Calls of Note Part 2

- JP Morgan continues to be positive on Whole Foods (NASDAQ:WFMI) saying the market over-compensates for a recent comp slowdown (currently 6-8%) and under-appreciates the likelihood of 20-30% secular top line growth and 15-20%+ EPS growth beyond 2007E.

Acceleration in 2H07E/2008E is likely while EPS estimates already materially reflect an "investment" year in 2007E. The market also over-compensates for trends that are related to the rest of retail. Management was frank with its comments about competition and cannibalization, yet too conservative with respect to the sheer math of tough comparisons and trends they've seen out of other retailers. This is reminiscent of 2003, which turned out to be a good buying opportunity for the stock. An extreme case of the recent comp slowdown - such as to 2-3% is not on the horizon. In fact, JPM estimates that 6% will be the bottom. WFMI reported a 6.8% comp for the 5 weeks in October on top of 13.6% last year.

Over the long-run, the market under-estimates the likelihood of 20%+ square footage growth - particularly in 2008E and thereafter. The new stores entering the comp base should be at least 5-6% of the comp base in 07E, 7-8% in 08E and 11-12% in 09E providing support for total company comps going forward. High single-digit sustainable comps (say 8%) with 20%+ square footage growth exceeds the top-line organic growth rates of all of firm's stocks, and supports an otherwise high valuation (27.3x CY2008E ). At 1.22x current sales and 27.3x 2008E EPS, WFMI is attractive. JPM reiterates Overweight rating.

Notablecalls: Nothing really new here. Investors either take the leap of faith or they don't. Expect to see moderate buy interest following the note. Think that soon enough WFMI will be a $50 stock again.

Calls of Note Part 1

- First Albany is cautious on FoxHollow Tech (NASDAQ:FOXH) following meeting with management saying the co sees slower PAD market growth than its competitors, which according to the firm confirms that the SilverHawk business is facing growth hurdles over the near term. FOXH estimated PAD market growth at 8%-10% versus 20%+ estimated by the management teams of two other PAD players visited on firm's bus tour.

Firm lowers U.S. SilverHawk revenue estimate for 4Q and 2007 by $2.2M and $22M, respectively, and 2007 GAAP EPS estimate to $0.81 from $1.02 (consensus $0.75, range $0.41-$1.20).

Also, FOXH may be contemplating a transformational acquisition. Heretofore, the firm has perceived FOXH management to be "anti" balloons/ stents. However, the meeting leads them to believe FOXH may be gearing up to transform into a broad "vascular treatment company" vis-a-vis potential acquiring into one or both of these areas. While occurrence - let alone timing - is clearly an unknown, such a move would undoubtedly be a "sea change" in FOXH's approach to the PAD market and its customer base. Assuming for a moment that FOXH makes such a move, they would be slightly concerned about how investors would react.

They think FOXH may languish until there is better 2007 visibility, guidance for which may come in January. However, while sentiment regarding such a potential acquisition may be negative at first, the firm thinks a broad-product vascular treatment company makes sense and may ultimately be good for shareholders. Maintains Neutral.

Notablecalls: Chart sure looks ominous. The stock will surely get hit following the comments. However, I would be somewhat reluctant to short into a large gap down as I suspect there will some some short covering. For long's sake I hope this train stops before the $21 level.

Paperstand

The WSJ reports that Express Scripts (ESRX) was last night preparing a $26bn cash and stock offer for Caremark Rx (CMX), in an effort to break up the co's existing takeover deal with drug chain CVS (CVS). An offer could be launched as early as today. It could set off a back-and-forth struggle for Caremark at a time when the co's deal with CVS was gaining credibility in the mkt. That transaction, which awarded no premium to Caremark's shareholders, initially failed to convince investors, who pushed shares in both co’s downward.

According to the WSJ, private-equity firms were in recent days moving into prime position to buy Biomet (BMET). An auction for the co was in its final days and could come to a head before year end. A contender remains Smith & Nephew (SNN), but the buyout shops were seen as leading candidates at the final hour.

The WSJ reports that Delta Air Lines, working to beat back an $8.4bn hostile merger bid from US Airways (LCC), is expected as soon as tomorrow to file a sweeping bankruptcy reorganization plan that values the co at $10-12bn. The range, representing the Atlanta airline's estd mkt value after emerging from bankruptcy, is down from the $12-14bn range the airline was calculating a few weeks ago. Still, Delta hopes creditors would prefer a plan that values the airline at more than US Airways' offer, and that would lead to an airline with an estd $10bn in debt versus $22bn under the merger scenario envisioned in the US Airways bid.

