Markets in Europe were narrowly mixed at 6.20 AM New York time.
The FTSE was down a fraction to 6,658. BHP Billiton (BHP) was down 1.4% to 1792. Vodafone (VOD) was down .2% to 189.4.
The DAXX was also off a fraction to 7,974. Deutsche Bank (DB) was up 3.9% to 92.29. MAN AG was up 3.8% to 122.81.
The CAC 40 was up a fraction to 5,806. Alcatel-Lucent (ALU) was up 1.1% to 6.7. BNP Paribas was up 1.9% to 76.02.
Data from Reuters
Douglas A. McIntyre
Verizon Wireless, a JV between Verizon (VZ) and Vodafone (VOD) appears to be vying with Sprint (S) over rights to distribute new handsets loaded with the Google (GOOG) mobile OS and goodies like the search company’s maps, g-mail, and YouTube.
According to The Wall Street Journal "a Google technology partnership might let the carriers offer cheaper phones, because Google’s licensing fees for its software and operating system would likely be less than the industry standard." But, that seems counterintuitive. Why would wireless carriers want to sell cheap phones? Probably they won’t.
But, the chance to pick up a product that might rival AT&T’s (T) distribution of the Apple (AAPL) iPhone may be too difficult to resist, And, the Google phone will have an open software architecture which means that a carrier may be able to create and install its own applications. That could add value to the product and drive a higher price point.
The fact of the matter is that Verizon Wireless may not need the product at all. It would do a deal with Google to keep the product out of the hands of Sprint, but the Verizon third quarter numbers indicate that ii is doing very well against arch-rival AT&T. Verizon has also been fighting with Google over the terms under which the FCC should auction its newly available wireless spectrum. It is unlikely that those differences will disappear due to a handset deal.
Sprint, on the other hand, needs a product like the Google phone. And, it needs it badly. The company lost its CEO over poor performance. Customer satisfaction has been awful since the company’s merger with Nextel and subscriber growth has been moribund. The company is trying to launch a nationwide WiMax network for next generation wireless broadband. Having a signature product could help that.
Look for Sprint to do whatever it has to so that it can be the Google phone distribution network. And, look for Google to march into a new market with a partner which already has over 50 million subscribers.
Douglas A. McIntyre
Alcatel-Lucent (ALU), which may go down in the annuls of business as one of the most poorly conceived mergers in modern business history, announced another large quarterly loss and said it would fire another 4,000 people.
According to The Wall Street Journal "the disclosure of further cuts came as the group reported a third-quarter net loss of €345 million, compared with a pro forma €532 million net profit a year earlier." The merged company is also running into a slowdown in its core telecommunications equipment business as large telcos cut or delay spending.
The merger was a classic screw-up almost from the start. That is because its success was based on a number of factors that even a first year business school student should know were not likely to work.
The first is that a successful business is built on cost cuts. From the beginning, much of the talk from CEO Pat Russo and her management team was about the hundreds of millions of dollars that combining two similar companies would save. The management team emded up focusing its attention on integration and savings and marketing and product development appear to have fallen into chaos.
The next assumption that the company made was that the merger would take one competitor out of the market and that prices could move up for the entire industry. Lucent and Alcatel did fight for the same customers and the merger may have cut the number of companies vying for the same pieces of business. But, the new company did not look ahead and see that demand for its products was falling off.
The final issue that the companies missed is that combining two mediocre companies does not make a good one. Both Lucent and Alcatel were very modest performers. If either had been strong enough, the merger would not have been necessary. New companies have moved into the telecom supply business especially from China. And weak companies like Nortel (NT) must cut prices to pick up new business.
The merger does not work now, but it was never going to.
Douglas A. McIntyre
According to Reuters, a number of experts do not believe that a rate cut by the Fed will help the falling housing market.
Reuters writes that Alcatel-Lucent (ALU) will cut another 4,000 jobs.
Reuters reports that the UAW takes with Ford (F) have hit an intense phase.
Reuters also reports that Dell (DELL) has filed amended financials and will begin its share buy-back.
The Wall Street Journal reports that Google (GOOG) is in talks with Verizon (VZ) and Sprint (S) about offering a news phone loaded with the search company’s mobile software.
