Daily Archives: January 8, 2008

Microsoft (MSFT) And EU: Best Friends For Life?

After all of the bile that has passed between the European Union and Microsoft (MSFT) over Redmond’s monopolistic behavior in the region, the two may now be bedfellows.

The European Commission, a branch of the EU, has been trying to build its own "Google (GOOG) killer", not wanting the US to dominate one more key arena of the tech world. The governing body has contracted with Fast Search & Transfer, a company which Microsoft is buying, to "lead Pharos, short for Platform for Search of Audiovisual Resources Across Online Spaces, a publicly funded project designed to develop technology geared to help businesses better search multimedia files," according to MarketWatch.

It may be that the EU and Microsoft have found a common goal in wanting to beat back Google so that it does not come to dominate the worlds of search, wireless devices, desktop software, and green energy.

Now that Google is the one with the monopoly, why shouldn’t Microsoft get a little help from the government?

Douglas A. McIntyre

Posted on: January 8, 2008 – 8:02 pm in Software, ,

Tata (TTM) In Tatters

The credit default swaps market is turning on India’s Tata Motors (TTM). Concerns are mounting that the company will bite off more than it can chew by buying Jaguar and Rover from Ford (F). Given the billions of dollars that the US company lost running the companies, perhaps Tata cannot do any better.

According to the FT “This would be a large-scale acquisition for Tata Motors that could potentially have a negative impact on the corporate credit ratings on the company, especially if it is heavily funded by debt,” said Standard & Poors.

The fears are fair enough. Although Ford has not had the finest management team in the world as it has operated the two luxury brands, the Fords are car people. They dumped $2.1 billion into Jaguar in 2005. It has brought them nothing but grief.

Bloomberg reports that Tata may pay as much as $1.98 billion to Ford for Jag and Rover. If the India-based firm manages to bleed as much red ink over the brands as the US car company did, their best years as a company are behind them.

Douglas A. McIntyre

Posted on: January 8, 2008 – 7:25 pm in Autos, ,

Regulators Beg Buffett To Get Into Bond Insurance

Perhaps the fact that Berkshire Hathaway (BRK.A) got into the bond insurance business just as it was falling apart was not entirely due to the genius of Warren Buffett. According to the FT, Mr. Buffett’s company began its new business "just weeks after receiving an unusual call from New York state’s insurance regulator urging it to enter the multi-billion dollar market."

The entreaties of the troubled fell upon the ears of the mighty. New York State approved the application to start the business in one month. People who are not Warren Buffett often wait six to nine months.

Now that Buffett and Company and their Fort Know balance sheet are in the bond insurance business, companies like MBIA (MBI) and Ambac (ABK) can head down the sewer. The stocks of both firms were shellacked today on concerns that they will have substantial losses. Both companies face having to raise money, or worse.

For Warren Buffett, it is good to be the King.

Douglas A. McIntyre

Posted on: January 8, 2008 – 7:10 pm in Financial Stocks, , , , ,

The 52-Week Low Club (CFC)(ETFC)(C)(MER)(AMD)

Countrywide Financial (CFC) Chapter 11 rumors, Denial does not help. Drops to $5.05 from 52-week high of $45.26.

MBIA (MBI) Still plenty of panic left in the bond insurance world. Sells off to $13.98 from 52-week high of $76.02.

AMR (AMR) High fuel prices and bad economy. Who wants to fly? Hits bottom of $11.75 down from 52-week high of $41.00.

E*Trade (ETFC) Downgrade and more concerns about heavy write-offs. Dives to $2.08 from 52-week high of $26.08.

Citigroup (C) Down to $27.01 from 52-week high of $55.55.

Merrill Lynch (MER) Market expects bad Q4 numbers. Hits low of $47.76 from 52-week high of $98.68.

AMD (AMD) Tech slowdown concerns push shares to $5.97 from 52-week high of $20.63.

