Daily Archives: April 21, 2008

Citigroup (C) Turns To Hewlett-Packard (HPQ) For Crisis Management

Things were bad at HP (NYSE: HPQ) three or four years ago. The company’s stock did fall from $25 in early 2004 to $16.50 that August. The computer firm ended up kicking out its CEO and bringing in Mark Hurd, who saved the company. HP trades at almost $50 today.

According to the FT, top management at Citigroup (C) has turned to HP for advice about how to turn around a company, and how to make it run well without breaking the firm into pieces. The newspaper writes "People close to the situation say Citi officials see parallels between their situation and that faced by HP in February 2005."

The situations are not really like one another at all. Some HP investors wanted the company broken into parts. The same is now true with Citi. The comparisons end there.

Even when things were "tough" at HP, the company was making buckets of money. In the hard year of fiscal 2005, revenue at the tech company rose to $86.7 billion from $79.9 billion the year before. Concerns focused on the drop in operating income from $4.22 billion in 2004 to $3.47 billion in 2005. It was hardly a crisis. By 2006, operating income was back to up to $6.5 billion.

In 2004, HP had cash of $12,7 billion against long-term debt of $4.6 billion. The company was more than solvent and there was never any risk that it would lose money.

Citi is in 10x the trouble that HP was earlier in the decade. There is not any advice to be had from HP because the computer and printer company was not struggling with multi-billion losses. Citi faces the real chance that it may have to raise another $5 billion or $10 billion in capital to stay independent.

Citi management would be better off trying to reach Peter Drucker from beyond that grave.

Douglas A. McIntyre

Posted on: April 21, 2008 – 6:45 pm in Management Change, ,

Intrepid Potash Touted Pre-IPO By Jim Cramer (IPI, POT, MOS)

The soon to price IPO of Intrepid Potash (NYSE: IPI) is a hot upcoming IPO that we have covered as "hot to scorcher" because of the steady rising and hikes seen in potash and fertilizer prices.  We covered how the company raised its share offering and raised its total share offering.  Tonight the now would-be "scorcher" just got the pre-IPO bump from Jim Cramer on CNBC’s MAD MONEY tonight that will probably create even more interest tomorrow.

While we don’t like seeing IPO’s getting "made even hotter" before they price, he did at least make some caveats on this hot agriculture and potash sector.  He said he has parameters and you should not pay more than $34.00 per share in the after-market for this IPO.  He thinks it should go much higher than that but you can’t just chase up indefinitely. He also said he isn’t exactly happy about the "use of proceeds" that the company is using essentially buying out its parent and then paying down debt with about 10% of the proceeds.

He thinks that Intrepid Potash could earn $1.24 EPS in 2009, and thinks it deserves a 55% premium to the 17-times 2009 at Potash Corp. of Saskatchewan (NYSE: POT) because of its pure-play and because of its proximity to where the mines are located as opposed to Canadians. That was how he came up with the $34.00 level.  Cramer also noted The Mosaic Company (NYSE: MOS) in this sector.

You can join our open email distribution list where we cover IPO’s, back door plays into IPO’s, secondary offerings, spin-offs, special financings, M&A, and other previews for special situations.

Jon C. Ogg
April 21, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 21, 2008 – 6:12 pm in Agriculture, Cramer, IPOs, , ,

Cramer Revisits Green & Alternative Energy (FSLR, FWLT, SGR, BWA, WFR, FTEK, TTEK, OMG)

Because of Earth Day and because of a strong performance, Jim Cramer came on CNBC’s MAD MONEY tonight after a week off and said he wanted to revisit which ones to buy and hold now that the entire portfolio he gave is up some 76.8% (or up about 35% on an ex-First Solar basis).  Down below you can see the updates from the past to see what he said, but first are the ones he reviewed:

  • First Solar (NASDAQ: FSLR) up over 300%, but it doesn’t need subsidies. He thinks the new administration will bring it in.  The payback is cheaper and faster because it doesn’t need silicon.  Cramer noted that this was to solar what Intel was to chips.  He wants to stick with it.
  • Foster Wheeler (NASDAQ: FWLT) has risen 97% and is his favorite infrastructure play, which should work even higher.  Cramer thinks this one can be bought now without a pullback.
  • Shaw Group Inc. (NYSE: SGR) is the play on nuclear energy and he would stick with this one.
  • BorgWarner Inc. (NYSE: BWA) was play for clean emissions, but he thinks this one should be dumped.
  • MEMC Electronic Materials Inc. (NYSE: WFR) is also up big but Cramer thinks this should be dumped because of recent execution problems.
  • Tetra Tech (NASDAQ: TTEK) was a water play that rose only about 1.6%, but it is becoming the right place because of rapidly deteriorating domestic infrastructure.  It now has a wind energy company.  He thinks you can buy it now.
  • FuelTech (NASDAQ: FTEK) has come back off since he said SELL, but now you can reload on it.  He said sell it once, and he thinks it is going up on increasing efficiency of coal plants. He also likes that insiders have been buying stock recently.
  • OM Group (NYSE: OMG) is an emissions play, but now that it has recovered you can take profits in OM Group or just sell it.

Here was the summary for Cramer’s "original" Alternative Energy & Green Stocks if you want to compare then to now.

We have been highlighting some of the smaller green tech and alternative or renewable energy picks in our own weekly "10 Stocks Under $10" newsletter.  Of those picks, our Capstone Turbine Corp. (NASDAQ: CPST) is up roughly 150% and the only "selling" we have yet to note is perhaps some profit taking to lock in a portion of your gains, but we think this one is heading higher.  Our other pick has only been on the list in the under $10.00 newsletter for a few weeks, and it is already up about 30% since.  We actually just raised our expectations on this one.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 5:35 pm in Alternative Energy, Cramer, , , , , , , ,

Key Food Chains Ready For Earnings (MCD, EAT, YUM, CMG, PCFB, WEN)

There are many restaurants reporting earnings this week, some who have suffered from economic sensitivity and some who have not.  People do have to eat when times are good and when times are tough, but many restaurants would be victims due to pricing and other factors.  This week we have many key earnings from retail food chains such as McDonalds Corp. (NYSE: MCD), Brinker International Inc. (NYSE: EAT), Yum! Brands Inc. (NYSE: YUM), Chipotle Mexican Grill, Inc. (NYSE: CMG), PF Chang’s China Bistro Inc. (NASDAQ: PFCB), and Wendy’s International Inc. (NYSE: WEN).

Tuesday we’ll get to see earnings out of McDonald’s Corp. (NYSE: MCD). The estimates for the restaurant chain from First Call are $0.70 EPS on $5.4 billion in revenues.  Next quarter estimates are $0.81 EPS on $5.77 billion in revenues. Estimates for fiscal Dec-2008 are $3.21 EPS on $23.16 billion in revenues.  Analysts have an average price target north of $62.00, and McDonald’s 52-week trading range is $46.64 to $63.69.  Shares closed Monday up 0.6% at $58.67.

Tuesday we’ll get to see earnings out of Brinker International Inc. (NYSE: EAT). The estimates for the restaurant chain from First Call are $0.32 EPS on $895.62 million in revenues.  Next quarter estimates are $0.43 EPS on $922.21 million in revenues. Estimates for fiscal June-2008 are $1.40 EPS on $3.57 billion in revenues. Estimates for fiscal June-2009 are $1.64 EPS on $3.65 billion in revenues.  Analysts have an average price target north of $20.00, and Brinker International’s 52-week trading range is $14.65 to $34.33.  This stock was on our list of top stocks that may double from the lows by the end of the recession.  Shares closed Monday up 2.6% at $19.60.

