Daily Archives: October 23, 2007

Cramer Updates His New Four Horsemen of Tech (RIMM, AMZN, GOOG, AAPL)

On tonight’s MAD MONEY on CNBC, Jim Cramer wanted to update his "New Four Horsemen of Tech" now that earnings are out and after these have all run up so much.  He is looking to ring the register on part of these. This is something that if you have been following these we have been waiting for and it seems more than logical after you saw Amazon.com sell off after earnings tonight (percentage gains he used on Horsemen call):

Amazon.com (NASDAQ:AMZN) is up 40%, but after today’s earnings and after tonight’s sell-off Cramer says "Time to ring the register" on all of it.

Google (NASDAQ:GOOG) is up 30% and Cramer didn’t say to sell. He’s sticking with his $750 target. 

Apple (NASDAQ:AAPL) is up 51% and Cramer said it’s time to at least take half of the position off and hold the rest.

R-I-M (NASDAQ:RIMM) is up 127% and Cramer said it’s time to at least take half of the position off and hold the rest.

Jon C. Ogg
October 23, 2007

Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.  We just released our first part of two of our "Small Cap Internet Watch List"for subscribers to see which stocks we think could be acquired (and bywhich suitors) under the right circumstances in the space. This yearalone we have discussed how aQuantive, 24/7 Real Media, and Web.com were acquired off this list;and you can see samples of this.

Posted on: October 23, 2007 – 5:50 pm in Cramer, Internet, Technology Companies, , , , ,

Get Ready… VMware’s First Earnings (VMW, EMC, CTXS)

On Wednesday, October 24, we’ll get our first look at the real VMware (NYSE:VMW) earnings.  "Consensus" estimates are still varied from source to source, but we have First Call on last look as showing $0.17 EPS on $332.5 Million.  We have another source at $331 million, but the truth is that this doesn’t matter.  The highest estimate we have seen is $352.1 million and after the massive performance any logic would dictate that this has to blow away all of the high numbers and then some.  If not, then it’s just another overpriced hi-flyer. 

WARNING from 24/7 Wall St.: logic can still fall victim to the VMware conundrum we have explained.  We gave a scenario of what current $100+ stock prices actually look like on the valuation front.  That VMware stock conundrum is going to exist for some time until the float catches up.

If VMware offers guidance, the street is at $0.19 EPS & $382.8 million for next quarter.  Watch the guidance closely, because that is a part of what caused the hit to Citrix Systems (NASDAQ:CTXS) shortly before completing the XenSource purchase to enter its virtualization phase.

Traders are still using stock options as a stealth trade to playVMware.  It traded 4.4 million shares of stock today, but the NOV putshad over 5,000 contracts of the six closest active strike prices andthe NOV calls traded over 10,000 contracts of the seven closest strikes.

On Thursday, October 25, we’ll see how this impacts EMC Corp. (NYSE:EMC) and we’ll follow up with a more combined and interfaced preview for EMC separately tomorrow.  Below are the other key issues you’ll want to know regarding VMware:

Jon C. Ogg
October 23, 2007

Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.  We just released our first part of two of our "Small Cap Internet Watch List" for subscribers to see which stocks we think could be acquired (and by which suitors) under the right circumstances in the space. This year alone we have discussed how aQuantive, 24/7 Real Media, and Web.com were acquired off this list;and you can see samples of this.

Posted on: October 23, 2007 – 4:54 pm in Earnings, Software, Technology Companies, , , , ,

Trimble May Knock GPS Stocks (TRMB, GRMN, SIRF, NVT)

Trimble (NASDAQ:TRMB) posted EPS of $0.29 non-GAAP on revenues of $296 million; First Call had estimates at $0.28 EPS on revenues of $299.7 million.  The company posted $0.22 GAAP EPS(on higher tax rates).  Operating income for the third quarter of 2007 was $43.8 million, up 21% from the third quarter of 2006. Operating margins in the third quarter of 2007 were 14.8 percent, compared to 15.5% in the third quarter of 2006 (on amortization costs).

