Friday, December 29, 2006

Calls of Note Part 2

- Piper Jaffray is out with a comment on Apple (NASDAQ:AAPL) after the co filed its 10-K earlier this morning outlining the findings of the internal review and independent investigation into past option practices:

Key Issue No. 1: The company indicated that CEO Steve Jobs was aware of some favorable options grant dates but did not benefit from them personally and was not aware of the accounting implications.

Key Issue No. 2: Apple indicated there was a falsified special board meeting to approve 7.5m options for Jobs, but no member of the current management team was aware of this irregularity.

The financial impact of Apple's restatement is immaterial (~2% impact) to net income over the last nine years.

Apple reiterated that its investigation and the investigation of the special committee did not find any wrongdoing by current management; firm views this as a positive given investor's concerns that this issue could lead to the removal of Steve Jobs. While this is a significant positive, they have not heard any formal comments from the SEC on this matter; given the scope of
Apple's exhuastive internal investigation (reviewed >1 million documents, spent over 26,500 person-hours, and interviewed more than 40 current and former employees), the firm believes that any SEC findings would be consistent with Apple's findings.

Notablecalls: You already know where I stand regarding AAPL this AM. But do check the commentary under previous post as there are some legit points made by readers.

Color on news: Apple Computer (NASDAQ:AAPL)

Apple Computer (NASDAQ:AAPL) filed their 10-K/10-Q reports around 1 hr ago. Key takeaways:

- The investigation resulted in restatements as incorrect measurement dates were used to financial accounting purposes for certain option grants

- Steve Jobs was aware or recommended selection of some favorable grant dates

- He did not benefit from these grants

Notablecalls: I'm somewhat surprised to see AAPL stock trading up on the news. I think the investors that bought the stock over the past couple of days assumed Steve Jobs was NOT aware of any suspicious grants and most certainly did not recommend any. I suspect the move this morning is an attempt by some market participants to mark up the price on the last trading day of the yr, possibly to improve their performance.

Calls of Note Part 1

- UBS is positive on Huron Consulting (NASDAQ:HURN) raising their 12-month target to $54 from $46. Firm's target is DCF based and uses a slightly higher 10-year rev CAGR of 15% versus 14% previously; this change resulted from rolling out higher 08 estimates than those used previously in DCF analysis.

UBS is maintaining their $1.90 07 EPS estimate and rolling out a $2.35 08 estimate. Firm's new target implies that in 12-months, investors will value HURN shares at 23x $2.35 08 EPS estimate (versus the current forward 12-month PE multiple of 25x and historical average of 23x).

Industry research suggests that demand for Huron's services remains robust and that Q4 hiring may have exceeded firm's expectations. UBS believes these factors bode well for Huron's Q4 results and near-term stock price performance.

Maintains Buy.

Notablecalls: Yes, it's THAT quiet out there this AM.


The WSJ reports that private-equity firms are beginning to circle Alltel (AT) making the nation's 5th-largest wireless operator another potential tgt amid a string of huge LBOs this year. Wall St. is buzzing about a possible deal and private-equity shops are already exploring the idea. The co has a mkt value of $21.7bn and a debt load of just under $3bn.

According to the WSJ, citing ppl familiar with the matter, SprintNextel (S) is close to choosing Nokia (NOK), as its third primary network-equipment provider for its next-generation wireless network throughout the US. The co plans to spend about $3bn on the network using WiMax technology in the next 2 years. Nokia can expect to get a portion of that as well as additional handset orders from Sprint, which is planning to deploy a network that reaches as many as 100m ppl by ‘08.

“Heard on the Street” column reports that Marsh & McLennan (MMC) is expected to get a fresh boost now that the co has agreed in principle to sell its Putnam Investments money-mgmt unit for $3.9bn. The price to be paid by Power Corp is at the higher end of most ests and could be good news for Marsh's battered shareholders.

Barron’s Online “Inside Scoop” section reports that a hedge fund has lightened its load of Take-Two (TTWO). Glenview Capital Mgmt disclosed a 6.7% stake, or 4.8m shares, in Take-Two stock, down from the 11% stake, or 7.8m shares.

Thursday, December 28, 2006

Calls of Note Part 3

- ThinkEquity's Eric Ross is out on Dell Computer (NASDAQ:DELL) saying speculation has been extremely high over the past several weeks that Dell will bolster its position in China with the acquisition of the PC business unit of China-based Beijing Founder Electronics. Firm's sources close to the deal indicate it will not occur, killed by pressure from the Chinese government.
This would force Dell to look for another strategy in China. Reiterates SELL rating and $17 price target.

Firm's sources believe the negotiations between the two parties have effectively ended as indirect pressure from the Chinese government has put the deal to rest. Management of Founder has publicly denied the rumor of the sale. Additional rumors have circulated that China's state-run Haier Group would buy the PC division. The firm reminds investors that two years ago, the U.S. government approved the sale of IBM's PC division of IBM to China's Lenovo Group.

Founder would have given Dell a solid No. 2 position in China. They believe the combination of Beijing Founder's PC business would significantly improve Dell's desktop PC market share position, as it would also strengthen Dell's sales channel in the China, putting pressure on Hewlett-Packard, and Lenovo.

Mr. Ross notes Dell is looking abroad to grow its PC business. Dell's lackluster growth in the U.S. market is offset by growth in the international arena, in particular, the Asia Pacific region. During the third quarter, revenue growth in the Americas region was weak, as it was down 3% on a year-over- year basis. Dell saw strength in Europe and Asia Pacific/Japan regions which
saw Y/Y growth of 5% and 8%, respectively. Think believes competition and eroding market share underscore the fact that Dell needs to look abroad to grow its PC business.

Notablecalls: Protectionism in the PC area? That can't be good news for DELL. Suspect the stock will get hit today. DELL needs to move outside of U.S. in search of growth and now it looks like there will be major obstacles in one of the largest markets - China. Another excellent piece of research from ThinkEquity's Eric Ross and his team.

Calls of Note Part 2

- Thomas Weisel Partners comments on Apple Computer (NASDAQ:AAPL) this morning after completing a round of about 20 channel checks with Apple specialist resellers and Apple retail stores across the United States and checks suggest strong "holiday season" demand for Intel-based Macs and iPods.

Checks suggest that 50% of Mac buyers are switchers and that there is strong demand for the MacBook ($1099 to $1499), especially the entry level white notebook as well as the slightly more expensive black models. They continue to believe that the real key to the Apple story over the next 12 months will be the actual Mac units sold.

Checks also indicated strong demand for 4GB nano ($199), which is available in five different colors and is the best selling iPod for the holiday season. The second best selling iPod is the 2GB nano ($149). More than 80% of checks indicated that the demand for iPods has increased compared to last quarter and last year.

Firm's Mac checks indicate strong demand and supply for Intel based Mac notebooks. However, they are already estimating 41.5%y/y growth for Mac units and they remain comfortable with current estimates.

Notablecalls: Not actionable but good to know category. The stock is down over 5% in pre mkt trading after the FT reported that the co gave Chief Executive Steve Jobs 7.5 million stock options in 2001 without the required authorization of the company's board. Records purporting to show that a full board meeting had taken place to approve the remuneration, as required by Apple's procedures, were later falsified, the Financial Times reported, citing people familiar with the matter.

While I continue to believe Steve Jobs did not act deliberately, I suspect trading dynamics of yesterday will dictate today's action. Too many dip buyers showed up yesterday.

Calls of Note Part 1

- Banc of America comments on FormFactor (NASDAQ:FORM) saying they are cutting near term 4Q06 and 1Q07 EPS to reflect a delay in the penetration of the new NAND. The cut brings them back in line with street estimates and guidance for the December quarter. Firm views this as only a timing issue for the one-touch-down NAND product. FY07 EPS goes to $1.71 from $1.85.

Even so, they remain very optimistic about the 2007 growth prospects for the company. They think FORM is in the final stages of qualifying their new one- touch-down product with several NAND flash customers. Thinks that Micron (IM Flash Technology) could release a $50 million order in the March-07 quarter (1Q07) and drive a sharp increase in June revenues.

After SEMICON Japan it was apparent that the pace of technology change in the probe cell (prober, probe card, tester) is accelerating. The rising cost of test is driving the industry to search for new solutions that are increasingly dependent on probe card technology. BAC thinks the value add in the probe cell will migrate to the probe card. Micronics Japan (MJC) has introduced an integrated prober-probe card product targeting the memory market. FormFactor is investigating adding tester functions to its advanced probe cards.

Maintains Buy but cuts tgt to $43 from $45.

Notablecalls: Not actionable but good to know category. BAC is taking down their Street high estimates but talks of the possible large order from MU. In sum, neutral.

Color on news: VCA Antech (NASDAQ:WOOF)

Couple of firms comment on VCA Antech (NASDAQ:WOOF) after the co issued guidance for 2007:

- Piper Jaffray expects WOOF shares to be weak today after conservative FY07 earnings guidance was provided yesterday afternoon and would recommend using this weakness as a buying opportunity in this core mid-cap growth holding. VCA Antech has a track record of guiding conservatively and they believe last night's announcement is in line with this practice. Firm believes the company continues to experience strong momentum across each of its business segments, which could result in upside to the preliminary guidance provided yesterday afternoon. Initial FY05 guidance (provided in October of 2004) was ultimately exceeded by 8% or $0.07 per share and similarly preliminary FY06 guidance of $1.03-$1.06 will likely be outdone by $0.09 (PJ is forecasting $1.15 for FY06). They believe the underlying trends in the veterinary care market remain intact and expect this sector to record strong growth once again in 2007. Firm maintains Outperform rating on WOOF shares but lowers tgt to $39 from $40.

- Banc of America notes WOOF issued detailed 2007E financial guidance essentially in line with their revenue and EPS forecasts. It did bump its internal laboratory revenue growth goal to 8%-10% in 2007 versus 7%-9% historically, consistent with competitor IDEXX Laboratories' move in July, but medical technologies' revenue growth expectations are sluggish.