Read More »

Posted on: April 21, 2008 – 4:30 pm in Earnings, Food, , , , , ,

Some Of The World’s Most Powerful Brands, And Some That Are Not (AAPL)(GOOG)(IBM)(C)(SBUX)

Once a year, the firm Millard Brown puts out its BrandZ 100 Most Valuable Brands. The data used for the list comes from consumer research and financial data on the companies. The research house gives it entire methodology here.

For those who think Google (GOOG) is the top brand, give yourself a pat on the back. It has a brand valuation of $86 billion, up 30%. For those research mavens in the crowd, the figure makes absolutely no sense. Google has a market cap of $168 billion. Most of that would go away, no matter how good the technology is, if it changed it name to Dawdle.

Apple (AAPL) is up high on the list, at No.7 with a brand valuation of $55 billion, up 30% over last year. The number may not be right, but with improved Mac sales and the iPhone intro the increase rings true.

IBM (IBM) clocks in at $55 billion, up 65%. No one can argue that the company has not had a good year.

Cisco (CSCO) did well at $24 billion, up 28%. Oracle (ORCL) had a brand value of $23 billion, up 29%.

Citgroup (C) lost a lot of ground, down 10% to $30 billion. At this point, Citi would be better off changing its name, so the figure may be a little heavy, by about $30 billion.

Of all the brands on the list, the one with the largest increase in value was Blackberry, up 390% to almost $14 billion.

There were not a lot of surprises among the losers. Starbucks (SBUX) dropped 25% to $12 billion. The entire market cap of the company is $13 billion. All that extra coffee and real estate must not be worth very much.

Yahoo!’s (YHOO) brand value dropped 13% to $11.5 billion. A lot of analysts think that if Yahoo!’s investment in other companies went away, the core portal business would only be worth about $15 billion.

Ebay (EBAY) dropped 13% to just over $11 billion. Ford (F) Ford was also down 13% to $11 billion. With a market cap of $17 billion, that does leave much for the rest of the car company’s assets.

Finally, Motorola (MOT) fell 30% to $7.5 billion. That number should probably be zero.

Douglas A. McIntyre

Posted on: April 21, 2008 – 4:21 pm in Research, , , , , , , , , , , ,

Texas Instruments Holds Up Despite Some Caution (TXN)

Texas Instruments Inc. (NYSE: TXN) just posted earnings of $0.49 EPS after items, which was really $0.43 when accounting for a tax gain and it reported Revenues of $3.27 Billion, while First Call had estimates of $0.43 EPS on $3.28 billion in revenues. 

The company gave guidance for the coming quarter of $0.42 to $0.48 on Revenues of $3.24 to $3.50 Billion versus estimates of $0.48 EPS on $3.44 Billion in revenues.  The company showed orders trending down with that levels recorded as $3.22 Billion in new orders.

Analyst estimates had already come down gradually during the quarter, and the average analyst target ahead of earnings was right around $34.00.

If this was a few weeks the market might be punishing it more, but now the market seems to at least be accepting this as a "less-bad, therefor good" event for now.  Shares closed up over 3% at $30.59, and shares are down just under 2% at $30.59 in after-hours; the 52-week trading range is $27.51 to $39.63.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 3:39 pm in Earnings, Semiconductor,

Netflix Takes A Breather (NFLX)

Netflix, Inc. (NASDAQ: NFLX) is seeing some share punishment after-hours.  The monthly mail rental DVD operation posted $0.21 EPS net EPS and $0.23 non-GAAP EPS on $326.2 million in revenues.  First Call had estimates at $0.21 and $326.87 million.

The company also put 2008 GAAP EPS guidance at $1.16 to 1.29 EPS and revenue guidance at $1.35 to $1.39 Billion.  Its prior guidance had been $1.18 to $1.30 EPS and $1.34 to $1.385 Billion.  First Call had estimates for 2008 at $1.25 EPS (but non-GAAP) on $1.37 Billion in revenues.