Guidance was issued as well. Trimble expects revenue to grow 26% to 28% compared to the fourth quarter of 2006, with revenue between $295 million and $300 million (estimates are $296 million). Trimble expects fourth quarter 2007 GAAP earnings per share between $0.17 and $0.19 and non-GAAP earnings per share between $0.24 and $0.26 (estimates are $0.25). Its non-GAAP guidance use a 39 percent tax rate, compared to an actual 25 percent tax rate in the fourth quarter of 2006, and assume 126 million shares outstanding.

Unfortunately, Wall Street is expecting more out of GPS stocks now.  Now a decision has to be made to see if the laggard in the sector will carry over to the leaders.  TRMB is trading down 10% at $43.05 in after-hours trading after a 6% gain today.

NAVTEQ (NVT) shares are down but only marginally because of the Nokia buyout.  Shares of Garmin Ltd. (GRMN) are down 1.25% at $119.00 in after-hours trading, although shares closed up 4.6% today.  No trading has been seen in SiRF Tech (NASDAQ:SIRF).

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 3:54 pm in Earnings, , , ,

Amazon.com Giving Back Its Gains (AMZN)

Amazon.com (NASDAQ:AMZN) has posted earnings $0.19 EPS on sales of $3.26 Billion ($75 million benefit from currency effects). First Call had estimates for this past quarter at $0.18 EPS and $3.14 Billion revenues. 

Operating cash flow was $1.0 Billion. Its guidance is also out: Net sales are expected to be between $5.1 billion and $5.45 billion, First Call has estimates at roughly $5.2 Billion. Operating income is expected to be between $221 million and $291 million AFTER a $54 million charge.

Jeff Bezos keys in, “Customers continue to respond to our low prices, our free shipping, and the benefits of Amazon Prime. With our ever-increasing selection, customers are now getting this unusual level of service across many different product categories and with depth of selection in each category… In our view, putting customers first is the only reliable way to create lasting value for shareowners."

This is a solid report, but shares are down almost 8% to around $93.00 after a 10% gain in normal trading.  After a 200% run over the last year the street probably wanted a bit more.  And maybe the great Bezos laugh.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 3:27 pm in Earnings, Internet, Retail,

Broadcom Pays For Minimal Upside & No Guidance

Broadcom Corp. (NASDAQ:BRCM) posted $0.27 non-GAAP EPS on revenues of $950 million; unfortunately the company did not issue guidance and shares are being hit for it.

According to First Call, analysts were calling for $0.27 EPS and $929.6 million revenues this quarter and $0.31 EPS and $$991.5 million revenues next quarter.

Shares closed uo 0.8% at $42.06 on the day and its 52-week high is $43.07.  Shares are now down 4.5% in after-hours, but we are considering this an open issue until guidance is offered.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 3:15 pm in Earnings, Semiconductor,

Microsoft (MSFT) Does Not Want To Make Telecom Industry Mad

Microsoft (MSFT) will not be a bidder for the 700-megahertz spectrum band which the FCC will auction early next year. The minimum bid will be $4.6 billion

In comments covered by Reuters, Steve Ballmer made an outstanding case for his decision: "What would it buy us to buy a piece of spectrum, one piece of spectrum in one country. It would do a lot to alienate the telecom industry."

The company is trying to market an OS for smartphones. Why gum up the works?

Douglas A. McIntyre

Posted on: October 23, 2007 – 2:49 pm in Telecom,

Apple’s AT&T Bounty: $432 Per iPhone?

From Silicon Alley Insider

Apple’s iPhones could be far more profitable than we thought. Based on an analysis of iPhone revenue that Apple reported yesterday, Piper Jaffray analyst Gene Munster estimates today that carrier partner AT&T pays Apple $18 per month for each of its iPhone subscribers. Over the course of a two-year contract, that’s $432 — more than three times as much as the $120-per-sub payment we previously estimated. continued….