The WSJ reports that Loral Space & Comm. (LORL) in partnership with a Canadian pension fund, is expected today to announce a deal to acquire the Telesat satellite unit of Canada's BCE for more than $2.59bn. As part of the transaction, Loral will contribute cash as well as all of its own satellite assets to form a new co, based in Canada, that will own and operate the combined satellite fleet.

HET to be acquired

The WSJ reprots that Apollo Mgmt and Texas Pacific Group are poised to win the auction for casino giant Harrah's Entertainment (HET), with an offer of at least $90 per share. The private-equity groups still are hammering out details of the deal, which would go down as one of the largest private-equity buyouts in history. While a last minute hiccup could always derail or scuttle a transaction, the two sides are expecting to announce it on Monday.

Barron's Summary

Barron’s cover story highlights the world’s cheapest big stock – ConocoPhillips (COP). Right now, ConocoPhillips could be one of the biggest bargains in the energy sector and, indeed, among all of the world's largest publicly traded corporations, even though some analysts haven't yet awoken to the fact. The stock has the lowest P/E ratio among the Dow Jones Global Titans, the 50 largest co’s worldwide ranked by stock-mkt value. "ConocoPhillips is too cheap to ignore on an absolute basis and relative to its peer group," says Robert Marcin, the managing partner of Defiance Asset Management, a Conshohocken, Pa., investment firm that holds the shares. "The stock is unsustainably undervalued if commodity prices stay around current levels." Marcin values the stock at 90. "A valuation at nine times earnings wouldn't be unreasonable when ExxonMobil trades for 12 times earnings," he declares.

Fund manager likes NWS and MBT, dislikes BHP.

Though up sharply since the summer, the shares of Turbochef (OVEN) could climb another 40% over the next year. But the stock is clearly speculative; lots of folks are betting against it.

Trading at around 48, Newfield Exploration (NFX) is a cheap stock. The co expects its production to grow by more than 20% next year, and some investors predict a like-sized gusher for the shares.

For speculators, the shares of NY Community Bancorp (NYB) might be worth a bet, on the chance of a takeover. For income investors, the chance of a payout cut means trouble.

At 33, or 35x estd earnings, Heelys (HLYS) is vulnerable to tripping. If it rallies on Christmas sales, take profits.

“The Trader” section discusses Brink’s (BCO), which has become latest activist hedge fund target, who will join the swelling ranks of investors who want Brinks to consider selling part or all of the co. Late last week, Stanley Works snapped up HSM Electronic, a security-alarm monitoring co, for $545m, a cue for some to re-evaluate Brink's, which has a mkt cap of nearly $3bn. Lehman Brothers analyst Jeffrey Kessler, for one, promptly raised his price tgt to 70 from 65, and said the sum of Brink's parts may warrant a price tag as high as 80.

“The Trader” column also suggests that MasterCard (MA) is pricey. Even in the light of this frenetic shopping week. Its shares have surged 108% since their late-May debut, compared with a 14% climb for American Express (AXP) over the same period. KBW analyst Sanjay Sakhrani assigns a value to MasterCard of about 22x his ‘08 EPS est of $4.44, and 4.5x his forward BV of $20.50. He then subtracts a rather conservative $7 a share for litigation damages to reach a price tgt of 88.

Internet stock fund largest holdings are NAPS and INSP. Jacob Internet fund likes InfoSpace's more than $400m of cash, and says Napster's stellar brand and valuable customer base could be prove attractive to a larger online co or media concern. "There are a couple of co’s that could take fliers on Napster," Ryan Jacob says.

Calls of Note Part 5

Baird commenting Garmin (NASDAQ:GRMN) following survay of 23 North American electronic retailers in the last week regarding customer trends for GPS-based devices.

Given their conversations, firm believes Garmin continues to maintain positive sales momentum and is likely holding share in North American PND. They also believe that many customers are gravitating towards more feature-rich units, particularly as pricing declines further. Despite these positives, firm maintain their Neutral rating based on the following factors:

First, they believe holiday price pressure is increasing. All surveyed stores suggested prices on Street Pilot and Nuvi units declined by roughly 10%-20%. TomTom units also declined by similar price amounts.