It ended with 8.24 million subscribers in March and it sees 2008 subscribers being 9.1 to 9.7 million subscribers, up from 8.9 to 9.5 million.

Its gross margin has also come down to 31.7% (versus 36.1% last year’ Q1) and subscriber acquisition costs came in at $29.50, while subscriber acquisition costs were $47.46 in Q1-2007 and $34.60 in Q4-2007.

Shares closed up almost 2% after Wedbush Morgan lifted the target, but shares are now down 11% at $34.89.  Its 52-week trading range is $15.62 to $40.90.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 3:23 pm in Earnings,

The 52-Week Low Club (NCC)(PFE)(ALDN)(CRBC)

National City Corporation (NCC) Raising money and big dilution. Falls to $5.90 from 52-week high of $38.32.

Pfizer (PFE) Concerns about big pharma results. Drifts off to $20.13. $27.73.

Aladdin Knowledge Systems (ALDN) Bad earnings. Down to $15.60 from 52-week high of $26.94.

Citizens Banking (CRBC) Downgrade, weak earnings. Sells off to $10.11 from 52-week high of $21.72.

Douglas A. McIntyre

Posted on: April 21, 2008 – 2:41 pm in HI/LOW, , , ,

Texas Instruments Bracing For Earnings (TXN)

After the close today, we’ll get to see earnings out of Texas Instruments Inc. (NYSE: TXN). The estimates for the company from First Call are $0.43 EPS on $3.28 billion in revenues.  Next quarter estimates are $0.48 EPS on $3.44 billion in revenues. Estimates for fiscal Dec-2008 are $1.97 EPS on $13.96 billion in revenues.

Analyst estimates have been coming down gradually during the quarter, and the average analyst target is right around $34.00.  Options are a bit hard to use as the expiration date is now nearly a month away, but options traders appear to be braced for a move of up to $1.60 in either direction, close to a 5% move.  This chart is an interesting one as shares are only about 10% above current 52-week lows.  To top that off, the stock has been stock between $28.00 and $32.00 for most of 2008. 

Shares are up almost 3% ahead of the report today, despite a softening mobile market being reported by many carriers.  We’ll also be paying attention to the fervor of buybacks as Texas Instruments decided it wanted to retire many shares in 2007.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 1:11 pm in Earnings, Semiconductor,

War & Defense Earnings Galore (LMT, BA, GD, LLL, RTN, COL, CRDN)

This week is going to be the key earnings reporting week for companies tied to aerospace and defense sector stocks.  If there is one area that everyone is expecting to hold up, it is this one.  The recessionary climate has only just started and this one is supposed to be immune in the current environment.  Keep in mind that some of these companies have diversified away from being a pure war and defense sector, but these are still defense companies. 

On Tuesday we’ll get to see earnings out of Lockheed Martin Corporation (NYSE: LMT), and on Wednesday we’ll see results from Boeing Co. (NYSE: BA) and General Dynamics Corp. (NYSE: GD). Then on Thursday, we’ll see results from L-3 Communications Holdings Inc. (NYSE: LLL), Raytheon Co. (NYSE: RTN), and also from Rockwell Collins Inc. (NYSE: COL).  Ceradyne Inc. (NASDAQ: CRDN) is on the docket for Friday. 

The full previews can be seen as follows:

Read More »

Posted on: April 21, 2008 – 12:56 pm in Defense, Earnings, , , , , , ,

Oil Services Earnings, Round Two (BHI, BJS, SII)

We have already seen some of the larger oil services companies report earnings between Monday and Friday, so far with little cheers today.  On Tuesday, we’ll get to see earnings report from additional players like Baker Hughes Inc. (NYSE: BHI), BJ Services Company (NYSE: BJS), and Smith International Inc. (NYSE: SII).  As of the last available data, these earnings all look set for Tuesday, April 22, in the pre-market hours.