Read More »

Posted on: October 23, 2007 – 2:23 pm in Uncategorized

Wal-Mart (WMT) Wants To Build Fewer Stores

Someone at Wal-Mart (WMT) got into the high IQ pills. The company’s US head, Eduardo Castro-Wright, told analysts that the company would be building few stores in the future. There are so many Wal-Mart locations now that some share the same parking lot.

Wal-Mart has said it will built 170 supercenters in the next fiscal year, but that the number would decline after that.

The company also said it would favor building smaller stores. That sort of begs the question of which items Wal-Mart will cut out because of less space at these new mini-Wal-Marts. Maybe they can dispense with the check-out areas.

Douglas A. McIntyre

Posted on: October 23, 2007 – 2:11 pm in Retail,

RIM’s (RIMM) Long Ball To China

RIM (RIMM) is up to another 52-week high on the perceived-to-be-huge news that it "has shipped the first of its smartphones to China and hopes to start selling them later this year," writes Reuters.

The stock is tradng up over 10% to almost $127, well above its 52-week high. The 52-week low is $36.44.

Alcatel-Lucent (ALU) will be RIM’s partner in the China distribution of the Blackberry 8700 model. ALU needs the good news a great deal more than RIM does. The company has been beaten half to death due to missed financial forecasts and the perception that CEO Patricia Russo is in over her head now that the merger of the US and French companies is complete. Alacatel-Lucent shares are up 3% on the news.

Douglas A. McIntyre

Posted on: October 23, 2007 – 1:59 pm in Consumer Electronics, ,

Shorts Sellers Running Scared Before Amazon.com Earnings (AMZN)

If you have seen the run in Amazon.com (NASDAQ:AMZN) in 2007, you’d think it was 1999.  Shares are up 200% from its 52-week lows, and the short sellers have noticed how stocks of R-I-M, Google, and Apple have all launched on earnings.  These are all part of Jim Cramer’s "New Four Horsemen of Tech" and are all up big in recent weeks and for the year.

Shares are up almost 6% ahead of today’s earnings.  This last quarter is always sort of the throw-away quarter, but the quarter guidance will be covering what should be the largest Amazon quarter ever.  First Call has estimates for this past quarter at $0.18 EPS and $3.14 Billion revenues, and more importantly it has the current quarter ahead estimates at $0.46 EPS on revenues of nearly $5.2 Billion.  In the event we get some business model numbers for 2008, First Call has estimates roughly of $1.55 EPS on $17.6 Billion in revenues.

After you see the individual metrics, you may feel wishy washy on how to call this one.  Analysts as a group are nearly impossible to use for a target reading because price targets are well above and well below the current stock price.  Options trader expectations are hard to peg as well, because on one calculation I derive less than a $5.00 move and one more than an $8.00 move being priced in (shares moved much more in the last two-quarters).  Its chart is also hard to call because shares hit a new high on a gap-up day after being is a solid $89 to $92 range for the last few days.

What is obvious is that this 36.8 million share short interest at the end of September is going to play a major factor, even if the short interest is lower than during the last two reports.  The biggest focus here will be guidance, at least barring anything massive about the last quarter.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 1:22 pm in Earnings, Internet, Retail, , ,

Wal-Mart Still Masquerades As A Growth Stock (WMT)

If you want the best analysis you can get on Wal-Mart (NYSE:WMT), it’s hard to get past the initial reactions by looking at the stock.  Shares are down 3% after being up before the notes started coming out from its analyst and investor meeting.  The reduced growth plans are still deemed too aggressive today for the next year and its square footage growth is still too high.  If Wal-Mart will focus on its core earnings "now rather than later" it can review its core growth strategy once it has Wall Street back on its side.

I was just on CNBC today discussing some of the problems, but the long hard truth is that Lee Scott is not the only answer.  My counterparts today defended Scott’s position (Howard Davidowitz and Steve Forbes), but this is now nothing short of cheering for Darth Vader.

Lee Scott is merely the first answer, but his time has passed and he really needs to go. Secondly, the company needs to review its top brass from the top and review its ranks top to bottom (it might even be able to get more out of slightly fewer employees, but the company will have to reward them better).  This will immediately result in a growth management deciding that a reduction in cap-ex well under the cuts today and a square footage growth cut well under today’s numbers are needed.  Without a systematic review then a change would be merely for the sake of change. The company needs to worry about growing its bottom line rather than the top line and rather than its square footage. 

