Daily Archives: December 5, 2007

Rambus Escapes SEC Options Probe Unscathed (RMBS)

Rambus Inc. (NASDAQ:RMBS) has announced that it received notification from the SEC stating that the informal investigation into Rambus’s past stock option practices has been terminated and that no enforcement action has been recommended to the Commission.

Shares of Rambus closed up 3% with a strong semiconductor market today at $19.84.  Shares were up 1.7% at $20.19 on last look in after-hours trading, and the 52-week trading range is $12.05 to $23.95.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 8:38 pm in Options, SEC, Semiconductor,

Apple (AAPL): Attackers Hack The Mac

For several years, Apple (AAPL) has said with pride that its Mac computers and OS are more secure than products from Microsoft (MSFT), especially Windows, which have been a huge target for hackers.

But, the Mac has become more popular and with success comes a measure of visibility. Now hackers appear to love attacking the Mac.

The FT writes that “Over the past two years, we had found one or two pieces of malware targeting Macs,” said Patrik Runald, an F-Secure security researcher. “Since October, we’ve found 100-150 variants.”

That is a lot for Apple to handle. The OS part of the company is not its major business, so any time spent on protecting that realm is not time spent getting out the latest iPhone.

The paper says that most of the damaging software bugs come from a group called the “Zlob gang”. Unfortunately for Apple, they have a reputation for being quite good at what they do.

As for Apple’s bragging rights about having a system which is more secure than Windows? They may be leaving the building.

Douglas A. McIntyre

Posted on: December 5, 2007 – 6:12 pm in PC Companies, ,

GameStop Replacing Dow Jones in S&P 500 (GME, NWS, DJ)

GameStop Corp. (NYSE:GME) has been paid quite a nice complement today.  It has been selected to replace Dow Jones (NYSE:DJ) in the beloved S&P 500 Index after the close on a date TBA.  The pending News Corp. (NYSE:NWS) buyout of Dow Jones is expected to close before the end of this month according to our sources at Dow Jones and News Corp., although we have heard too many date approximations to hang our hat on.  But we would expect GameStop to make the index change before the year-end.

GameStop was already a member of the S&P Mid Cap 400 Index.  As of the close at a $57.90 close it had a $9.3 Billion market cap.  Shares are now trading up 3.8% at $60.10 in after-hours trading and the stock has traded as low as $24.95 and as high as $60.80 over the last 52-weeks.

We have an update going out soon in the video game sector for our Special Situation Investing Newsletter subscribers.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 5:42 pm in Index, Video Games, , ,

The 52-Week Low Club (AMD)(CMCSA)(DNA)

MBIA (MBI) Downgrade by Moody’s. Falls to $25.84 from 52-week high of $76.02.

Genentech (DNA) FDA rejects key drug. Drops to $65.54 from 52-week high of $89.73.

AMD (AMD) More analyst concerns. Down to $8.83 from 52-week high of $23.

VeriFone (PAY) Still falling on bad accounting news. Down to $22.59 from 52-week high of $50.

AMR (AMR) High fuel prices put airlines out of favor. Drops to $18.36 from 52-week high of $41.

Comcast (CMCSA) Revises current year forecasts down. Falls to $18.08 from 52-week high of $30.18.

Douglas A. McIntyre

Posted on: December 5, 2007 – 4:11 pm in HI/LOW, , , , , ,

FDA Rejects Genetech (DNA) Cancer Drug, Shares Off 9%

According to the WSJ and other source, the FDA has rejected Genetech’s (DNA) drug Avastin as a breast cancer treatment. Shares are off 9% on the news

Douglas A. McIntyre

Posted on: December 5, 2007 – 2:45 pm in Uncategorized,

Independent Ratings Agencies Out of Control (MCO, MHP, MBI, ABK)

If you think the "independent ratings agencies" are your friend and are out there looking out for your best interest, you have already been told time after time that they are not.  We’ve said it, CNBC has said it, analysts have said it, and so on…… Today is another example.