Second, they are concerned that component prices, which had been falling and aiding Garmin's cost structure, are now beginning to stabilize. Given the price pressure, firm is concerned that margins may face added pressure.

Third, they believe Europe is likely to become increasingly difficult given that Garmin needs to work through near-term distribution conflicts involving sell-through pricing - some dealers are not offering the lower pricing structure desired by Garmin.

Given these factors, firm is reducing their 2006 EPS estimate to $2.06 from $2.07, and 2007 EPS estimate to 2.36 from $2.43.

Price tgt goes to $47 from $49.

Notablecalls: GRMN has had a nice run in the past few days and this note will end this. Another reminder that high margins are not sustainable in this sector. Expect the stock to react accordingly.

Calls of Note Part 4

UBS says their checks suggest Samsung is currently undergoing MLC (multi-level cell) licensing renewal negotiations with SanDisk (NASDAQ:SNDK). Although they do not believe current contractual agreements do not expire until 2H09, Samsung is likely approaching the process earlier in order to procure more favorable terms as current MLC royalty rates. SanDisk's "first generation" patents that include MLC expire in the 2009-2014 timeframe while "2nd generation" patents, or modified/updated versions of MLC and other patents, expire in 2020 or later. Firm believes Samsung has a number of next-generation process technology development efforts underway, including charge trapping and PRAM, that may afford it some leverage in this process. Firm views the potential for lower royalty rates for future MLC payment streams from Samsung as a negative for SanDisk.

Notablecalls: Looks like a big blow for SNDK to me. All the negative talk so far has been about product line. However, note that licencing revenue is at least equally important as products, with some firms valueing licencing at $25 per share. With key licensees such as Samsung trying to renegotiate, look for this figure to come down sharply with the stock following the road.

Calls of Note Part 3

Baird commenting Genzyme (NASDAQ:GENZ), saying that they understand from GENZ that CMS has reversed its prior negative decision (announced in October) to cut Synvisc reimbursement by grouping all viscosupplementation products into one J-code in 2007.

A quick look at the CMS website confirms this positive development. Synvisc reimbursement will be $198/dose (three doses required per course), comparable to the 2006 level.

Orthovisc - Synvisc's closest comp in the category - is reimbursed at $200.54/dose, making the economics fairly comparable across the board.

As things stand today, Synvisc will no longer be unprofitable for physicians to administer, eliminating the need for a dramatic price decrease.

Based on this development, firm is raising their Synvisc revenue estimates to $266M from $229M, resulting in a new 2007 EPS estimate of $3.17.

Notablecalls: The negative reimpursement decision came out 30/10, initially sending the stock down 2 points. Simple logic makes me to expect the same upside today.

Calls of Note Part 2

Stifel's Cody G. Acree and Patrick Newton out saying that based on their checks Skyworks' (NASDAQ:SWKS) business appears to be progressing in line with the co's guidance and more convinced of Skyworks' opportunities in 2007 with strong potential to deliver second-half revenue and earnings upside.

Most significantly, firm's channel work has also led them to conclude that Skyworks has been selected to supply the Front-End Module to Apple's new iPhone, which should begin contributing to revenue during the first half.

Firm is highly encouraged by what they believe is an Apple win for many reasons. First, at about $2 per FEM this new customer could contribute to meaningful upside.

Second, they believe Apple's decision to use Skyworks over competing module suppliers is a material technology endorsement that should be acknowledged by investors.

Notablecalls: That's what I call research! Nice work guys! It probably won't work as a trade today as SWKS is too heavily traded, but should provide upside to the stock in the near-term as the news is getting digested by the street. If every iPhone has SWKS FEM, it should provide nice upside to 2007 ests even with low mkt share assumptions.

Calls of Note Part 1

Bank of America is previewing Palm (NASDAQ:PALM) and Research in Motion (NASDAQ:RIMM), both due to report the next week.

Firm notes that on 11/27, Palm lowered F2Q rev and EPS guid because of new product delays. Unfort, while Palm stated that it expected the 3G Treo '750' US launch to occur in early F3Q - implying Dec. Firm's checks indicate that the launch could now be in late Jan or Feb. Further, the new mid-range Treo '680' is selling well, but colors are out of stock for ~1-2 wks, which is disappointing given the peak holiday season and new Treo mktg campaign.