Tuesday morning we’ll get to see earnings out of Baker Hughes Inc. (NYSE: BHI). The estimates for the oil services company from First Call are $1.20 EPS on $2.69 billion in revenues.  Next quarter estimates are $1.25 EPS on $2.78 billion in revenues. Estimates for fiscal Dec-2008 are $5.27 EPS on $11.42 billion in revenues.  Analysts have an average price target of $88.00, and Baker Hughes’ 52-week trading range is $62.65 to $100.29.

Tuesday morning we’ll get to see earnings out of BJ Services Company (NYSE: BJS). The estimates for the oil services company from First Call are $0.55 EPS on $1.30 billion in revenues.  Next quarter estimates are $0.50 EPS on $1.26 billion in revenues. Estimates for fiscal Sept-2008 are $2.23 EPS on $5.18 billion in revenues.  Analysts have an average price target of $30.00, and BJ Services Company’s 52-week trading range is $19.30 to $33.29.

Tuesday morning we’ll get to see earnings out of Smith International Inc. (NYSE: SII). The estimates for the oil services company from First Call are $0.87 EPS on $2.37 billion in revenues.  Next quarter estimates are $0.89 EPS on $2.38 billion in revenues. Estimates for fiscal Dec-2008 are $3.76 EPS on $9.88 billion in revenues.  Analysts have an average price target of $73.00, and Smith International’s 52-week trading range is $49.51 to $77.60.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 12:37 pm in Uncategorized, , ,

Biotech Business Daily (AMLN, CERS, LLY, DNA, GTOP, IMCL)

Amylin Pharmaceuticals (NASDAQ: AMLN) reported first quarter losses of $68.8 million, or $0.51 EPS, wider than the $49.4 million in the first quarter of 2007. Losses are credited to a drop in sales in diabetes treatment, Byetta, a drug they co-market with Eli Lilly (NYSE: LLY), and increased expenses. Analysts estimated losses of $0.47 EPS. Shares are down over 8% to $28.83 on a 52-week range of $23.75 to $53.25.

Cerus Corporation (NASDAQ: CERS) up on news that the company can expand label claims on platelets and plasma treated with the INTERCEPT Blood System. The System prevents transfusion-associated disease, TA-GVHD. The label expansion allows use of the System over gamma irradiation in European blood banks for TA-GVHD prevention, decreasing costs to blood banks and increasing safety. Shares of Cerus are up almost 5% to $6.75. The 52-week range is $4.18 to $10.29.

Eli Lilly (NYSE: LLY) doubled profits, tagging a first quarter profit of $1.1 billion on a 14% sales increase. However, although doubling, they failed to meet Street estimates. Sales of depression drug Cymbalta rose 37% while sales of Zyprexa were flat and Byetta rose less than expected. The company raised its full-year guidance. Shares are down $2.26 to $49.81 on a 52-week range of $46.60 to $61.00.

Genentech (NYSE: DNA) released updated data on Avastin for the treatment of lung cancer. Results showed increased progression-free survival but not overall lung cancer survival rates. The already approved treatment in conjunction with chemotherapy is fighting for market share in the highly competitive market for this treatment. Shares are down $0.72 to $72 on a 52-week range of $65.35 to $82.90.

Genitope Corp (NASDAQ: GTOP) plummeting as GE Capital Corp. demanded payment on $3.8 million in loans last Friday. The company’s list of troubles is endless—failing Phase III testing, laying off 165 of 200 employees, salary cuts…and the latest failure to repay debts. Shares are down 16% today to $0.15, a new low. The 52-week range is $0.16 to $4.93.

ImClone (NASDAQ: IMCL) up on news that lung cancer competitor Genentech released disappointing late stage data on Avastin. ImClone’s similar drug, Erbitux, is currently in clinical trials. Shares are up $1.68 to $47.83, near 52 week highs. The 52-week range is $30.34 to $47.94.