Douglas A. McIntyre

Posted on: January 8, 2008 – 4:00 pm in HI/LOW, , , , , , ,

The Recession Visits Ma Bell (T)

AT&T (T) commented today that its consumer business was being hurt by a slow economy. Shares of AT&T and Verizon (VZ) have both done well this year due to strong cellular business and the perception that their new broadband efforts were taking business from cable companies.

With Ma Bell down over 7% to under $38, Wall St. does not seem to feel so upbeat any more.

Douglas A. McIntyre

Posted on: January 8, 2008 – 3:30 pm in Telecom, ,

Is GE’s (GE) Comback Over?

At mid-year, there was a great deal of excitement about the market’s changing and positive impression of GE (GE). The shares had moved from under $34 to $42.15.

The nice run was caused by three things. The first was the GE management convinced Wall St. that the company would provide infrastructure to much of the developing world. Investors had visions of multiple-billion dollar contracts from India, China, and other large countries in a hurry to have all the plane, trains, dams, and roads that the US has.

Investors also felt that GE was in the process of selling off its dogs. Operations like the company’s plastics unit were seen as pulling down overall performance.

Finally, the market was becoming convinced that there was nothing dangerous on the balance sheet of the big GE financial services operations. No surprises. Nothing to drive an unexpected hit on earnings.

To some extent troubles with the expansion of the world’s economy have brought on concern about GE’s growth overseas. It still has units that bother Wall St. NBC Universal probably falls into that category. And, the GE financial units may well have modest credit card or mortgage default surprises

Over the last year, GE shares are now off almost 5%.

Easy come, easy go.

Douglas A. McIntyre

Posted on: January 8, 2008 – 3:15 pm in Conglomerates,

Share Collapse At E*Trade (ETFC)

After a huge sell-off of Countrywide (CFC) shares that forced the company to deny it was in deep trouble, shares of another weak financial firm, E*Trade (ETFC) are off 20% and have traded as low at $2.08. Nice day for short sellers.

The market is now so concerned about the state for banks and brokerages that it clearly does not take more than a modest rumor to run shares down by significant percentages. No one should be surprised it this happens to Citigroup (C) or Morgan Stanley (MS) before the end of the week.

Douglas A. McIntyre

Posted on: January 8, 2008 – 3:00 pm in Brokerage Firms, , , ,

Countrywide (CFC) Denies Bankruptcy Rumors

Shares in Countrywide Financial (CFC) were down about 25% to $5.76 on rumors that the mortgage company might have to declare Chapter 11.

On denial of those rumors the stock is now still of 13% to $6.67.

Shorts must be having a hay day.

Douglas A. McIntyre

Posted on: January 8, 2008 – 1:35 pm in Banking,

Share Buybacks Not Slowing Everywhere (DELL, CSCO, MO, GE, TXN, GS, MSFT, PG)

As 2008 looks a more shaky year and one that the stock market looks like it is trying to price in a recession, there may be one victim: the share repurchase plans and stock buybacks. But there are some companies which are going to be aggressive in repurchasing shares throughout 2008.  These are not the only ones that we think will remain opportunistic on their buybacks, but here is a handful of the ones that we expect to be active in buybacks this year:

  • Dell (NASDAQ:DELL) is finally freed to start buying shares.  It hasn’t helped shares yet at all, but Michael Dell probably already initiated the first part of what may end up being $10 Billion according to their most recent announcement.
  • Cicso Systems (NASDAQ:CSCO) has been a serial buyer of its own stock and that isn’t likely to stop this year as Chambers just authorized another $10 Billion for buybacks.
  • Altria (NYSE: MO) is probably going to be aggressive once the old Engels situation is finally behind it and after it completes the spin-off of its Phillip Morris International later on this year.  Until these are behind it, MO has to stay on the sidelines.
  • General Electric (NYSE: GE) will likely keep up its share repurchase program, although we do not expect any major surge here.  Our own personal impression was that the company is doing the buyback to appease more than it is to make itself happy.  We think it can acquire operations rather than spend too much time reacquiring itself, but shareholders may ask it to buy back more stock.
  • We also believe that Texas Instruments (NYSE: TXN) will continue on its mega buyback since chip companies are so reluctant to use cash to make significant acquisitions of size with each other.
  • Goldman Sachs (NYSE:GS) is probably going to continue buying its shares on the open market as the ONLY broker or major bank that can justify the use of cash since it profited largely from the CDO and mortgage meltdown.  After a rocky month, the wild card is that the company goes on a buyback hiatus.
  • The monster of software, Microsoft (NASDAQ:MSFT), has more than enough cash to continue its share buybacks.  This has been a long-term plan and we expect this one to continue if any real weakness in the stock emerges.
  • Procter & Gamble (NYSE: PG) is one company that will keep buying back shares.  It has that huge $30 Billion allocation for buybacks and the company is a cash cow in good times and bad.  The only issue that would interrupt this is probably if it decided to make a large buyout that isn’t known today.

We have been compiling a list of major companies that have been buying back their stock over the last few years.  Soon we’ll release this list with our candidates who we think are going to have to put the buybacks on hold because they will need the cash during the economic slowdown we are witnessing.  If you look through the Powershares Buyback Achievers ETF (PKW) you will see there are many updated holdings in this group that will need to ratchet down their share repurchase activities to save cash and capital ratios.

Jon C. Ogg
January 8, 2008

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Posted on: January 8, 2008 – 11:20 am in Stock Buybacks, , , , , , , ,

The Myth Of The “Ultra-Mobile” Computer (INTC)(QCOM)(RIMM)

There is a good deal of excitement about the market for tiny computers. These would have keyboards about the size of a normal notebook but a four inch screen. They would weigh under two pounds.

Intel (INTC) is beginning to offer chips for the devices and word is that Qualcomm (QCOM) will enter the market at well. According to CNN Money, the Intel chips "demand relatively little power and are smaller than standard PC processors, allowing them to be crammed into tinier devices, which would be built by other companies."

Perhaps the idea looks good on paper, but it assumes that consumers will give up their RIM (RIMM) Blackberry, their Apple (AAPL) iPhone, or whatever other smart device they have. Notebook PCs are already available in modest sizes, so the market for the product which Intel describes would seem very modest.

It is the beginning of the year, so best to get the silly public relations out of the way.

Douglas A. McIntyre

Posted on: January 8, 2008 – 10:28 am in PC Companies, , , ,

AmTech’s Stake In the Ground on Intel (INTC, AMD)

Intel (NASDAQ: INTC) is being defended by American Technology Research ("AmTech") on recent weakness today.  This isn’t just a "reiterated Buy" rating (even if it is "reiterated Buy") as the direct thesis is "We Are Buyers of INTC, Here and Now."

The call is based on the belief that general CPU/PC demand and sell-thru were strong in Q4, although it notes an expectation that Q1 will deliver "at or below seasonal averages" for the industry but from a higher starting point than most expect.  AmTech also expects a beat vs. consensus as it expects about $300 million above consensus on the top-line and $0.01 above on the bottom-line.  AmTech is modeling INTC to continue gaining share which would offset a slower Q1. 

"We believe the Q/Q industry percentage decline in Q1 is a bit misleading we are working off of difficult compares with a strong Q4.  We acknowledge that Y/Y comps will become more difficult as we head into Q208.  Lastly, INTC’s gross margin is likely expanding as expected even as memory loss impacts results given the delay of NOR spin-out and NAND IMFT ramps." 

Conversely, AmTech is lowering estimates for Advanced Micro Devices (NYSE: AMD).  AmTech expects the red headed step child of the processor industry (247WallSt.com’s opinion, not stated by AmTech) to post wider losses on lower revenues as it cut estimates for 2008 from $7.442B and a loss of $0.02 down to a new target of $7.192 Billion in revenues and a loss of -$0.50 EPS. AmTech believes the fix for the quad core processors will take longer than has been telegraphed and it will take longer to repair botched customer relationships.  It does at least note that the ATI graphics unit is the one bright spot that could help deliver upside.  However, AmTech is maintaining its Neutral rating.

