University

On tonight’s MAD MONEY on CNBC, Jim Cramer was at Indiana University in another one of his "Back to School" tours.  Cramer noted that the bears may be in hibernation because of a Fear in selling stocks because any of the bottom 350 S&P 500 Index stocks are vulnerable to being acquired.  They are also scared to miss rate cuts and they don’t have the Iranian hostage scare.  That is why we were up the last two days.  Mark Cuban came on the show tonight (dressed like a college kid, too).  The first thing Cramer asked is if Cuban would buy the Chicago Cubs.  He didn’t say he wouldn’t and he didn’t say he would, but he said he was sure interested in seeing what they would be sold as.

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Posted on: April 4, 2007 – 5:28 pm in Cramer, , , , , ,

The 52-Week Low Club

Greenbrier Cos (GBX) Freight car manufacturer gives weak outlook. Drops to $22.11. The 52-week high was $46.63.

Hovanian (HOV) Home builder stock just keeps dropping. Down to $23.92 from $45.30.

Advanced Micro Devices (AMD) It never ends. More Wall St. speculation that chip company is running low on cash. Down to $12.67 from 52 week high of $35.75.

China Bak Battery (CBAK) Names new auditor. Drops to $2.85. Reverse merger company had 52-week high of $12.50.

Douglas A. McIntyre

Posted on: April 4, 2007 – 5:19 pm in HI/LOW

Rackable Goes to the Torture Chamber

Rackable Systems (RACK) just dropped the ball, again (again, not an echo).  Revenues are still expected to be $70 to $75 million, but non-GAAP margin will be 30% LESS than previously communicated.  It blames competition intensity in the largest accounts.  Simultaneously, its expenses are higher due to the casncellation of an order from one customer and due to one-time charges.  Now the company plans to post a LOSS on both a GAAP and non-GAAP basis instead of $0.05 EPS; revenues were expected to be $73.8 million according to street estimates.

RACK closed up 1.08% at $16.88, but shares are now down 7.5% at $15.70. The 52-week range is $15.96 to $56.00.  This marks the third such warning in the last year, so this one has rapidly gone from a "HI-BETA" and "HI-FLYER" to a dud faster than mellowing growth stocks.  We were going to say "RACK is getting Racked," but we’ve already said it.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 4:07 pm in Earnings Warning

Initial Reactions to Micron (MU)

Micron Tech (MU-NYSE): -$0.07 EPS and $1.42 Billion revenues vs. -$0.01 $ $1.465 Billion estimates.

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Posted on: April 4, 2007 – 3:13 pm in Earnings

Circuit City: What Is the Implied Floor For Shareholders?

After Circuit City (CC-NYSE) disappointed the street with earnings (again), this one started to get interesting.  Back on December 19, 2006 we added this one to a "watch list" for the BAIT SHOP, and now Circuit City is getting to the point that its status of only being on a watch list may need to beome an actual candidate.  The company has what we feel is an implied "private equity bid" when it gets too weak.  If you will recall the company received a private equity bid at $17.00 per share in cash from Highfields Capital Management LP back on February 11, 2005.  That was back before private equity firms started buying companies as though they were playing a tycoon boardgame where everything down to the corner deli and the laundromat was deemed as attractive.  Circuit City ultimately rejected the bid as inadequate. 

Management is not impressing Wall Street and any chart-mongering technician would predict that there is not a visible end to the pain.  Enter private equity or a turnaround specialist, or even an activist investor that actually can make a difference.  Now that Circuit City has booted 3,400 higher-paid and more knowledgeable employees, the rift between it and Best Buy is even wider.  It is less noisy and less busy so you get in and out faster, but that is part of the problem.  Circuit City is just not as cool or as fun, and Circuit City is now more vulnerable to an electronics buyer going to Wal-Mart (WMT) or CostCo (COST) than its competitor.  It is no accident that Apple (AAPL) is choosing Best Buy over Circuit City. 