Rachel Lopez
April 21, 2008

Posted on: April 21, 2008 – 11:54 am in Biotech, , , , , ,

National City Takeunder Financing, Steeper Than Steep (NCC)

National City Corp. (NYSE: NCC) is a name we have been cautious on because of the trends we have seen in the "bank financing" rescue packages.

The company has secured $7 billion in financing to keep the bank above water in the wake of the subprime mortgage crisis. Consair Capital, LCC contributed $985 million, taking a 9.9% ownership in the bank, while the rest came from various investors and institutional investors. Investors are getting a bargain at $5.00 per share on the 126.2 million shares being issued.

We recently warned in screening for our special situations newsletter and in screening for our "10 Stocks Under $10" weekly newsletter that when shares were at $8.60 the financing might be the next "takeunder financing" with prices much lower than the market was indicating.

In addition, National City announced a dividend cut from $0.21 to $0.01 in an effort to strengthen its capital position. The last two quarters, the bank reported losses of $333 million and $171 million, respectively, for EPS losses of $0.53 and $0.27, respectively. In the first quarter of 2007, National City posted earnings of $319 million and an EPS of $0.50. The company had previously announced that they have retained Goldman Sachs to explore strategic alternatives.

Shares dipping significantly in late morning trading, down over 25% to $6.12, a $2.20 drop on more than 100 million shares. The 52-week range is $6.56 to $38.32.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 10:49 am in Banking, Financial Stocks, Private Equity, Secondary Offering,

Bad Subscriber News For Sirius (SIRI)

It turns out that people who have Sirius Satellite Radio (NASDAQ: SIRI) packaged into their new cars are not anywhere near as likely to renew their service as people who go out and buy the service in the aftermarket.

The same holds true for consumers getting XM Satellite (NASDAQ: XMSR).

The New York Times writes that SIRI and XMSR "added about 3.7 million subscriptions last year, according to David Bank, an analyst at RBC Capital Markets, and some 79 percent of those were from promotions to car buyers or leasers." People who get their service with a new car are only likely to re-up the service 40% of the time. That compares with a 66% renewal rate for consumers who went out and got satellite radio to install in their current vehicle.

The numbers are not exactly promising.

Douglas A. McIntyre

Posted on: April 21, 2008 – 10:43 am in Uncategorized, ,

Halliburton & Weatherford Earnings Not Good Enough In Oil Services (HAL, WFT, SLB, BHI, OIH)

Oil field services biggies, Halliburton (NYSE:HAL) and Weatherford (NYSE:WFT), reported first quarter results before the market opened this morning. Halliburton reported EPS of $0.64 on revenue of $4.03 billion, and First Call had estimates at $0.64 EPS on $3.99 Billion.  Weatherford reported EPS of $0.76 on revenue of $2.2 billion, while First Call was at $1.00 EPS on $2.27 Billion in revenues.  Outside of items, Weatherford would have posted $1.01 EPS.   

Both companies noted that U.S. operations suffered from pricing pressure, and that international results have improved. In early trading, HAL is down $0.40, and WFT a whopping $1.56, even though the company also announced a 2-1 stock split with today’s results.

Last Friday, Schlumberger (NYSE:SLB) announced its results, which, on the whole were not much better than either Halliburton’s or Weatherfords’s. But the stock got a boost of about $6/share, and the climb is continuing today, with SLB up $1.68 at $103.52 at 11:00 EM EST. Schlumberger also announced a $8 billion stock buyback program with its earnings release, and that probably has something to do with its share price jump.

What’s going on? Halliburton got a nice boost when Goldman Sachs raised its rating from Neutral to Buy. On the same day, it lowered Weatherford to Neutral from Buy, and raised Schlumberger. The backstory, though, paints a picture of lower growth in exploratory drilling, even as well completions continue strong.