We won’t rehash over and over on this, but it is still the belief of 247WallSt.com that unless Hector Ruiz has a magic feather in his cap that he’ll be out the door in a very short period of time.  We also think the sell-off in Intel shares has been overly punishing compared to reality, but we’d still make a reminder that the damage to the chart has been so severe that it is likely going to be some time before it can rectify the technical damage that has been done. 

Jon C. Ogg
January 8, 2008

Posted on: January 8, 2008 – 10:22 am in Analyst Calls, Semiconductor, ,

Google (GOOG) Search Share Hits High As Microsoft (MSFT) Stumbles

Microsoft (MSFT) may have to buy more search engine companies. Its share of the US search market dropped to just above 7% in December, down from 9.8% a year ago, according to Hitwise,

Google’s (GOOG) share moved up to a record 66% from 63.2% a year ago.

Yahoo! (YHOO) dropped to 20.9% from 21.6%.

Douglas A. McIntyre

Posted on: January 8, 2008 – 10:19 am in Internet, , ,

Pre-Market Stock Notes (January 8, 2008)

Bear Stearns’ (BSC) Jimmy Cayne will be stepping down as CEO but remaining as Chairman according to multiple reports.
Credence Systems (CMOS) $0.05 EPS & $97.7M revenues vs. $0.05/$105M est.; but guidance much lower now with a -$0.37 to -$0.39 loss on revenues of $58-62 Million versus $0.02 and $102.75M estimate.
Great Atlantic & Pacific Tea Company (GAP) posted high EPS instead of a loss, but it has many items causing the gains.
Isis Pharma (ISIS) traded up almost 50% on Genzyme partnership for lipid lowering agent with potential $2 Billion in annual sales.
Joy Global (JOYG) is acquiring Continental Global for $270 million.
Nektar (NKTR) is commencing its Phase II clinical development program for NKTR-102 in Colorectal Cancer.
Nu Skin Enterprises (NUS) received direct selling approval in Mainland China.
Perry Ellis (PERY) is acquiring C&C California & Laundry from Liz Claiborne for roughly $37 million in a deal accretive to FY09 earnings.
Starbucks (SBUX) bringing back Schultz as CEO.
Supervalu (SVU) $0.66 EPS vs $0.63 estimate, but slightly lowered guidance.
UnitedHealth Group (UNH) announced a subsidiary is acquiring Unison Health Plans.

Jon C. Ogg
January 8, 2008

Posted on: January 8, 2008 – 8:35 am in Pre-Market Activity

Citigroup (C) To Cut 32,000, Sell Smith Barney?

One Wall St.analyst thinks Citigroup (C) will have to make some extreme moves to keep the bank running.

Speaking to The Times of London, Meredith Whitney of CIBC said that investors should look for 32,000 job cuts, and the potential sale of Smith Barney for $25 billion.

Douglas A. McIntyre

Posted on: January 8, 2008 – 8:30 am in Banking,

Baird on Banks (BAC, BBT, CMA, FITB, KEY, MI, MTB, PNC, STI, USB, WB, WFC)

ROBERT W.BAIRD has initiated mostly cautious coverage on Banks and Financials this morning.  Most are Neutral rated, although there are a few Outperform ratings in the coverage group. Here are the initiations.

NEUTRAL ratings initiated on:

  • Bank of America (BAC),
  • BB&T (BBT),
  • Fifth Third (FITB)
  • Keycorp (KEY),
  • Marshall & Isley (MI),
  • SunTrust (STI),
  • US Bancorp (USB),
  • Wachovia (WB),
  • and Wells Fargo (WFC).

OUTPERFORM ratings initiated on:

  • Comerica (CMA),
  • M&T Bank (MTB),
  • and PNC Bank (PNC).