The firm wouldn't expect the stock to move much on the news, although expectations for WOOF have historically been high, with surprises poorly received. 2007E EPS guidance implies growth of 12%-15% over firm's 2006E forecast, lower than the 17% to 20% growth implied by its initial 2006E forecast, although the acquisition of Pet's Choice in mid-2005 clearly drove a robust 2006 experience. WOOF's 2007E expectations don't contemplate an incremental chain hospital deal, and material weakness would present an opportunity to own one of the better growth stories in firm's research universe. Maintains Neutral and $33 tgt.

- Citigroup notes the guidance implies revenue growth of approximately 9% and EPS growth of 12%. The company's average EPS growth rate for the past three years ('04-'06E) has been roughly 24%. Despite the decelerating growth, WOOF continues to trade at a premium valuation at 24.2x FY07E P/E (vs. its historical average of 22x since 2002). Reits Sell.

Notablecalls: I don't think WOOF will decline more than 1 pt following the news.


The WSJ’s „Heard on the Street” column discusses Wal-Mart (WMT), which cites a clutch of short-term problems behind its slowing pace of sales late this year, but bearish observers say looming challenges could hinder the retailer through ‘07 and beyond. Wal-Mart execs fingered disruptions from store remodeling, an overly aggressive bet on a new line of women's apparel and a slip from sales temporarily boosted by ‘05 hurricane-recovery efforts to explain lackluster results at its established stores. Several analysts don't foresee Wal-Mart's SSS rebounding until well into ‘07, or even later. Richard Hastings, of Bernard Sands, predicts that SSS for Wal-Mart's main US division "will now trend flat to slightly negative for the foreseeable future." Even some Wal-Mart bulls are cautious. Bear Stearns analyst Christine Augustine, who rates Wal-Mart's shares Outperform, with price tgt of $54-55, says it will be several months before Wal-Mart's sales benefit significantly from its efforts to remodel stores and tailor merchandise to customers. "It's our belief that SSS may remain under pressure for the 1H07," Ms. Augustine says.

Wednesday, December 27, 2006

Color on news: Apple Computer (NASDAQ:AAPL)

- JP Morgan comments on Apple Computer (NASDAQ:AAPL) saying the stock is under pressure today, as it appears investors are concerned about an article published by The Recorder regarding the company's options backdating investigation.

In regards to the potential for forged documents, at the conclusion of Apple's independent probe in October, the company noted the investigation "raised serious concerns reagarding the actions of two former officers...." Whether these actions included forged documents or not, there is no new news in The Recorder's article tying Steve Jobs to any wrongdoing.

The firm cannot confirm or refute the speculation that Steve Jobs may have hired an outside attorney. They would, however, have been surprised if Mr. Jobs did not have personal representation. This does not suggest any change to the conclusions of the independent probe in October either, in their view.

Overall, the firm continues to believe Apple will file its restated financials this week, and they would expect the filings to answer any remaining questions regarding the options investigation. As for the article in The Recorder, they can find little newsworthy revelations regarding Steve Jobs' tenure at Apple.

JPM believes the recent sell off in Apple's shares has provided investors with a unique opportunity to purchase the shares at depressed prices ahead of Macworld and the December quarter earnings release next month. They are reiterating Overweight rating.

Notablecalls: Looks like the market agrees with JPM here. At least for now.

Calls of Note Part 6

Buying Apple (NASDAQ:AAPL) may make sense here since Steve Jobs hiring a lawyer can't be worth over 4 points of downside. Tight leash.

Calls of Note Part 5

- ThinkEquity's Eric Ross notes that increased performance and profitability in IBM's (NYSE:IBM) Global Service segment, together with strong software sales, causes them to reconsider their SELL rating and now recommend it as a BUY for this quarter. Firm now expects increased revenues together with higher margins in Q406 and stretching into 2007. They are upgrading IBM from Sell to Buy, and raising price target from $70 to $110.

Mr. Ross explains that the primary reason for his sell rating was the weak outlook for IBM's global service business, driven by weak IT services overall. He now believes this segment
(approximately 50% of total revenues) has turned the corner toward strong performance this quarter. The salespeople they have spoken with are extremely confident and say productivity is increasing, driving margins higher. While revenue concerns may linger, they expect IBM to boost the profitability of this segment into 2007.

Everyone the firm was able to get on the phone was highly confident that their area was performing very strongly (except in storage). This is a marked difference from the response they received from these same contacts in spring 2006.

Ests: Revs Q406 from $25.0b to $26.5b; CY06 from $90.166b to $91.666b; CY07 from $91.500b to $96.990b. EPS Q406 from $1.95 to $2.25; CY06 from $5.76 to $6.05; CY07 from $6.25 to $6.74.

Notablecalls: I like the conviction behind this call. I wish all upgrades were like this one. People would pay more attention to them. Note that THNK's ests are now close to Street high.

Calls of Note Part 4

- Wachovia questions the rationale for the latest bounce in The Cooper Companies (NYSE:COO) shares, as both their recent checks and disclosures in the company's newest SEC filing raise concerns that appear likely to prevent a sustainable share-price recovery in the foreseeable future.

Firm's checks show that COO is offering select high-volume practitioners a 10% discount on inventory orders placed between December 22 and December 31 for immediate shipment. The promotion suggests COO is fighting a sales slowdown in its quarter ending January 31. Firm's concerns over the magnitude of any potential sales shortfall are heightened by comments from an industry source, who indicated that, to the best of his knowledge, the company has never before made such an offer of this kind.

COO's 2006 10-K, filed Tuesday, also raises a few cautionary flags. There are several 10-K disclosures (some new) that could negatively affect COO's tax rate, which the Street currently assumes can be maintained in the low-to-mid-teens range. Tax-related issues include FIN 48, a FASB interpretation implemented in July that clarifies the conditions for realizing a tax benefit. COO indicates that it still has not determined the impact FIN 48 will have on its financial

Firm's checks and the incremental 10-K findings suggest that COO is not yet on the road to recovery. They continue to advise remaining on the sidelines in this name. Valuation range $44 to $46.

Notablecalls: While I'm not questioning the contents of the call, the timing may be somewhat off as it's very early in the qtr. The co may just be pushing hard to get the product rolling. On the other hand demand may be so weak the co has discount hard already early in the qtr. COO is not an expensive stock and is considered to be a turnaround story. Tough to call this one. In case you feel inclined to short this one the $46 level should act as the leash.

Calls of Note Part 3

- Piper Jaffray is cautious on Gap (NYSE:GPS) saying holiday sales appear weak at core Gap brand; traffic may not be only culprit: Core Gap stores have experienced flat or negative traffic trends in each of the last 25 months, owing to inconsistent merchandise and promotional patterns and deteriorating brand equity with the traditional casual wear customer

The firm has noted accelerated promotional activity relative to the prior year with markdowns being taken on a weekly basis and the company introducing its 50% storewide banner one week earlier than last year. Additionally, the company's Project Red, premium priced assortment, is being aggressively discounted in order to clear goods. Piper is trimming their FQ4 sales and EPS estimates.

On a positive note, they think Banana Republic remains the star performer in the GPS trio and a 40% off event week 4 (week prior to holiday) was well received by customers. Inventory of key items, especially sweaters, wool bottoms, and outerwear appeared well managed into the final holiday weekend.

Shares are fairly valued for fundamentals; upward moves in shares are based on speculation: At 16x FY08E EPS of $1.25, they believe the risk-reward profile of GPS shares is fairly balanced. Maintains $19 tgt. Maintains MP.

Notablecalls: Not the type of call you want to put out a short line on. Not actionable but good to know category. I'd rather wait for GPS to stumble and then pick up some stock for the inevitable bounce.

Calls of Note Part 2

- ThinkEquity notes that Germany is completing the auctioning of approximately four 3.5 GHz licenses at what appears to be extremely low prices. Firm believes this should cause a giant
spending boom for WiMax in Germany starting some time in 2007. Of course, Alvarion (NASDAQ:ALVR) will be one of the leading contenders for these four new accounts, with the usual list of competitive suspects.

Many years have passed since Margaret Thatcher and Ronald Reagan delivered excitement in terms of attempting to roll back the long claws of government ownership. Of course, the U.S. sold 1900 MHz spectrum in the mid-1990s and only a few months ago held some further auctions for 1700 and 2100 MHz. But, generally, these moments of privatization have been few and far between. At least outside of the former Eastern Bloc and South-East Asia, capitalism and private property have generally not been on the march for the last 15+ years.

So it is with great joy that they celebrate this year's Christmas gift from Germany: Privatizing 3.5 GHz spectrum for WiMax. Firm believes the bulk of the capital spending will start to kick in around the middle of 2007 at best. Competition for these contracts should be fierce.

At this point, they have no reliable view of how Alvarion's 4Q is tracking. Firm maintains 2006, 2007 and 2008 revenue estimates of $207m, $259m and $371m. For the same time periods, their untaxed EPS estimates remain ($0.01), $0.19 and $0.82. They maintain their 12-month price target of $10. This implies a target market cap of $630m, of which $109m is in cash

Notablecalls: I suspect this one is for the investor types rather than traders. Somewhat actionable?

Calls of Note Part 1

- UBS continues to be positive on Rockwell Collins (NYSE:COL) saying their Buy rating continues to reflect firm's view that underappreciated growth opportunities and margin leverage can drive significant EPS upside beyond current consensus estimates. UBS believes Collins' margins can benefit from an improved revenue mix, as it swaps lower margin In-Flight Entertainment revenues for high margin Information Management revenues.

They believe COL can continue to generate revenue growth that outpaces its peer group as they think much of its recent market share gains are still to come through. This includes 787, business jets as well as increased Buyer Furnished Equipment (BFE).

Firm's FY 2007 and FY 2008 EPS estimates are $3.25 and $3.80, respectively. Their initial FY08 EPS estimate compares to $3.54 consensus and reflects high single-digit organic revenue growth combined with further margin expansion at Commercial driven by 30%+ incremental margins on higher volumes, decreased low margin IFE revenues and lower R&D as 787 spending trails off.