According to Baker Hughes (NYSE:BHI), U.S. exploratory wells have dropped from 69 YTD in 2007 to 17 YTD in 2008, more than 300%. Exploratory drilling is also at a standstill globally. That can’t last because, as Schlumberger noted in its press release, "current investment levels are insufficient to both stem decline and to explore and develop new reserves and, as a result, we anticipate that the current cycle of exploration and production spending will remain stronger for a longer period than we originally anticipated." That analysis appears to have resonated with the market, and it has decided that SLB is in the best position to turn that analysis into profits.

Schlumberger also saw its shares raised to an Overweight rating today from Morgan Stanley, and we’ve also seen Goldman Sachs reiterate its Buy rating this morning and a raised target to $110.00 over the expectations of winning in new rigs in the 2009 to 2011 period.

The cons are outweighing the pros so far this morning, at least as far as the ETF’s are concerned.  The Oil Services HOLDRs (AMEX: OIH) ETF is down almost 1% at $206.86.

Paul Ausick
April 21, 2008

Posted on: April 21, 2008 – 10:02 am in Earnings, Oil & Gas, , , , ,

Motorola Tries To Find Shinola in Virtualization (MOT)

Motorola, Inc. (NYSE: MOT) is making an investment through Motorola Ventures, which is its strategic venture capital arm.  The company has decided to go after the virtualization field and has announced that it made an equity investment in VirtualLogix.

VirtualLogix is a maker of virtualization software for communications devices and infrastructure equipment.  The good news is that Motorola is following the lead of other topfirms.  Cisco Systems, Inc. (NASDAQ: CSCO), Intel Corp. (NASDAQ: INTC),and Texas Instruments (NYSE: TXN) are all listed as some of the backerson the VirtualLogix site. 

Unfortunately there is no way to know if this was a big transaction or not as the financial terms of the investment were not disclosed.  Motorola Ventures represents a diversified portfolio with a typical investment ranging from $3 million to $5 million.

Either way, it will end up being a small drop in the bucket for a company the size of Motorola.  One investment in a hot sector is not going to garner much attention.  It also isn’t likely to make a dent in the major issues facing Motorola.

You can join our open email distribution list to hear about other key financings, secondary offerings, IPO’s, and other special situation previews.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 9:31 am in Software, Wireless, , , ,

Micron Sending Out $550 Million For DRAM J-V (MU)

Micron Technology, Inc. (NYSE: MU) has entered into a joint venture today with Nanya Technology Corporation.  This new JV will be called MeiYa Technology Corporation. 

This is not an easy one to figure out for the end game because this is a DRAM venture, and that business has become a commodity business that is very difficult to keep making steady profits in.  As part of the JV, a 200 millimeter Nanya facility will be upgraded to the 300 millimeter technology and production is expected to come online in 2009.

Here is why this is hard to get: each will commit $550 million in cash by the end of 2009. The problem is that Micron is now expected to lose money not just in 2008, but now in 2009 as well.  Of course that doesn’t necessarily mean that the company won’t generate cash later on in that time.  The issue is that Micron needs its cash to get through the next eighteen months to two years.  Unless this is going to allow Micron to unload some of its plants to an OEM or to a foreign manufacturer, this just looks like another round of "more of the same" and that strategy has not been working for the company.  How long is the pay off time for a new factory, and will that pay off time work the same in a J-V?

We noted Micron as one of the turnarounds that was just seeming to be unable to turn around. Wall Street has been under the impression that the company needs to liquidating certain parts of its operations.  Staying negative on a business after it has already lost half of its value in a traditionally cyclical business that can ultimately get its act together is never an easy call. 

Our first instinct here is to call this the wrong direction if it isn’t to close other capacity in the allotted time.  We’ll find out in time if this works, but longer-term shareholders that have been in the company for a long time may feel like it is running out of time.  The flip-side to the argument is that this shows Micron going on the offensive and not just trying to hit a single here.  Our issue is that the company so far hasn’t been able to make that work out in its favor, and even the higher-end DRAM operations are considered a commodity business that is hard to make consistent profits in.

