Color on quarter: IBM (NYSE:IBM)

Several firms are commenting on IBM (NYSE:IBM) after the co reported its Q4 results last night:

- Citigroup reiterates their Buy rating for IBM shares with a revised 12-month target of $115 (from $105). While they acknowledge that there is no near-term catalyst for IBM shares, they are encouraged by multiple signs in the 4Q06 financial results of improvement in the struggling services business and strong momentum in software. Valuation is also among the most attractive relative to growth within the Hardware sector.

4CQ revenue of $26.3B was well above firm's estimate and consensus due to significant upside in both software and services. EPS of $2.20 (excluding tax benefit) was one penny above consensus but two pennies below estimate. $17.8B in services bookings (+55% yoy) was the highest since 4Q02. IBM enjoyed significant acceleration in both short- and long-term bookings growth.

Impressive 11% organic middleware software growth suggests that IBM is gaining share thanks
to recent investments in sales and marketing.

- Morgan Stanley notes that continued momentum in Software, growing traction in Services, and easy YoY Hardware compares in C1Q07 suggest more room for relative stock performance near term. Firm is Overweight IBM and thinks the stock can provide investors with good leverage going into the seasonally weak first half of the year and would accumulate shares on yesterday's after-market dip.

IBM indicated steady demand and a healthy services deal pipeline going into 2007. It also kept its long term target of low-mid single digit revenue growth and 10-12% EPS growth (in-line with consensus), which the firm believes will be achievable given its on-going investments and productivity initiatives.

They tweaked revenues to reflect lower hardware growth and higher software growth in 2007 and FY07 revenues inch down to $94B from $94.4B. Firm increased EPS by 6 pennies in anticipation of more leverage in 2H07 from continued investments.

Maintains Overweight.

- Prudential notes the Hardware segment was the biggest disappointment to 4Q06 results as c/c revenues grew 0% vs. 7% in 3Q06, and gross margins fell 100 bps vs. a positive 60 bps increase in 3Q06. System Z mainframes fell to 1% growth (vs. 22% in 3Q06) and the Microelectronics division dropped sharply to -6% (vs. 29% in 3Q06). Additionally, IBM is not seeing a pick-up in the growth areas of System i and x (blade growth not carrying the revenue). Firm does not see any near-term relief in the Hardware segment over the next few quarters. Software had another strong quarter (up 5% organic) led by key branded middleware growing 21% YOY (10% organic). Software gross margins continued to expand to 86.5%, up 20 bps YOY (vs. 40 bps in 3Q06).

Although 4Q06 results were solid, investors expecting more immediate upside will be disappointed. They are raising 2007 EPS estimates to $6.77 from $6.67, which is entirely due to a lower expected effective tax rate of 28.5%. Reiterates Neutral Weight rating and $100 price target, awaiting more progress in Services and a pick-up in Hardware.

- Goldman Sachs says the IBM earnings stew somehow managed to mix together an even more varied combination of strengths, disappointments, and confusion than usual. While the quarter, and its implications for future growth, was strong and better-balanced than we've seen in over a year, unexpected investments in sales and incremental acquisition expense yielded gross margins that were lower than last year's December quarter in all three of IBM key segments (software, services, hardware). Although IBM's earnings growth continues to point to 10%-12% off of an increasing base, IBM confused the issue for 2007 by throwing a lower tax rate into the mix and implying that earnings could be more backend-loaded than current Street estimates. GSCO is raising their 2007 forecast to $6.74 from prior $6.60 and, although all of this comes from a lower tax rate, they think there could still be additional fundamental upside of $0.05-$0.10.

The stock's reaction after-hours pretty much tells the story and should provide a valuation base, taking IBM's multiple down by over a point and its relative multiple back to the low end (a rounded-up 0.9x the S&P 500) of its traditional range. Although IBM managed to summarily take the wind out of its sails, GSCO is staying with their Buy rating for now based on IBM's current implied multiple. To stay with the stock much beyond the seasonally weakest period for tech, we will need to see early upside.

Notablecalls: The stock traded down to $94 level in after hrs action. Lack of EPS upside coupled with disappointing hardware results will surely take wind out of its sails. I don't think we will see a meaningful bounce today.

Paperstand (HES, IESC)

WSJ's "Heard on the Street" column out saying that as oil prices are sliding and energy shares are skidding, investors are trying to figure out which co's will be hurt most if oil stays down amid a relatively warm winter and ample global supply. "Some oil shares have held up better than expected," says Jack Ablin, of Harris Private Bank. "But profit expectations are getting slashed." He says Hess (HES) is vulnerable b/c it historically has been sensitive to crude-oil prices but lately its shares have held up surprisingly well. Among larger oil co's, ConocoPhillips (COP) could be hurt if oil prices keep tumbling. Others say that oil-service co's, like Tidewater (TDW), could be risky. In previous oil downturns, drilling co stocks have taken it on the chin b/c they operate with a high degree of operating leverage, or their earnings are most sensitive to moves in oil prices. Larger drilling co's include Grey Wolf (GW), Rowan (RDC) and Nabors (NBR). As oil's price falls, alternative-energy sources become less attractive b/c they usually are more expensive to produce than traditional sources. Ethanol producers could be hurt as rising corn prices send their cost of production higher, and as crude and gasoline prices fall. Publicly traded ethanol co's include Aventine Renewable Energy (AVR), Pacific Ethanol (PEIX) and VeraSun (VSE). Archer-Daniels-Midland (ADM) is the largest ethanol producer based on gallons produced. Large grain producers in the Farm Belt, like ADM, have made investments in part based on high oil prices. According to Credit Suisse research, ethanol makers were able to pull off a profit of 86c a gallon in the middle of the summer when oil was around $70 a barrel and corn was just $2.50 a bushel. Today, with oil near $50 and corn above $4, they incur a loss of 21c for every gallon they produce.

Barron's Online "Inside Scoop" section reports that 2 hedge funds have charged up their buying of shares of Integrated Electrical Services (IESC). In the last 2 weeks, hedge funds Tontine Capital Mgmt and Southpoint Capital Advisors have spent a total of $4.4M on shares of Integrated Electrical. The co's CEO Michael Caliel and Robert Callahan, a SVP, also jumped in with buys totaling $54K during that time period. Both Tontine and Southpoint have representatives on Integrated Electrical's board of directors, which Ben Silverman, director of research at InsiderScore.com, says boosts the bullish signal from their purchases. "They are not just casual investors here," Silverman says.

Calls of Note Part 6

Prudential notes that preliminary CQ406 data from IDC suggests a slowing PC market and continued share loss for Dell (NASDAQ:DELL). Similar to last quarter, they expect a negative reaction for Dell shares on this news.

In anticipation of this data, they completed a round of checks with contacts across the PC supply chain. Checks indicate that through the month of December Dell continued to execute to a strategy of trading unit growth for profitability across all of its business segments.

While the unit growth is lower than they anticipated according to IDC, firm's checks suggest that Dell is on track for solid margin expansion in the quarter, offsetting any adverse affect from the lower unit sales. They do not expect this share loss to continue as they are starting to see the company become more aggressive in driving PC growth in the corporate space. Additionally, they see strength in servers, storage, and services, as well as component costs initiatives contributing positively to the bottom line.

Firm is maintaining their Street high FY'08 EPS estimate of $1.61 as they believe the company will post upside to consensus estimates in coming quarters. They recommend that investors use any weakness to buy shares of Dell. Remains Overweight with a $31 price target.

Notablecalls: Expect to see weakness in DELL followed by a trading bounce after the open. Nothing major, though.

Calls of Note Part 5

CIBC notes that recent news flow indicates that Baidu.com (NASDAQ:BIDU) is taking steps to grab share from online branded ad; notably, Baidu inking a deal with EMI to launch online ad- supported music streaming services. Baidu also reportedly obtained an Internet news service license and is prepared to launch a news portal.

Firm believes the EMI deal would enable BIDU to monetize its large MP3 traffic, while mitigating legal risks related to music piracy. Firm expects to see more cooperation with entertainment content providers as online ad supported free music may work better than paid downloads in China.

They believe a news portal would allow BIDU to directly monetize its news search through branded ads on its portal. That said, they expect only minimal revenue upside in the near term as both initiatives are still in early stages. In the long run, the firm believes Baidu is on the right track to address the issue of decelerating top-line growth, considering China's online branded ad market is ~3x of paid search market.

Notablecalls: Would not be surprised to see some buy interest in BIDU following the call. I like the chart and the fact they are trying to monetize their large MP3 traffic.

Calls of Note Part 4

JP Morgan is out with high conviction on Sprint-Nextel (NYSE:S) saying the stock has fallen in the past week since the 2007 outlook was provided. The outlook was the latest in a string of disappointments and hesitant investors have asked what levels defined previous troughs.

S's 41% discount to group mirrors ATandT Wireless 2002 trough. JPM believes the stock has reached its valuation trough. At 5.1x EV/'07E EBITDA, S at a 43% discount to the wireless group. Similarly, ATandT Wireless troughed in 10/2002 at a 41% discount on EV/EBITDA to the group. ATandT Wireless previously was the largest trough discount. The firm looked at a total of 6 prior instances of troughs since 2002.

Historical analysis of 6 prior troughs shows wireless stocks have typically risen 111% 6 months after troughing. How do they know this is the trough? The current 43% EV/EBITDA discount on S is the largest ever seen since 2002.

Takeaway? Bad news is more than baked in. In their view, Sprint's current share price reflects the bad news. As investors may recall, ATandT Wireless continued to stumble after 2002 but the stock still managed to more than double by the end of 2003.

Bottom line, they are buying the stock here. They do not think the stock can fall further, even on additional disappointments.

Notablecalls: I think JPM's right! You gotta buy Sprint here. The valuation discount is way too big to be ignored. Think there is just one big seller out there and once she is done S will bounce hard.

Motorola (NYSE:MOT) - buying opportunity ahead of management meeting

Plenty of firms previewing Motorola (NYSE:MOT) ahead of quarterly conference call/mini-analyst day taking place tomorrow. Severals firms are taking a look from the sum-of-the-parts/LBO perspective.