Tgt moves to $73 from $67.

Notablecalls: I like this note. David Strauss and his team seem to have high conviction regarding the story. Expect to see a positive reaction over the next couple of days. Looking at COL's ops it's is like Honeywell (NYSE:HON) and Garmin (NASDAQ:GRMN) rolled into one.


The WSJ’s „Heard on the Street” column highlights Anadarko Petroleum (APC), which has something harder to find than oil - the floating rigs that explorers need for drilling. A boom in drilling deep-water oil and natural-gas wells in the Gulf of Mexico and off the coasts of Brazil and West Africa has driven demand for the specialized rigs needed to work in depths. Deep-water rigs are in short supply, and co’s are scrambling to get their hands on them, which could pay off for Anadarko. It pegged the looming scarcity early and moved quickly to secure board approval last year to spend $1bn locking down rig leases. Anadarko now has a larger inventory of Gulf-based rigs under contract than any other major oil co, giving it an extraordinary competitive advantage. Fields ripe for exploration can't be drilled without the rigs. Anadarko's leases give it a powerful bargaining chip to barter for stakes in more deep-water oil and gas prospects. Its moves have gone largely unappreciated on Wall St., overshadowed by investor concerns about the co's balance sheet.

Tuesday, December 26, 2006

Calls of Note Part 4

- Goldman Sachs has added Lockheed Martin (NYSE:LMT) to the Americas Conviction Buy List as they see 11% upside potential to the stock relative to their $102 six-month price target, which was derived using a blended average of adjusted earnings multiples and a DCF. Firm's conviction on LMT is based on: 1) belief that LMT will benefit in 2007 from share gained in 2006, 2) a 14.8% ROIC that's among the highest in the peer group, but trading multiples that are in-line with the defense peer group, and 3) belief that LMT's share price suffers from some investor skepticism over potential program cuts in the FY2008 budget they think are less likely to occur.

Catalyst: In 2006, LMT was a share gain story benefiting from wins on technical service contracts, key intelligence programs, and programs in adjacent markets. In 2007, the firm thinks LMT will see the benefit from: share gained in 2006, lower risk on key production programs, and the deployment of its $7+/share free cash flow. The FY2008 budget release in early Feb is the next catalyst, which the firm thinks will be favorable to LMT programs. Looking further ahead, LMT's opportunity pipeline includes: IWN ($10bn, mid-07), GPS-3 satellite ($5bn, mid-07 decision), and various ID/IQ contracts.

Notablecalls: Not actionable but good to know category. Really.

Calls of Note Part 3

- Jefferies comments on UT Starcom (NASDAQ:UTSI) saying their believe risks outweigh potential returns. N-T risks include mgmt departures, slowing PAS mkt, ongoing restructuring, and continuing losses. UTStarcom is seeking strategic alternatives, which could result in asset disposals rather than a sale of the entire company. The firm has shifted to a sum-of-the-parts valuation, with a $10 price target.

Firm notes they see divestiture of businesses as the most likely alternative. In their view, UT Starcom acquired its way into too many disparate businesses as it tried to diversify away from a declining PAS market. Firm says they have a tough time identifying a potential buyer for the entire company. On the other hand, a divestiture of individual businesses won't be an easy task either. Individual businesses could be difficult to unwind and separate from the core R&D and manufacturing assets of the company.

They have segmented UTStarcom's business into five components (slightly different from reported segments). This totals a value of roughly $1.2 billion, or 0.6x 2006 rev est. The calculation includes $360M for its PAS businesses, $400M for CDMA handsets, $320M for Broadband Infrastructure, $120M for Wireless Infrastructure.

Maintains Hold.

Notablecalls: It must be a pain covering a co like this one. There looks to be very little hope for the holders of the common here. Lucky for them, short interest stands close to 20%. Not actionable but good to know category.

Calls of Note Part 2

- Merrill Lynch comments on ImClone Systems (NASDAQ:IMCL) saying that based on NDC data, Erbitux sales declined 10% month-over-month as Amgen's Vectibix continued to capture share of the Erbitux market faster than expected.

ML believes that unless there is significant market expansion, Vectibix could hurt Erbitux worse than the Street assumes because short durations of treatment make it easy for physicians to switch to Vectibix rather than Erbitux regimens for new patients.

They expect continued loss of market share to Vectibix will lead ImClone to reduce the price of Erbitux, which will hurt revenues. Firm does not expect a decision on price cuts to be made until the CRYSTAL phase 3 data in 1st line colorectal cancer is available in 1H07. They believe CRYSTAL will meaningfully benefit sales because the primary endpoint is progression-free survival, not survival, which is not enough to cause broader adoption & the regimen used in the study is not
standard of care.

With Erbitux sales now clearly declining as Vectibix captures share of its market, the firm believes it is less likely that ImClone can be acquired for a price near or above its current value. If market share continues to decline and ImClone/Bristol Myers have to lower price to compete, peak revenues are likely to fall significantly below Street estimates, reducing the company's break-up value. They currently estimate a break-up value of $25-$29, but if sales decline and Erbitux's price is cut, the break-up value could be in the low $20s or lower.

Reits Sell.

Notablecalls: Oh boy, IMCL's in trouble. Their main revenue generator is facing huge competition, there is nothing exciting in the pipeline and now the talk of the imminent takeover (it's been imminent for the past 3 yrs) is fading. Looking at the chart I suspect most market participants already know it. While I suspect the call will hurt the stock early on, it may produce a bounce later. That's how it usually works. Also, Carl Icahn may still have something up his sleeve.

Calls of Note Part 1

- Wachovia highlights Costco (NASDAQ:COST) as their top pick for 2007. While not deviod of near-term risk, firm's outlook for membership fee income (MFI) growth - and the associated value it conveys to equity investors - provides the foundation for what they believe is a very favorable underlying risk/reward profile on the shares over the next 6-12 months.

Accounting for more than 70% of COST's annual operating income and growing at impressive double digit rates, membership fee income represents a powerful (and visible) source of value creation for COST shareholders over time. Following ~11% growth in FY06, MFI grew 14% in 1Q07 and is poised to accelerate further in coming quarters (WACH sees ~16% growth for FY07 in total).

Beyond this rising MFI profile, factors which support our bullish stance on COST include significant free cash flow generation (they estimate as much as $600MM this year), aggressive share buyback activity (they assume $1.6 billion), and the potential for the implementation of a more restictive return policy on TVs at some point in the year.

Sees valuation range of around $60 to $62.

Notablecalls: I don't think the call will have much impact on the stock. In case you do feel inclined to trade this one the 200 MA (exp) should act the the tight leash.


The WSJ's "Heard on the Street" column discusses Leap Wireless (LEAP), whose shares have risen sharply this year and some investors are betting that they are in position to jump higher. To gain traction as a tiny carrier in the crowded cellphone industry, Leap took an unconventional approach. Under the brand name "Cricket," it targets niche mkts overlooked by larger carriers: young, low-income and ethnic customers. Leap doesn't require credit checks or contracts, and it offers flat-rate service rather than charging for minutes. That formula has paid off. The co has attracted 2m subs at a time when more than 3/4 of Americans already have cellphones. Shareholders have been rewarded: The stock is up 58% this year. The question now: Is the startling run over or will Leap sustain its fast-paced growth as it enters new mkts, fueling more gains? The answer could be continued growth, if investors are patient.

NY Times reports that the final burst of buying is expected to fall short of retailers’ expectations. Visa USA said that it would lower its closely watched forecast for holiday spending. Based on purchases by credit and debit card holders, Visa said sales rose 6.5% in Nov and Dec, compared with the same period last year, down from its initial forecast of a 7.5% gain. The co’s unexpected downward revision, and the millions of dollars in lost sales it represents, could have broad implications for the nation’s merchants, who count on purchases during the holiday season for nearly half of their business.

Sunday, December 24, 2006

Barron's Summary

Barron’s cover discusses US economy and stock mkt, saying that a cloud hangs over them. Bears worry that a serious recession lies ahead, spurred by overleveraged consumers cutting their spending in response to a collapse in home prices. Longer term, gloomsters bemoan the US' huge current-account deficit, a reflection, they insist, of America's lust for consuming more than it produces and spending more than it saves. Only the kindness of strangers (mostly Chinese and other Asian central bankers buying US debt securities) lets Uncle Sam continue his profligate ways. But such opinions aren't shared by everyone. Nor is Wall St. poised on a precipice. Stocks actually are cheap by many measures, says research boutique GaveKal. And shares of a certain type of nimble and tech-minded U.S. multinational could rise the most in coming years. Co’s mentioned include: AAPL, MOT, HPQ, DELL, BDK, IBM, DHR and ADI.

Fund managers like TXT, CSX, HES, TIN, D, IHG, CS and AZ.

Peabody Energy (BTU) trades for around 41 a share, far below its May peak of 76.29. As the co converts coal into earnings, its stock could rally toward 60.

After outpacing many media stocks in recent months, the shares of E.W. Scripps (SSP) could easily rise another 20%. New-media rev is surging, and the newspapers are holding up relatively well.

ITT (ITT) could trade up to 72 in 2 years, commanding a sector average of 18x earnings, as investors grow to appreciate its earnings visibility.

Hedge fund manager likes CVS, VRSN, YHOO and HB.

Friday, December 22, 2006

Merry Christmas!

Wanted to take a moment to thank NC readers and especially the folks that have sent us wonferful feedback. It's certainly been an interesting 7 months working on this blog.

Merry Christmas everyone. NC will be back on Tuesday.


I wanted to let you know, how much a few of us appreciate the work you put into the blog. Thank you...keep up the great work.

Bob M.