Moody’s (NYSE: MCO) has made comments that are hurting financial guarantor and bond insurance players.  Moody’s has said that MBIA inc. (NYSE: MBI) is at a greater risk of a capital shortfall than had previously been noted.  It is currently reviewing its current rating and ability to fund its obligations.  MBIA Inc. is seeing its shares hit by about 13% at $28.40, and that got it to a new 52-week low.

Ambac Financial Group, Inc. (NYSE: ABK) has also seen its stock hit hit by 6% after these comments.  Frankly, the net effect of this is that it drives up the cost of insuring bonds, getting accurate coverage and analysis on securities, and spills all the way down the food chain.  It is affecting the ability for municipalities to offer new municipal bonds and has affected th value of municipal bond funds.  It also affects companies that "may need to borrow that don’t need to borrow today" because of the potential costs.

McGraw Hill (NYSE: MHP) is the parent company of Standard & Poor’s, and it has a similar model for its debt rating business.  The difference is that 24/7 Wall St. actually uses some of the S&P equity ratings analysis because it is more independent and objective in our opinion.  McGraw Hill is also a more diversified publisher.

I have personally been on the record stating that if certain Enron transactions were structured differently and adequately rated by the debt ratings agencies AHEAD of the fraud realization (even after the fraud that was occuring there) and without some of the certain debt rating triggers and subsequent stock price triggers that the company would have actually survived as an entity.  Frankly, I know that is a very controversial statement that can be argued until the oil workers come in from the field.  Don’t bother asking because it’s ancient history and won’t be responded to or addressed.

But there is a severe problem here.  That is that the ratings agencies have only been downgrading these CDO and company ratings all the way down the chain and other derivative ratings recently.  They either didn’t know what they are looking at or didn’t know how to evaluate them, but either way it’s a real problem that hasn’t gotten enough attention.

The business model has been flawed, and partly responsible for a portion of the mess in the debt markets right now. "Pay us to assign a rating to you, and we’ll give you a fair and accurate rating that will allow investors to decide to invest or not. Then we’ll charge the public and subscribers to get access to the research."  I won’t even mention the various potential conflicts of interests there.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 2:15 pm in Analyst Calls, , , ,

Bristol-Myers (BMY): Better Share Price Through Lay-Offs

Bristol-Myers (BMY) showed the world its equivalent of the old Soviet "Five Year Plan" today.

All of the talk up front was about becoming "a next-generation BioPharma company that pairs the scale and resources of a mid-sized pharmaceutical company with the entrepreneurial spirit and innovative focus of a biotech startup." Jargon. Barely English, as a matter of fact.

The details are more mundane. The company is going to cut a bunch of mature brands, close factories, and fire a lot of people. The details are these. Brands in the "mature products portfolio" will be cut by 60% by 2011. Manufacturing facilities will be cut by 50% by the end of 2010. BMY will sack 10% of its people before the beginning of 2010.

BMY said it will continue to invest in key growth products, including specialty and biologic medicines, and cardiovascular and metabolic drugs. And, it may sell off some divisions which don’t match its plans.

The company revised its 2007 fully diluted earnings per share guidance on a GAAP basis to $1.15 to $1.20 from $1.28 to $1.33, And, BMY provided 2008 fully diluted earnings per share guidance on a GAAP basis of $1.44 to $1.54

This is only a restructuring at a company that can no longer support its old cost base. Wall St. saw through it right away, and BMY shares are down.

Douglas A. McIntyre

Posted on: December 5, 2007 – 12:33 pm in Pharmaceuticals,

When The Government Issues An Earnings Warning

Peter Orszag, Director of the Congressional Budget Office, gave a presentation today before the committee of the budget in the U.S. House of Representatives.  The end result is that his presentation noted that the next Blue Chip survey will show further downward revisions to economic forecasts (on Nov. 1 it forecast 1.9% real GDP growth for 2008).  He also covered housing & financial markets, oil markets, the current account and the dollar, consumption & confidence.

The good news is that the US Treasury hasn’t yet made lower official estimates, or if they have we haven’t gotten to compare the data to include our new financial forecasting for 2008.  The FOMC did recently give its current outlook for 2008 and beyond and we covered that when it came it out.