- Bear Stearns notes that Motorola's market value is down 23% since it released 3Q earnings on 10/17/06. This implies a massive decrease in the value for the handset business since they've seen no material change in either MOT's Networks and Enterprise or Connected Home businesses. By using relative comps for MOT's N&E business at 1.2x EV/Sales, and CH business at 2.2x, firm arrives at an implicit value for MOT's handset biz of $18bn today or 0.58x 2007 sales vs. 1.01x in October. Using the same analysis, NOK's handset business has decreased from 1.24x to 1.04x, only 0.20x a turn lower, in the same time frame.

- JP Morgan estimates Mobile Devices is trading at a surprisingly low 0.4x 2007 revs using discounted transaction comps for the Networks and Connected Home businesses, MOT's $3.9B purchase price for Symbol Technologies, and a trading multiple for the Enterprise business.

Assuming even no revenue growth ever again and a return to just 10% oper margins, firm believes Mobile Devices could produce a 17% FCF yield implying that a hypothetical private equity owner could get paid back 100% of the purchase price in under 6 years.

- Deutsche Bank's LBO model shows that a financial buyer could justify a purchase and expects reasonable returns for private equity levels. These returns, however, would be premised on paying little premium and enjoying some multiple expansion or greatly improved operating margins. Both of these are possible, but firm thinks such a transaction carriers with it significant risk, which may outweigh the returns.

Notablecalls: Motorola mgmt has got some explaining to do, so taking the time to sit down with the investors is the right thing to do. Co has to make a decision between margins and market share and I think the mkt expects a reasonable strategy on how to reachieve margins without the expense of mkt share. We already saw stock ticking up yesterday and I'd expect it to continue today as any rebound in margins would make the valuation quite attractive

Calls of Note Part 3

Raymond James is positive on InterContinental Exchange (NYSE:ICE) raising their price target for the InterContinental Exchange by ~6% to $144 from $136. Earnings momentum has been very strong recently at the futures exchanges, and they believe that volume growth forecasts for the company could have meaningful upside.

The ICE's daily futures volume statistics for January to date have been extremely strong, indicating that firm's volume estimates for 2007 may well be conservative.

The ICE's January futures volumes have thus far significantly exceeded firm's expectations. Overall they see little reason to expect slower growth at the ICE in the near term, although beginning of the year volumes typically show some strength. While they continue to view the CME+BOT as the premier exchange in the futures space, ICE boasts a faster growth rate, as well as a higher return on capital, cash flow yield, and operating margin.

Firm continues to rate the ICE Outperform. With a faster growth rate than peers, synergies from the NYBOT deal (not included in their 2008 estimate), and ICE's position as a takeover candidate, the firm believes that the stock should trade at the high end of its peer range.

Notablecalls: Sure looks like GSCO's call trumped WACH's dg yesterday. The chart looks like it may make one more push higher. It's not as high conviction call as the one posted yesterday so adjust your risk accordingly.

Calls of Note Part 2

Merrill Lynch is positive on MEMC (NASDAQ:WFR) ahead of results saying the co has the potential to again post upside record results in 4Q and provide a stable 1Q outlook driven by rising pricing, flat to slightly down volume and cost reduction programs enabling solid margins. MEMC has an increasing mix of 300mm and high memory exposure, lower exposure to foundry, improving high end mix of wafers, sales to solar customers, including the start up of MEMC's 10 year contract with Suntech in 1Q07. Firm believes favorable IC and solar volume growth forecasts for 2007 should drive above industry growth and margins for MEMC as the pure play wafer and polysilicon supplier to both markets.

While firm's estimates have been based on conservative 2-3% wafer volume declines for 4Q06/1Q07, these have been partially offset by the improving pricing and margin mix of MEMC's business and growing sales to the solar market. Thus, they believe the stock should be bought ahead of a solid 4Q result and 1Q outlook.

Reits Buy and $50 tgt.

Notablecalls: Not a major call. I would not have highlighted it if there had not been some market participants trying to push the stock down by spreading the word that WFR would have to lower guidance due to weakness in its non-solar ops. That happened couple of days ago. The stock managed to shake it off and move higher. That tells me there are some serious buyers out there. Would not be surprised to see the stock move higher in the s-t.

Calls of Note Part 1

Prudential comments on Amazon.com (NASDAQ:AMZN) ahead of 4Q earnings (Feb. 1st). Although the company didn't disclose holiday sales results, the firm believes that certain data points from other retailers suggest that AMZN's holiday season could have been less than spectacular.

First, book retailers BKS and BGP reported tepid holiday comp-store sales of -0.1% of -1.9%, respectively, despite significant promotional activity.

Second, music retailers continue to struggle: BGP noted a steep decline in the category, BBY reported a decline, and CC's music comps were down double digit.

Third, electronics was the hottest product category over the holidays, but was driven by flat-panel TVs, where AMZN does not appear to be a significant player. In addition, the CE business was reported to be highly promotional, which could pressure AMZN's profit margins.

Finally, U.S. traffic on Amazon was up only 5.7% in 4Q (according to comScore), and trended down in each month of the quarter.

On a positive note, DVD comps were positive for most retailers, and video gaming sales were a standout. In addition, AMZN will record full toy revenue for the first time in five years, and could get as much as a $150 million revenue boost from currency exchange.

Reiterates Underweight rating and $25 price target on AMZN.

Notablecalls: I would not be surprised to see weakness in AMZN ahead of the results. Pru's call does not have any new datapoints in it but it does highlight the obvious.

Color on quarter: Lam Research (NASDAQ:LRCX)

Several firms are commenting on Lam Research (NASDAQ:LRCX) after the co reported Q4 results last night:

- Stifel notes that although the company once again posted strong results ahead of Street expectations, management's discussion of its shipments outlook (it no longer provides orders forecasts) raised some concerns over the health of the industry in the near term.

Management noted that more chipmakers were pushing out delivery dates, and that there would be some volatility over the next two quarters of when some tools would be delivered. Behind this lumpiness, there suggests some ominous signs. In firm's opinion, this trend typically signals a more cautious outlook (in simpler terms, if demand was strong and utilization rates high, chipmakers would actually prefer accelerating delivery dates versus extending them). The discussion about increasing tool push outs and a declining rate of capacity expansion near term are further indications of a potential order slowdown across the industry.

Despite these near-term concerns, they want to emphasize that Lam Research continues to outperform the industry in almost every metric, whether it be order rates, margin profile, operating profitability and cash flow. Maintains Hold.

- JP Morgan notes Lam delivered a weaker equipment demand outlook than 90 days ago, especially as it applies to shipment push outs in C1Q07. Based on the cockroach theory, investors will fear further push outs, which is reasonable in firm's view. As a result, LRCX and other equipment stocks are likely to stagnate until there is improved visibility on chip inventory depletion and a re-acceleration in equipment demand. Firm remains bullish on the year and continues to expect solid full year stock gains, mainly in the second half as they have stated previously, once the chip inventory is depleted, utilization rates begin to rise, and visibility for the next multi-quarter order cycle improves. However, they are incrementally cautious on near-term equipment stock
potential.

For large cap long only investors, they believe a likely negative stock price overreaction presents a compelling buying opportunity and recommend stepping up to LRCX shares into near-term weakness. Lam is a top tier semiconductor equipment franchise with extremely impressive cash flow yield (9% in 2007) and secular earnings power that they believe is deeply undervalued.

Reiterate OW and top large cap pick. At $50.25 (post close), LRCX trades at 11.2x JPM's new C2007 PF EPS est. of $4.50 (from $4.90) vs. univ. avg. of 14.6x.

Notablecalls: I think LRCX will go lower in the s-t. It's among the first semiconductor processing equpiment players to report and comments regarding pushouts will not bode well for the sentiment. After all, DRAM has been considered to be a bright spot.

Color on quarter: Apple (NASDAQ:AAPL)

Several firms are commenting on Apple (NASDAQ:AAPL) after the co released its Q4 results last night:

- Morgan Stanley notes that margin leverage from Apple's fixed cost store base is becoming more central to the story, in our minds. They continue to want to own Apple shares ahead of several catalysts later this year and would look to add to positions on any dips near-term.

Revenue, margins and EPS topped firm's model and consensus estimates - though the revenue components came in differently than they expected. Apple shipped 21M iPods (vs. 14.4M est.) and 1.6M Macs (vs. 1.7M) with new products (Shuffle) driving much of the unit upside. Despite an iPod business that the Street generally believes to be lower margin revenue, both gross and operating margins hit Apple's highest levels ever. Positive margin factors include: 1) favorable component pricing across products; 2) incremental revenue leverage; and 3) product mix (e.g. MacBook Pro).

Maintains Overweight and $110 tgt.

- Merrill Lynch says Mac units were a little light at 1.6mn vs ML and consensus at 1.75mn. Bears will attempt to make a case the halo effect is waning; we disagree. Although they concede the Mac result was below their expectation, they still view 28% growth as very solid against a market growing 8% and expect the pace to remain healthy as new Macs are introduced and as pent up demand in the creative professional segment is released this Spring with Adobe creative suite native on Intel/Mac.

They don't think investors should be spooked by the March Q outlook (below Street) given the track record of subsequent upside. Firm's slightly lower March estimates are within the typical excess of actual results over management guidance. For F2007 they're raising estimates from $23.4bn / $2.76 to $23.7bn / $3.07 by rolling through the Q's upside and other tweaks. F2008 EPS nudges up from $4.05 to $4.10. They continue to recommend the stock with a price objective of $113.

- Piper Jaffray believes the Street (they were modeling for 1.6m Macs) got ahead of itself for the December quarter. While the Street will view the Mac number as a negative (reported 1.6m units vs. the Street at 1.75m), they view the Dec-06 Mac unit number (1.61m) as a positive datapoint. Over the last five years Mac units declined by an average of 1% from the September quarter to the December quarter. Therefore, the sequential decline this December (- 0.2%) was essentially in line with the average seasonal downturn when compared to the previous five years.