Wal-Mart’s raised guidance this month was only on earnings.  The sales numbers weren’t great.  But the earnings focus is all that mattered because shares rose nearly 3% on the news.  That is because it is an earnings story and not a growth story. 

The chart actually has some good news.  The chart has this company at a multi-year support level and as long as the company doesn’t roll over again it may be very close to a floor.  If not, then you may have to do research on the fate of the Great Atlantic & Pacific Tea Company about its early history of the first 30 years in the 1900’s and look at the stark similarities.

We have been reviewing a theoretical break-up of Wal-Mart for our Special Situation Investing Newsletter subscribers.  We do not expect the company will take that path, at least not any time in th near-future.  In fact, the board seems impervious to change. But Wall Street will be looking for more than just a Lee Scott firing if this company doesn’t make severe changes quite soon.  Mark my words, and you can hold me to this: "If this stock is still stuck here next year, Investors will be calling for a break-up into more easily managed units."  When that will be during the year is the question.  We have already discussed the thought of a break-up before, but we’ll be offering theoretical values on each unit. We will be reviewing this break-up value with theoretical growth and value models in the coming weeks for our subscribers of the Special Situation Investing Newsletter.

These changes today, at least so far, are not large enough.  It is evident that Wall Street wants the retail giant to cut cap-ex more and to slow store expansions and growth even more.  It still has room to grow Sam’s Clubs,  to grow its Neighborhood Markets, and its international operations.  Wal-Mart stock trades at under 14-times fiscal January 2009 EPS estimates.  It is dirt cheap, and the reason is because Wall Street views this now as only an earnings story and the company still wants to expand its presence above and beyond what they can effectively manage.

Jon C. Ogg
October 23, 2007

Jon Ogg is the editor of 24/7 Wall St.’s Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: October 23, 2007 – 12:38 pm in Analyst Calls, Management Change, Retail, , ,

Broadcom Ready For Earnings (BRCM, QCOM, MRVL)

Broadcom Corp. (NASDAQ:BRCM) is set to report earnings after the close today, and its shares are actually up almost 1% today north of $42.00.  The good news is that the sloppy Texas Instruments numbers did not pressure shares.  According to First Call, analysts are calling for $0.27 EPS and $929.6 million revenues this quarter and $0.31 EPS and $$991.5 million revenues next quarter.

Analysts are going to have to play catch-up if they are going to stick with the bulls.  The average price target 3% under today’s share price.  Citigroup just upgraded the stock last week to a Buy, UBS recentlyinitiated a Buy rating on it, and Wachovia recently tranfered inA.G.Edwards coverage with an "Outperform" rating.

Its 52-week high is $43.07, and this are will perhaps be quite critical (as apposed to just plain critical) for the bulls.  This stock is in a new higher trading range if you believe the chart, but from $45.00 on up each percentage gain looks like it would have more resistance up to $48 to $49.00 from early 2006. 

Options may be a bit skewed sine shares are actually 2% off of intraday highs, and there is a almost a month of time value.  But it appears that options traders are braced for a move of $1.90 to $2.15 in either direction, which would be up to 4% price changes on average in either direction.

What is perhaps the most critical issue here is the Qualcomm (NASDAQ:QCOM) patent war.  Broadcom has been winning so far, although this is far from over.  24/7 Wall St. has seen that this alone could take away up to $1 Billion in annual revenues from Qualcomm.  We aren’t going to hang our hats on that number as gospel, but what is evident is that Broadcom seems to still have the upper hand (despite fairly recent headlines about a new trial) and there may be a lot of that $1 Billion loss (discount for pricing power and adjustments) that can be added into Broadcom’s top-line.  Those numbers are not currently in the analysts’ fiscal January 2009 numbers and beyond, or at least not across the board.