The Wall Street Journal writes that Stan O’Neal left Merrill Lynch (MER) with a $162 million exit package.
The Wall Street Journal reports that oil experts are discussing the possible effects of oil going well above $100 a barrel.
The Wall Street Journal writes the Cerberus has dropped its bid for Affiliated Computer Services (ACS).
The Wall Street Journal writes that experts are questioning if Citigroup (C) should account for structured investment vehicles on their own balance sheets.
The New York Times writes that pharmaceutical ingredients exported from China are often made by firms that are not certified.
The FT writes that Congress has extended the internet tax ban.
Barron’s writes that shares in Shutterfly (SFLY) dropped on a weak forecast for the next quarter.
CNN Money reports that Google (GOOG) and several social networks will offer a platform for applications that will run on any social networking site. The move is seen as a challenge to Facebook.
Douglas A. McIntyre
Markets in Asia were mixed.
The Nikkei rose .5% to 16,738. Hitachi (HIT) was up 3.4% to 781. Honda (HMC) was up 3.4% to 4200. NEC (NIPNY) was up 2.4% to 570.
The Hang Seng fell .7% to 31,421. China Netcom (CN) was down 2.7% to 23.25. CNOOC was down 4.3% to 10.2.
The Shanghai Composite was up 1% to 5,955.
Data from Reuters
Douglas A. McIntyre
Business makes strange bedfellows. Verizon Wireless, a JV between Verizon (VZ) and Vodafone (VOD), is in discussions with Google (GOOG) about distributing phones with the Google handset operating system.
According to The Wall Street Journal a "Google technology partnership might allow the carrier to offer cheaper phones, since Google’s licensing fees for its software and operating system would likely be lower than the industry standard."
Verizon Wireless has over 63 million customers, but it may need a unique product to offset the Apple (AAPL) iPhone which is sold by cellular system rival AT&T (T) Wireless.
The cell subscriber market in the US is not growing as fast as it once was. The three largest wireless providers, which includes Sprint (S), have over 180 million customers. That is approaching the number of adults in the US, and some of the aged cannot use cell phones. Much of the revenue growth over the next decade may come from the wireless contenders taking market share from one another.
Google and Verizon against AT&T and Apple. Steel cage death match. (The loser will probably be Sprint, which is not even in the ring.)
The
Merrill Lynch (MER) may be facing a class action suit over the losses it reported in the last quarter.
According to Reuters "the lawsuit, which the lawyers said was filed in U.S. District Court for the Southern District of New York, seeks class-action status. It was brought by law firm Coughlin Stoia Geller Rudman & Robbins LLP on behalf of an institutional investor, Life Enrichment Foundation."
The suit says that Merrill made "materially false and misleading statements about its financial exposure to collateralized debt obligations."
Douglas A. McIntyre
According to data from big computer seller Ingram Micro and research firm Endpoint Technologies Associates, PC sales look very strong going into the holidays with particular strength outside the US.
Reuters writes that "sales are being driven by falling component prices, entertainment applications such as games, videos and music, growing demand for portable machines and consumer adoption of Microsoft Corp’s Windows Vista operating system." Improvement in the income of consumers in emerging markets has been helping to drive sales in those regions.
The sales up-tick in Q4 is seen as benefiting Dell (DELL), Hewlett-Packard (HPQ), Apple (AAPL), and Acer.
Douglas A. McIntyre
Dell (DELL) finally filed its past financial statements including past due periodic reports with the U.S. Securities and Exchange Commission. Those reports contain restated financial information for Fiscal 2003, 2004, 2005 and 2006 (including the interim periods within those years), and the first quarter of Fiscal 2007.
Dell believes that, with the filing of these reports, it will achieve compliance with NASDAQ’s continued listing requirements, and expects that NASDAQ will send the company an acknowledgement to that effect in the near future.
According to MarketWatch the restatement cut Dells earnings by $92 million, and its earnings-per-share by 3 cents for the combined period of its 2003, 2004, 2005 and 2006 fiscal years, and the first quarter of its 2007 fiscal year.
Dell’s shares are up over 2% after hours to $30.40 which is above the stock’s previous 52-week high.
As 24/7 Wall St. wrote earlier, the will allow the company to resume its share buy-back.