Firm notes that the quarter-over-quarter data from 2004 is not meaningful due to limited quantities of the G5 chip in the Sep-04 quarter pushing G5 Mac sales into the Dec-04 quarter, and as such they have excluded it from the comparative analysis. In general, the Dec-06 numbers show continued Mac momentum. The Dec-06 quarter marks the eighth quarter out of the last nine that the Mac has outgrown the computer market internationally and in the United States. Moreover, the Dec-05 quarter was a 14 week quarter, so the flat Mac unit results actually represent an uptick quarter over quarter on a normalized basis. According to IDC, Mac worldwide market share in Q4 was 2.4%, down from 2.8% in Q3. Maintains Outperform and ups tgt to $124 from $99.

- JP Morgan is downgrading AAPL to Neutral from Overweight noting that they have had an Overweight rating on Apple since October 2004, and the stock has appreciated strongly. But at current levels, they believe it is time to lighten up on positions.

Upside was significant for the December quarter. EPS exceeded JPM's above-consensus estimate by 39% and revenues topped our views by 8%. The upside was driven by iPod shipments of 21 million units, which substantially exceeded their optimistic 16 million unit estimate.

Unfortunately, JPM's thesis was based on stronger Mac shipments. After a significant run in the stock, their bullish thesis was based primarily on expectations for significant upside in Mac units. In this respect, the company fell short of estimates. With Mac shipments of 1.6 million units,
the company missed firm's above-consensus forecast for 1.9 million units.

As we enter the seasonally weaker period of the year, iPod shipments may disappoint investors' heightened expectations. Firm believes this risk is particularly pronounced given their concerns that some consumers may delay iPod purchases ahead of the iPhone launch.

As a result, they believe it may be difficult for the shares to outperform the peer group average.

Notablecalls: No wonder the stock got sold in after hrs trading. I can't believe how wrong Piper is with their defense on AAPL here. The market will not care about the Mac seasonality for the past 5 yrs! AAPL needs to show they can sell Mac's on top of the huge amount of iPod's they have already sold. AAPL needed to beat that Mac number! The IDC data isn't helping either. AAPL lost mkt share in Q4!? How can that be? JPM is right downgrading the stock here. The stock's a sell here around $94 level.

Paperstand (TRB, EOP, HPQ, DELL, CCU, TELK)

The WSJ reports that at least 3 groups, including the Chandler family and a pairing of LA billionaires Ron Burkle and Eli Broad, submitted sharply varying proposals for Tribune (TRB) by last night's bid deadline, giving the co's board the difficult task of deciding how to proceed. None of the bidders is offering to pay a premium for all of Tribune. Even so, the board will likely come under pressure from shareholders to pursue some dramatic action.

According to the WSJ, a consortium of real-estate investors launched a competing $21.5bn offer for Equity Office Properties (EOP), hoping to knock off an existing $20.1bn deal with Blackstone Group. In this atmosphere, a topping bid that bests Blackstone's by some measures might have shocked real-estate experts a year ago. Today, it gets merely a shrug. "Honestly, I don't think anything can be too surprising anymore," said Michael Knott, of Green Street Advisors. "It just seems there's no limit to the prices being paid."
According to the WSJ General Electric (GE) last night was nearing a deal to purchase the diagnostics division of Abbott (ABT). Details of GE's plans couldn't be learned last night, and it is possible GE may be purchasing a large part but not all of the Abbott unit. Through last year's first 9 months, the division posted rev of about $2.9bn and an operating profit of approximately $300M.

The WSJ reports, citing 2 prominent research firms, that H-P (HPQ) increased its lead over Dell (DELL) in world-wide PC shipments in the 4Q. Gartner said H-P managed to increase its PC shipments by 24% in the 4Q. As a result, H-P's worldwide mkt share swelled to 17.4% from 15%. Gartner said Dell's global PC shipments in the 4Q slipped 8.7%, causing its mkt share to shrink to 13.9% from 16.4%. IDC said H-P's share increased to 18.1% in the 4Q from 15.9%. Dell's share slipped to 14.7% from 17.5%, IDC estd.

Barron’s Online reporting that the $26bn LBO of Clear Channel (CCU) appears to be running into resistance from some institutional shareholders, which could dim chances for shareholder approval of the huge media deal. The deal faces a high hurdle b/c 2/3 of the co's shareholders need to back the buyout for it to be approved. This means that holders who don't vote are effectively casting ballots against the deal. If 10% or 15% of holders don't vote, Clear Channel will need an enormous majority of the votes cast to get approval. As of Sept. 30, Fidelity Investments was Clear Channel's largest institutional shareholder, with an 11% stake, followed by Morgan Stanley at 7% and Capital Research at 5%. Other sizable shareholders include NWQ and Highfields Capital Mgmt. The Mays family, which runs Clear Channel, holds about 7% of the stock. Clear Channel shares moved up on Fri, after Bear Stearns' radio analyst, Victor Miller, put out a research note arguing that the buyout offer undervalued Clear Channel's radio business. In the note, Miller said that, instead of selling itself, Clear Channel should give shareholders the opportunity to swap their stock for shares in Clear Channel Outdoor (CCO). He also said that Clear Channel ought to sell about $2.5bn in assets and then do a large debt-financed share repurchase.

“Inside Scoop” section reports that Telik (TELK) shares imploded the day after Christmas on disappointing clinical trials results from its first drug, Telcyta, intended to treat cancer. The 70% loss prompted billionaire and activist shareholder Carl Icahn to nearly quadruple his stake in the co. Since Dec. 26, his investment vehicle Icahn Associates and affiliates have purchased 3.82M shares of Telik on the open mkt for nearly $18M. The group increased its stake to 5.2M shares, or 9.9%, of Telik's 52.4M outstanding shares.

Calls of Note Part 2

ThinkEquity is positive on On2 Technologies (AMEX:ONT) saying the shares have retreated roughly 20% after a solid run up into the Consumer Electronics Show (CES). However, they believe 2007 is shaping up to be different than previous years, when ONT stock has fallen and remained out of favor (post-CES) in accordance with static financial results. Based on conversations with several industry contacts at CES, the firm believes that On2's sales pipeline is building better than their previously expected, giving them confidence to raise both their estimates and price target, as well as move up their breakeven estimate to 1Q'07. Firm reiterates On2 as their top pick for 2007.

According to checks, they believe that On2's pipeline is shaping up to outperform expectations. More promising, in firm's view, is that the company is also seeing an uptick relative to its average licensing deal, which they believe ranges from $60,000 to $100,000. This, coupled with a shift to a growing number of royalty or residual-based transaction structures, gives them increased confidence in the company's ability to outperform estimates.

Price tgt is raised to $1.70 from $1.40.

Notablecalls: Interesting little note that may move the stock. ONT is a recent trader favourite.

Calls of Note Part 1

Couple of conflicting notes on :Intercontinental Exchange (NYSE:ICE)

- Wachovia is downgrading shares of ICE stock to Market Perform from Outperform rated. Firm believes that the stock is now adequately priced versus being undervalued when they first launched coverage of the company on November 26th.

While they are not calling for a reversal of the positive fundamental trends, they believe that the stock is priced with high expectations which could disappoint and lead the stock down in the near term. Wachovia believes that investors have priced the stock for immediate high volume enhancement of NYBOT and continued hyper growth in the OTC business. Thus it is difficult for them to recommend investors invest fresh capital into the story at these levels.

Firm is raising their 2007 and 2008 estimates to $3.37 and $4.50 per share to account for full accretion of the NYBOT deal and also more robust oil futures trading. They believe the shares should trade between $135-140, or 29-30x 2008 earnings estimate.

- Goldman Sachs believes the market continues to underestimate the growth potential in ICE's volumes and see 28% of upside in the shares to firm's new DCF-derived 12-month price target of $165 (30x '08E EPS). They expect the electronification of the NYMEX, ICE OTC, and NYBOT markets to continue to drive upside to volume estimates and propel strong year-over-year growth. GS' new 2008 EPS of $5.50 is 43% above consensus and 10% above the next highest estimate. They believe the risk reward trade-off remains favorable on ICE with a 2:1 ratio of upside to downside based on bull case 2008 EPS of $7.00 and bear case EPS of $3.85.

The Street remains overly conservative on volume growth, in firm's view, and they expect significant earnings revisions in the coming months. Though they believe many investors already focus on the more constructive Street estimates (between $4.50 and $5.00), the firm expects that an elevated consensus number will reduce the risk of downside in investor's minds and provide further impetus to capture the skewed upside optionality of such high volume growth rates. They expect their price target to be achieved within the next 12 months.

Notablecalls: While WACH's downgrade will likely knock the stock down, I think GSCO's comments may help it to rebound. I'd go as far as to say that GSCO's comments trump WACH's dg.

Color on warning: Rackable Systems (NASDAQ:RACK)

Couple of firms are out on Rackable Systems (NASDAQ:RACK) after the co issued a negative pre-annoncement last night:

- First Albany notes management attributed the EPS shortfall to unfavorable DDR memory pricing, intense competitive conditions, and lower-than-expected sales of the RapidScale products. Given firm's observations of favorable CPU and improving DDR2 pricing, they believe the margin shortfall was driven primarily, if not almost exclusively, by the intensifying competition within the x86 space.

The company will update its FY07 guidance during its earnings call on February 1, but they remain concerned about Rackable's competitive position. Dell (DELL), the firm believes, will almost certainly expand its AMD-based (AMD-$18.13-Not Rated) offerings. Supermicro, Rackable's tier-two peer, has recently announced server offerings that appear to match Rackable's value proposition in density and power efficiency. Despite the growth opportunities in the clustered storage space, they remain cautious of Rackable's competitive position, given its inexperience relative to the pure-play storage players.

Given the negative preannouncement, they are reducing estimates. FY07 EPS estimate goes $0.89 on $481M in revenue from $1.33 on $503M, respectively. Reiterates Underperform rating.

- RBC Capital notes they suspect the memory pricing issue is temporary given our view that DDR memory pricing will soften in 2007 as memory manufacturers ramp more production in anticipation of Microsoft's Vista launch. Consequently the comments on competitive dynamics and the timing of RapidScale appear more relevant to the forward outlook.

Firm has lowered their 12-month price target to $30 (was $40). They assume a probable, though not certain, FTM price downside/ upside scenario of $15/$40 (was $20/$60) on exection below/above their new estimates. Firm continues to rate the shares Outperform with a Speculative risk assessment on a 12-month basis, but their rating is subject to change near term pending greater clarity on competitive dynamics at top customers.

