Daily Archives: July 21, 2007

Would Microsoft (MSFT) Or Oracle (ORCL) Buy SAP?

Barron’s makes the argument that SAP’s (SAP) shares are very cheap. The company is the world’s largest provider of business software. Last week the firm announced that quarterly profit rose 8% to $619 million. The magazine writes that "the stock cheap, at a forward enterprise value/Ebitda multiple of 14 times its share price." And, Barron’s believes that those numbers make SAP a candidate for a private equity buy-out.

SAP has a market cap of $65 billion, so the purchase price would probably be above $75 billion.

But, why let private equity have all the fun? SAP’s biggest rival, Oracle (ORCL) has a rapacious appetite for M&A. Oracle is currently suing SAP for theft of trade secrets, but what is a little litigation among friends. A merger between the two companies might face antitrust concerns, but they are, in theory, no worse than those facing the Google (GOOG) purchase of DoubleClick.

One of the advantages Oracle has over a private equity buyer is the tens of millions of dollars in duplicate development, sales, and management costs the companies have. Oracle’s market cap is $105 billion.

The company that really needs to own SAP is Microsoft (MSFT). It has been trying to move into the enterprise database, middleware, and collaboration software business for years. But, Oracle and SAP already have a lock on the market.

It is a bit of irony, but if Microsoft purchased SAP, it would probably face less antitrust scrutiny than Oracle because Redmond’s footprint in this part of the software market is fairly small. It would also allow Microsoft to increase the portion of its revenue that comes from high-margin software, the company’s roots, and allow it to rely less on the success, or lack thereof, from products like Xbox.

If SAP is not going to stay public, private equity will not be the buyer.

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

Posted on: July 21, 2007 – 12:30 pm in Uncategorized, , ,

ABN Amro (ABN) Prefers Barclays (BCS)

According to Reuters, the head of ABN Amro (ABN) says that he prefers the bid by Barclays (BCS) over one from Royal Bank of Scotland. The RBS bid is higher and ABN’s CEO says that it is still likely to prevail, unless Barclays will raise its figure.

But, he may be right in his preference. RBS would break the big bank into a number of pieces. Fellow bidders Santander and Fortis would take the parts that they think mesh best with their operations and RBS would keep the balance.

Breaking ABN into pieces almost certainly carries a great deal of execution risk, and a number of jobs would be eliminated. If the RBS program does not work, it could hurt investors in all three of the companies involved with the higher bid.

Damaging three financial institutions in not better than damaging one.

Douglas A. McIntyre

Posted on: July 21, 2007 – 8:44 am in Uncategorized, ,

Lawsuits Could Take Bear Stearns (BSC) Lower

Over the last two days, Bear Stearns (BCS) shares have gone from an intra-day high of $60.43 to a low of $58.50. Based on news from CNBC, the shares could go lower in the next week.

It appears that law firm Bernstein Litowitz Berger and Grossman is being retained by some investors in two hedge funds that were virtually wiped out from large bets on risky mortgages are preparing to sue the financial company, according to Reuters. The theory behind the legal action is that documents describing the risks of the funds were misleading.

Reuters points out that the investors in the funds were sophisticated, so the suit may not wash.

But, BSC does not need the distraction, and the sub-prime mortgage hedge fund issue may be getting worse. If so, Bear Stearns may be in for several months of scrutiny as the market looks for people to blame.

Another witch hunt from investors who won’t blame themselves for losing their money.

Douglas A. McIntyre

Posted on: July 21, 2007 – 8:33 am in Uncategorized,

AMD (AMD): “Hardware is the ugly sibling of technology.”

Sanford C. Bernstein & Co is saying that as tech spending rises pressure on price for hardware components is actually under more pressure. Hence, the quote above from WSJ.com

AMD’s (AMD) stock started to rally yesterday after results show improving revenue and gross margins over Q1. The stock opened up, at $16.19, a price point it has not seen in several months. But, but the end of the day, it had dropped as low as $15.41.

And, there is reason to believe that the shares will move lower. The evidence in the market is that Intel (INTC) is prepared to keep pressure on prices. Its own gross margins dropped a bit last quarter, so it is keeping pricing at competitive levels.

That is bad news for AMD. The market was beginning to believe that Intel wanted to step away from a bloody battle. But, customers are clearly calling for lower pricing if chip and storage companies want to keep business.

And, that is not good news for AMD.

Douglas A. McIntyre

Posted on: July 21, 2007 – 8:22 am in Uncategorized, ,

Another Set-Back For Qualcomm (QCOM)

Qualcomm (QCOM) is still trying to get the ITC ban on importing some handsets that use its tech from being imported into the US. The ITC ruled that certain Qualcomm technology infringed on patents held by rival Broadcom (BRCM). A US appeals court refused to rule on the matter saying it did not have jurisdiction.