Based on firm's checks, they see some risk to F3Q guid that may not be in the stock yet. While they think downside risk to shares is limited from current levels, if ests come down again, we may get a better entry point after this one last piece of bad news gets digested. However, firm remains confident that Palm's smartphone Treo unit shipments will begin accelerating Y/Y in F3Q/F4Q. As a result, they believe there is more of an opportunity for PALM shares post report because they think the stock will react favorably before units move higher.

For RIMM, firm has mostly heard positive feedback from both consumer and enterprise users, including first-time users. The positive response makes them believe BlackBerry units could surprise in coming quarters, although they believe their model adequately reflects the best case enterprise BlackBerry upgrade cycle, which implies that further increases will need to come from better traction in the more competitive consumer market.

Some cannibalization and phone only sales. Firm thinks early Pearl trends are pos, although they think a good portion of purchases may be upgrade units and persons buying merely as a phone without activating email. In this case, the Pearl may not drive big net add upside, which they think remains the key variable for the stock.

Notablecalls: Want to be long in PALM going into the earnings? Me neither. The mgmt is misexecuting perhaps worse then ever. Dont want to be short either as the downside looks limited. As for RIMM, Pearl users not activating email is alarming given the model's dependence on monthly service revenue. However, not sure how much credibility the note has - it looks to be based on something heard in the elevator of Manhatten skyscraper rather than actual research.

Calls of Note Part 5

- BMO Capital Markets notes their checks suggest that Broadcom (NASDAQ:BRCM) has obtained a noteworthy design win in the upcoming stealth phone, about to be offered by a major consumer device company.

No, it is not the application processor, neither the baseband, nor the wifi/Bluetooth. Firm's checks suggest that it is a system on a chip (SoC) that enables an onscreen touchpad feature that is likely going to enable a new type of user interface for the phone. They believe the SoC is a mixed signal, analog/digital device that has an ASP of somewhere in the $2-$3 range. It appears that there is a strong likelihood that this part shows up in the next generation media players as well.

No change to firm's model as the part adds a minimal $15 million in revenue to the top line in 2007. A slightly bigger impact could come in 2008, if the SoC is introduced in a slew of other products including the next generation media players. Separately, the firm is introducing 2008 estimates of non-GAAP $1.50, and GAAP estimates of $1.00.

Maintains Outperform but ups tgt to $38 from $33.

Notablecalls: Nice piece of research guys. Too bad it's not actionable. I wonder if it's the iPhone?

Calls of Note Part 4

- Merrill Lynch notes they continue to see efforts by Radware (NASDAQ:RDWR) to revamp its sales force and refocus its R&D resources on product development. They also believe that Radware may be in the final phases of signing a small OEM agreement with a large European vendor, which could lead to additional opportunities in the future.

As discussed on its 3Q conference call, the US sales force is being pruned, leaving only the most productive people on board. Firm expects minimal near-term disruption since senior executives mainly manage the large accounts. Given that transition takes time, they do not expect to see material sales improvement in the US in 4Q, but this should be compensated by stronger trends in Europe and Asia.

Radware has the potential to secure new carrier opportunities in Q4 and 2007. After being engaged in several carrier-related RFPs for nearly 12-months, ML expects there should be at least one deal that will contribute to revenue over the next few quarters. Besides the well documented IBM partnership announced in October, additional strategic relationships and alliances should create opportunities in the enterprise and wireless verticals. However, these positive developments mentioned above are largely reflected in the recent share performance (up 8% since reporting 3Q results).

Maintains Neutral.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 3

- Citigroup notes they employ monthly US retail sell-through data (source: NPD) to pulse SanDisk's (NASDAQ:SNDK) memory card, USB drive and MP3 businesses which together comprise ~60% of the company's total product revenue. On the surface, November's overall data depicts a solid month for industry and an even better month for SanDisk on unit, bit growth, and revenue parameters. Firm finds this a welcome sign. That said, on further analysis MP3 sales are actually somewhat troubling given the unsustainable downshift toward SanDisk's 1GB offering while the micro-SD card category clearly shows increasing competition.