- Piper Jaffray says they believe large OEM competitors such as Dell and Sun Microsystems were aggressively discounting during the quarter and this is creating a pricing war in the high density server market. They believe Rackable had no option but to lower prices to retain current customers and this is resulting in significantly lower gross margins.

Rackable also experienced increases in prices of certain components, especially DDR memory, which had a negative impact on the gross margins during the December quarter. They believe the component pricing problem was magnified due to higher use of the DDR2 memory in newer systems based on Intel Woodcrest platform and AMD's Socket F platform. Maintains Mkt Perform. Tgt goes to $26 from $31.

Notablecalls: RACK continues to be a controverial name. Just check out the archives for NC comments. The cold hard fact here seems to be that DELL and SUNW are able to buy CPU's and memory at much lower prices than RACK can. An uphill battle. RACK needs to differentiate itself from the competition. I have no idea how they could do it. I suspect RACK's management doesn't either. At least not at this point. I have very little feel for the stock in the s-t. Given its sizable short interest and the 10 point haircut it receieved in after hrs trading I would not be surprised to see some short covering around these levels.

Color on results: Intel (NASDAQ:INTC)

Several firms are commenting on Intel (NASDAQ:INTC) after the co reported Q4 results last night:

- JP Morgan says Intel expects a seasonal revenue decline of 4%-10% QoQ in 1Q07 ($8.7-$9.3 billion), above their prior $8.7 billion estimate (down 7% QoQ) due to higher 4Q06 revenue. The company also expects 1Q07 gross margins of 49.0%, above firm's prior 48.0% estimate. However, Intel gave C07 gross margin guidance of 50.0%, below JPM's prior estimate of 51.0%, which they believe was below Consensus.

While they are positive on the restructuring and better products, the firm remains Neutral on INTC due to belief in gross margin downside from excess capacity, higher start up costs, and price competition. They believe Intel could miss its 1Q07 guidance as checks in the PC food chain indicate inventory has increased and business conditions are worsening.

They are maintaining C07 EPS estimate of $1.05 (below Consensus of $1.13) but raising C07 revenue estimate from $37.0 billion to $38.2 billion. Firm is also introducing C08 revenue and EPS estimates of $41.8 billion (up 9% YoY) and $1.35.

INTC is trading at 3.4X C07 sales, below the mid-point of a historic range of 3.0X-5.0X sales. While the stock appears cheap, the firm remains Neutral due to belief of additional estimate cuts driven by lower gross margins. As soon as they believe gross margins are close to bottoming, their outlook on INTC could become more optimistic.

- Morgan Stanley notes Intel's fourth-quarter results make it clear that the company has overbuilt capacity, and despite having a stronger product line, they believe it will be difficult to prevent margin pressure. Given expectations for aggressive price competition, seasonally weak demand, higher-than-normal inventories, excess capacity, and near-term PC-oriented product cycle risk, the frim believes that Intel's near-term earnings risk will remain high.

They look for Intel to undertake aggressive pricing actions As the fourth-quarter data show, Intel has hit AMD where it hurts by snatching server market share and causing its server ASPs to decline sharply. Now that AMD has been wounded and its business model exposed, they expect Intel to continue to be aggressive during the next couple of quarters. Until AMD ramps its Rev G processor into volume in the second half of this year, the firm believes that Intel's overall product portfolio will be strong enough to make AMD vulnerable.

Despite the revenue upside, it appears increasingly clear that aggressive pricing actions and excess capacity will pressure Intel's margins and earnings power this year. While firm's 2007 revenue and gross margin assumptions remain unchanged, they have fine-tuned their well below consensus pro forma EPS estimate lower, from $1.10 to $1.05, as expense reductions are forecast to be less than expected. With gross margin pressure and risk to consensus estimates, they do not think INTC is about to outperform firm's universe.

While long-term valuations are reasonable, margin pressure, earnings risk and slow growth suggest that an Equal-weight rating is appropriate. MSCO expects INTC to find near-term support in the high teens to $20, and would expect to see sellers in the low to mid 20s.

- ThinkEquity's Eric Ross notes that while their initial reaction was to turn more bullish after witnessing Intel's strong Q406 revenue performance, depressed gross margins quickly disappointed them and soured their view. Mr. Ross thinks Q1 and 2007 gross margin guidance is unimpressive, and he believes the possibility of downside to these forecasts exists. However, it is his view that Intel has closed the technology gap with Advanced Micro Devices (NYSE:AMD) remains, and with the only difference now pricing, he expects Intel to regain some lost market share in 2007, albeit, at the expense of margins. Reiterates Accumulate rating and $23 price target.

They believe that Intel gained share back from AMD during the quarter in servers and notebooks, accounting for much of the increase in ASPs at Intel. They also believe ASP from servers drove the gain. Also, a higher portion of sales from the channel resulted in slightly higher ASPs for desktops and servers. Units were a record as they are typically during Q4.

Inventories still at record levels. While Intel reduced inventories during the quarter, they are still near record levels, and the firm believes Intel will need to sell off much of this at some point with a resulting charge.

ThinkEquity does not expect the price competition between Intel and AMD to end anytime soon. They expect a painful, prolonged, aggressive pricing environment throughout at least the first half of 2007. In addition, where they had previously modeled for a return of Intel's gross margins to the mid-50% range, they now expect gross margins to hover around 50% throughout 2007 and perhaps longer.

- Citi notes their primary concern about a weak 1H07 GM outlook was realized predicated on 1) under-utilization charges and 2) 45nm start-up costs. While this forces firm's 2007 EPS estimate lower as they had feared, guidance suggests a strong 2H07 inflection in margins (2Q07E is the bottom), based on the roll-off of 45nm start up charges. They continue to model 2008 well above the Street and anticipate upward revisions to consensus 2008E.

Meanwhile, '07 operating expenses, one of firm's key focal points, are expected to be down 15% y/y supporting an 88% increase in op margin 4Q07E/4Q06. The timing of Intel's improving operating margins has been pushed out, given weaker GMs, but the march toward 30% operating margins continues forward. Particularly given the margin restraints are temporary start-up costs, they remain positive on the shares, despite this setback. Maintains Buy and $26 tgt.

Notablecalls: Think the weakness on gross margin side is going to keep the pressure on INTC stock in the s-t.

Paperstand (CVC, HANS, WSO)

The WSJ reports that a special committee of Cablevision's (CVC) board last night rejected the Dolans' $30-a-share offer as "inadequate" given the value of its cable system, which serves 3M customers mostly living in affluent environs of the NYC region. The rejection marked the 2nd time in less than 2 years that the Dolans failed to take Cablevision private despite their controlling interest, 70.4% of the voting shares.

According to the Barron’s Online, investors in Hansen (HANS) turned fickle toward the No. 2 energy-drink co in last year's 2H. But new growth initiatives could put some fizz back into the shares in ‘07. Although the stock has bounced back somewhat, there is still upside potential of at least 20%, as Hansen starts to reap the benefits of a deal under which brewer Anheuser_Busch (BUD) will distribute its Monster Energy Drink, potentially providing deeper mkt penetration. Hansen also should benefit from new-product introductions, following a pause in its pipeline last year. In addition, the co is likely to emulate energy-drink leader Red Bull's recent decision to boost prices. Les Engebretson, of Engebretson Capital Mgmt, started buying Hansen stock in early ‘04 and says the popularity of the beverage maker's energy drinks isn't a fad. "They have been able to take mkt share away from the others pretty consistently," he says, adding that the Anheuser arrangement represents "a major shift" in marketing. He expects earnings to grow another 35-40% in ‘07. Some speculate that the Anheuser relationship could ultimately lead to bid for the Hansen.

“Inside Scoop” section reports that a hedge fund, Basswood Capital Mgmt, has warmed up to shares of Watsco (WSO), claiming a 5.5% stake in the co. Basswood disclosed ownership of 1.3M Watsco shares on Jan. 11.

Calls of Note Part 5

- Morgan Stanley is positive on Yahoo (NASDAQ:YHOO) saying it continues to be one of the more controversial stocks under their coverage. Controversy can often lead to opportunity. The controversy stems from four main investor concerns around 1) execution; 2) the transition to a new management structure; 3) the launch / success of Yahoo!'s new search ad platform ("Project Panama"); and 4) limited visibility in the company's branded advertising segment.

Although these concerns aren't without merit, firm's thesis remains that although they believe there remains a period of transition for Yahoo! over the coming months, they can't help but see YHOO shares at current levels as a good entry point for investors with 1) a 6-12 month perspective and 2) tolerance for volatility in the short term (1-6 months).

Firm's optimism is driven by several beliefs. First, based on experience with the front-end of Yahoo!'s new search product and conversations with advertisers / agencies / Search Engine Marketers (SEMs) / developers / industry leaders to date, once Yahoo! completes transitioning its advertisers to the new platform, they expect Panama to be a vast improvement over Yahoo!'s prior offering and a more competitive product.

Second, they think the announcement in December related to Yahoo's management restructuring, although reflecting a company in transition, if executed effectively, could be a good thing for Yahoo! long term.

In short ,they think the new management structure, coupled with the launch of Panama, could create a more competitive / galvanized company that begins to execute more effectively in CH2:07E and beyond.And when there are signs that a company may begin to execute on fundamentals amidst overly negative investor sentiment, this usually means an opportunity (e.g. EBAY shares in August 2006), albeit not without risk.

Reiterates Overweight - Firm's Base Case DCF analysis values YHOO shares at $35.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 4

- CIBC notes see further support for their theory that Verint (NASDAQ:VRNT) won a major contract with WMT that could propel FY07 ests. A week after VRNT announced a $12M order from an unnamed big boxer, March, formerly WMT's sole video source, said its WMT orders had slowed to a trickle. MN shares fell 43%.

The precipitous fall-off in March's previous ~$14M/qtr business from WMT suggests that the big-boxer has picked a new primary source for video surveillance software. If that new source is Verint, it could see ~$200M in incremental orders over the next 2-4 years, by ofirm's estimates.