Jon C. Ogg
January 8, 2008

Posted on: January 8, 2008 – 8:28 am in Analyst Calls, Banking, , , , , , , , , , , ,

KB Home (KBH) Gets Worse

At KB Home (KBH) revenues totaled $2.07 billion for the quarter ended November 30, 2007, down from $3.01 billion in the corresponding quarter of 2006, primarily reflecting lower housing revenues.

KBH reported a loss from continuing operations before income taxes of $399.0 million for the quarter ended November 30, 2007 due to pretax, non-cash charges of $403.4 million associated with inventory and joint venture impairments and the abandonment of certain land option contracts. In the year-earlier quarter, the company posted a loss from continuing operations before income taxes of $171.1 million due to $343.3 million of pretax, non-cash impairment and abandonment charges.

KBH delivered 23,743 new homes in fiscal year 2007, down 26% from the 32,124 new homes it delivered in fiscal year 2006.

Douglas A. McIntyre

Posted on: January 8, 2008 – 8:09 am in Uncategorized,

Top 10 Pre-Market Analyst Calls (BAX, BRK/A, BRK-A, EAT, GU, HTX, INFY, ISRG, SAT, SBUX, WIT)

These are not the only impact analyst calls this Tuesday, but these are the ones 247WallSt.com is focusing on in early pre-market trading:

  • Baxter (BAX) raised to Buy from Hold at Citigroup.
  • Berkshire Hathaway (BRK-A) started as HOLD at Citigroup.
  • Brinker (EAT) downgraded to Underweight from Hold at Keybanc.
  • Gushan Environmental Energy (GU) started as Buy at Soleil.
  • Hutchison Telecom (HTX) raised to Buy from Sell at Citigroup.
  • Infosys (INFY) raised to Overweight from Equal-Weight at Lehman.
  • Intuitive Surgical (ISRG) downgraded to Market Perform from Outperform at Wachovia.
  • Satyam Computer (SAY) raised to Overweight from Underweight at Lehman.
  • Starbucks (SBUX) raised to Neutral from Sell at Banc of America.
  • Wipro (WIT) raised to Overweight from Underweight at Lehman.

Jon C. Ogg
January 8, 2008

Posted on: January 8, 2008 – 7:44 am in Analyst Calls, , , , , , , , , , ,

A $16 Billion Write-Down At Citigroup (C)

Bloomberg is reporting that a Merrill Lynch analysts says that Citigroup (C) may have to take a $16 billion fourth quarter write-down of subprime assets.

Douglas A. McIntyre

Posted on: January 8, 2008 – 7:41 am in Banking,

Apple (AAPL) To Settle With EU?

According to a report by Reuters, Apple (AAPL) "will soon announce steps to resolve European Commission charges that its iTunes stores broke EU rules by setting prices country by country in Europe, people familiar with the situation said on Tuesday."

Douglas A. McIntyre

Posted on: January 8, 2008 – 7:26 am in Consumer Electronics,

China Sovereign Fund Defends Right To Invest Overseas

The Chinese government want none of this protectionist stuff. It has money burning a hole in its pocket and its wants to put that capital to work in places like the US.

According to the FT "critics have suggested the rise of sovereign wealth funds such as Beijing’s $200bn China Investment Corp (CIC) may give their opaque state masters unprecedented influence over other countries’ commercial assets." China disagrees, strongly.

China’s protests are a little too loud. It is well known that the country’s central government restricts the amount of foreign capital that can be put into Chinese companies, especially those that manage strategic assets. Of course, the Chinese would like other governments to offer it more liberal rules.

The question of what funds from China, or, the Middle East, for that matter should own is not entirely unfair. Could they buy Boeing (BA) and have access to its technology? What about a defense contractor? Of a biotech company?

China has not earned the right to handle other country’s or company’s IP assets. Piracy is too rampant in the big country, and the government has shown that it will only pay lip service to preventing the stealing of valuable property from companies in the US and elsewhere.

The complaint from China’s sovereign funds rings a little hollow.

Douglas A. McIntyre

Posted on: January 8, 2008 – 6:50 am in Uncategorized,