Looking ahead, December pricing typically increases while average densities decrease on lower-ticket purchases. However, recent contract price weakness casts some doubt that the typical seasonal increase will be observed this month. Net net, November's data leaves the firm comfortable with their bit growth estimate which is 500 bps above SNDK guidance, though they continue to believe pricing will be moderately worse than current Street expectations and company guidance (-22% vs. -17% Street estimates). In addition, they remain concerned that Street 1Q07 royalty revenue estimates remain lofty.

In summary, for SanDisk's stock price November's performance should add ballast to fundamental downside support near the $40 level (15x P/F12M EPS ests), though an unfavorable NAND industry backdrop is likely to limit meaningful share appreciation near-term, in particular given a lack of sustainable catalysts for the next six months.

Maintains Hold.

Notablecalls: Not actionable but good to know category. Looks like the $40 level will be the line in the sand for SNDK.

Calls of Note Part 2

- Jefferies comments on SiRF Tech (NASDAQ:SIRF) saying their checks suggest TomTom has selected privately held Global Locate as a second source GPS chipset supplier, beginning with its next generation TomTom ONE. Firm expects this new PND to be introduced at the Consumer Electronics Show in January. This risk has been contemplated and discussed by investors for nearly a year, and SiRF's stock traded off 3% as recently as yesterday due to this potential concern. Although the firminitially dismissed this as a recirculation of a prior rumor/risk, they checked back in with some of their industry contacts and now believe that there is a high likelihood that the decision has been made to use Global Locate (displacing SiRF) in the next generation ONE platform. Although they believe this decision to second source makes sound business sense for TomTom to facilitate better pricing, the firm wase surprised by TomTom's decision to use its highest volume platform (65-75% of Q4 volume) as its test case.

The firm has reduced their revenue and EPS estimates for 2007: CY07 revenue estimate to $304MM (from $321MM) to reflect a $23MM reduction in their PND revenue estimate, partially offset by an increase in wireless revenue estimate by roughly $5MM. Reduced CY07 estimate to $1.00 (from $1.13) due to the lower revenue.

Jeffco does not believe SIRF's technology advantage is over and is sticking to their Buy rating. Notes that it should come as a surprise as SRIF's 90% PND mkt share is not sustainable over the long term. Tgt goes to $34 from $36.

Notablecalls: Several firms were out in defense of SIRF yesterday saying TomTom was not looking for a second supplier. Looks like they were wrong. I expect SIRF stock to come under pressure today as Jeffco's CY07 EPS cut looks pretty bad considering the valuation. Also, yesterday's dip buyers will likely be looking for a way out.

Calls of Note Part 1

- JP Morgan notes their checks indicate Intel's (NASDAQ:INTC) 4Q06 is on track to meet their $9.4 billion (up 8% QoQ) revenue estimate, in line with company guidance of up 4%-11%, and roughly in line with Consensus of $9.5 billion (up 8% QoQ). Firm believes Intel is also on track to meet gross margin guidance of 50%, in line with JPM estimate, due to high utilization rates.

They believe Intel is experiencing strength in the notebook processor segment due to a strong seasonal build as JPM's Asia research team now expects 4Q06 notebook growth of 23%, slightly
above an average of 20%. Checks indicate Intel's desktop processor business (roughly 28% of 3Q06 revenue) is below plan due to poor demand.

Checks also indicate Intel is on track to build inventory in the December quarter and they view the high inventory levels (92 days in 3Q06, near a record high) as a risk to margins in the coming quarters. Firm's checks also indicate Intel's inventory is rising in the channel in hopes of stronger than seasonal PC demand in 1Q07 driven by Vista, which the firm does not believe will happen. Processor inventory in the channel normally decreases during the fourth quarter.

While the firm is positive on recent restructuring efforts they remain Neutral on INTC due to belief gross margins should decline to the high-40% range during 1H07 due to record inventory, higher start up costs, and higher depreciation. INTC is trading at 3.5X C06 sales, below the mid-point of a historic range of 3.0X-5.0X sales.

Notablecalls: Not actionable but good to know category. Mixed emotions about the Vista upgrade as research has shown that the last time MSFT's Windows created a meaningul upgrade cycle was when 95 was released. Must say I agree more with JPM here regarding the miniscule impact of Vista on the overall PC demand. However, I continue to see Micron (NYSE:MU) (and also QI) as the main beneficiary of Vista as most PC's running the system will need their RAM upgraded.