A major relationship with WMT would also amount to a major endorsement, potentially further catalyzing VRNT's already enviable position in retail video surveillance solutions. CIBC believes WMT's video business has decent gross margin of ~50%-55%, compared with VRNT's 58% corporate average.

Firm does not believe that the WMT opportunity was fully baked in to 4Q06 guidance, making current Street estimates ($99.7M in revenues vs. firm's $104.8M) appear very conservative. They also see 5%-10% of potential upside to their and consensus FY07 revenue estimates.

Notablecalls: Expect to see a move in VRNT today. The chart looks like it wants to go higher.

Calls of Note Part 3

One of the last sell-side OmniVision (NASDAQ:OVTI) bulls is capitulating this morning as JP Morgan is taking their rating down to Neutral from Buy. After a two-year round-trip, firm says they are getting off the OVTI roller-coaster at what appears to be an inopportune time for the company. OVTI is locked in price-based competition in the low-margin VGA segment of the CMOS sensor space, and absent differentiation from WFC, margins will likely be under pressure for at least two quarters.

Firm doesn't like the way OVTI's F2H07 is shaping up. OVTI is locked into the VGA segment of the CMOS sensor space and is unable to differentiate, absent the introduction of WFC or a lower-cost nextgen chipset. Meanwhile, Tier 1 handset OEMs are seeing tremendous threats at the high-end of the market (RIM and Apple) and need to move to MPx quickly. With OVTI capacity-constrained and competitors emerging (e.g., Samsung) there is risk of share loss in a segment that really matters.

Firm are troubled too by insider sales, higher levels of capital expenditure, and higher inventory in F2Q07. With $6.29 cash p/share, firm sees no immediate risks, but they believe investors could easily see $1.00 cash p/share whittled away before FY08, if inventory levels don't decline.

Notablecalls: Frequent readers should know I've been negative on OVTI for some time now. Maybe, just maybe I'm starting to warm up to the name as I'm having tough time imagining what else negative could be there to come. Won't be trying to catch the falling knife, though, so sitting back and waiting for some positive datapoints before taking a more positive stance.

Calls of Note Part 2

Several firms are commenting on Sandisk (NASDAQ:SNDK) this AM:

- UBS expects SanDisk to meet or slightly exceed their December quarter revenue expectations for roughly $980 million (+30.4% q/q, + 30.5% y/y) and guide down hard seasonally in the range of 25% q/q. Although a string of pre-announcements and negative reports from IC vendors exposed to the wireless handset end market has us modestly concerned, the firm believes that the adoption of NAND into handsets is following its own strong secular adoption curve and that this area should drive ongoing performance despite a still weak pricing environment. The company should also benefit in 1H07 from higher royalty payments for Samsung as its MLC production increased to 70% of output in 4Q06 from 40% in 3Q06. Unfortunately for the company, industry oversupply relative to demand appears unavoidable to them into the seasonally weaker 1H07 timeframe, and they would expect ongoing weakness in NAND ASPs to weigh on sentiment when reporting season concludes.

- Citigroup notes that looking back, they think SNDK had a solid 4Q06. However, looking ahead they are cautious on the shares for four reasons: 1) NAND's 1H07 fundamentals appear challenging, confirmed by Samsungs -30% 1Q07 price guidance, 2) Street 07 royalty rev ests (most NOT calculated bottoms-up) appear a stretch, 3) SNDK's new pdcts at CES impressed but appear gross margin dilutive, risking a negative target reset at the 2/26 analyst day, 4) Price elasticity of demand for traditional cards and USB drives, decelerated in 06, compounding 07 rev growth and margin risks.

SanDisk is a classic second-half trade given its extensive consumer exposure, enjoying secular tailwinds in applications such as handset cards and its new "View" video display product.

- JP Morgan notes they were encouraged by SanDisk's CES product line-up, which should fuel growth in '07. Subsequent to CES, Samsung's 4Q results and guidance underscore Sandisk's challenges, but they believe 2H07 could see a grinding recovery in margins. 2007 consensus EPS is still steep and short-term risks abound, but post 4Q earnings (01/30) SNDK stock could get interesting.

Notablecalls: Nothing positive here on SNDK. Would not be surprised to see weakness in the stock heading into earnings.

Calls of Note Part 1

- Banc of America notes adoption rate of Vista will be, in their view, the most significant of their '7 Forces in 07.' Based on firm's channel checks in 2Hof December with retail store sales reps, combined with assessment of customer reactions to Vista at CES (anecdotal in nature), they continue to believe that CES will have a positive impact with G7 consumers in 2007. Firm sees this process/trend as a gradual build during 07, rather than a sudden surge.

In contrast to firm's take of a modest PC market improvement due to Vista in 07, the latest Taiwanese ODM data, gathered during the week of Jan 8th, is a little softer than they projected, as overall ships appear to be up just 6% q/q, vs. estimate of 8-12% q/q, and 18% q/q last year. Firm believes that the slowing of the economy and some very modest slowdown in front of Vista launch played a role, with the force of the economy having a far greater impact.

Downward pressure came solely from desktop motherboards, down 10% y/y and down 4% q/q. Notebooks continue to drive growth, with very strong ships 35% y/y and 25% q/q. Notebook y/y growth accelerated for the first time in five quarters. This leaves them feeling confident in their 2007 20% y/y unit growth forecast.

Preferred PC names are HPQ and XRTX. They also think STX is well positioned with tech lead, and look for better entry point.

Notablecalls: Not actionable but good to know category.

Color on Nokia (NYSE:NOK)

Couple of firms are commenting on Nokia (NYSE:NOK) ahead of results:

- Goldman Sachs sees 13% potential upside to their 3-month price target of EUR17 and adds
Nokia to their Buy and Conviction Buy Lists (was Neutral). In firm's view, a perfect storm of negative newsflow (Motorola's profits warning, Apple's iPhone launch, broker downgrades) has coincided with the bottom of Nokia's product cycle, driving 17% underperformance vs. the FTSE Europe since July and over 25% vs. Alcatel-Lucent and Ericsson. GS notes they have high confidence that Nokia will post solid 4Q EPS of EUR0.27, allowing 2007 EPS estimates to bottom, while new products should drive a recovery in sentiment as well as ASPs and gross margins during 1H2007.

They expect Nokia to deliver solid (and possibly better than expected) 4Q results on January 25. Firm's checks indicate that Nokia has enjoyed strong European demand relative to its disastrous 3Q, which mitigates the impact on ASPs from extra low-end units in emerging markets. They model a 4Q ASP of EUR90, slightly below consensus but well above the bear-case. Additionally, they believe that given sell-out low-end demand, Nokia has not experienced price pressure, underpinning gross margins. Further, at 3GSM in February, new product launches could re-ignite hopes for a turnaround.

- Jefferies notes Nokia has suffered over recent weeks 'by implication'. The Motorola Q4 pre announcement, which featured sharply lower ASP's and margins, was taken as a negative signal for the Finnish company. However, experience shows that it is dangerous to draw conclusions by extrapolation from others; be they subcontractors or competitors. In this case the waining of the RAZR, and relative lack of traction of the successor KRZR could have positive implications with regard to Nokia regaining ground in the mid range.

Samsung's subsequent announcement on Q4 06 was much more upbeat, but attracted less attention. Handset volumes of 32m were in line with market consensus, but the $1 sequential (and annual) increase in ASP to $176 was well ahead of expectation, and contrasted sharply with the 15%+ (sequential) decline at Motorola. Moreover this was despite a substantial shift in mix to the Asia Pac markets (+60% YoY) vs Europe (+19%). The company noted positive trends in smart phone demand and WCDMA, where Nokia has above average share (40%+)

Firm's numbers put Nokia on 13.5x 2007. Take out restructuring and adjust for cash and its 12x; Cheap for a leading global brand. Meanwhile they expect solid Q4 numbers and confident a outlook based on improved products. Maintains Buy.

Notablecalls: Check out my comments on Nokia from Jan 10. It sure looks like we won't see a warning from the co and the stock has started to creep up. Expect that to continue. Would not overstay my welcome, though.

Color on datapoint: Symantec (NASDAQ:SYMC)

We have couple of firms issuing some very interesting comments on Symantec (NASDAQ:SYMC) after NPD data on Thursday showed meaningful weakness in box security products:

- Piper Jaffray notes distributor NPD data released on 1/11 shows a 21% yoy decrease in Symantec sales for the Dec-06 quarter. Street revenue consensus for Dec-06 is up 20% yoy. Separately, NPD data suggests an 11% sequential decrease in Dec-06, and the Street consensus is looking for up 1% sequentially.

The firm is defending SYMC saying they have compared the historical NPD sales data and the company reported data since Jun-05. The result is, NPD data has historically underestimated Symantec consumer yoy revenue growth by an average of 17%, and the magnitude of the understatement is increasing. According to PJ this is due to the fact NPD data tracks retail box products, and does not track sales made online. Separately, Symantec's 30% subscription price increase from last August would not be captured by NPD.

Also, in December of 2005, Symantec shifted the consumer business to a fully ratable revenue recognition model. Although it is difficult to quantify it, they expect the consumer numbers in the December 2006 quarter will benefit from this shift. Maintains Outperform and $27 tgt.

- UBS on the other hand notes that last year SYMC did not release its date until 1/10. The firm is modeling F3Q07 rev & EPS of $1.34b and $0.29. SYMC mgt has yet to return calls which coupled with no EPS release date raises the possibility that a negative pre-announcement could be forthcoming.

According to the firm 2 factors that could be impacting SYMC's EPS date 1) the "go live" of its
consolid. ORCL ERP system post-close of Veritas acq. (at times launch of these systems has impacted many co's ability to recognize rev) and 2) Vista launch at end of this month which has impacted retail PC shipments (as evidenced in NPD data). If rev were pushed out for either reason, it would likely be realized in the Mar Q.

While consumer security represents 29% of our F3Q07 sales fcst for SYMC, MFE.com consumer sales are 37% which includes their direct sales as well as more recurring ISP rev stream. Retail for MFE, (which NPD corresponds to) is only 5% for MFE. Although the NPD and Vista hardware deferment are negative for both co's, they see the data as more negative for SYMC given MFE's more stable ISP rev stream. Maintains Buy and $24 tgt.