As the FT points out: "Verizon Wireless, the second-largest US mobile carrier, has moved to ensure an uninterrupted supply of new phones that use the disputed technology. It has agreed to pay up to $200m in licensing fees to Broadcom to avoid the ITC ban on imports." The big US carrier does not want to wait for the issue to be resolved.

The market is generally pretty efficient about analyzing big news like the Qualcomm troubles. And, the market is saying the the news is bad. Qualcomm’s stock has dropped from $45.53 to as low as $42.83 in one day.

Douglas A. McIntyre

Posted on: July 21, 2007 – 8:05 am in Uncategorized

A Crazy Forecast For Apple (AAPL)

Piper Jaffray has raised its price target for Apple (AAPL) from $160 to $205. up 28% which is stunning. Apple trades at $143 now. So, a stock that is up 130% over the last year would rise another 43% from the current price.

The new target price is based to a large extent on an estimate by the firm that Apple will sell 45 million iPhones in calendar year 2009, at an average price of $330.

The forecast is nutty for several reasons. First, Motorola (MOT) sold 35 million phone in that last quarter for an annual run rate of 140 million phones. The company has dozens of models and relationships with most of the major cellular carriers around the world. It took more than a couple of years to build those relationships. Motorola also has 2G phones, 2.5G phones, 3G phones, and maybe ever 1G phones. It designs phones priced for everywhere from India to England.

The idea that Apple will sell a third as many phones at Motorola sells now is not credible. Especially at a price point that would be much higher than the average price that Motorola and Nokia (NOK) get, which is under $100 per unit. The Apple estimate also assumes that the larger handset companies will not come out with competing phones.

No way, no how.

Douglas A. McIntyre

Posted on: July 21, 2007 – 7:54 am in Uncategorized, , , ,

This Week on StockHouse July 16 to 19

Junior resources have been a money maker for top BullBoards poster thedave2006, but there have been disappointments also. Check out the rest of the top posters, BullBoards and features in this week’s Top Five (http://www.stockhouse.ca/shfn/article.asp?edtID=19970).

Rumours powered a steep climb for Canadian rail stocks on Thursday. Sean Mason had details of investor reaction in his Buzz on the BullBoards (http://www.stockhouse.ca/shfn/article.asp?edtID=19976) column.

While Cameco’s shares (NYSE: CCJ; TSX: T.CCO) slid this week after the disclosure of the large short interest in the stock, the uranium bull market is continuing unabated, according to James Dines. The “original uranium bug” gave an interview (http://www.stockhouse.ca/shfn/article.asp?edtID=19977 ) to Uranium Report.

The conditions that have stalled gold prices (http://www.stockhouse.ca/shfn/article.asp?edtID=19979 ) in comparison to the U.S. dollar are beginning to change, argued Greg Silberman.

The global boom in commodity prices has been driven by inflation (http://www.stockhouse.ca/shfn/article.asp?edtID=19969 ), not real growth, said Steven Saville, and the best way to understand this fact is to view charts for the markets and metals against unaltered CPI prices.

Joe Nicholson, read the gold and silver charts (http://www.stockhouse.ca/shfn/article.asp?edtID=19967 ), and the charts looked good, at least in the long term.

Gryphon Gold’s (TSX: T.GGN) recent Nevada property acquisition (http://www.stockhouse.ca/shfn/article.asp?edtID=19961 ) is good for the company, opined Danny Deadlock.

IPO deal news has been thin, but Jon Ogg wrote that one of the most interesting offerings this year is still pending: the spinoff of the online games unit (http://www.stockhouse.ca/shfn/article.asp?edtID=19975 ) from China Games Corp.

Traders need to be open minded, wrote Don Rodgers, and he detailed how bias (http://www.stockhouse.ca/shfn/article.asp?edtID=19972 ) could sink a complicated trade in Research in Motion (NASDAQ: RIMM) shares.

When you’re looking for some reading material (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19981) for the beach or the cottage this summer, you may want to consider some of the titles noted by Nancy Zambell in her recommendations for an investor’s bookshelf.

John J. De Goey warned investors to be wary of advisors who claim to be able to forecast (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19983 ) market trends.

How do spousal RRSPs work, and why should anyone bother to arrange for one? Well, the tax savings (http://www.stockhouse.ca/shfn/article.asp?edtID=19974 ) for a start, said Kevin Cork.

Posted on: July 21, 2007 – 7:41 am in Uncategorized