Taking a positive stance on Micron (NYSE: MU)

Looking to enter on the long side of Micron Technology (NYSE:MU) again in the next few days. The stock has been getting hit on concerns about pricing and inventories across the product portfolio. However, the concerns seem to be exaggerated given the following:

1) Inventory concerns are not new as these were in part the reason why the stock got hit so much in October when the co last reported inventories of $799.7 mln, up $163.1 mln vs previous qtr. However, $75 mln of the increase was due to Lexar acquisition, making it one-time increase in NAND Flash inventories.

2) Talking about NAND Flash, while the pricing pressure is most likely to be a problem, remind that it still represents less than 10% of revs. As such, it should be fairly easy for the company to write down excess inventories (i.e legacy Lexar inventories) and come out leaner and cleaner.

3) CMOS, representing ~15% of revs is another cause for concern given the OmniVision (NASDAQ:OVTI) results & guidance. However, note that OVTI's weak margins were at least in part company-specific due to product mix and fabless operating model. Micron's CMOS operating margins have been ~5% better than OVTI's for this year, giving it more flexibility.

4) That brings us to DRAM - hey, Micron is still a DRAM company, remember? As usual, there is much talk about pricing pressure for DRAM, but that doesn't look anything out of ordinary for me. And we still have Vista upgrade cycle ahead of us. Vista, remember, is a masterpiece that would prefer to have Micron's one month's output of DRAM in the computer. Or at least 2 GB.

Calls of Note Part 2

- Merrill Lynch is raising their 2007 and 2008 estimates for Allegheny Tech (NYSE:ATI) from $6.55/sh and $7.50/sh to $7.05/sh and $8.00/sh, respectively. In addition, they are raising their Price Objective on ATI to $112/sh, which is based on earnings of $8.00/sh in 2008 and a 14.0x P/E multiple. This is in-line with its historic average, which indicates that ATI's P/E has varied from about 8x to 35x, with an average closer to about 15x. Firm is now more confident that margins will be stable due to a more robust commercial up cycle than their previous forecast.

ATI currently has 30% of its revenues generated from the aerospace market, which they believe will increase over the next several years. The ML Aerospace & Defense team recently raised their delivery forecasts for Boeing on continued robust demand for aircraft. ML expects the replacement cycle for the North American legacy airlines to begin mid-to-late 2007.

In addition, they firmly believe that the use of composites as the primary structure on Boeing's new twin-aisle, the 787, marks a dramatic and fundamental shift in the aerospace industry, as significant as the transition from wood to aluminum for airframe structures. Composites are lighter, stronger and more durable than aluminum alloys. From the perspective of an investor in ATI, composite aircraft require much higher levels of titanium than traditional aluminum aircraft, as is the case for the 787 that requires 10X that of traditional aircraft of its size.

Notablecalls: Note makes sense. Expect to see buy interest in ATI today. Would not overstay my welcome.

Calls of Note Part 1

- Banc of America comments on AMD (NYSE:AMD) reducing near-term estimates on weaker pricing trends and evidence of share loss in servers. In the meantime, they are taking this opportunity to reduce near-term estimates on AMD and formally introduce AMD-ATI combined model. Checks suggest that 4Q06 AMD estimates are tracking below firm's. Specifically, while their prior forecast for overall unit growth remains relatively unchanged, they are reducing their ASP assumptions to assume further ASP declines in 4Q06 vs. 3Q06 stemming principally from preemptive pricing actions by AMD against Intel's more robust offerings.

Firm is reducing their Q406 and FY07 EPS estimates to reflect 1) greater than anticipated declines in desktop and server processor ASPs and 2) share loss to Intel within the server segment. Firm's new 4Q06 GAAP EPS est. is now for $0.30 (pf $0.34) down from prior est. of $0.42 (pf $0.46) and below the consensus GAAP est. of $0.31 (pf $0.36). Their new FY07 est. calls for GAAP EPS of $1.04 (pf $1.20) down from prior GAAP est. of $1.20 (pf $1.36) and below consensus GAAP EPS of $1.28 (pf $1.40). They are also introducing FY07 revenue of $7.97b and GAAP EPS of $1.00 (pro-forma of $1.22) for the combined AMD-ATI entity, which suggests relative neutrality.