Notablecalls: Firstly, I'm still kicking myself for not writing up the NPD call on SYMC/MFE for NC on Friday! Secondly, PJ's defense of SYMC is likely to catch them with their pants down. You just don't go against a major datapoint like this one. I went over every datapoint on SYMC over the weekend and I must say I was surprised by what I saw. I think SYMC has been losing ground. None of the major firms has paid attention. Kudos goes to UBS for their excellent point regarding the timing of earnings release. I bet Heather Bellini, the analyst covering SYMC for UBS was out with the call already on Friday! Anyway, I think SYMC is a short here despite the oversized downside move the stock made on Friday. Actionable call alert!

Barron's Summary

“Technology Trader” out with a real nasty piece on InnerWorkings (INWK). The article is highly entertaining, so I decided to post it fully. Read here.

Notablecalls: Expect to see big downside.

Barrons’ Roundtable members picks include MON, RIO, APOL, CECO, COCO, BIDU, APA, BRNC, HSOA, AIMC, ARW and SVBI. Another fund manager top holdings include MTW, CELG, AES, FDS, CTL, COH, IM, AKS, ETFC and CHRW.

The TV group looks undervalued. The New York Times (NYT) got a rich price for its TV stations, and that could lift the stocks. A retransmission victory would boost cash flow. There could be more upside this year in the low-profile TV group, which includes Hearst-Argyle (HTV), Sinclair (SBGI), Lin TV (TVL), Gray TV (GTN) and Nexstar (NXST), if Sinclair is successful in its current battle with Mediacom (MCCC) to be paid for providing local stations to Mediacom cable systems.

M&A deals will be bigger, pricier and riskier this year, an indication that the bull mkt in M&A and LBOs in Europe is growing long in the tooth. US listed tgts include BCS, DT, DB, ABN, VLKAY, KPN, SCM and OTE.

The depressed shares of YRC Worldwide (YRCW) could climb above 60. Cash flow is rolling along, and earnings for '07 could come in well above the Street's expectations.

“The Trader” section discusses Kimberly-Clark (KMB), which generally flies under the radar screen, even if 1.3bn ppl use its products every day. But a big upswell in Kimberly call options activity last month caught the attention of B. Craig Hutson, of Gimme Credit. At one point, the trading was almost 20x the normal volume. And the co's bonds have performed poorly, Hutson adds, on unconfirmed whispers of a possible LBO. Since mid-Sept the spread between Kimberly's bond yield and the benchmark 10y Treasury bond yield have widened sharply, by 30bp to some 90bp. That suggests bondholders are getting antsy about the LBO rumors. Despite Kimberly's recent share gains, its EV to EBITDA multiple of about 10.5x ‘06 ests is still significantly below its peers. P&G (PG) currently trades at about 13.5x, Clorox (CLX) at 12x. Hutson figures a 20% premium to the current price.

Escala Group (ESCL.PK) was delisted by the Nasdaq last week after it failed to meet deadlines for filing earnings. The co’s shares plummeted 42%. Traders say the stock will continue to decline as institutional holders are forced to liquidate their positions b/c of internal mandates that prohibit them from holding pink sheet stocks. "It could fall below BV," says one analyst. The analyst ests that after write-downs, Escala's shares have a per-share BV of around $2.30-2.60. "And if you take into account other yet-to-be calculated charges related to fighting shareholder lawsuits, the cost of the recent internal audit, the ongoing SEC investigation, what Spain might do with its shares of Escala, you can very easily get to a number around $1 a share in net asset value," he adds.

At year-end ‘05, Marsh Douthat, of Ockham Research, said General Motors (GM) was the Dow's most attractive. GM’s 58% moon shot in ‘06 came as a shock to just about everyone. Douthat didn't just get GM right. His top 5 Dow picks from last year had an avg total return of 26%, easily besting the benchmark. This year, Douthat gives his No. 1 slot to Wal-Mart (WMT). His other picks, in descending order: HD, MSFT, GE, PFE, JNJ, KO, AIG, INTC and CAT. "Everybody recognizes these stocks are relatively cheap, but they don't have a good handle on why they would get less cheap," he says. He doesn't pretend to know the catalyst, only that "there will eventually be one."

“Preview” section highlights Staples (SPLS), which is poised to roll out 100 “that-was-easy” type products each year. It's also innovating beyond its superstores, opening new copying stores to compete with Kinko's. "It's all about building a national brand and creating a service feel about our co," CEO Ron Sargent told. And the co, which has been boosting margins by increasing direct purchasing from factories, is moving into new mkts like Denver, and expanding its office-products brand in grocery stores around the nation. Sargent also expects the co to improve inventory mgmt at its N-American delivery unit in the next few years. That can only help earnings, which are forecast to grow about 15% in ‘07 and ‘08. Yet at $26, the stock remains at a below-trend 17.7x next year's earnings. By getting back to historic multiples, the shares could move up 14%, easy.

“Follow Up” section reviews Xerox (XRX) story, they ran 8 months ago. The shares are up 21.2%, the co's debt has been upgraded to investment grade, cash-flow growth is strong and the co's been buying back stock and keeping costs down. At 17 a share, there's still room for price appreciation.

Calls of Note Part 5

- Cowen notes shares of Intuitive Surgical (NASDAQ:ISRG) have declined significantly, falling by 18% in the past month. A combination of real and imagined events seems to have engendered fears of slower growth or lower earnings power. Firm believes that the price decline is not justified as business fundamentals are strong and likely to remain vigorous, contrary to trepidation about 2007 guidance. The threat from a recent patent suit is negligible. They maintain their positive stance on Intuitive and reiterate Outperform rating with expectations for the shares to outperform the market by 40% - 45% in the next 12 months.

Recent news accounts imply healthy sales trends for Intuitive Surgical, with unabating demand for prostatectomies, hysterectomies and new da Vinci surgical system placements in hospitals. Rising use for gastric bypass procedures to treat morbid obesity is also occurring, representing another source of growth as nearly 200,000 obesity surgeries are performed annually in the U.S. Hospitals view the system as a means for boosting competitive advantage and are publicizing new da Vinci system purchases in order to attract (or retain) patients.

Firm believes that system sales for the seasonally strong 4Q will again prove to be significantly higher than 3Q and note that in 2004 and 2005, 4Q systems sales rose by 7 and 9 units, respectively. Sales and earnings guidance for 2007 should be issued on February 1 when Intuitive reports 4Q results. Cowen believes that fears of guidance being below Street expectations are unwarranted based upon their observations of the market evolution and clinical progress for the da Vinci system.

The current forward P/E of 33x for shares of Intuitive is their lowest valuation in 3 years.

Notablecalls: Love the call but I suspect the bounce I was looking for 3 days ago (see archives) already happened yesterday. On the other hand, ISRG is a huge mover and Cowen's call is brilliant enough to turn heads. I'm going to call this one actionable after all.

Calls of Note Part 4

- Piper Jaffray notes their review of Crocs (NASDAQ:CROX) spring 2007 line underscores the dramatic expansion of the brand portfolio, extending beyond the classic clog into a lifestyle brand including footwear, apparel, and accessories. The classic Beach/Cayman style represents less than 5% of the mix and is trending quickly toward 25% of domestic sales. Last year, among the 8 styles, the core clog represented near 85% of sales. Firm believes Crocs is leveraging its global distribution network & proprietary Croslite resin to extend the brand into select technical apparel and sporting goods categories (currently less than 3% of sales) - longer term opportunities (late-FY07 & FY08).

They believe spring 2007 marks the first period when Crocs will aggressively bifurcate its
assortment by key retail accounts.

Sales/door continues to increase, seasonality is being offset with key license agreements, and the addition of Jibbitz into the floorset improves footwear sales by an average 35%. With near 140
(NCAA, NHL, NFL) team licenses, PJ thinks the brand will contend for year- round shelf placement and expand brand mindshare with the young male demo.

Firm is raising their FY07 sales & EPS estimates for new licensed product (NHL, NFL), expanded distribution, and elevated expectations surrounding sales & profitability. Tgt goes to $53 from $54.
Maintains Outperform.

Notablecalls: Nothing new in PJ's note. Won't have any immediate impact on the stock. Usually, when companies with strong core product lines start expanding agressively it's a sure sign that things will be slowing down.

Calls of Note Part 3

- RBC Capital is expecting decent results from Juniper (NASDAQ:JNPR) near term but the variability in core market share and moving parts at customer Verizon lead them to maintain Sector Perform rating and price target of $19 until they gain better visibility towards '07 estimates.

Competitor Cisco continues to enjoy accelerating bookings for its CRS-1 core router, which grew 25% sequentially in the recent quarter. Cisco is making headway with both the cable operators and the telcos for its CRS-1 and may be gaining share at key international telco accounts such as DT and NTT.

The on again, off again Verizon RFP for edge routing seems to back on again and not just for Juniper according to firm's sources. Contacts are indicating that Ericsson is working diligently to displace Juniper at this carrier now that it will soon have Redback integrated in its portfolio. So while some investors considered this RFP a done deal for Juniper, it may now be back up for grabs.

Throughout 2006 Juniper consistently lost market share sequentially in several router categories. However, in firm's view Juniper has now stabilized its market share loss in edge routers and the market for routers overall may be growing at a faster rate. Juniper's overall service provider market share now stands at about 17% with high end enterprise market share of about 26%.

Notablecalls: Not actionable but good to know category. The comments regarding the VZ deal sound interesting and may be an indication of some upcoming problems. ERIC is getting aggressive in the US. Would not want to be long the common into earnings.

Calls of Note Part 2

- Citigroup is cautious on Sandisk (NASDAQ:SNDK) shares entering 2007. Fieldwork suggests known near- term pricing risks could prove greater than Street expectations, compounded near term by seasonality, waning price elasticity of demand, and any upside to NAND supply. On company-specifics, while they expect solid 4Q06 EPS given handset card strength, a cautious 1Q07 outlook should be expected and they see more downside than upside risk to 2007 Street EPS revisions. Psychologically, ongoing spot and contract price declines, compounded by MU's February 9th analyst day which seems likely to emphasize 2007 supply growth and a Lexar market share gains are headwinds. Further out, SanDisk's 2/26 strategic and financial outlook focused analyst day could put a floor under the shares in what is otherwise a seasonally-unfriendly period until May. In summary, while the shares are not expensive at 18.6x 2007E EPS, volatility could be significant near term. Catalysts could emerge closer to the February 26th Analyst day, and the firm might reconsider their Hold rating at share prices below $40.