The U.S. fiscal situation in reality may not be much different than a SIV or a CDO, but then again it is one of the highest rated debt instruments in the world and the US T-bill is still the "risk-free rate of return" for all financial models.  Its AAA rating is still quite intact.

We’ve already heard state governors and city mayors noting how the housing situation will ultimately reduce property tax receipts.  If the retail spending environment weakens much more, they’ll also have lower sales tax receipts.

When key companies indicate a larger chance of the economy affecting their forward numbers, Wall Street analysts usually cut their forward estimates for stocks in that sector and in related sectors.

Goldman Sachs recently increased its perceived chances of a recession as well.

Jon C. Ogg
December 5, 2007

Posted on: December 5, 2007 – 12:31 pm in Economy

Nokia (NOK) HDTV Phones

Nokia (NOK) may sell over 400 million handsets a year. It new music download and internet-to-the-phone program may make it the leader in wireless multimedia. But now it is talking about offering HDTV on handsets within the next few years.

"It’s coming. Technically, we are a couple of years away," Nokia’s Chief Technology Officer Tero Ojanpera told Reuters in an interview

The idea may seem clever, but it make no sense. The ability of the human eye to be able to tell the difference between high definition and standard def on a 1.5 by 1.5 inch screen is limited to cinematographers.

It is extremely hard to see how Hi Def will find a market on handset, but Wall St. can count on the fact that it will be expensive to develop and expensive for the consumer to buy.

Douglas A. McIntyre

Posted on: December 5, 2007 – 12:21 pm in Consumer Electronics,

Micron Rumors & Reports May Be Its Only Hope (MU, TSM, STM)

If you have tracked Micron Technology (NYSE: MU) over the years you would likely have reached the conclusion that the largest US-based and US-fab DRAM manufacturer wasn’t even cyclical.  You’d maybe even accuse it of having a secular negative trend.  Micron has been in a commodity business for over a decade now, but the only difference is that wheat and corn prices go up and down.  DRAM seems to only go down, at least on a secular trending.

Shares sit above $9.00 today and the 52-week trading range is $7.82 to $15.05.  Its multi-year trading range is not that much different.  Today there are rumors abound that Micron may sell off its Image Processor Unit to Samsung Electronics.  This rumor is based upon a report noting that Samsung was considering an acquisition of Micron’s image sensor operations. 

If Micron will pick up the phone, it should have an easy audience besides just Samsung.  Foreign chip giants like STMicroelectronics (NYSE: STM/ADR) and Taiwan Semi (NYSE: TSM/ADR) immediately come to mind and with the US Dollar trading like a Peso they’d be getting an on-sale asset (or assets) at an extra discount. 

Micron has been shown a path here that Wall Street may reward.  Even if Micron is not selling the unit to Samsung, the company should consider selling it and/or other units to someone.  Micron could also at least consider splitting itself up after that has also been discussed by many in the past.  This has been under review for the 247WallSt.com Special Situation Investing Newsletter in the past, and perhaps another review may be worth a closer look for our subscribers.

Some troubled businesses may be in-play or out of favor, but when they are in trouble like Micron they should pay more attention to how Wall Street reacts when the stocks moves on certain rumors or reports.  Wall Street doesn’t like rewarding losers, particularly not during a credit crunch.  The good news is that with a $7 Billion market cap it trades actually very close to its stated book value.  Since this is not expected to get back to annual profitability until Fiscal 2009 it is the right time to consider its value options.

At the current prices, Micron even qualifies for our "10 Stocks Under $10" Newsletter.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 11:34 am in Mergers and Buy Outs, Rumors, Semiconductor, Technology Companies, , , , , , , ,

Sirius (SIRI) and XM Satellite (XMSR) Both Get Knocked Again

Wall St. is after Sirius (SIR) and XM Satellite (XMSR) again. Investors are still unsure whether the two companies will merge. Subscriber growth has slowed for each. And debt levels at the companies are a combined $2.5 billion.

