Tuesday, July 25, 2006

Calls of Note Part 1

- Friedman, Billings, Ramsey comments on Formfactor (NASDAQ:FORM) noting that following Phicom's disappointing 2Q results from late last week, they believe there is a fear in some investors that FORM could also disappoint when it reports 2Q results on Thursday, July 27th, after the close.

Firm notes that that Hynix was the largest customer at Phicom, and following the recent agreement with FORM, investors should not be surprised to see the 50%-plus QOQ decline in Phicom's 2Q06 revenues as the firm believes FORM has been a clear winner at Hynix.

Additionally, with a new product introduction at Phicom missing deadlines, they believe there is even more share gain opportunity for FORM going forward. To that end, they expect FORM to meet or exceed 2Q revenue/pro forma/GAAP EPS estimates of $88M/$0.33/$0.27, which is at the high end of company's guidance range, and compared to the consensus estimates of $88M/$0.34/$0.28. Firm also expects the company's 3Q guidance to meet their already revised (up) estimates of $93M/$0.35/$0.28, respectively.

Reits Outperform.

Notablecalls: Not actionable but good to know category.

- Piper Jaffray is positive on Apple Computer (NASDAQ:AAPL) saying that in light of the results of our 200 person study of iPod users, they believe that Mac market share will rise over the next 12 months. Firm found that 9% of iPod users with PCs indicated that they plan to switch to a Mac in the next 12 months (a 9% "Halo Effect").

According to Piper in Nov. '04 they conducted a study of 200 iPod users throughout the United States and found that 10% of PC users planned to switch from PC to Mac within the next 12 months. During the 12 months following the survey, worldwide Mac market share increased from 1.8% to 2.5%, according to IDC's quarterly data. However, the announcement of the transition to Intel chips in Jun-05 caused Mac sales to slide and market share decreased over the next several quarters. As Apple completes the Intel transition in the next several months, the firm is confident that Mac market share will begin to increase again.

Maintains Outpeform and $99 tgt.

Notablecalls: Not actionable but good to know category.

- UBS is out somewhat cautious on Google (NASDAQ:GOOG) saying they believe that rev booked as Google sites rev is incrementally lower "quality" than previously thought. Firm now understands that there is TAC associated with some of this rev, it does not represent only "organic" growth, and is susceptible to competitive pressures. Also, generally assumed TAC rate calculations do not take into account TAC associated with Google sites rev.

This is important as it explains how some distribution deals flow through the income statement in unexpected ways. While the "bounty", or "installation" fees are generally booked as sales and marketing costs, the rev share portion of these deals will generally flow through as TAC. Of course, the amount of TAC from toolbar and other dist. deals is difficult to quantify.

Believes that most investors calculate TAC rates by dividing the absolute TAC by Google Network rev (e.g. 2Q TAC rate equals 78.8%). They think this is misleading, as the denominator does not reflect rev booked as Google sites rev. Therefore the "true" TAC rate is lower than 78.8%. This also explains why Google reports TAC as a percentage of total ad rev.

According to firm, while this knowledge does not change otheir estimates, it does incrementally lower their view of the "quality" of revenue from Google sites versus previous understanding.

Maintains Neutral and $460 tgt.

Notablecalls: I think GOOG is in a vulnerable position and statements like this may pressure the shares.

- Banc of America is lowering year-end 2006 and 2007 subscriber estimates for XM Setellite (NASDAQ:XMSR) to 8.2M (from 8.3M) and 10.8M (from 11.0M), respectively. Toyota's relationship with XM is strong, but they now believe the big factory installation ramp-up will occur with model year 2008 vehicles rather than 2007 vehicles.

BUT they still believe XMSR has more upside than SIRI. SIRI's EV is 44% larger
than XM's. This valuation premium looks unjustified for several reasons:

Retail growth was weak for the satellite radio category as a whole in 2Q and the FCC issue could linger for both companies. June data from NPD showed YoY growth of just 4% for 2Q. And product availability could be an issue for BOTH providers in 3Q until the FCC issue is resolved.

Also, both management teams have credibility issues, but only XM has signaled any
intention of addressing this. XM has taken several steps in recent weeks to address its organizational structure in an effort to improve execution (new customer service vendors, more marketing professionals, new COO). Meanwhile, Sirius management misled investors on the FCC issue.

Notablecalls: Looks like there is more downside in store for XMSR if it breaks the recent low.

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