Increases 4Q06 EPS to $0.71 from $0.69 on handset cards+unchgd pricing. However, for the 2nd time since early-Dec, the firm cuts their 07e EPS, to $2.55 from $2.71, this time on prd pricing (prop checks) + royalty. Tgt goes to $52 from $54.

Notablecalls: SNDK got hit yesterday on NAND concerns. That may continue in the s-t.

Calls of Note Part 1

- JP Morgan is adding Sprint Nextel (NYSE:S) to their US Analyst Focus List with a January '08 Price Target of $25 as S should be a turnaround story with 2Q07 marking the turn to positive subscriber growth. Firm derives a $25 Price Target based on their expectations for an expansion of 2008E EV/EBITDA to 6.3X from its current level of 4.2X

JPM now believes the wireless industry's cumulative performance since 2003 makes the group's valuation less compelling and their focus in 2007 will be on relative values rather than a call on the group to rise. They expect upside to the stocks will be driven by turnarounds, upside to estimates, or asset plays.

In their view investors have become overly pessimistic on the outlook for Sprint Nextel. Though the merger has been extremely disappointing to date, the firm believes S will make substantial progress this year. Specifically: 1) return to positive net adds in 2Q07, and possibly in 1Q07; 2) the Street is no longer overly bullish on the stock, suggesting there could be upside on incrementally positive data; and 3) consensus estimates are calibrated down to a point where S is now likely to beat them - supported by the fact that there are only few Buy ratings now.

Maintains Overweight rating.

Notablecalls: JPM is probably on right tracks with their call. I have no feel for what the stock will do in the s-t, though.

Color on warning: AMD (NYSE:AMD)

Several firms are commenting on Advanced Micro (NYSE:AMD) after the co issued a negative pre-release last night:

- Goldman Sachs notes that while no explicit CY4Q06 sales guidance was given, management had indicated on its CY3Q06 earnings call that sales should increase in-line with normal seasonality of about +10% qoq. Operating income (excluding ATI and related charges) is now expected to be positive but down significantly qoq. Per firm's expectation, margins were negatively impacted by significantly lower CPU ASPs. They are lowering their EPS estimates on lower sales and margins: CY4Q06 EPS goes to $0.06 from $0.22; CY07 EPS goes to $0.90 from $1.05, and CY08 EPS goes to $1.30 from $1.80.

CY4Q06 marks the 3rd consecutive quarter AMD has missed expectations. GS downgraded the stock on 1/3/2007 given their view that the Street would cut estimates as it acknowledged that it is too big of a leap to get to the 2007 guidance AMD provided at its analyst meeting given the current state of its business. They view AMD as their best short idea in semis and continue to expect estimate cuts as the Street capitulates that AMD's 2007 outlook is too optimistic. Firm believes Intel stands to benefit from AMD's missteps given its current product superiority. While they do not see absolute upside in Intel's stock given that it is trading at 22X normalized EPS, they continue to expect a long Intel/short AMD pair trade to be very profitable in 2007.

Tgt goes to $16 from $19.

- JP Morgan says theybelieve the downside was driven by Intel's aggressive pricing and superior products and they expect further downside to Consensus estimates until AMD and Intel begin cutting capital expenditures. They downgraded AMD to Underweight in October due to expectation for downside to Consensus estimates and they note their previous C07 EPS estimate of $0.56 was roughly $0.55 below Consensus.

As a result, they are lowering their C06 revenue and EPS estimates from $5.7 billion and $1.12 to $5.6 billion and $0.93 and C07 revenue and EPS estimates from $7.4 billion and $0.56 to $6.7 billion and $0.18. Reits Underweight.

- UBS notes this warning reignites their doubts about AMD's flat to slightly up ASP assumption for 2007 given at the last analyst day. Furthermore, they believe AMD is also facing challenges in the ATI integration as they believe the R600 graphics product could be facing delays, leading to further share loss to NVDA.

Firm notes they have warned in the past about AMD's vulnerability in server which they estimate account for 35-40% of AMD standalone gross profit/cashflow and <10% of units. Intel's success with both Woodcrest/Clovertown seems to more than erase any progress AMD makes in notebooks.

Given Intel's 9 month lead on quad-core they expect a sharp Intel price cut ahead of AMD's quad-core (Barcelona) launch in late 2Q07 - a situation Intel can hedge with 45nm ramp & restructuring benefits. AMD's guidance of -$500m negative free cash flow in '07 looks challenging & could be worse, they had earlier warned. Maintains Neutral and $23 tgt.

- Citigroup is downgrading the shares of AMD to Hold from Buy reflecting concerns that gross margin may face more persistent pressure than anticipated. While they lowered estimates on AMD earlier this week to below-consensus levels, pricing pressure in servers leads them to reduce estimates again.

Tgt goes to $21 from $26.

Notablecalls: While many firms were negative on AMD ahead of the pre-release (GSCO with Sell, JPM with Underweight) I think ThinkEquity's Eric Ross nailed it for traders with his Jan 3 comments saying inventories at AMD has suddenly built in the channel, and prices were plummeting. Be sure to check out his intraday call on INTC from yesterday. AMD's loss may not be INTC's gain after all.

Paperstand

The WSJ reports that federal authorities are actively investigating a backdated stock-option grant awarded to Steve Jobs, Apple’s (AAPL) CEO, that carried a false Oct’01 date, ppl familiar with the matter say. Apple recently disclosed that records were "improperly" created to claim that the grant was approved at a special board meeting that month. But no board meeting took place then. Investigators are now focusing on the grant to Mr. Jobs for 7.5m options that were finalized in Dec’01, when Apple's share price was higher. The false dating increased the value of the grant to Mr. Jobs, and resulted in a retroactive $20m charge to Apple's earnings when it was discovered by a special internal investigation. The false documentation was created by an Apple attorney named Wendy Howell, whom the co quietly dismissed last month. Ms. Howell contends that Apple's general counsel at the time, Nancy Heinen, instructed her to create the false documentation. Thomas Carlucci, Ms. Howell's attorney, said that while at Apple "Ms. Howell acted as instructed by Apple mgmt and with the co's best interest being paramount."

Barron’s Online discusses big pharmas, saying that despite setbacks last year at Pfizer (PFE) and other drug makers, Big Pharma has some big breakthroughs in store this year. Experts interviewed by Barron's Online, including doctors and industry analysts, helped identify 5 drugs that could advance treatment for certain serious conditions and pay off for drugs makers. The list includes Novartis’ (NVS) diabetes drug, Galvus, and its high-blood-pressure drug, Tekturna. GlaxoSmithKline (GSK) has a new breast-cancer drug, Tykerb, while Wyeth (WYE) has the antidepressant, Pristiq. Meanwhile, Sanofi-Aventis’ (SNY) long overdue diet drug, Acomplia, still awaits the FDA's approval, but should finally get launched this year.

“Inside Scoop” section reports that Iridian Asset Mgmt recently disclosed a 10% stake in HealthSouth (HLS) stock, or 8.2m shares, up from the 6.5% stake, or 5.2m shares, that it held at the end of the 3Q.

Calls of Note Part 5

- ThinkEquity's Eric Ross is out with a major intraday call saying they heard from sources at the Consumer Electronics Show (CES) and elsewhere that Intel (NASDAQ:INTC) could see December-quarter revenues nearer to the low end of its range ($9.1b) rather than the midpoint of $9.4b or Consensus of $9.45b. Even with stronger gross margins, they still do not see EPS reaching above $0.23 vs. $0.25 for Consensus, without some financial engineering. While they would not short Intel into the quarter due to this (or change rating), it is possible for the shares to fall a bit.

Firm now believes December-quarter revenues are likely to be $9.25b (firm's new number) or lower. Consensus is $9.45b and $0.25 for the December quarter. These are sources both inside the company and in the electronics supply chain. They actually heard numbers as low as $9.10b for Intel's December quarter from their sources.

For high-end products, the quarter was very back-end loaded. They heard that high-end product such as Conroe (Core 2 Duo) for desktop saw weak October and November sales. Demand picked up sharply in December. Firm believes this is consistent with the build for Vista they have heard elsewhere, but are not certain this reflected real demand.

For low-end products, demand fell in December. Low-end demand for Intel appeared to have dried up in December after a strong October and November. This is consistent with what they have heard from other suppliers in the channel.

Mr. Ross believes Intel is winning back some higher-profile PC models from Advanced Micro Devices (NYSE:AMD), but due to its aggressive sales and pricing. He expects with these share losses by AMD (coming), we could see another aggressive pricing competition year.

Notablecalls: Considering most firms expect INTC to come in at least in-line I think Eric's comments will get some attention. Would not be surprised to see weakness in INTC following the call.

Calls of Note Part 4

- JP Morgan notes DiVX (NASDAQ:DIVX) demonstrated its HD product at CES, which they believe will resonate with CE OEMs focused on price-sensitive end-markets. However, the key to the DIVX story remains consumer awareness and viral demand, which appears to be forcing CE OEMs to adopt the Codec. DivX Connected technology is maturing, pointing to DIVX's potential as the enabler of the "connected home' but success hangs in the balance.

DivX HD was demonstrated using 1080p playback from both a PC and a DIVX-certified I-O Data DVD. Expect Tier OEMs to target emerging markets with this product, currently certified by just three OEMs. DIVX demonstrated Ultra and Connected applications, though no licensees were announced.

At CES DIVX announced that its Codec is certified for use on an HP MediaSmart TV, expanding reach to a new product category. JPM learned that Toshiba is committing to certify all US DVD players in 2007, and Samsung released plans for a DIVX-certified mobile phone. DIVX management stated they are in dialog with OEMs spanning handsets, Game consoles, STBs and DVRs. Firm continues to believe that 1Q07 royalties are trending ahead of expectations owing to faster than expected U.S. adoption of DIVX on DVDs.