The argument for the merger is that it will cut costs. But, the companies do not have compatible systems, so redundant services will have to be run for some time.

Today Stifel Nicolaus threw more cold water on the deal saying that royalty rates for music are rising higher and that the costs for hosts will almost certainly go up as well.

According to Barron’s, the research firm "writes that the rates paid performers will rise from about 3.5% of XMSR’s adjusted gross revenues over the past five years to 6% in 2008 and 8% by 2012."

XMSR and SIRI are both down on the news.

Douglas A. McIntyre

Posted on: December 5, 2007 – 11:27 am in Satellite, ,

24/7 Wall St. Contributes To MSN Money

24/7 Wall St. has begun contributing content to MSN Money. Check out the first article.

Posted on: December 5, 2007 – 10:40 am in Uncategorized

Lazard More Bullish on First Solar & Capstone Turbine (FSLR, CPST)

Analyst Sanjay Shrestha of Lazard Capital Markets is sticking with his Buy ratings this morning on shares of First Solar (NASDAQ:FSLR) and Capstone Turbine (NASDAQ:CPST).

On First Solar (NASDAQ:FSLR):

  • We maintain our BUY rating on First Solar shares following the company’s analyst day and tour of the company’s Perrysburg, Ohio, manufacturing facility…. elaborated on its overall strategy to garner leading and defendable market share in the mainstream electric power generating market, without subsidy, while maintaining a superior return on capital through people, processes, technological leadership, scale, strong financial discipline, and risk control….. reiterated its cost-reduction goal of achieving module ASP of $1-$1.25/watt by 2010-2012.
  • Shrestha adds, "We believe this strategy will allow First Solar to successfully migrate from subsidized markets, to renewable energy markets, to mainstream electric power markets over the next several years…. We are raising our price target to $250 from $225. Our new target equates to a 40x multiple on our 2010E EPS of $7.25 (up from $6.50), discounted back 15% for one year.

On Capstone Turbine (NASDAQ: CPST):

  • Interestingly enough, an approval for microturbine technology to become a standard in New York is the basis for todays call.  Mayor Michael Bloomberg announced a new rule setting the country’s first standard for use and installation of microturbine systems in residential and commercial buildings. The rule creates a standard protocol for microturbine installation in NYC…
  • Shrestha notes, "Given Capstone’s UL certification and strong presence in Northeast market, we would look for increasing order traction; however, we note that sales cycles for distributed generation solutions remain lumpy/lengthy…. We maintain our $2.50 price target, which reflects a 25x multiple on our 2012 EPS estimate of $0.20 discounted back at 25% for three years.  We maintain our $2.50 price target, which reflects a 25x multiple on our 2012 EPS estimate of $0.20 discounted back at 25% for three years."

We recently noted in our own "10 Stocks Under $10 Newsletter" how after we reviewed Capstone Turbine (NASDAQ:CPST) that we felt his call for a double in the shares could be greatly understated if you track alternative energy and historical stock prices compared to modern and past valuations.

  • Capstone Turbine (NASDAQ: CPST) shares are up 6% at $1.22 today; 52-week trading range is $0.75 to $1.48 (stock was above $5.00 in 2005 and traded well over $50.00 back in 2000); market cap $177.5 million.
  • First Solar (NASDAQ: FSLR) shares are up over 4% more today at $223.85; 52-week trading range is $26.40 to $252.39; market cap now $17.4 Billion.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 10:39 am in Alternative Energy, Analyst Calls, ,

Postal Rate Change to Wallop Netflix, Help BBI? (NFLX)

From Silicon Alley Insider

Another reason for Netflix (NFLX) to hurry up and transition to a purely digital model: A potential postal rate change could cut the company’s operating income per subscriber by two-thirds, say Citi analysts Mark Mahaney and Tony Wible       continued here….

Posted on: December 5, 2007 – 10:27 am in Uncategorized

Bill Gross: Google Falling, 3 1/4% Fed Funds & More Housing Price Drops

PIMCO’s Bill Gross is still one of the top bond fund managers in the U.S., if not the world.  But his tome of words that comes out each month is starting to become a reactionary market retort, and since PIMCO brought on Alan Greenspan as an advisory agent you can tell that the vocabulary out of PIMCO is changing with their crystal ball projections.  Having one of the largest bond portfolios in the world and having the ‘former’ most powerful man in the world markets on your team is starting to sound like even that does not yield omnipotence.