There has to be room for more than 1 or 2 independent retail electronics behemoths in major markets, assuming the #2 player doesn’t self-destruct.  We’ll address this one formally next week after the analysts and portfolio changes are out of the way and after the dust settles.  The economic cycle is much different now than two years ago, and Circuit City needs to fix its recent blunders.  Stay tuned.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 2:00 pm in Bait Shop, Compensation, Consumer Electronics, Corporate Governance, Earnings, Mergers and Buy Outs, Retail, Technology Companies, , , ,

Cramer’s MAD MONEY in Indiana

On today’s STOP TRADING segment on CNBC, Cramer was on the road at the Indiana University where he will be hosting his MAD MONEY tonight (with a guest appearance later from Mark Cuban).  He noted about high shipping freight rates showing there is no global slowdown.  The rest of the world is strong and we are the weak economy.  As far as this goes Cramer said China wants all of your finished product

CVRD (RIO) is great and Cramer thinks Lundin (LMC) could go to $15 soon because it is too valuable.  As far as tech goes, AM TECH made a call on H-P (HPQ) and Cramer said he likes that stock but doesn’t like the tech sector.  He thinks of tech like most think of as housing right now.  On Washington Mutual (WM), Cramer likes the yield and he thinks it probably overdone to the downside except you have to know there could be a coming write-down charge in the name.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 1:55 pm in Cramer

Sirius Merger Odds: Stifel Nicolaus Goes To Vegas

Barron’s quotes investment research operation Stifel Nicolaus as saying that the odds of a successful Sirius (SIRI) merger with rival XM Satellite (XMSR) are 55% to 60%.

Now, how do they know that? Even sports radio talk show hosts don’t bat 50/50 on their NFL play-off picks. Most people don’t win at the horse races or the black jack tables.

Stifel’s explanation for its math is that "the key issue may be how the DOJ views competition from terrestrial radio, iPods and other music sources." It seems that has been the issue since well before the deal was announced. But, maybe it is new news and everyone else missed it.

Stifel likes the stocks even if the merger does not go through. There could be a positive catalyst like a major car company putting satellite radio in all of its cars as standard equipment.

Or, Sirius could miss its subscriber targets and run out of money for debt service.

It’s a toss up.

Douglas A. McIntyre

Posted on: April 4, 2007 – 1:06 pm in Mergers and Buy Outs

Market Comments From TheStockMasters

One of our favorite ridiculous companies RedEnvelope Inc. (REDE) had its CEO throw in the towel. Yesterday Chief Executive Ken Constable resigned to "pursue other business opportunities", translating to bailing before the company goes under.

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Posted on: April 4, 2007 – 12:53 pm in Research

Yahoo! To Facebook: Still Too High A Price

Peter Thiel, a shareholder in social network site Facebook, claims that the property is worth $8 billion.

In his wildest dreams.

Barron’s points out that investment bank Needham is beating on Yahoo! (YHOO) for not buying Facebook for well over $1 billion. Needham’s argument is that Facebook has over 21 million registered users and 1.5 billion pageviews a day.

The advertising at Facebook should not give anyone a lot of faith that this is a big business, at least not financially. Ads like Extended Stay Hotels.

Comscore says that Facebook as 16.7 million unique visitors a month. Even better, the site has 24 visits per unique visitor, putting it just behind Yahoo! among all web properties.

Facebook is big with the 17 to 25 year old age group. That is not exactly the most wealthy demographic group, which ought to discount the value of those visitors.

As to value, YouTube went for over $1.6 billion, but it had a larger audience than Facebook. CNET (CNET), which has 30 million unique visitors a month, has a market cap of $1.3 billion. And, its audience is highly qualified and affluent.

The New York Times digital properties have a unique monthly audience of almost 40 million. The market cap of the entire New York Times Company (NYT) is only $3.4 billion. It even includes those worthless big newspapers.