Specifically, the firm believes the lack of a competitive offering alternative to Intel's Conroe product in the high end desktop segment, has forced AMD to be more aggressive within the low-end/mainstream segments (vs. Intel's Pentium D/Pentium 4 offerings). And while the ramp up at Dell, coupled with strong momentum for AMD's notebook products (Turion 64 X2) are driving solid unit growth for AMD in the December quarter, they believe that a more competitive desktop pricing environment is putting a 'ceiling' on AMD's desktop revenue. This situation, they believe is also extending into the server market, where renewed strength from Intel is forcing AMD to take preemptive pricing actions to protect its market share. This coupled with the well publicized issues for AMD in meeting channel demand - which has also helped Intel gain incremental share in the channel - supports BAC's view of some pressure on AMD's earnings.

Also impacting AMD, they believe, is somewhat more muted momentum in the server business driven by Intel's renewed competitiveness in the server market, particularly in the 2P or DP (dual processor) segment (~80%+ of overall x86 server unit shipments).

Tgt goes to $20 from $23.

Notablecalls: This call comes ahead of analyst meeting scheduled for tomorrow. Note that GSCO was out on AMD earlier this week saying they expect the management to use this meeting to lower ests. The stock has been inching down and I think BAC's note will deal another blow for the bulls. Believe we will see AMD going below $20 level.

Comments on Apple

Several firms are commenting on Apple Computer (NASDAQ:AAPL) this AM. The two topics include the upcoming iPhone and also iTunes sales data. The latter is said to have caused yesterday's fall-out in AAPL stock as Forrester Research noted iTunes has experienced a collapse in sales revs this year:

- UBS notes they continue to believe that Apple will launch its cell phone initiative in the March/April timeframe with initial phone shipments possible as early as the end of next quarter.

Firm's research points toward Apple becoming its own carrier-or MVNO, likely using Cingular's GSM network. While there a number of challenges associated with an MVNO (many failed attempts by others), Apple may be the best positioned of any player yet to make it work given its distribution, brand, installed base of iPods & software/iTunes integration. An MVNO model would allow Apple to have total control over the user experience, which is something the firm cannot imagine Steve Jobs relinquishing by allowing just about anyone to sell his phone.

They would not be surprised if the company offered 2 or more phones for customers by year-end 2007, with the first version shipping as early as March. UBS believes one phone will likely be a GSM/GPRS phone, with a second phone potentially being a 3G/WCDMA product.

Based on checks in the supply chain, the firm believes the initial iPhone will initially be equipped with 4-8 gigabytes of NAND flash and could have a 2 megapixel digital camera. They expect the phone to work seamlessly with iTunes (Mac or PC versions) and photos will be easy to load on
and off the devices as well. Another key function could be chat, which Apple could make easier through what some have called an "iChat Mobile" application.

Assuming Apple is able sell about 5 million units in calendar 2007 (about 1.4% share of the estimated 2007 music player handset market), the firm estimates potential incremental annual revenue contribution of about $1.5 billion (assuming a $300 ASP to Apple) and annual EPS contribution of about $0.09. UBS' assumptions include operating margins of about 8% (well below Apple's current 12.6% margin) due to the incremental costs associated with entering the cell phone market (note that Motorola, one of the most established cell phone providers, currently has operating margins of 11.9%). They believe estimates may prove conservative if Apple is able to navigate through the challenges of entering such a competitive market.

Maintains Buy and $108 tgt.

- Morgan Stanley notes they believe Apple shares will trade higher once again by year-end 2007. Near-term, the introduction of new products and less exposure to any disruption from Microsoft's Vista OS launch could help reduce seasonal risk for AAPL shares. In the intermediate term, an expanding product portfolio, growing distribution engine and market share opportunities all keep the firm Overweight AAPL with an increased priced target of $110 (from $90).

Proprietary supply-chain checks give the firm high conviction in a 1H07 iPhone launch. They expect Steve Jobs to announce the iPhone at MacWorld or early next year. To-date, they've found two models that began initial production this month - a 4-gig and 8-gig version with capacity plans to build up to 12 million total units in C2007 (MS' new model only includes a conservative 6M units).

Raising their C2007 revenue and EPS from $22.7B and $2.58 to $28B and $3.13, respectively. Firm's new forecast assumes revenue growth accelerates to 41% YoY in C2007 - to $28 billion, well above consensus forecast of $24.3 billion. As new product leverage kicks-in, firm's F2008 EPS surpasses the current consensus forecast by $0.34 ($3.58 vs. consensus $3.24).