Marvell Tech (NASDAQ:MRVL) has the stock to watch the closest after Broadcom’s report, although there has been a decoupling in these stocks over the last year or longer.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 11:40 am in Earnings, Semiconductor, , ,

Copernic (CNIC) Shares Up On iPhone Product Release

Shares of Copernic (CNIC) are up 26% to $3.55 on news that the company will launch of an updated version of Copernic Mobile that now includes a new Apple iPhone/iPod Touch-optimized user interface. Via the large touch screens, the updated Copernic Mobile product offers a more user-friendly experience when remotely searching for and accessing file content on these important Apple products.

With no revenue attached to the news, it’s hard to say why the shares would rise.

Apple must have a long tail.

Douglas A. McIntyre

Posted on: October 23, 2007 – 8:36 am in Satellite,

UPS So-So Results A Relative Win (UPS)

UPS Inc. (NYSE:UPS) posted a slight gain in profits although the $1.05 EPS before charges was ahead of the $1.02 estimate.  After charges, the transportation and freight giant posted $1.02 EPS.  Revenues were up 4.7% to $12.21 Billion.

The company is stating that it expects slowing retail sales will restrain U.S. domestic volume growth.  It also narrowed its guidance, still within prior guidance, to a range of $4.13 to $4.19 EPS.  First Call has estimates at $4.15.

While there is at least some caution, there has to be a sigh of relief that the slowdown expected isn’t being described as worse.  The fact that fuel hasn’t eaten it alive more than it has is pretty amazing as well.  Shares are indicated up at $75.75 on thin volume, after closing at $75.09 yesterday.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 7:35 am in Earnings, Transports,

RIM (RIMM) To Offer Free Blackberry Music Service

According to Reuters  "Research in Motion’s (RIMM) BlackBerries will come with a cheap, unlimited music service from next month for the first time, marking the latest foray by a handheld device maker into a burgeoning music arena."

It appears to be another Apple (AAPL) iPhone wannabe, but it is easier to get to the music. The systems does not require the user to download the songs from a PC.

RIMM’s partner in the deal is British mobile music provider Omnifone

So many devices, so little time to listen

Douglas A. McIntyre

Posted on: October 23, 2007 – 7:32 am in Consumer Electronics, ,

More Bad News for NYT, et al: Guardian Invasion

From Silicon Alley Insider

The UK’s Guardian has launched a US web site, www.guardianamerica.com, produced by an editorial team of 8 based in Washington DC.  The move is intended to capitalize on the Guardian’s already large readership, which accounts for nearly a third of the traffic to the Guardian’s UK site. continued…

Posted on: October 23, 2007 – 7:23 am in Uncategorized

Level 3 Communications Misses The Boat (LVLT)

Level 3 Communications Inc. (NASDAQ:LVLT) is seeing shares take a haircut in immediate reaction trading to earnings pre-market.  The company beat revenues with $1.061 Billion in revenues versus $1.04 Billion estimates.  That is up from $1.052 Billion in Q2 2007.

But the company is lowering EBITDA guidance for 2007 and 2008.  The quotes below sum it all up:
"While we continued to grow Core Communications Services revenues and we did meet our guidance measures in the third quarter, the company had difficulties with provisioning orders for its services," said James Q. Crowe, CEO of Level 3. "The breadth of the problem was greater than we had earlier diagnosed, and we did not increase provisioning capacity as we had expected. This increase in provisioning capacity was necessary to meet the revenue increases we had previously projected. As a result, we are lowering our Consolidated Adjusted EBITDA guidance for the full year 2007 and the full year 2008. We are disappointed by our performance, particularly given the strength of the current market. We believe we have identified the underlying causes of our provisioning constraints, and we have begun to implement additional changes. We are focused on correcting this issue as quickly as possible."

In the third quarter, Level 3’s top 10 customers, in alphabetical order, were Alltel, AT&T Inc., British Telecom, Comcast Corporation, Commonwealth of Pennsylvania, EarthLink, Inc., Qwest Communications International Inc., Time Warner, Inc., Verizon Communications and Vonage Holdings Corporation. Including the SBC contract, these top 10 customers represent 32 percent of Total Communications revenue, and excluding the SBC contract, 27 percent of Total Communications revenue.  The communications deferred revenue balance decreased to $930 million at the end of the third quarter 2007.