I don’t know who you are or where you get your info from, but I enjoy reading your blog several times during the day. I constantly check for updates during the day and get disappointed when there aren’t any. I find your posts insightful and meaningful. They give me a heads up on the market and since I day trade, they are tremendously useful. Makes me feel like I have an inside track. Thank you for providing this wonderful service. I hope to see a lot more from you. Feel free to write. Best to you.

Steve C.


Hi there,

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I find your site to be a very valuable tool each day. I am partner in a trading firm.

Jerry P.

Color on news: Qualcomm (NASDAQ:QCOM)

Several firms are commenting on QUALCOMM (NASDAQ:QCOM) after the co lowered their EPS guidance overnight:

- Morgan Stanley notes the EPS shortfall is being driven by higher legal expenses and bad debt reserves related to the Pantech Group in South Korea. Firm notes Pantech Group (Pantech, Curitel, and SK Teletech) shipped 4.1MM handsets in the 1H C2006, split between the CDMA and GSM/GPRS market.

With firm's revenue estimate already inline with the new guidance but with their chipset unit estimate slightly below, it suggests a mix shift to lower end phones (which will impact royalties in subsequent quarters) and/or lower sales of chipsets for basestations. CDMA+WCDMA handset shipments in the September quarter (royalties are recognized in arrears) are now expected to be 75-76MM units with a blended ASP of $210 versus firm's estimate of 75MM units and a blended ASP of $209 per unit.

Firm expects to update their estimates when they obtain further visibility into the March quarter. However they estimate there is $0.01 risk to adjusted EPS estimate of $0.43. Firm's F2007 EPS estimate of $1.77 also remains unchanged. They expect QCOM will face a modest amount of selling pressure on the news, as many investors remain hopeful for a favorable outcome of the ongoing licensing dispute with Nokia.

- Jeffco notes QCOM remains one of their best pure play picks into the 3G migration trend. As strong proxy for the broader wireless handset market, QCOM themetics for CY07 remains strong despite the on-going Nokia battle, and supports firm's positive stance on QCOM's position. There has been much pessimism about weaker handset demand, this is a positive datapoint for the sector. Firm believes that visibility should start improving in 2007 with potential resolution or settlement of many of the legal issues.

Maintains Buy and $54 PT.

- Goldman Sachs notes demand fundamentals appear positive which bodes well for the long term outlook for the shares. However, legal issues are likely to continue to dominate in the near-term, negatively impacting sentiment and limiting any near-term earnings upside. Nevertheless, the firm continues to believe that Investors with a long time horizon of 12 months or more will be paid to wait out the near-term impact of legal concerns. Fundamental demand remains healthy as demand for 3G continues to improve and 2G markets still have growth left in them, as QUALCOMM's chip segment continues to integrate in additional features and drive down prices with new chip designs. They see 2 potential upside catalysts: 1) the recent 3G chip win at Motorola could drive upside to 2008 estimates. 2) Qualcomm will be a key beneficiary of China's eventual move to 3G.

Firm is lowering their 12 month price target to $55 from $58.20. Maintains Buy.

Notablecalls: JPM is downgrading their rating to Underweight from Neutral saying that not only do these legal costs appear here to stay for some time, they suspect they could increase even further in the coming months. I expect QCOM to trade down following the downgrade as JPM may indeed be right. On the other hand, I see the stock as a bounce candidate, possibly below the $37 level.

Color on Quarter: Micron (NYSE:MU)

Several firms commenting Micron (NYSE:MU) after co reported Nov qtr last night.

- NC's favorite Eric Ross from ThinkEquity says the company saw strength across all of its business segments during the quarter, benefited by PC manufacturers buying up DRAM due to Vista and mobile phones moving to higher-resolution image sensors. Eric gives a nice overview segment-by-segment:

* Revenues for the computing DRAM were approximately $758 million, up 23% Q/Q, roughly 48% of revenues. Management said that demand is mostly driven by Vista, as the new OS is driving increasing memory per PC.
* Non-computing DRAM was approximately $348 million, up 1% Q/Q, roughly 22% of revenues. MU is worried that handset inventories will cause this segment to lag.
* NAND Flash was approximately $269 million, down 2% Q/Q, roughly 17% of revenues. Pricing was weak, but costs were lower than expected.
* Image Sensors was about $205 million, up 50% Q/Q, roughly 13% of revenues. Firm continues to believe that the main driver for this segment will likely be increasing Mpixels rather than attach rate.

- JP Morgan out cautiosly as expected given their recent downgrade. Firm notes gross margin upside due to higher than expected DRAM pricing (roughly 67% of F1Q07 revenue). However, the improved margins were offset by higher than expected operating expenses as the company ramps its new factories.

Inventories approaching record levels, which is a concern. While firm is positive on Micron's DRAM leverage, they remain concerned on the company's growing inventories. Days of inventory at Micron were up 9 days QoQ to 93 days, significantly above a normal level of 60-70 which adds risk to gross margins. Memory and sensor inventories grew sequentially.

- First Albany upgrading Micron to Buy from Neutral, saying that while they continue to believe that 1H:CY07 will be challenging for the memory makers, they also believe that this expectation is priced into MU shares. Firm also believes that 2H:CY07 and CY08 will be strong for the memory makers, particularly if other vendors hesitate to build capacity in 1H:CY07. FIrm believes that MU's valuation is compelling at current levels.

- Merrill Lynch sees Micron as short term trading opportunity of 20-25% upside. Firm doesn't think Micron is well-positioned enough or attractively valued enough to merit a buy recommendation. However, they note that DRAM pricing is expected to stay strong through the first part of next year, and Micron's stock has lagged the semiconductor sector and the broader market. They continue to see a short-term trading opportunity in the stock with a 20-25% range.

Rising capacity adds in the DRAM business raise the specter of overcapacity, and firm does think the risk of a sharp decline in pricing exists for the second half of 2007. For the next several quarters, though, the DRAM industry is clearly chasing demand.

Notablecalls: Maintaining my view from last night - MU is going higher today (and in the coming weeks) than the afterhours prices of yesterday. Out of the today's comments I'd point out Merrill's as this is the closest to my view. Think DRAM pricing will continue to surprise as PC manufacturers are getting ready for Vista launch. Looks like the process will help Micron through seasonally weaker Feb quarter and higher inventories.

Calls of Note Part 1

- Merrill Lynch is lowering their 2007 estimates on Yahoo (NASDAQ:YHOO) to reflect near-term Panama search monetization and management reorganization uncertainty. Firm thinks lower 2007 guidance versus published estimates is anticipated by the street, however Yahoo! stock may face pressure into the Jan. earnings call owing to guidance related uncertainty. Firm is lowering their 2007 revenue and EBITDA assumptions, which remain below consensus, to 15% growth from 18% (consensus is at 20%). They expect stock support above $23 (9x 2008E EV/EBITDA), and note that advertisers transitioning to Panama are generally positive on campaign management software tools, but remain divided on short-term impact of upcoming marketplace design (algorithm) changes, which warrants some near-term caution.

Pressures on 1H'07 revenue growth will include Panama transition, MSN loss, Daum affiliate loss, higher TAC rates and, potentially, the recent management reorganization. Firm notes their are optimistic that new partnerships and branded ad network opportunities in 2007 will help offset some of the affiliate losses to Google. Internet advertising industry growth remains robust, external data indicates that Yahoo! is holding US query share, and Panama opportunity is large, which is the basis for their positive long-term view on the stock given current valuation.

Firm's base case scenario for Panama assumes 8.5% core 4-year EBITDA growth (excluding search monetization) and a 70% improvement in search query monetization from Panama over 4 years. In this scenario, they value the stock at $32 based on 13x 2008E EBITDA.

2007 estimate changes:
Lowering revenue to $5.23bn (15% growth) from $5.34 bn
Lowering adjusted EBITDA to $2.15bn (15% growth) from $2.21bn
Lowering adjusted EPS to $0.75 (13% growth) from $0.78.

Notablecalls: I don't see this on as actionable. Good to know category.

Color on news: Red Hat (NYSE:RHT)

Several firms are commenting on Red Hat (NYSE:RHT) after the co reported stronger than expected results last night:

- Merrill Lynch notes 1) Billings of $133.4mn (up 3% q/q, 50% y/y, highest y/y growth in 5 quarters) vs. est of 131.9mn and expectations ($110-115mn). 2) Cash flows ($59.6mn) handily beat ML est ($51.0mn) and expectations ($43-44mn). 3) Deferred revenue up 10% q/q and above expectations of 4%. Contrary to fears that Red Hat offered special discounts on long-term subscriptions, long-term deferred revenue was 27% of total deferred revenue, basically unchanged from two quarters back.

Impact from ORCL/NOVL seems limited. Although Red Hat had five weeks of competition in the quarter, it lost only a few customers. Oracle's Linux push is validating the market and expanding the pie which is driving more business for Red Hat, attested by 12K new customers in 3Q07 (up 20% q/q).

ML is raising their 4Q07 raising pro forma 4Q07 EPS by a penny (from $0.14 to $0.15) due to potential operating margin expansion (from 20.8% to 21.8%) but trimming revenue est to $113mn (from $114.6mn) and cash flows est (from $54.6mn to $44.6mn). Firm's 4Q07 cash flow est of $44.7mn is conservative and leaves potential room for upside. The firm is raising their FY08 pro forma EPS (from $0.65 to $0.69), mainly due to interest income and also trimming FY08 cash flow est (from $250.6mn to $240.5mn).

Tgt goes to $30. Rating maintained at Buy.

- Deutsche Bank notes Red Hat's execution in F3Q was solid as the company delivered upside
across almost every metric, especially considering the potential for distraction given the Oracle and Microsoft/Novell announcements. However, these competitive risks remain longer-term and the firm believes this will limit the multiple expansion potential for the stock.

The introduction of RHEL 5.0 at the start of next year should be a positive driver for the company given the current momentum in server virtualization and RHEL 5.0's integration of Xen virtualization support. The larger issue in firm's opinion though, is what impact Oracle
and Microsoft/Novell will have on Red Hat's pricing negotiations with customers. While it does not appear to be having a large impact yet, they believe it is still early and the potential impact could be significant.