Maybe Facebook is worth $1 billion, maybe less. But more? No way.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: April 4, 2007 – 12:47 pm in Internet

Valero’s Value in Crosshairs of Oil Markets

This morning has put opposing forces on the oil sector, and Valero Energy (VLO-NYSE) is right there.  Iran’a announcement that it would free the 15 British Navy prisoners immediately had oil futures dropping, with May light sweet crude contracts trading down almost 1%.  ConocoPhillips (COP) said today that 1st qtr oil & gas production was down sequentially due largely to unplanned outages in the U.S., but said that refinery margins were “significantly” higher. 

This news was followed by the weekly inventory data for crude oil and gasoline, with gas inventories surprising big on the downside with a 5 million barrel drop.  The drop is partly due to the refinery problems seen at Valero’s (VLO) 170,000 bpd refinery in Texas, which was shut down after a fire in mid-February and set to re-open at reduced capacity "in a few weeks."  While the refinery issues are obviously bad for Valero in the short-term, the whole mess could have a silver lining for investors, as more attention is being paid to the massive constraints on U.S. oil refining. 

As we highlighted a few weeks ago, rising oil prices and attractive valuations have pushed VLO stock up 24% since the beginning of February.  On today’s news VLO stock was up 1% mid-day at $65.25.   What’s more, Valero is exploring the sale of a 147,000 bpd refinery in Ohio, which the company says it has received “a lot of interest in the plant”, according to comments made at the Howard Weil Energy Conference yesterday.  We think this progressing story is a big plus for VLO investors, as the value of the refineries is the key to determining the worth of the company.   

When we conducted a break-up analysis of Valero in January when the stock was at roughly $53.00, we attempted to estimate the value of Valero’s 18 refineries, which produce much more product than is sold at their retail fuel stations.  We had to rely partly on recent appraisals because of a lack of asset sales in the recent past and that is still a a wildcard.  For a refinery the size of the one in Ohio, the price tag could be in the area of $500 to 600 million; if it goes for more the break-up value of Valero could justifiably be set to a much higher range.  Subjectivity may be used on each refinery, part due to the operating condition and geography of each and part to the "lack of new refineries" coming online.   

We’ll still have to see what kind of costs and charges were incurred with the Texas facility, and news of recent gas shortages at Valero stations in Colorado certainly don’t help foster good PR.  But Valero is still mainly a refiner (not a retailer), and 17 of 18 refineries have still been pumping out higher margin product all quarter.  It also claims some 5,800 combined retail and wholesale stores in the US, Canada, and the Caribbean under various names.

The stock now sits some $4.00 over our value we were able to place on it then, so now it may boil down to the prices people are paying for gas and what this refinery will ultimately fetch in a sale.  Updates will be forthcoming on any news of asset sales, as they may materially impact the valuation models used for the company, including ours.

Ryan Barnes
April 4, 2007

Edited by Jon Ogg

Ryan Barnes can be reached at ryanbarnes@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 12:07 pm in Mergers and Buy Outs, Oil & Gas, Private Equity, Value Investing

AMD: Old News, But Not Good News

Several analysts have already weighed in on the cash need at Advanced Micro Devices (AMD). Today, Merrill Lynch joined that chorus. The comment from Merrill as quoted in Barron’s: “the market may still not appreciate just how much money AMD is likely to lose in Q1 and Q2 as it struggles to work off 90nm product inventory.”

May not appreciate, indeed. Raising over $1 billion against the company’s market cap of $7 billion could drive the stock even further down than where it is now at a 52-week low of $12.67.

Now that there is a perception that Intel (INTC) has gained at least parity in its chip offerings, AMD has a very hard road ahead.

Douglas A. McIntyre

Posted on: April 4, 2007 – 10:57 am in Semiconductor

Tobacco Stock Strength

From Ticker Sense

MO and UST top our list of stocks that have been up the most consecutive days.  Interestingly, MO has been up 6 days in a row 7 times in the last 4 years, and each time the stock has gone up on the 7th day as well.