You can join our open email distribution list to hear about other key financings, secondary offerings, IPO’s, and other special situation previews.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 8:39 am in Semiconductor,

Intel (INTC) Masses WiMax Forces In Taiwan

Intel (INTC) may try to make a WiMax invasion of mainland China using Taiwan as its starting point.

The big US chip company said it will put $500 million into building WiMax infrastructure in Taiwan.

According to The Inquirer "In a press conference, Lil Mohan, managing director of Intel’s WiMax programme, reckoned that WiMax could even be commercially unleashed on the US public as early as this quarter or the next, whilst Asia will just have to wait it out another year or so for their infrastructure to be complete sometime in 2009 or 2010."

The part about a US launch is a dream.

Douglas A. McIntyre

Posted on: April 21, 2008 – 8:14 am in WiMAX,

Jefferies Saves Miserable Quarter With Financing Package (JEF, LUK)

Jefferies Group, Inc. (NYSE: JEF) has posted some ugly earnings this morning and it has announced a financing package. 

Jefferies posted a net loss of $60.5 million, or -$0.43 EPS on a 52% drop in revenues to $201.2 million.  First Call had estimates of $0.12 EPS on $313.6 million.  We thought maybe that there was a charge or something in the number, but the quote from Jefferies CEO, Richard Handler says it all: "Despite this quarter’s brutal market conditions and disappointing results…."

The company has also announced that Leucadia National Corporation (NYSE: LUK) has entered into a financing pact with the brokerage and investment banking firm.  Under the agreement, Leucadia will purchase 26,585,310 shares of Jefferies’ common stock.  On a fully diluted basis, this translates to a 13.7% stake in Jefferies.

Unless the board of directors approves any sale differently, Leucadia has agreed to hold these shares for two years.  Leucadia will also agree not to take a stake larger than 30% of the broker and investment banker.

On a Pro forma basis for this share sale, Jefferies’ shareholders equity at March 31, 2008
would have been $433.6 million higher with a new reading of approximately $2.16 billion.

Here is where the deal gets interesting.  Jefferies will purchase 10 million shares of common stock in Leucadia in exchange for the 26,585,310 Jefferies shares and $100,021,353 in cash. But Leucadia will register these shares promptly for discretionary resale by Jefferies from time to time.  In the release Jefferies noted that its balance sheet and liquidity are solid, but they wanted to strengthen their balance sheet in light of recent industry events and to take advantage of the many opportunities currently in the market.

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Jefferies stock had already been cut in more than half, but that revenue shortfall is one of the wider ones we have seen from a broker or financial company this earnings season.  If the firm hadn’t announced this financing package, let’s just say this would have been far uglier of a pre-market reaction.

Shares are down over 4% at $14.30 in pre-market trading, and the 52-week trading range is $13.68 to $33.80.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 7:12 am in Banking, Brokerage Firms, Earnings, Secondary Offering, ,

Goldman Sachs Sticks Sell on GameStop (GME)

GameStop Corp. (NYSE: GME) has seen shares downgraded at Goldman Sachs this morning.  The brokerage firm cut its already cautious Neutral rating down to a new Sell target.  The stock target is $50.00, implying a downside of 12%.

Part of Goldman Sachs’ call is the relative outperformance with gains of 30% since March 10, whereas the S&P 500 is up roughly 9%. Another issue is a perceived industry deceleration from its current peak.

This also follows the resignation of President Steven Morgan on Friday, which will be effective May 2, 2008.

GameStop shares are indicated down about 3.5% this morning at $54.70.  Its 52-week trading range is $32.31 to $63.67and its market cap before the drop was nearly $9.2 Billion.

Jon C. Ogg
April 21, 2008

Posted on: April 21, 2008 – 6:50 am in Analyst Calls, Video Games,