Maintains Hold.

- UBS has the best note on RHT saying the focus, as usual, was on billings and cash flow, with each metric handily exceeding the pessimism of the street. Billings for the quarter came
in at $133m or +19% sequentially which compares to firm's conversations with investors that suggest that any level of growth this quarter would have been considered a positive surprise. Regarding cash flow, $60m was above consensus of $47m, with firm's view that the market was looking for a number more in the $42-$45m range. While many expected cash flow guidance for the current fiscal year to come down, given the level just posted, the company only needs to generate about $42m in its fiscal 4th quarter in order to hit the midpoint of its prior range.

In all, while there was more upside than they expected, last night's results confirm our recent field checks, where conversations with 15+ resellers highlighted that Red Hat's business was not as impacted in the quarter from the Oracle and Novell/Microsoft announcements as many had anticipated. While the firm had thought a good deal of short covering had occurred going into last night's print, the limited activity in the aftermarket (given the stock is now traded on the NYSE) would suggest otherwise. UBS notes that the November data (as of November 15th) indicated that 20m shares (11% of shares outstanding) of Red Hat were sold short, which represents the highest level since July 2005. With liquidity likely to be below average today given we are entering a holiday weekend, they believe the volatility of the stock will likely be exacerbated.

Although firm's checks suggest the near-term impact on Red Hat will be muted at best, and with 75% of resellers suggesting pipelines for Linux server demand in 2007 appear to be tracking above 2006 levels, they believe the key question will be whether or not Red Hat will face pricing pressure 6-9 months down the road. On this point, just over 50% of firm's reseller contacts suggest that Red Hat pricing will need to decline in the 15-20% range over the next 6-18 months.

With the stock looking as if it will gap up to $20 or so at the open today, suggesting a 23x multiple on CY07 CFO, the firm believes the question on pricing needs to be evaluated in more detail before making a commitment to the stock either way.

Firm ups their tgt to $19 from $17.50 but maintains Neutral rating.

Notablecalls: RHT trades around 40x CY07 EPS and has ORCL coming to challenge them on their own turf. I suspect the short interest is the main thing keeping the stock afloat here. Watch for some of the short positions being unwind. That may provide an interesting shorting oppy. Call me paranoid but I think that moving to NYSE was management's way of making short-selling in the stock more difficult.

Thursday, December 21, 2006

Quick Comment on Micron (NYSE:MU)

Micron (NYSE:MU) is out with the numbers. Quick look at the numbers shows mixed bag of positives and negatives, but at least for me, positives are outweighting the negatives.

1) EPS way above expectations on strong gross margins - don't think that anybody expected margins as high as 31%.
2) NAND doing well, 15% revs coming from NAND according to the co - up from <10% in the previous quarters. Lexar sure helped, but the worst fears didn't come true for sure. And co is even telling that NAND margins improved!!
3) CMOS margins maintained - that is sure good thing in light of what OVTI was telling us.

1) Revenue. Looks like the co was concentrating on margins on the expense of revenue.
2) Inventories increased another ~$150m. That is a cause for concern.

As said, more positives than negatives. Expecting the stock to go higher tomorrow than the current $14.15 in the afterhours.

Calls of Note Part 4

- ThinkEquity's ever-wonderful Eric Ross is previewing Micron's (NYSE:MU) qtr saying he believes MU will make the consensus estimates, which would beat the "whisper" that the company will miss. He expects this to be a meaningful positive, as he think a miss is already priced into the stock. Mr. Ross think shortages in DDR2 and stable contract pricing are the most likely drivers, with some support from sensors. He believes that strength will be partially offset by weak NAND, and that specialty DRAM (for cell phones) is a concern due to burgeoning cell phone inventories. Reiterates ACCUMULATE rating.

Every Taiwan PC participant told the firm of DDR2 shortages. Demand appears to be good, and ODMs are "screaming" for inventory. Contract prices are stable. Demand appears to have cooled somewhat in December, although this is typical in December, and demand appears stronger than typical seasonality.

Sensors are likely positive as well. The transition to higher density sensors is keeping ASPs solid. OVTI is likely playing at the low end relative to MU, which likely isn't seeing the pricing pressure that OVTI (OVTI) is seeing.

NAND is weak, but likely a small portion of revenues. MU is fortunate to have such little exposure to NAND (under 10%). Mr. Ross notes he is a bit worried about specialty DRAM. The majority of this segment is pseudo SRAM for cell phone handsets, and he is concerned about growing inventories in handsets. Even if this segment reports well this quarter, he believes it may be tougher in the following quarter.

MU shares are trading at 11.4x firm's estimated CY07 EPS of $0.86 (net of cash and debt), at a discount to Universe at 17.9x.

Notablecalls: Well, you know where NC stands regarding Micron. Anyone think MU can run into tonight's release?

Long MU.

Calls of Note Part 3

Several firms are commenting on PMC-Sierra (NASDAQ:PMCS) after the co pre-announced lower than expected revs last night:

- Goldman Sachs notes weak trends related to communications infrastructure had also been cited in recent soft business updates from Altera, Exar, Lattice, and Xilinx, and they had noted potential risk for others with high comms exposure, such as PMC-Sierra, Applied Micro Circuits, Broadcom, and Marvell. Hence, the firm would not expect the incremental softness in PMC-Sierra's business to be viewed as much of a surprise, though magnitude of 4Q's qoq decline is still disappointing. They expect bookings and visibility are limited throughout the industry, which could also restrain 1Q outlooks. Tgt is adjusted to $7.50 from $8. Maintains Neutral.

- Merrill Lynch's Srini Pajjuri thinks that while the inventory correction in telecom appears to be nearing an end, demand appears to have weakened a bit due to pending mergers in the industry. Orders from China also appear somewhat weak, which he thinks was due to capex cuts in anticipation of 3G. Storage and enterprise, which accounts for 50% of sales, appears healthy and Mr. Pajjuri expect these businesses to grow in Q4.

Given the recent negative telecom semi news flow out of Xilinx, Altera, and Exar this quarter, the firm is not entirely surprised at the negative outlook revision. However, they believe that we're nearing the bottom, and expect the stock to outperform over the next twelve months driven by a healthy storage market, a rebound in FTTx and telecom revenue growth, and potential 3G deployments in China. Valuation appears attractive at 24x CY07 EPS for a company with 15 percent growth potential and 65 percent plus gross margins.

Maintains Buy.

- Prudential notes they expected DecQ revenues to come in at the low end of original DecQ guidance of $105 million due to concerns about the consolidation at the OEM's and service providers as well as elevated inventory levels and therefore they are not changing their estimates.

Worth noting is Jabil, one of the largest EMS players, which also announced results for its NovQ and inventory days were flat QoQ , near four year highs at 45 days. This preliminary data point supports firm's thesis that supply chain inventories will take until Q2'07 before inventories return to normal levels.

They are maintaining theirprice target of $6 and remain Neutral Weight the stock.

Notablecalls: The stock traded as low as $6.50 in after hrs. Think levels around $6.30-40 make it buyable again. For a trade, ofc. Longer term, I suspect the stock is headed towards lower levels. High fives go to Alex Gauna and Steven Chin from UBS for their cautious call made on PMCS Dec 11 (see archives). UBS is taking their tgt to $8.50 from $9 this AM but maintains Buy rating.

Calls of Note Part 2

Several firms are commenting on Jabil Circuit (NYSE:JBL) after the co released its FQ1 results and FQ2 guidance:

- Merrill Lynch notes that last night, for the second quarter in a row, Jabil provided partial FQ1 (Nov) results as it continues with a stock option investigation, which now includes an investigation into revenue recognition for Q4 of F1999 and Q3 of F2001. According to JBL, end demand was more subdued than expected as FQ1 progressed due largely to consumer (36% of sales). This does not come as a surprise given ofirm's recent research (e.g., China trip, inventory study, etc.), which has raised a number of yellow flags in the supply chain.

Given JBL's consistent track record, tey were surprised by several new issues that popped up in FQ1. First and foremost, the company is discontinuing a consumer product it designed due to delays and rising price pressures. Also, a more material intensive product mix hurt gross margins by ~50 basis points, which given the lack of SG&A details, likely implies operating profits were under more pressure than the Street would have thought.

Based on deteriorating cash cycle days (23 days vs. 14 days in FQ4), it looks as if cash flow from operations was negative for the first time in more than five years. Cash declined from $774MM to $658MM.

- Bear Stearns thinks JBL's Nov qtr conference call and "subdued" outlook will likely spoil its holiday spirits. Uncharacteristic for Jabil, its call focused more on what went wrong (more "subdued " demand, less consumer upside in Nov, yet more downside in Feb, growing inventories, negative mix change hit margins by 50bps and ensured they won't hit 4%+ until at least May 2007, $12M write-off due to failed LCD TV investment, $4M in additional legal costs, new revenue recognition issues related to 1999 and 2001, still no clue when it can file its financials, behind plan in fixing May qtr operational issues, whew??? getting tired) than what went right (hmm..networking demand was positive, (read: CSCO).

Why not downgrade? Three reasons: 1) They believe the problems listed above are temporal as opposed to secular. 2) They still like the risk/reward. 3) JBL is still a solid company earning above avg ROIC with a mgmt team that can steer it back onto its path.

Lowers FY07 EPS to $1.39 from $1.68. Tgt goes to $32 from $35. Maintains Outperform.

- RBC Capital notes they expect JBL shares to trend lower given disappointing and limited financial information as old (repair, tooling, mfg issues) and new (ODM charge, product mix) issues impeded margins in Q107. While the bulls will point to revenue growth, they remain concerned with multiple issues JBL has to contend with. Maintains Sector Perform rating as JBL has a 15% premium to the group; firm would get aggressive when the premium dissipates.

Notablecalls: Think we will see JBL going below $26 level today. Shorting around the high end of $25 level will also likely lead to profits.