Douglas A. McIntyre
Wellcare Health Plans (WCG) Regulators keep asking for more info and class action suits are beginning. Shares fall to $21.41 from 52-week high of $128.42.
Qwest Communications (Q) Big telecom company turns in ugly forecast. Shares fall to $6.94 from 52-week high of $10.45.
Rite Aid Corporation (RAD) Still dogged by high costs and low margins on generic drugs. Falls to $3.80 from 52-week high of $6.74.
American Medical Systems (AMMD) Lowers outlook for the year and is hit with downgrade. Drops to $11.89 from 52-week high of $33.18.
Openwave Systems (OPWV) Still slipping after last week’s earnings. Drops to $3.86 from 52-week high of $10.58.
Divx Inc (DIVX) Deal the company has with Google (GOOG) gets unpleasant amendment. Share move down to $12.24 from 52-week high of $31.89.
Douglas A. McIntyre
Sanmina-SCI (SANM) announced that for the fiscal fourth quarter ended September 29, 2007, the company had revenue of $2.5 billion, compared to $2.7 billion in the fourth quarter ended September 30, 2006. Revenue for the year ended September 29, 2007 was $10.4 billion, compared to $11.0 billion in the prior year.
Net income for the fourth quarter 2007 was $10.2 million, $0.02 diluted earnings per share, compared to a net loss of $2.1 million, breakeven diluted earnings per share for the fourth quarter 2006. Net income for fiscal year 2007 was $22.8 million, $0.04 diluted earnings per share, compared to $102.4 million, $0.19 diluted earnings per share in the prior year.
Wall St. had expected the quarter to have nil EPS and revenue of $2.53 billion. For the year, expectations were for EPS of $.03 on revenue of $10.6 billion.
For the next quarter, the company expects revenue to be in the range of $2.5 billion to $2.65 billion range and Non-GAAP diluted earnings per share to be between $0.02 to $0.04.
The shares moved down a fraction after hours.
Websense (WBSN) released earnings with revenue in the third quarter was $50.4 million, an increase of 10 percent from the third quarter of 2006. Net income calculated using generally accepted accounting principles (GAAP) was $6.4 million, or 14 cents per diluted share, compared with net income of $8.3 million or 18 cents per diluted share in the third quarter of 2006
Wall St. had been looking for revenue of $50.5 million and EPS of $.22.
Websense completed the acquisition of SurfControl on October 3, 2007. Combined third quarter net billings for Websense and SurfControl were $79.1 million and within the anticipated range of billings for the combined company. Websense billings were below the previously guided range of $56 to $59 million, primarily due to increased competition from SurfControl in North America.
The newly combined company expects revenue in the range of $92 million to $95 million in the fourth quarter and $.20 to $.23 EPS. For the full-year 2008, the merger operation is expected to have revenue of $330 to $345 million and EPS of $1.10 to $1.17.
The stock looks like it will be hit with some selling as the evening wears on.
Douglas A. McIntyre
RealNetworks (RNWK) today announced that for the third quarter of 2007, revenue grew 55% to $145.1 million compared to $93.7 million for the third quarter of 2006. Technology Products and Solutions revenue of $53.3 million, a 377% increase over the third quarter of 2006, due in large part to the acquisition of WiderThan during the fourth quarter of 2006. So, much of the improvement was not "organic" as Wall St. types like to say.
Net income for the third quarter of 2007 was $4.3 million or $0.03 per diluted share, compared to $42.2 million or $0.24 per diluted share in the third quarter of 2006. Results for the third quarter of 2006 included payments related to Real’s antitrust settlement and commercial agreements with Microsoft.
Gross margin was 61% in the third quarter of 2007 compared to 70% in the third quarter of 2006.
For the fourth quarter of 2007, Real expects revenue in the range of $152 million to $157 million, GAAP net income per diluted share of $0.00 to $0.01 and adjusted net income per diluted share of $0.06 to $0.07. For the full year 2007, Real expects revenue in the range of $563 million to $568 million. Real expects 2007 GAAP net income per diluted share of $0.28 to $0.29 and adjusted net income per diluted share of $0.23 to $0.24.
Analysts had looked for EPS of ($.01) on revenue of $143 million. And for Q4 guidance of $.02 on $168 million in revenue.