Here are some comments from his December investment outlook:

The woven tangled web of subprimes has claimed more than its share of victims in recent months. Homeowners by the hundreds of thousands, to be sure, but also those that created, packaged, insured, distributed, and ultimately bought what should have been labeled "junk mortgages," but which by a masterstroke of marketing genius were given a more respectable imprimatur. (that sounds like Greenspanian if ever) "Skim milk masquerades as cream," warned Gilbert & Sullivan a century ago and sure enough, modern day subprimes packaged into financial conduits with noms de plume such as "SIVs" and "CDOs" pretended to be AAA rated cubes of butter (again, this soujnds Greenspanian). Financial institutions fell for the charade hook, line, and sinker and now we all suffer the consequences. Defaults are rising, the dollar’s sinking, and good Lord—even Google’s stock price is going down. Something must really be wrong here.

So Gross can comment on Google (NASDAQ:GOOG), but if you read the wording it isn’t clear if he is referencing that Google shares have dropped or if he’s predicting a further drop.

It is. What we are witnessing is essentially the breakdown of our modern day banking system, a complex of levered lending so hard to understand that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August. My PIMCO colleague, Paul McCulley, has labeled it the "Shadow Banking System" because it has lain hidden for years—untouched by regulation—yet free to magically and mystically create and then package subprime mortgages into a host of three-letter conduits that only Wall Street wizards could explain……  Now, as the subprimes undermine these structures and the confidence in them, it is a stretch of the imagination to suggest that 75 basis points of interest rate cuts by the Fed will bring back the love.

Home prices have been the obvious first hit—down 5% nationwide already, with perhaps another 10% to go over the next several years.

Read More »

Posted on: December 5, 2007 – 10:00 am in Economy, , , ,

New York Times Outlines Cost Structures & Cuts (NYT)

The New York Times Company (NYSE: NYT) has provided some updated guidance for the fourth quarter of 2007 and is providing its initial outlook for 2008.

Janet L. Robinson, president and CEO: “We expect November revenues will be up 1 to 2 percent.  Digital and circulation revenues showed good growth, offsetting lower print revenues. Classified advertising continued to be weak, particularly the real estate category.”

Fourth-Quarter 2007 Guidance:

  • Staff reduction costs approximately $14 to $16 million;
  • Depreciation and amortization of $47 to $49 million (previous range $48 to $50 million);
  • Income from joint ventures: Loss of $3 to $5 million.
  • Interest expense of $11 to $13 million.
  • Capital expenditures of $70 to $90 million (previous range $50 to $80 million).
  • Income tax rate approximately 41%.

Initial 2008 Expectations:

  • Cost savings and productivity gains target a cost reduction from a 2007 cost base of a total of approximately $230 million in 2008 and 2009, excluding the effects of inflation and certain one-time costs. About $130 million of these savings are expected in 2008.
  • Depreciation and amortization – $160 to $170 million, which includes approximately $5 million of accelerated depreciation expense in the first quarter of 2008 associated with the New York area plant consolidation project. Depreciation for the new headquarters building is expected to be $8 million per quarter.
  • Income from joint ventures about $12 to $16 million.
  • Interest expense: $50 to $60 million.
  • Capital expenditures: $150 to $175 million.
  • Income tax rate approximately 41%.

Unfortunately the company is not issuing its November numbers until mid-month.  We are also not seeing any key projections on earnings or what the subscriber drop-offs are expected to be.  Without that data, we are just considering this a cost basis projection out of the company.

New York Times shares are not making any key indications off this.  At a $16.95 close yesterday this is only about 6% off its year lows and it has traded in a $16.02 to $26.90 range of the last 52-weeks.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 9:13 am in Media,

Is US Economy Still Strong?