Calls of Note Part 1

UBS comments on First Data (NYSE:FDC) ahead the announced analyst and investor conference call announced last night:

- Firm thinks FDC's 3 segments are performing very well & they believe shares will benefit over the next 12 months from several catalysts (i.e. M&A, contract wins & a potential new CEO in 1H07). Since the threat of contract losses is fairly small, they reiterate their positive FDC thesis (strong growth/cash flow/leverage, favorable valuation, expansion opportunities).

They have changed their model to be in-line w/reported F06 numbers & F07 guidance (vs. prior pro-forma ests that included less debt expense). They have also removed M&A/new contract assumptions & tweaked some 1x/"below the line" items which were not related to FDC's core business. As a result, F07E EPS changed to $1.32 (from $1.47), but "core" net income growth remains an impressive 15%+.

UBS notes they are not changing their investment thesis at all. Firm continues to believe that
FDC's three main segments are performing very well and will meet and/or beat their respective F07 segment guidance (as FDC had indicated on the company's 3Q conference call). They would be extremely surprised if the company retreated on its prior commentary given it was only a few weeks ago and their businesses don't change that fast.

Firm thinks management has become increasingly frustrated by where the Street's estimates are for 2007 and while part of the blame lies with them and others, they also believe FDC did not provide enough specific information on "1x below the line" items until recently. Thinks FDC wants to set the record straight on where its expectations lie for next year. If there is anything more to the 8:30am EST conference call today, that would be a surprise to the firm.

Reits Buy and $30 tgt.

Notablecalls: I guess the timing of the management conference call came as a surprise for some and I would not be surprised to see some mkt participants get panicky. That may create a nice buying opporunity in the pre mkt ahead of the call. UBS' comments make perfect sense.


The WSJ reports that hedge fund Highland Capital, that is the 2nd-largest shareholder in Delphi, plans to send a letter today to Delphi's board outlining a $4.7bn capitalization plan for Delphi, which is under Ch11. That would counter a proposal from a group of investors led by Appaloosa Mgmt and Cerberus Capital Mgmt that would infuse up to $3.4bn in preferred and common equity into the co.

According to the WSJ, Raytheon (RTN) last night was in the final stages of completing a deal to sell its aircraft-manufacturing unit to Canadian buyout firm Onex and Goldman Sachs Capital Partners for $3.3bn.

“Heard on the Street” column discusses Level 3 (LVLT), whose stock is up almost double in the past year and bond prices have risen about 20%. Behind the gains: Explosive growth in video viewing over the Internet, which requires high-speed networks of the sort Level 3 offers. At the same time, a hearty appetite by investors for risky debt has enabled the co to put itself on firmer footing by refinancing its debt at lower rates. There also are good reasons to believe that Level 3 might be an acquisition candidate. But there are reasons to be wary: The co remains saddled with debt, it is in a business that still has excess capacity, and it has reported a quarterly profit just once in its more than 20y history. With the stock and bonds at lofty levels, it could be that any future possible good news already is priced in. Even bullish analysts acknowledge that to keep the stock climbing, demand for video and voice over the Internet will have to be strong enough to allow Level 3 to increase what it charges for access to its fiber network. Level 3 also will have to demonstrate that it can skillfully integrate a series of recent acquisitions. The co will also have to show that it is getting closer to pulling more cash out of its business than it is putting in.

Barron’s Online “Inside Scoop” section reports that between Oct. 2 and Dec. 7, 8 insiders at Thermo Fisher (TMO) reaped over $103m in proceeds by selling 2.3m shares. Two million of those shares were bought with the exercise of options.

Wednesday, December 20, 2006

Calls of Note Part 3

- Citigroup is out positive on Human Genonme Sci (NASDAQ:HGSI) after VaxGen announced today that the Department of Health and Human Services (HHS) has terminated the company's contract to provide 75 million doses of a modern anthrax vaccine for civilian biodefense.

Today's setback for VaxGen could lead to additional contracts being awarded to Human Genome Sciences, in firm's view. Firm recalls that HGS is already producing 20,000 doses of ABThrax to deliver to the U.S. government for the national strategic stockpile by late 2008.

They believe that HHS might opt to enter into additional contract in the 2007/08 timeframe with HGS. Given the attractive margins of such a contract, this could be an important new cash flow source to HGS and could reduce further the likelihood for additional financing in the future
for the company.

Reits Buy and $19 tgt.

Notablecalls: Expect to see buy interest in HGSI today as Citi's call make sense.

Calls of Note Part 2

- Piper Jaffray is positive on Tempur-Pedic (NYSE:TPX) saying that based on their recent
retail channel checks, they believe that business trends in the mattress/ bedding sector have improved following the mid-term election. Firm believes the hotly contested mid-term elections impacted the mattress/bedding sector in two ways: consumer confidence and the availability of advertising space. As we have passed the elections and advertising space has become more
available, they believe that traffic trends and sell-through has recovered, albeit in a seasonally slow period for the industry. The firm is raising their 4Q domestic sales estimate from $162 million to $167 million, which is predicated on 23% domestic mattress unit volume growth and 3% average unit selling price growth. They believe the improving sales environment, coupled with strong acceptance of the company's RhapsodyBed and continued distribution expansion with high-volume retail accounts is positively impacting sales trends.

Piper is forecasting FY06 sales of $946 million, which is slightly above the low end of the company's guidance. They remain confident in their 4Q operating EPS estimate of $0.39 and FY06 estimate of $1.31 which is at the high end of management guidance.

Tgt goes to $20 from $19 with MP rating maintained.

Notablecalls: Must say I'm surprised to see ests raised on a furniture maker. This comes after TPX's main peer Select Comfort (NASDAQ:SCSS) took a bad stumble on Nov 30. I have no intention to call this one actionable. Good to know category.

Calls of Note Part 1

- Goldman Sachs is adding MedImmune (NASDAQ:MEDI) to the Americas Conviction Buy List with no change to our 12 month target price of $37, suggesting 14% potential upside. On 12/7/06, the firm raised their 2007 and 2008 EPS mainly due to higher royalties and government contract revenues. Firm expects more visibility on new product launches in the next 18 months. MedImmune shares might reach $50 in 2008 if investors are convinced that management's 2009 EPS target of $2.00 is achievable.

Catalyst: GSCO expects 1) Synagis sales, which declined in the 2005/06 winter season, to
stabilize in 2006/07. 2) FDA advisory committee review of Flumist for 1-5 year olds in March 2007 3) FDA approval and relaunch of liquid Flumist with an expanded label in mid 2007 4) An international partner for liquid Flumist 5) Launch of Numax, an improved Synagis with an incremental sales potential of $0.5bn, in 2008 6) Progress on an early but high potential pipeline in the next 18 months.

Notablecalls: Must say 14% worth of upside does not get me too excited. But on the other hand the $50 tgt for 2008 looks good. The only problem I have with this call is that there may still be too much hope tied to Flumist. Flumist for 1-5 yr olds? Are you kidding? Or am I just having a bad morning? Overall, expect to see some buy interest following the call.

Color on news: Redbak (NASDAQ:RBAK) and Ericsson

Couple of firms are out commenting on news of Ericsson AB's (NASDAQ:ERIC) $2.1 billion acquisition of data network equipment vendor Redback Networks (NASDAQ:RBAK):

- UBS notes the proposed acquisition of RBAK is consistent with firm's view that ERIC is seeking to enhance its IP & IPTV offering with edge routing capability. Notes that RBAK has already secured 12 of the top 20 wireline carriers in the world for its IP edge routers.

RBAK has had little focus on wireless carries & this deal will likely enhance its position globally given ERIC's #1 share in wireless infrastructure. Firm alsos believe RBAK's competitive positioning against CSCO & JNPR in top tier wireline operators is further aided. RBAK's recent loss at VZ, which we believe was due to aggressive efforts by JNPR, likely accelerated RBAK's plans to seek a merger.

UBS ests ERIC is about 6%-8% of JNPR sales. They believe the edge router portion of these sales, which are mostly focused in China, will be at risk post the proposed merger as ERIC will likely seek to sell the RBAK product (primarily SmartEdge) over the JNPR product line in edge opportunities.

- CIBC is downgrading JNPR to SP from SO. While JNPR remains a formidable competitor in both edge and core routing, the firm now believes upside to the stock is limited given the more formidable edge competition of an RBAK/ERIC combination and waning possibility of an acquisition premium.

JNPR needs to decide - sell now or buy bigger and faster. The two possible matches include Motorola and Nokia Siemens. Yet, the first is busy with other acquisitions and (so far) indicated no desire for large acquisitions while the second is bogged down with delayed deal closing and integration.

Though they believe Juniper s relationship with Ericsson (reseller) will remain in place for some time given the breadth of Juniper s product portfolio relative to Redback, they think a decline in the volume generated through this channel is now inevitable. Reseller alliances with Motorola , Nortel or Avaya for example could build some lost traction; but they see less
synergy with those partners across strategies and product lines.

Alternatively, JNPR could turn more aggressive in consolidation. However, options are less compelling (access or enterprise) and are likely to have a negative impact of financial performance (remember NetScreen?). In sum, the firm feels a premium is no longer justified and strategic risks are mounting. With its stock trading in the $19 range, JNPR is within a small margin of reaching CIBC's $20 price target. Given the above considerations they believe the stock is now fairly valued and are inclined to move to the sidelines.

Notablecalls: Looks like JNPR has the most to lose following the deal. I also have two high fives in store. First high five goes to ERIC's management for paying 7x annual revs for RBAK. That's pretty...high...guys. Second high five goes to financial advisors involved in the deal for ziplocked mouths as looking at the price action in RBAK stock couple of weeks ahead of yesterday's announcement it's pretty obvious there was a leak.

Arguably, the third high fives should go to RBAK management for selling their co for such a high price but it does just not fit the category. Well done guys! Really!