- Piper Jaffray notes that contrary to recent reports suggesting sales on iTunes are declining rapidly, their analysis of Apple company data regarding iTunes sales shows strong growth y/y.

In light of recent media reports of slowing iTunes sales, they analyzed music sales data and saw strong y/y growth in 2005 and 2006. Specifically, the firm compared total sales between Jan. and Sept. of '05 and '06 and saw 78% growth during that period. From Jan. to Sept. in 2005 Apple sold 10.4m songs/week and in 2006 that number was up 78% to 18.5m songs/week.

While Apple does not release the financial details of the iTunes Store, the company has indicated that they run the store "above break-even." The iTunes Store, therefore, is a supplement to
the iPod as Apple's vehicle to monetize the free iTunes software. The integration of iPod with the iTunes software along with some profitability from the iTunes Store represent the three ingredients of Apple's digital music ecosystem.

Firm also comments on Mac mkt share saying it should continue to grow in CY07 due to: 1) completion of Intel transition, 2) improved availability of Macs, 3) expanding footprint of Apple customers (iPod halo effect), and 4) ability to run Windows on a Mac.

Mac market share in Q3 was 2.8% and will likely be ~3.0% in Q4, which is up from 2.1% in Q1. Street estimates currently call for Mac market share in CY07 of 2.7%. If Mac market share grows at the same rate seen in CY06 (approx. 1.0%), we could see 4.0% by the end of CY07, with an average of 3.5% for the year. If Apple achieves an average of 3.5% Mac market share for CY07, they estimate Street EPS estimates are $0.34, or 11.6% too low.

Maintains Outperform and $99 tgt.

Notablecalls: I wonder what triggered yesterday's sell-off in AAPl stock. It sure wasn't the iTunes data from Forrester. I suspect some mkt participants took a closer look at iPhone margins and discovered to their surprise these to be lower than current ones. And so they sold. That of course is a faulty conclusion on their part. Just take a look at the new ests from Morgan Stanley. I suspect that for traders, yesterday's sell-off provides an opportunity not seen since Piper upped their tgt to $100 (pre-split). Sitting at my old trading desk I would be all over the stock this morning.

Paperstand

The WSJ reports that the long-awaited consolidation of the airline industry is heating up, with UAL (UAUA) and Continental Airlines (CAL) holding talks on a possible merger and another carrier emerging as the tgt of an unsolicited takeover offer. UAL, parent of United Airlines, and Continental have been engaged in exploratory talks on a business combination for several months, but the discussions have taken on new urgency since US Airways (LLC) made a hostile bid for Delta Air Lines four weeks ago. Among the industry's smaller players, AirTran (AAI) is poised to launch an offer for Midwest Air (MEH), signaling that consolidation pressure has extended beyond the industry's behemoths. Airlines outside the US also are attracting more takeover interest. Australia's Qantas last night rejected a takeover bid of roughly $8.6bn from a group of investors that includes private-equity firm Texas Pacific Group and Macquarie Bank of Australia.

"Tracking the Numbers"column reports that investors looking for information about Qiao Xing Universal Telephone (XING), would learn that stock analysts expect earnings to rise and rate the shares a Buy. What they may not learn, however, is that the co paid the analysts' research firms tens of thousands of dollars in cash or stock to write those reports. As paid-for research firms, also known as sponsored-research or issuer-paid research firms, they receive fees from various sources, including co's seeking analyst coverage of their stock. One of the 2 research firms that rate Qiao Xing has been paid $33K for 4 reports since May'05, while the other owns about $20K of stock in the co.

Barron's Online out saying that some investors see a new kind of memory chip windfall in shares of Qimonda (QI), up 28% since the co spun out of Infineon (IFX) in mid-Aug. Qimonda could well displace Micron this year as the 3rd-largest maker of DRAM chips, say analysts. If that occurs, the co would trail only S-Korean giants Samsung and Hynix in the mkt for DRAM chips. After beating analysts' profit and sales ests in its 1Q as a public outfit on Nov. 14, Qimonda has convinced investors it has the right products and technology for a memory mkt primed to repeat itself. Vista software is coming out next year and DRAM supply is tight, and that could mean strong prices and rising profits. "Back in the early '90s, Micron [stock] went up a lot in price b/c ppl underestd the demand [for PCs and for DRAM]," says Robert Turner, of Turner Investment Partners. "That could be where we're headed with Qimonda."