Two pieces of information out today would indicate that the overall US economy is not being hurt by the housing and fuel cost problems.

According to Bloomberg, ADP says that companies in the U.S. added 189,000 jobs in November, more than economists had forecast.

The news service also writes that "productivity, a measure of employee efficiency, rose at an annual rate of 6.3 percent,"

"Greater efficiency eases pressure for companies to raise prices to counter rising energy costs, diminishing the threat of inflation. Lower labor costs will give Federal Reserve policy makers leeway to reduce interest rates to prevent the economy from slipping into a slowdown that will erode productivity."

Douglas A. McIntyre

Posted on: December 5, 2007 – 8:46 am in Economy

Lexicon New Alzheimer’s Disease Trial Dosing (LXRX)

Lexicon Pharmaceuticals, Inc. (Nasdaq: LXRX) has announced that dosing has commenced in its Phase IIa clinical trial with LX6171.  This is an oral drug candidate that is implied for the treatment of cognitive impairment disorders such as Alzheimer’s disease, schizophrenia, and vascular dementia.

The initial stage of the trial will assess the bioavailability of a new oral-suspension formulation in healthy elderly subjects with a second stage evaluating safety, tolerability and cognitive effects in elderly subjects with age-associated memory impairment.

This was issued ahead of its R&D webcast at Noon EST today.  Shares have not traded in pre-market trading and closed at $3.20 yesterday; its 52-week trading range is $2.80 to $4.40.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 8:42 am in Biotech, ,

Yahoo! (YHOO) Starting Online Competition For CNBC And Fox Business

Word is that Yahoo! (YHOO) Finance will begin an online business show which will compete with cable channels CNBC and Fox Business.

According to TechCruch the show, to be called TechTicker, will go live in January with four hosts.

The show will have up to 20 original pieces per weekday, but look for that to rise if the audience is good. The CPMs for video programming are higher than display, so Yahoo! hopes to cash in on the trend to improve income at Yahoo! Finance.

Douglas A. McIntyre

Posted on: December 5, 2007 – 8:35 am in Media,

Pre-Market Stock News (December 5, 2007)

This not all of the big stock news in pre-market trading on Tuesday evening, but these are some of the ones that 247WallSt.com is focusing on.

  • Adolor (NASDAQ:ADLR) in pain treatment collaboration pact with Pfizer.
  • AECOM (NYSE:ACM) announced a $63.6 million DOD contract for support services in Iraq.
  • Blyth Industries (NYSE:BTH) $0.24 EPS vs. $0.12 estimates.
  • Comcast (NASDAQ:CMCSA) down 4% on them cutting cable subscriber growth rates.
  • DSW (NYSE:DSW) beat earnings but guidance is light.
  • Fannie Mae (NYSE:FNM) cut dividend from $0.50 to $0.35; will sell $7 Billion in securities.
  • Goodrich Petroleum (NYSE:GDP) priced 5.8 million shares at $23.50.
  • Guess$ (NYSE:GES) $0.62 EPS vs $0.58 est.; raised 2008 and 2009 guidance.
  • Hercules Offshore (NASDAQ:HERO) announced a 3-year contract for jackup rigs in India.
  • Jones Soda (NASDAQ:JSDA) CEO Van Stolk is stepping down at the end of this year.
  • Lexicon Pharma (NASDAQ:LXRX) starts dosing for Phase IIa Trial with LX6171 for Alzheimer’s Disease.
  • Napster (NASDAQ:NAPS) is launching a new music discovery and listening channel through NTT DoCoMo.
  • Raytheon (NYSE:RTN) up marginally after Jim Cramer called it a permanent bullish stock.
  • Sohu.com (NASDAQ:SOHU) trading up over 10% after raised guidance.
  • Synta Pharma receives (NASDAQ:SNTA) $80 million upfront payment from GlaxoSmithKline.
  • United Therapeutics (NASDAQ:UTHR) said its OvaRex MAb trials failed to meet endpoints on ovarian cancer trials.

Jon C. Ogg
December 5, 2007

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

Posted on: December 5, 2007 – 8:34 am in Pre-Market Activity