Daily Archives: February 20, 2008

Is Hewlett-Packard (HPQ) The Exception Or The Rule

Hewlett-Packard (NYSE: HPQ) turned in one of the best performances of the earnings season. Net income rose 38%. Revenue rose 13% to $28.5 billion. The computer company raised guidance and its shares moved up 5%.

HP is probably the best tech bell-weather in the US. It not only sells PCs and printers, it has a large software and server operation. It has tremendous businesses outside the US, especially in Asia.

Shipments from the company’s PC operations were up 27% in the quarter. That has to be good news for chip companies AMD (NYSE: AMD) and Intel (NASDAQ: INTC). Because HP is No.1 in global PC market share, it is also likely a boost for sales of Microsoft’s (NASDAQ: MSFT) Vista.

Growth in the company’s server business was up 11%. That should be a positive for IBM (NYSE: IBM) and Sun NASDAQ: (JAVA). Improvements in the company’s outsourcing business should be a signal that firms like EDS (NYSE: EDS) are doing well.

But, the news from HP begs a question. Is it doing well because of its size and better management, or does it simply show that the trend in tech spending is still strong. The turnaround at HP under CEO Mark Hurd cannot be matched by any other big company in the sector. There has certainly been no evidence that Dell (NASDAQ: DELL) has been helped by HP’s PC performance.

In the server sector, Sun is still extremely weak and its sales move up at about only 1% or 2% a quarter. EDS trades near a 52-week low. Wall St. is not seeing a recovery there.

Size matters. Part of HP’s success almost certainly comes from the scale of its business.

But, management may matter more  Just three years ago, HP was a mess and could not have posted these kind of numbers.

HP is an exception. It has the best management in its industry.

Douglas A. McIntyre

Posted on: February 20, 2008 – 6:19 am in PC Companies, , , , , , , ,

MySpace Introduces The Last Music Download Service (NWS)

News Corp’s (NYSE: NWS) MySpace social network which has about 110 million registered users is near a deal to offer music downloads. Instead of members paying for songs, they will be advertising supported. The company is close to deals with big record companies including Universal Music and Sony BMG.

The trouble with the service is that it joins about a billion similar projects operated by companies from start-ups to Amazon (NASDAQ: AMZN). All of the firm’s want a piece of Apple’s (NASDAQ: AAPL) iTunes. What many of these models fail to acknowledge is that Apple makes most of its money selling the iPods that play the music. The revenue from iTunes is modest. A very large number of music listeners get their content from ripping DVDs. That would appear to leave a very small market.

MySpace is also beginning the service based on the notion that people coming to a social network want to do things other than update there personal pages and interact with their "buddies". Advertising on the big site has not even been a modest success. News Corp indicated that the property brought in about $700 million last year, which is not much for an internet site with its traffic.

The MySpace project is not going anywhere. Consumers have already picked where they want to get their music. Steve Jobs sells it to them.

Douglas A. McIntyre

Posted on: February 20, 2008 – 6:01 am in Internet, , ,

Nintendo To Push Envelop In Video Games (SNE)(MSFT)

It is not enough that Nintendo’s Wii outsells the Sony (NYSE: SNE) PS3 and Microsoft (NASDAQ: MSFT) Xbox 360 in almost every market, every month. Nintendo its launching a new product in the US, the Wii Fit. The game has a motion board which gamers can stand on at their screens take them down ski slopes and on other "action packed" adventures.

The Wii Board allows the user to get his entire body into the action.

The Wii Fit has sold over 1.4 million units in Japan in just over two months. If it is successful in the larger US market Nintendo could easily sell 10 million Fits in a year.

The new product is an example of why Nintendo has stayed ahead of its competition. While they create fixed game consoles which don’t allow much movement beyond the figures and hands. Nintendo is taking the gaming experience into the realm of bringing the entire body into play.

Sony and Microsoft can get ready for another year of being No.2 and No.3 in the market.

Douglas A. McIntyre

Posted on: February 20, 2008 – 5:49 am in Consumer Electronics, ,

Airline Pilots Go After Northwest (NWA) Merger With Delta (DAL)

The pilots fly the planes and it looks like they also set the course for big airline mergers as well. A combination of Northwest Airlines (NYSE: NWA) and Delta (NYSE: DAL) is being held up because the pilots cannot decide how to assign seniority in the event that a marriage goes through.

The news is an example of why the economics of airline mergers may not be what they seem. The pilots cannot block a merger, but the threat of a strike can certainly push a combined Northwest/Delta to make financial concessions. That, in turn, makes the whole deal a lot more expensive.

According to the AP, NWA pilots want younger Delta pilots put at the bottom of a seniority list. Even if this is resolved it still leaves open the question of mechanics and air crews. Any of these groups could cause labor unrest in the hope of better compensation.

Since a merger might destroy customer service and drive revenue down, the pilots may be doing the two airlines a favor.

Douglas A. McIntyre

Posted on: February 20, 2008 – 5:41 am in Airlines, ,

Media Digest 2/20/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, ING took a Q4 impairment at the low end of expectations.

Reuters writes that KKR Financial Holdings has delayed debt payments on loans backed by mortgge-related securities.

Reuters writes that News Corps (NWS) MySpace is in talks to launch an advertising supported free music service.

Reuters writes that the Treasury is considering plans for sweeping government bailouts and wholesale rewriting of mortgage terms.

The Wall Street Journal writes that oil topped $100 a barrel.

The Wall Street Journal writes that Hewlett-Packard (HPQ) posted a 38% profit gain.

The Wall Street Journal reports that Nintendo launched the Wii Fit, a video game aimed at exercise.

The Wall Street Journal writes that a decision is near about whether Genentech’s (DNA) Avastin  can be used to treat breast cancer.

The New York Times writes that Airbus expects orders to fall by half this year.

Douglas A. McIntyre

Posted on: February 20, 2008 – 4:04 am in Press Digest, , ,

Asia Markets 2/20/2008 (DCM)(LFC)(CHU)(TM)

Markets in Asia fell.

The Nikkei was off 3.3% to 13,310. Docomo (DCM) was off 4.6% to 165000. Sharp was off 5.6% to 1955. Toyota (TM) was off 3.5% to 6090.

The Shanghai Composite fell 2.2% to 23,591. China Life (LFC) was down 3.4% to 30.1. China Unicom (CHU) was down 4.1% to 18.38.

The Shanghai Composite was off 2.1% to 4,567.

Data from Reuters.

Douglas A. McIntyre

Posted on: February 20, 2008 – 3:44 am in International Markets, , , ,