Color on results: Palm (NASDAQ:PALM)

Several firms are commenting on Palm (NASDAQ:PALM) this AM after the co released its FQ3 results last night:

- UBS notes they continue to believe the Palm story is one of execution in terms of product
shipments, further cost efficiencies, and new product introductions. Although management delivered a license agreement with Access (for its operating system) that will improve gross margins by ~100bps, improvements will be offset by higher operating expenses to drive the Palm brand and awareness to consumers as well as accelerated R&D for new product development. While the firm views the strategy as the right investment to make given heightened competition, they do not believe the benefits and leverage in the model from these investments will materialize for the next several quarters.

UBS believes management clearly feels a sense of urgency to "right the ship" and execute. They believe success will hinge on the company's ability to raise consumer awareness of the value in its Treo products as well as bring more compelling product to market - both key elements in the increase in operating expenses over the next two quarters.

Firm's forecasts assume new product introductions in time for the 2008 holiday selling season to help accelerate unit shipments, ASP declines with fairly stable gross margins, and a leveling
off of operating expenses. They view new carrier wins as a key element to driving units, as sell-in on a per carrier basis has been decelerating due, in part, to the company's customers carrying less inventory. Lowering our pro forma FY07 EPS estimate (ex options) to $0.62 from $0.74 and pro forma FY08 EPS (ex options) to $0.76 from $0.81 reflecting higher than anticipated operating expenses.Tgt goes to $15 from $15.50. Maintains Neutral.

- Banc of America is more bullish calling the results good and guid okay incl Treo 750 delay. Palm posted in-line rev but better-than-expected F2Q product mix, margins, and EPS vs lowered guid. Mgmt acknowledged that Treo 750 certif. is running behind plan, in-line with ABC's checks, but F3Q rev guid was okay and is prob conservative. Palm's new mktg campaign leads to lower OMs and EPS, but firm's unit acceleration thesis holds.

Despite concerns about competition and pricing, Nov qtr smartphone unit sell-through was a record at 617K (+8% Q/Q, +42% Y/Y). Also, Palm's GM of 35.6% beat by 200bps and smartphone rev, units, and ASP of $283M, 603K, and $469 all beat BAC's ests. Handheld seg rev/units missed.

Palm's new deal with ACCESS for Palm OS is expected to boost F3Q's GM by 100bps and further improve mrgns over time. However, non-GAAP EPS guid of $0.11-0.13 missed firm's $0.17 est (cons $0.16) as Palm is ramping its $25M mktg campaign.

Firm is increasing FY07/08E rev from $1.23B/$1.49B to $1.27B/$1.58B, but non-GAAP EPS moves lower from $0.79/$1.00 to $0.68/$0.78 on higher opex. PT remains unchanged at $18.00, although they're moving from 20x CY07 EPS est to 20x CY08E EPS of $0.90 (non-GAAP) since they see CY07 EPS as temporarily depressed.

BAC thinks strong sell-through, GMs, and ASPs (all favorite bear topics) trump lower near-term OM/EPS and think increased mktg should lead to better future results, esp as units ramp.

Reits Buy.

Notablecalls: I suspect PALM didn't come in as bad as market participants generally feared. That's also the reason why we initially saw a positive reaction in after hrs trade. The GM side was impressive and in my book shows management can still execute. The $25 mln advertising campaign will eat into the bottom line s-t but coupled with new products expected over the next 6 months it may prove to be a step in the right direction. I also think that considering all the missteps made by management over the past 9 months Feb qtr guidance was kept low enough to avoid any futher stumbles. While I have no view on what the stock will do in the s-t things are starting to look somewhat better for PALM.


According to the WSJ’s „Heard on the Street” column, the oil industry is readying for a new wave of consolidation. "I think the environment is ripe for co’s to be considering consolidation," says Dan Pickering, of Pickering Energy Partners. "One thing these co’s know how to do is consolidate and cut costs." Targets include: HES, DVN, ECA, XTO and NXY.

Barron’s Online “Inside Scoop” section reports that over the past 90 days, 15 MGM Mirage (MGM) execs and directors grossed $50.96m by selling 1.09m shares on the open mkt, of which 93% were acquired through options.

Tuesday, December 19, 2006

Calls of Note Part 4

- Morgan Stanley is positive on FormFactor (NASDAQ:FORM) saying their checks suggest new NAND product (Harmony) continues to gain momentum and recent checks affirm FORM is set to win a large NAND order from the Intel-Micron JV in Q4/Q1 and evaluations with Hynix are progressing at a smooth pace. Firm believes up-time performance, a proprietary and novel self-planarization technology (this is new), and product reliability are key differentiators.

On the DRAM front, MS believes the company is on-track to take test parrellization to a new level and introduce a one or two-touch DRAM solution in the 1H07.

On the DRAM competitive front, they agree with the bears that FORM will face more competition in 2007 and beyond as customers push for dual-source, but they disagree that it will have a meaningful impact next year. Moreover, the firm believes the bears are overlooking the significant learning curve and higher levels of complexity associated with DRAM testing (versus NAND) that competitors will have to overcome once they pass the evaluation stage.

Notes they would be buyers of FORM at current levels. With less than 5% down-side from current levels and upside of more than 30%+ to our stock price target, they continue to believe that investors who are waiting for a better entry point could be disappointed. Consequently, the firm maintains Overweight-V on form and it remains one of the top picks in the coverage universe.

Notablecalls: Can't say I'm too excited about FORM here. Not actionable but good to know category.

Calls of Note Part 3

- Goldman Sachs is positive on (NASDAQ:BIDU) raising their 12-month price target to $128 from $93 due to higher expectations for margins despite slightly lower revenue. Specifically, the firm is raising their 2007/2008 EPS by ~15% and increasing their long-term growth rate to 30% from 25% as they believe that the competitive landscape and investments will pressure margins less than they had modeled. Firm still estimates some margin contraction in 2007 (150 bps) while margins could be flat to up excluding the impact of the Japan investments.

While Baidu will continue to face near-term execution challenges in the transition to a direct sales force, firm's increased growth rate over the long-term reflects their view that investments and the competitive environment (primarily from Google and Yahoo!) are not expected to increase to the degree that they had forecasted in our margins, and Baidu is likely to maintain/gain share. Firm believes that 15%-plus upside to consensus 2007 and 2008 EPS driven by margins will continue to support the shares despite the expected topline weakness in the near-term. They do not expect the recently announced MSN deal to have a material effect in the near term due to MSN's minimal share of the Chinese search market.

Notablecalls: Well, Stevie will be happy! As BIDU is a mover and GSCO sure has the power to move it ..expect to see a move in the pre mkt.

Calls of Note Part 2

- Banc of America is increasing their target on Dreamworks (NYSE:DWA) to $37 from $31. 2006 has been a transformative year for DWA as it dissolved HoldCo, forged its relationship with Paramount, and its partnership with Aardman likely is over. Firm thinks the following are not yet reflected in DWA shares:

1) DWA's valuation has potential for upside. Firm forecasts normalized EPS of $1.80 - $2.00. The new target reflects the rolling fwd of estimates and higher movie assumptions in 2008+. It implies DWA could trade at 19.5x earnings, in line with other media co's and still a steep discount to the 50x price that DIS paid for PIXR.

2) BAC still believes a share buyback is likely. Despite a strong rally in DWA shares, they believe a repurchase in the low $30-range is attractive relative to where the stock could be in 12-24 months.

3) The visibility into DWA's film slate is far better today than it was at its IPO in late 2004. Over the next few years, feature films include two Shrek releases, Seinfeld's Bee Movie, a sequel to Madagascar, and Kung Fu Panda starring Jack Black.

4) They believe there is still untapped value in the Shrek franchise. In addition to at least two more Shrek films, we expect a Broadway musical of Shrek and a feature film based on supporting characters.

5) The company has yet to exploit its relationship with Paramount. Firm's model does not reflect the value of potential television projects with Nickelodeon or other potential synergies with Paramount.

Notablecalls: One for the investor types. Right now the stock looks like it wants to go lower.

Calls of Note Part 1

- UBS is reducing their 4Q06 revenue estimate on Tellabs (NASDAQ:TLAB) to $530M from $543.5M, toward the low end of company guidance of $525-550M. They expect weakness in the quarter mostly due to delays in the closure of the T/BLS merger. Firm's 4Q06 EPS estimate reduces to $0.14 from $0.15 and they expect CY06 EPS of $0.56 vs.$0.57 prev.

UBS makes no changes to their 2007/2008 estimates. Tellabs should see a strong ramp of the ROADM 7100 at Verizon in 2007 but given this is a new account, initial revenue recognition is challenging to forecast. Firm continues to expect growth in 5500 sales in 2007 though at a much slower rate of 5% Y/Y, and believe 5500 growth will be more challenging in 2008/2009.

They currently estimate 6% growth only in FTTP revenues from Verizon next year for TLAB as they expect revenues from increased customer connects to be offset by ASP declines and share loss (most likely to Alcatel) as Verizon rolls out GPON. Higher FioS penetration, higher churn, or higher market share in GPON for TLAB would present upside potential to FTTP ests.

Maintains $12 tgt on Neutral rating.

Notablecalls: Nothing drastic here. The reason why I wanted to highlight the call is that since early Friday there have been rumors of Ericsson (NASDAQ:ERIC) making a sizeable acquisition in the U.S. TLAB looks like a suitable candidate. I'm aware of the earlier rumor of ERIC + Entrisphere (competitor to TLAB) but given it's small size it would not fit the bill. Also, RBAK would make sense as a target.

Color on news: eBay (NASDAQ:EBAY)

Several firms are commenting on eBay (NASDAQ:EBAY) after reports the co is taking a 49% stake in a partnership with Chinese online portal and wireless operator Tom Online Inc. (Tom would hold a 51% stake):

- Prudential notes that in their view this news is like chop suey: good news mixed with bad. The
good news is that eBay would significantly reduce its operating losses in China. In addition, the combined company would be a stronger competitor. But the bad news is that eBay effectively would admit defeat in a market that was, at one time, billed as its next great growth opportunity.