On a separate note, the company before earnings issued a statement that doctors said there is no evidence that pituitary tumors have returned to the company’s CEO.  Shares were down 5%, but now shares are down 8% pre-market at $3.95 in pre-market trading.  Unfortunately that will be a 52 week low and the 52-week trading range is $4.14 to $6.80.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 7:18 am in Earnings Warning,

Dendreon Sets Stage for 2008 for PROVENGE

Dendreon (NASDAQ:DNDN) has issued a press release noting that it has completed its target enrollment of 500 patients in phase III IMPACT study of PROVENGE for advanced prostate cancer.  It also noted:

  • FDA Has Agreed That Positive Survival Data from IMPACT Study Would Support Licensure of PROVENGE;
  • Interim Survival Results Expected in Second Half of 2008.

The IMPACT study is a double-blind, randomized, placebo-controlled Phase 3 trial designed to measure overall survival in men with metastatic hormone-refractory prostate cancer receiving PROVENGE versus placebo.  Even though the company received a set back this year that may or may not allow PROVENGE onto the market, Dendreon maintains that the FDA will accept either a positive interim or positive final analysis of overall survival from the IMPACT study to amend the Biologics License Application and support the efficacy claim for PROVENGE.

With this being one of the only hopes for late-stage prostate cancer patients, this ‘completed enrollment’ would have been easy to expect.  There have not yet been any trades in the pre-market, but first indications are $7.62X$8.05 versus the $7.58 close.  If there was much new data or anything that pointed to positive data there would be significant pre-market trading.

Jon C. Ogg
October 23, 2007

Posted on: October 23, 2007 – 6:55 am in Biotech, , , ,

AT&T (T) Comes Up Light

AT&T (T) reported third-quarter revenues of $30.1 billion, up from $15.6 billion in the year-earlier quarter, prior to its Dec. 29, 2006 acquisition of BellSouth Corporation and the accompanying consolidation of wireless results.

In addition to reported results, to provide a further basis for comparison, AT&T provides pro forma results, which combine revenues from AT&T, BellSouth and Cingular Wireless consistently for all periods. On this basis, AT&T’s third-quarter 2007 revenues totaled $30.3 billion, up 3.2 percent versus results for the year-earlier quarter.

AT&T’s reported net income for the third quarter totaled $3.1 billion compared with $2.2 billion in the year-earlier quarter. Reported earnings per diluted share totaled $0.50 versus $0.56 in the third quarter of 2006.

The company had a net gain of 2.0 million wireless subscribers, the highest third-quarter subscriber increase in the company’s history.

AT&T’s wireless revenues totaled $10.9 billion, up 14.4 percent from the year-earlier quarter

At the end of the third quarter, subscribers to AT&T U-verse, the company’s next-generation, IP-based video service, totaled 126,000, up from 51,000 three months earlier. Weekly install rates in the final weeks of the quarter approached 10,000, up from approximately 5,500 three months earlier.

Organic growth was merely OK. The stock is up slightly before the bell.

Douglas A. McIntyre

Posted on: October 23, 2007 – 6:50 am in Earnings

Lockheed Martin (LMT) Makes Wall St. Happy

Shares of Lockheed Martin (LMT) are already rising before the bell. The company reported third quarter 2007 net earnings of $766 million ($1.80 per diluted share), compared to $629 million ($1.46 per diluted share) in 2006. Net sales were $11.1 billion, a 16% increase over third quarter 2006 sales of $9.6 billion

"In the third quarter we achieved double-digit growth in sales and operating earnings for every business segment, as well as double digit EPS growth for the corporation." said Bob Stevens, Lockheed Martin Chairman, President and CEO.

The company raised its expecations for full-year earnings and EPS

Douglas A. McIntyre

Posted on: October 23, 2007 – 6:43 am in Uncategorized,