In the eyes of Wall St. the figures were close enough for government work. The shares were up a fraction to $6.60 after hours.
Douglas A. McIntyre
Shutterfly (SFLY) announced that its total revenues were $32.6 million, an increase of 54% over the third quarter 2006. The online photo site had a GAAP net loss per share was ($0.14), as compared to a net loss per share of ($0.70) for the third quarter 2006.
Transacting customers for the quarter totaled 844,000 – a 35% increase over the third quarter 2006.
The company’s forecast for Q4 was revenues within the range of $90.5 million to $93.5 million, an increase of 38% to 42% as compared to the fourth quarter of 2006. For the full year revenues will be within the range of $180 million to $183 million, an increase of 46% to 48% as compared to the full year 2006
Analysts had been looking for Q3 revenue of $31 million and EPS of ($.16) and revenue for Q4 of $93 million with EPS of $.67.
The earnings gods were angry with the foecast and sent the shares down 9% after hours to $33.
Douglas A. McIntyre
Wednesday is much more than Halloween and it is more than the FOMC announcement date. We have an event that has been perhaps more influential to many key stocks than the upcoming announcement on Wednesday out of the FOMC. The key event is that it coincides with being the fiscal year-end for most mutual funds out there. There are many stocks that were prior beneficiaries of WINDOW DRESSING at the end of September, but this list may be far more important as the year-end names will appear in annual reports for mutual funds. Oddly enough, these might not see the same love as the last quarter (see below).
Goldman Sachs may not be reversing its entire bullish stance on oil after oil traded over $93.00 per barrel on Monday, but it is recommending some old fashioned profit taking. Goldman Sachs noted specifically that it is not necessarily calling a top here, but it is encouraging to take some profits and lock-in some gains. Here was the prior equity analyst call on oil names out of Goldman Sachs.
At the end of last week, 24/7 Wall St. was looking at ExxonMobil (NYSE:XOM) ahead of earnings and we noted that its chart was not indicative of a great earnings report being priced-in. Schlumberger Ltd. (NYSE:SLB) has been a disaster since its earnings were greeted with major selling, and BP (NYSE:BP) already noted that Q4 was going to be ugly. The stock was not following oil prices and the price at the pump according to gasbuddy.com was not following the per barrel price trend of black gold. Naturally, there is a "be careful what you wish for, you might get it" lesson here: yesterday at the pump the price was back over $3.00 per gallon.
This report isn’t entire out of line with Goldman Sachs’ recent lifting of its Super-Spike price band where it noted the possibilities under extreme circumstances for $135/barrel and $4.50/gallon at the pump. Today’s call looks at a downside risk of $80/barrel at the end of Q1 2008.
You can bet this won’t change the stance of many oil bulls. Ken Heebner of CGM is very bullish on oil properties and T. Boone Pickens recently called for $100/barrel. Jim Cramer even went on the line and noted some key oil takeover names in Canadian Oil Sands Trusts.
The truth is that the fundamentals right now do not seem to justify the current prices, but 24/7 Wall St. still believes that $100 can easily be hit based upon the trading patterns. There has still yet to be a single net delivery miss in and to the U.S. If a net delivery miss were to occur you can imagine what the trading reaction will be, regardless of the price. Traders are in charge of oil, just ask Tesoro’s (NYSE:TSO) analyst/economist that was saying just last week how the fundamentals in today’s oil markets should have oil in the $60’s rather than the $80’s or $90’s.
We still wonder if Baker Hughes Inc. (NYSE:BHI) is going to make an acquisition after that last filing for it to raise $2 Billion in cash, which has been a signal in the past since it does not need cash.
Oil is down almost $2.00/barrel at $91.60 on last look. The Energy Select Sector SPDR (AMEX:XLE) is down over 2% to $75.47 (year range $53.89 to $78.50) and the Oil Services HOLDRs (AMEX:OIH) is down 2.8% at $188.28 (year range $125.81 to $204.62).
Jon C. Ogg
October 30, 2007
Starbucks (SBUX) broke below $25 today, not too far from its 52-week low. Less than a year ago, the shares traded over $40.
The last significant analyst call on the company was a Banc of America downgrade late this September which took the shares from "neutral" to "sell". But, that was over four weeks ago which can be a long time in this market.