The new Tom/eBay Chinese Web site will reportedly launch sometime in 2007. EBay is expected to maintain its own "cross-border" trading site for Chinese users that are selling to buyers outside of China, but it will shutter its main auction site in China.

Accdg to reports, the companies have not decided which brand name to use for the site. Tom CEO Wang Lei Lei will be CEO of the joint venture, and Jeff Liao, CEO of eBay's China subsidiary, will hold an unspecified management role at the joint venture and will also continue to run eBay's cross-border trading site. EBay is expected to contribute $40mm to the venture initially, and Tom will contribute $20mm.

Maintains Overweight rating and $40 price target on EBAY.

- Bear Stearns notes that while not stated in the article, they believe that eBay could simultaneously enter into a transaction involving PayPal and a local payments provider. Firm believes that a second transaction of this nature would be prudent and could likely add strength to the new platform, if true.

If this transaction were to happen, the firm would view it as a positive for the following reasons: 1) eBay will continue to participate in the upside growth of China, a market exhibiting one of the fastest Internet growth rates; 2) eBay will have access to a strong local company; 3) it will
cut of a funding source for eBay and likely lead to improved margins; and 4) potential synergies between Skype and PayPal.

Maintains Outperform.

Notablecalls: Not actionable but good to know category. Note that there are several firms out on EBAY this AM previewing the qtr (Jan 17) with GSCO telling investors to buy ahead of the release.

Color on news: Biogen-Idec (NASDAQ:BIIB)

Couple of firms are commenting on Biogen-Idec (NASDAQ:BIIB) and Genentech (NYSE:DNA) after the FDA issued an advisory that two patients taking Rituxan for systemic lupus erythematosus (SLE) developed and died from progressive multifocal leukoencephalopathy (PML):

- Merrill Lynch notes there have been 23 cases of confirmed PML in patients taking Rituxan for lymphoma and the risk of PML is listed on the drug's label. The firm does not expect these cases to result in any change in sales of Rituxan in its primary indication of Non-Hodgkin's Lymphoma (NHL), which they project will represent about 87% of the drug's sales in 2007. However, there could be a modest slowing of uptake for Rituxan in non-fatal indications such as rheumatoid arthritis or other not yet approved indications of SLE or multiple sclerosis.

The PML was reported as late as 12 months after discontinuing Rituxan treatment in two patients who were being treated off-label for SLE. Also, PML cases have been reported in patients with SLE who have never received Rituxan, likely because patients are receiving one or multiple immunosuppressive drugs and have compromised immune systems. As a result, it is possible that these cases may not be related to Rituxan.

Even if none of the high-risk patients were given Rituxan, ML estimates that the maximum EPS impact for DNA could be $0.03 in 2007, $0.04 in 2008 and $0.06 in 2009. For BIIB, they estimate that maximum EPS impact would be $0.04 in 2007, $0.06 in 2008 and $0.08 in 2009. For now though, the firm maintains their estimates.

- Baird comments on BIIB saying the two SLE patients had longstanding SLE with multiple courses of immunosuppressant therapy prior to receiving Rituxan.

In an 8k, BIIB points out that PML is a known risk in patients who have immune suppression and has previously been reported in SLE patients who were not receiving Rituxan.Firm recalls that Rituxan is not approved for the treatment of SLE. Additionally, they model no revenue in this indication, so they see little material commercial impact here. Reiterates Neutral rating, $55 price target.

Notablecalls: Looks like much ado about nothing. BIIB ended down 2.5 points in aft mkt trading. That looks somewhat excessive. Buying BIIB around the $47.50 level likely presents a good risk/reward oppy. Don't think we will see any downgrades.


The WSJ reports that eBay (EBAY) in its second big pullback from Asia, is shutting down its main Web site in China and replacing it with a site that would be largely run by Tom Online (TOMO). The co plans to announce as early as today that it is taking a 49% stake in the new site in partnership with Tom Online. Tom Online would hold the other 51%.

Barron’s Online “Inside Scoop” section reports that value investor Blum Capital has begun harvesting profits from its stake in UAP Holding (UAPH) as the agricultural-products maker continues to trade near its 52w high. Blum disclosed that it sold about $11m in UAP stock, cutting its stake to 6.1%, or 3.13m shares, down from 7.1% stake, or 3.6m shares.

Monday, December 18, 2006

Calls of Note Part 6

- JP Morgan is raising their 4Q'06 revenue estimate on Google (NASDAQ:GOOG) by $40M based on belief that the co is experiencing strong query volume growth and a noticeable pickup in keyword coverage. Firm's revised 4Q revenue, EBITDA, and EPS estimates are $2.23B, $1.39B, and $2.91. (Prev EPS was 2.86, cosensus $2.88)

According to firm's estimates, Google is on track to grow its global query volumes by 14% in 4Q, vs. the market which the firm believes is tracking up 10%. JPM is consequently increasing their Q/Q volume growth assumption to 14% from 13%, contributing ~$20M of incremental revenue.

Google continued to grow its advertising coverage at a steady pace in 4Q, dispelling some investors' concerns that Google's monetization upside may be tapped out. In 4Q, firm's 50K
keyword survey identified a 4.4% Q/Q increase in coverage to 77.9%.

Although the firm estimates 14% volume growth for, most competitors are showing muted 4Q growth. They estimate Yahoo!, MSN, and AOL are on pace to grow 4.5%, 3.0%, and 0.0%, respectively in 4Q. As such, they believe Google continues to gain global market share.

Google Remains firm's Top Pick. Google trades at 33.1x F'07 pro forma EPS estimate of $14.50 compared to its peers at 35.7x. Given that Google is growing significantly faster; JPM believes it deserves a premium, and thus maintains Overweight.

Notablecalls: Note that WSJ is out with a negative piece on GOOG this AM saying co's earning growth may hit a speed bump soon as their $10 billion cash hoard in interest-bearing investments like government securities -- isn't likely to grow at the same rate as last year. Will the JPM note outweigh the WSJ piece?

Calls of Note Part 5

- UBS notes that while they remain cautious on its fundamental outlook, they increasingly believe Alltel (NYSE:AT) could be an acquisition candidate in early 2007. Speaking at firm's Media/Comm conference, CFO Sharilyn Gassaway suggested that mgmt is talking with interested parties and prefers an auction process to drive value rather than a one-off transaction with private equity.

UBS notes they have recently seen increased activity in fixed income and derivatives markets, with higher interest for short-term calls and 5-year CDS spread widening 32% in the last week. Meanwhile, Alltel shares are up 8% since lows after reporting a weak 3Q.

Management recently suggested that a continued shift to family plans and prepaid products will put pressure on voice ARPU trends. In 3Q, Alltel's retail voice ARPU had declined by 6% annually (stripping out the effects of data and ETC revenues), up from a 2% decline in 2Q. They also expect increased retention efforts to drive CPGA higher.

Despite fundamental issues facing the company, the firm is raising their 12-month price to $61 from $57 based on the reduction in our public market discount to 10% from 20% given increased expectations for a deal in 1H07.

Notablecalls: Just in case you care.

Calls of Note Part 4

- Bear Stearns comments in TiVo (NASDAQ:TIVO) saying they can foresee several scenarios where the company is able to capitalize on its technological superiority, partnership agreements,
and the recent rapprochement with the advertising community. However, a number of significant challenges remain, which are unlikely to be resolved in the near-term, in firm's view, and they would prefer to wait for better visibility.

While the company may be displaying the Comcast solution at the upcoming CES in January 2007, the real value of the agreement is in 1) helping TiVo garner more distribution partnerships as other MSOs, they think, are likely to wait to evaluate Comcast's success before they make a commitment, and 2) the advertising potential that the significantly larger distribution presence offers, which will be impacted by long sales cycle and lead-times, as well as technological issues before a much broader cable advertising solution can be deployed.

Also, channel checks indicate that sales of TiVo DVRs have picked up in the last four weeks, which may be a function of the improved value proposition to the consumer, or better marketing, or just seasonality of the strong 4Q.

Maintains Underperform rating.

Notablecalls: The comments sure sound more positive than negative. Note that there has been some blog-level talk of a possible partnership with GOOG. Not actionable (although I would not be surprised to see TIVO close higher today).

Calls of Note Part 3

- ThinkEquity's Eric Ross notes the firm returned from a week in Taiwan where they had the opportunity to meet with over 30 companies in the electronic supply chain. As in September, they went to Taiwan to determine if theyshould upgrade our Universe; after much investigation and thought, the firm believes there is little reason to own PC names, as they believe there is little upside to expectations in 2007 (and the potential for an inventory bubble).

PC unit demand is ok (still below seasonality), but all low end. Box demand is ok, but certainly not great. Believes 4Q06 Q/Q unit growth will roughly be 7% vs. 14% for normal seasonality.

Low-end pricing is the ONLY driver. Consumer customers do not seem to be buying anything except for low price. Box makers appear to be hesitating to offer new features such as Blu-Ray in this environment, as they believe they are unlikely to be repaid. Average pricing for desktops is
hovering below $700, and laptops are averaging below $900. Since returning to the U.S., the firm has seen laptops as low as $399, and desktops for $349 (although this is the same price as they saw before, one now can get a color printer included for free). Everyone the firm spoke with believes desktops are weak, and notebooks are strong. Consensus is that notebooks will have grown units 25% in 2006. Desktops may decline slightly Y/Y in units in 2006.

No one they met with believes Vista will be a big driver in 1H07. Even though investors and IR reps alike have inflated Vista as the saviour of the semiconductor industry, everyone the firm spoke with in the Asian supply chain believes it will be a dud. Also, no one even mentioned the Chinese New Year.

Every check they have done suggests that Advanced Micro Devices (NYSE: AMD) is shipping at capacity for the next several quarters (firm believes this could be 18+ million CPUs per quarter).

Notablecalls: This pretty much confirms my pessimistic views regarding the Vista-induced PC demand.