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Posted on: April 4, 2007 – 10:41 am in Tobacco

Earnings Growth Falls Below 10%

From Ticker Sense

Fourth quarter S&P 500 earnings numbers were finalized at $21.99 per share by Standard & Poor’s.  This brings to an end the 18 consecutive quarter streak of double digit year over year earnings growth.

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Posted on: April 4, 2007 – 10:39 am in Research

Mamma.com Up on Rumors (MAMA, GOOG, YHOO)

Mamma.com, is getting lots of trading interest because of re-rumors that it may be a takeover candidate.  Google (GOOG) is the rumored suitor this time around, although that has been noted previously as Yahoo! (YHOO) and even Time Warner’s (TWX) AOL.  Mamma already has a contract with Yahoo!.  This one is probably going to do many times its average daily volume now, particularly now that CNBC just gave it a nudge.

Shares are up roughly 10% to $5.10, but the 52-week range is $0.86 to $8.60.  We won’t try to kill the notion of this and we don’t want to add more fuel to the fire.  But it should be noted that this name has been out there before and nothing really surfaced.  At one point this one got its fame (or notoriety) from Mark Cuban taking a stake and subsequently selling on the pop before the ink was dry from stories being printed that he had taken a stake.  Anything is possible, but there are as many skeptics in this name as there are believers.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 9:09 am in Internet, Rumors, , , ,

Monster Saw Itself in the Mirror (MNST)

Monster Worldwide, Inc. (MNST-NASDAQ) is down more than 11% after the open on new internal forecasts of Q1 revenue in the range of $328 to $329 million, below the revenue outlook of $330-$338 million provided on February 1, 2007. Consensus was $333 million, so it is forecasting a 1% shortfall. 

It is hedging with good comments, though.  The expected revenue increase of approximately 28% for the first quarter reflects continued rapid revenue growth in the Company’s International Careers segment, and reduced growth rates in the North America Careers and Internet Advertising & Fees businesses.  It continues to expect its financial results for the year 2007 to be within the ranges provided in the Business Outlook provided on February 1, 2007. The Company continues to achieve greater operating efficiencies and manage costs tightly, while also funding important growth initiatives within the overall strategic growth plan. Monster Worldwide maintains a positive view toward what it believes are significant growth opportunities within the global online recruitment and Internet advertising markets.

The main punishment is coming from this still being deemed as a hi-beta name in a cyclical sector that is deemed "at-risk" whenever the economy is softening.  After a drop like this, there will probably be many analyst calls.  Other employment related stocks are down as well: Korn Ferry (KFY) -1% at $23.07; Labor Ready (LRW) -4% at $18.30 was cut at Goldman Sachs today; Robert Half (RHI) -3% at $36.20; ManPower (MAN) -2.5% at $73.20; Administaff (ASF) -1% at $35.21.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 8:55 am in Internet, , , , , ,

Nanogen Jumps on GSA Contract

Nanogen, Inc. (NGEN-NASDAQ) is seeing shares up 25% pre-market after it announced this morning that it has obtained a United States Government Service Administration (GSA) Schedule contract for its NanoChip 400 microarray instrument and reagents.  The contract enables Nanogen to be listed on an approved GSA Schedule and sell its NanoChip products directly to government agencies such as the National Institutes of Health, military hospitals and Veteran’s Administration hospitals. Nanogen’s inclusion as a GSA Schedule Vendor allows government customers to obtain approved pricing and license terms from a pre-qualified vendor.

Government agencies typically have separate GSA and non-GSA budgets, and therefore inclusion as a GSA vendor allows Nanogen broader access to government customers’ budgets.  This is actually a stock that was barely above the 52-week lows ($1.21 to $2.93 yearly trading range) and it has seen pre-market trading of more than 500,000 shares (close to full day of trading volume).  The market cap on this name was only $91 million before this pop today.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 4, 2007 – 8:18 am in Uncategorized, , ,