Reiterates Overweight Rating.

Notablecalls: Not actionable but good to know category. As I noted yesterday, JPM covers stuff with passion.

Calls of Note Part 3

- Merrill Lynch notes that in the course of doing vendor checks at the consumer electronics show and elsewhere, it appears that Texas Instrument's (NYSE:TXN) much-discussed Locosto is having some early difficulties. The firm has no doubt that Locosto will be successful for TXN over the long run, and the part is shipping in volume, but they do think that expectations for Locosto-driven share gain in 2007 may be too high. Recall that Locosto integrates the radio transceiver and the baseband onto a single die, manufactured on a CMOS process. Working with an integrated CMOS radio is new for handset OEMs and carriers, and firm's checks indicate that transmit noise in the receive band has been an early challenge. Working around that requires the use of additional off-chip filters and matching circuits, which adds additional components and cost to the handset. Motorola's new entry-level MotoFone is the most visible Locosto win, and appears to have been hit by the component count issues they've turned up.

It would be foolish to argue that TI will not overcome some of Locosto's early problems, and they'd expect to see subsequent OEM implementations of the part look better. On the other hand, though, early expectations that Locosto was going to be a game-changer for TI at the low end of the market may not be met.

Notablecalls: Locosto has been expected to be in 50% of low-end handset by H2:2007. The comments from ML are not actionable but do warrant some attention.

Calls of Note Part 2

- Goldman Sachs is raising their 4Q2006 revenue, EBITDA and EPS forecasts on Google (NASDAQ:GOOG) to $2,187mn (+17% qoq), $1,345mn (61.5% margin), and $2.90 based on channel checks that indicate spending growth of 15%-20% qoq. Firm advises investors to buy Google with 20%-plus upside to their $595 year-end price target. 4Q2006 results should reinforce growth outlook and valuation, while 2007 should be a year that illuminates new growth opportunities in branded advertising, video, non-web advertising, and software services (Google apps at your domain). These new areas would be incremental to their $17.47 2008E EPS and could render firm's $595 price target conservative.

Several factors could unfold over the coming months to unlock the value they see in Google shares: 1) strong 4Q2006 results due to a solid holiday season that likely benefited from continued advertiser demand, seasonal strength in traffic, and recent product launches (including Checkout); 2) benefits from monetizing new partnerships to be launched in 2007, including eBay, MySpace, and Intuit; 3) growth from new ad formats such as display, video (via YouTube, MySpace, and proprietary sites), pay per call, and pay per acquisition; 4) new non-web based advertising deals in radio, print, and television; and 5) the introduction of premium Google apps at your domain.

Reits Buy.

Notablecalls: Note that the ests are upped merely to in-line with consensus. The chart looks strong so I suspect there will be at least a slight push upward in the pre mkt. After all, it's GSCO.

Calls of Note Part 1

- JP Morgan expects MEMC (NYSE:WFR) to sequentially raise gross margins throughout the year in conjunction with its non-vertically integrated semi wafer competitors, Shin-Etsu and SUMCO, which are likely to pass on their increased polysilicon costs to their customers.

Firm expects polysilicon costs may increase by as much as 20% YoY due to the continuing supply/demand imbalance, which is unlikely to be resolved until 2008. They also believe that semi wafer start growth will outpace semi device unit growth in 2007 due to an incremental increase in average device die sizes, which are increasing as large die NAND Flash and multi-core microprocessors grow as a percentage of overall semi devices.

MEMC is also expected to start supplying wafers to the solar industry in 2007 in addition to the polysilicon it currently sells on the spot market to solar wafer makers.

JPM is raising their C2007 PF revenue/EPS estimates to $1.89bn/$2.90 from $1.88bn/$2.74 to reflect improved 2007 outlook on wafer pricing.

Reiterates OW Rating, and Top Consumables Pick Status. WFR shares are trading at 15.1x PF C2007 EPS estimate of $2.90 versus overall group average of 15.8x.

Notablecalls: Love the comments from JPM! While UBS nailed the latest upward move (see archives), JPM may add some fuel to the fire.

Color on news: Genentech (NYSE:DNA)

Several firms are commenting on Genentech (NASDAQ:DNA) after the co reported strong Q4 results and issued optimistic 2007 guidance. Lucentis and Avastin were the starts of the day:

- Morgan Stanley notes top and bottom line performance exceeded both their and Street expectations as Avastin is reaccelerating with the lung cancer approval and Lucentis again came in above expectations (which they expect to moderate through 2008 with longer dose intervals). Firm expects Street numbers will need to increase for the next several years for Lucentis, Avastin, margins and EPS (MS is raising all of these but Avastin, which they raised earlier this week).

A strong top-line quarter should help this stock continue "to climb the wall of worry"; the next major concern will likely be the upcoming AVAIL trial exploring lower doses of Avastin in lung cancer (they continue to expect high dose to win, and the impact if low wins is likely limited since
the patient cap effectively already took breast cancer economics there). Avastin remains the major source of investor dispersion, and they expect lung cancer will drive Avastin growth in 2007 with breast cancer driving 2008 (and adjuvant colorectal cancer potentially driving 2009 and beyond). Firm continues to like this stock as it offers the potential for top and bottom line upside. Reits Overweight. Tgt $96.

- Piper Jaffray notes DNA reported solid 4Q earnings with a recovery in all major cancer franchises and continued growth in Lucentis for its second quarter on the market. Specifically, after a sequential downturn in Rituxan sales in 3Q, Rituxan sales rebounded to $560m vs. PJ estimate of $540m. The company estimates that $125-150m of 2006 sales came from the rheumatoid arthritis indication. Avastin sales were also ahead of firm's expectations at $490m compared with our estimate of $483m. End-user sales were even higher at $499m after adjusting for a $9m reserve taken for the price cap program. Growth was driven by the recent launch of Avastin in lung cancer, and they expect that penetration could continue to increase in this setting in 1H07. As expected, Lucentis sales were $217m, well above PJ estimate of $160m but in line with IMS data. Herceptin sales of $322m showed a rebound in growth after a sequential down quarter in 3Q but were less than estimate of $339m.

Based on 4Q results and 2007 guidance, they are revising their non-GAAP EPS estimates from $2.65 to $2.87 in 2007 and from $3.02 to $3.37 in 2008. Firm's new estimates also include a more aggressive outlook on Lucentis sales and royalties. They are raising their price target from $113 (40x 2008 EPS, discounted at 15% for one-half period) to $118 (35x 2008 EPS). Maintains Outperform.

- FBR is probably the most pessimistic of the bunch saying guidance for 2007 of 25-30% EPS growth is incrementally better than where the Street was already, but the upside seems to be coming mostly from increased sales to Roche to re-fill its Herceptin/Avastin inventory. Though the firm raised their price target slightly to $90 (from $86), and Street numbers will likely rise, the stock seems destined to tread water in a 1H07 that lacks major catalysts. Avastin adjuvant data could be a driver later in 2007.

FBR notes they had thought Genentech would be reporting data from an Avastin adjuvant trial in breast (ECOG2104) in 1Q07, but this has been pushed to December (the San Antonio meeting); they had thought that interim data from an Avastin adjuvant trial in colon cancer could come in 1H, but according to the call, that's a 2H event also. Firm sees little else pipeline-wise that could surprise to the upside.

Notablecalls: Needless to say, I like FBR's comments by far the most. But on the other hand Morgan Stanley also makes sense with their "wall of worry" comments. The stock has done nothing for 9 months and now they guided 2007 up in a pretty convincing way. Not sure I'd want to step in front of this one.

Paperstand

According to the Barron’s Online, despite a slide in oil prices to levels not seen in nearly 2 years, the demand and govt incentives for sun- and ethanol-fueled power remain strong. Two stocks that could benefit are solar giant SunPower (SPWR) and ethanol producer VeraSun (VSE). With oil prices down, SunPower shares have fallen 8.5% from their 52w high, while VeraSun shares are down roughly 42% since going public last June. But each firm boasts bright long-term earnings growth prospects and solid mgmt in an era of increased state and federal support for energy alternatives. "For the first time in ‘06 you saw a number of solar and wind turbine co’s pushing into profitability," says Philip Deutch, who runs a private-equity fund whose investments include renewable energy technology. "Some ethanol co’s were profitable, too."

“Inside Scoop” section reports that Columbia Wanger Asset Mgmt, a wholly owned subsidiary of Bank of America, took advantage of the Abercrombie & Fitch (ANF) stock pullback to emerge as the teen retailer's top shareholder. Columbia reported it increased its holdings in Abercrombie to 5.94m shares (a 6.73% stake) from about 5.23m shares (a 5.3% stake) at the end of the 3Q.

Calls of Note Part 7

Morgan Keegan is out with another negative datapoint about OmniVision (NASDAQ:OVTI), saying the co has a pair of private upcoming competitors for its Wavefront coding technology.

Firm has learned of two private companies that have software-based auto focus product offerings similar to OmniVision's wavefront coding technology. Wavefront coding uses software to focus digital images instead of mechanical components to adjust the camera lens. This is a very attractive application for camera phones, which do not do well with moving parts. OmniVision was originally going to introduce a product including the technology this month, but the company has not been satisfied with its performance and no new timetable has been given.

The two private companies firm has identified who have similar technologies are DxO Labs and Dblur Technologies. DxO Labs is a French company that was spun off from Vision IQ in late 2002 and has roughly 60 employees. It has embedded imaging products similar to wavefront coding, as well as two lines of PC-based software for image enhancement and image quality measurement. Management has confirmed that its embedded imaging products are generating revenues. DxO Labs is backed by a variety of European and Japanese venture capitalist firms.

The other private company is Dblur Technologies, which is based in Israel and was established in 2000. It has a Software Lens product that provides the same auto focus functionality as wavefront coding and the company offers a variety of related services. Backers include Sequoia Capital, TemproPark Fund and Landa Ventures.

Notablecalls: OmniVision hasn't been too successful with its Wavefront technology so far. Upcoming competition isn't very surprising, but will not help the sentiment, either.