Expectations are that the company will grow over 20% again when it reports earnings next month. Wall St. Expects revenue of $2,43 billion and an increase in EPS from $.17 last year to $.21 this.
Starbucks can do deals with Apple (AAPL) to put music downloads in stores and can get exclusives to sell CDs for big artists. It can say that the increase in milk prices will be passed on to customers. The problem with Starbucks is simple. Investors think it has too much competition now, and that it is a barricade to growth that the company cannot overcome.
That seems like old news. But, it is also new news. Starbucks management has been in the market saying that its long-term growth rates area achievable. No one is buying it.
Starbucks could solve part of that problem tomorrow. It could begin to release monthly same-store sales again. When it stopped a few quarters ago, Wall St. thought it had something to hide. The company felt that the numbers jacked the price around too much.
But, same-store sales are not only G2 for the markets, they are discipline for the management. Monthly numbers are like water torture, if the company is not keeping up. If it is, that story about the Starbucks growth machine, gone now for a year, comes back.
And, so do the shares.
Douglas A. McIntyre
RealNetworks Inc. (NASDAQ:RNWK) is set to report earnings after today’s close. First Call has estimates at -$0.01 EPS on revenues of $143.4 million, but there are some estimates with a break-even to even a slight positive earnings for the quarter. Estimates for next quarter are $0.02 EPS on $158.1 million in revenues.
It looks like the average analyst target is still over $10, but there have not been any major calls on today’s expectations. Morgan Keegan started this with an Outperform rating back in September and J.P. Morgan just initiated coverage earlier in October with a "Neutral" rating. Options are hard to use for any real indicator ahead of earnings and the open interest is not even worth noting. The stock has spent most of the last three-months in a $6 to $7 trading band, and it has been in a $5.45 to $12.08 trading range over the last 52-weeks.
This company would have been easy to attack ahead based on the fact that recent earnings have been skewed by one-time payments that are not going out indefinitely into the future. This will make comparisons to past quarters quite difficult. The good news is that the company has become more and more prominent in digital music downloads via its Rhapsody joint venture with Viacom (NYSE:VIA) and its recent TiVo (NASDAQ:TIVO) pact. Another interesting push here for looking ahead is its recent casual gaming infrastructure company called Game Trust.
One key issue is this huge short interest of 7.729 million shares as of mid-October. Shares are flat mid-day ahead of earnings and RealNetworks carries roughly a $987 million market cap. As of last quarter the company had almost $615 million in cash and equivalents and its net tangible assets after removing goodwill and other items was listed as $489.6 million.
Jon C. Ogg
October 30, 2007
There is a new ETF trading on the NYSE today. The WisdomTree Emerging Markets SmallCap Dividend Fund listed on NYSE Arca under the ticker symbol DGS, and it has begun trading.
This ETF was created to track the price and yield performance of the "WisdomTree Emerging Markets SmallCap Dividend Index." This index is a fundamentally weighted index primarily measuring the performance of small cap stocks.
If you’d like to see the top components you can find that here on the WisdomTree site. According to that site and performance results, it appears that this index is up some 63% over the last year.
WisdomTree Investments Inc. is also public and trades under the OTC/PinkSheets ticker "WDST."
Jon C. Ogg
October 30, 2007
Since every other company in the world from NBC to Wal-Mart (WMT) to Amazon (AMZN) is in the video distribution, why not Best Buy (BBY)?
Why not, indeed. Today the company launched Best Buy Video Sharing, an online-based solution for customers to safely store and share home movies and videos via the Web.
Best Buy Video Sharing is a subscription-based service for users to upload their personal videos for sharing on web sites and blogs, with family and friends, or in e-mail messages. Unlike many other video sharing services, Best Buy Video Sharing allows the user to choose who can view their home videos, and enables the user to do so in an advertising-free environment.
Best Buy Video Sharing was created in partnership with Mydeo, a provider of quality streaming video hosting for home and business users. The service will be merchandised online and in Best Buy’s retail stores.
Base plans start at $6.97 for 100 minutes of video hosting and video lengths up to 30 minutes each. Customers can chose premium plans for extended video lengths, additional video storage capacity, and other sharing features.
While it does seem like a good idea, the program competes with 10,000 others not unlike it.
Douglas A. McIntyre
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