Color on quarter: Akamai Tech (NASDAQ:AKAM)

Couple of firms comment on Akamai Tech (NASDAQ:AKAM) this AM following results announced last night:

- Thomas Weisel notes revenue upside was driven by higher-than-expected monthly ARPU of $18.9K (up 8% q/q), versus their estimate of $18.4K, as existing customer usage grew faster than expected. In addition, the Nine Systems acquisition contributed $900K in revenue that was not in firm's estimate. Net new customers increased by 203 (78 organic, 125 from Nine Systems) bringing total customers to 2,347, while churn was 3.5% in the quarter.

For 1Q07 Akamai guided to revenue of $136-140mn and pro forma EPS of $0.28. This compares with the consensus estimates of $128.9mn and EPS of $0.27. Firm notes that their estimates (and most likely consensus) did not include roughly $4-5mn in contribution from Nine Systems and Netli (to close in March), which means core guidance exceeded their expectations by $2-5mn.

For 2007, the company guided to revenue of $610-625mn (42-46% growth) and pro forma EPS of $1.26-1.30. Firm notes that previous guidance had not included the impact of the Nine Systems and Netli acquisitions, which closed 2006 at roughly a $15mn revenue run rate each. Assuming a full year of Nine Systems and nine months of Netli contribution and a growth rate of 35% for those businesses, we estimate increased guidance includes $35mn due to acquisitions and $15mn of additional growth. EPS guidance of 50% growth assumes that gross margins will decline by 3% due to higher network depreciation and volume discounts, while EBITDA margins will improve by 4% due operating efficiencies.

Due to the solid execution and tremendous success of Akamai over the past two years, investor expectations remain high. TWP believes given the current valuation of AKAM shares, investors expect a solid beat and guidance raise every quarter over the near term. While they see some potential upside to the organic business, they think that in order to satisfy expectations for 2007 and 2008 the company will need to garner some upside from Nine Systems and Netli.

AKAM trades at a premium valuation of 16.7x 2007E EV/sales, 51x 2007E FCF and 44.3x 2007E pro forma EPS. TWP therefore believes that, at current prices, the shares are fairly valued and maintains Market Weight rating on the stock.

- Piper Jaffray says Akamai continues to experience robust growth across the board, driven by increased broadband adoption. Organic revenue growth was approximately 51% vs. approximately 47% last quarter. Firm expects strong macro trends to continue and Akamai now projects 42-46% (35-39% organic) growth in 2007 vs. 32-36% previously. Additionally, Akamai continues to experience solid operating leverage, with 42% EBITDA margins (vs. 37% in 4Q05).

While they expect Akamai to continue to deliver strong results with upside, they believe shares at current levels are fairly valued. For 2007, the firm moves their ests from $575M in revenues and $1.21 in PF EPS to $627M and $1.30. 2008 estimates increase from $730M and $1.59 to $850M and $1.81.
Target is raised to $58 from $48. Maintains Market Perform.

- Deutsche Bank notes they were again impressed with Akamai's results and outlook, which exceeded their expectations. Growth accelerated, with revenues up 52% (51% organically) over 4Q05. Firm would look to add to Akamai positions on any pullback as this is the single best fundamental growth story in their universe. Reiterates Buy and raising target to $64 from $59.

Firm believes Fy07 guidance is conservative and the potential exists for upside as revenue growth appears to be accelerating.

Notablecalls: Love this co as it stands right at the center of the bandwidth race. The stock traded as low as $54-$55 in after market action (closed at $56.95) but rebounded to around $55.80 later on. I think the shares will be weak today as the core growth should have been somewhat stronger in order to justify current valuation levels. But as I already mentioned, I continue to like the co and the stock so there will likely be a bounce after the mo-mo sellers are done.

Apple (NASDAQ: AAPL): JP Morgan cautious on iPod shipments

- JP Morgan continues to be cautious on Apple (NASDAQ:AAPL) after a visit to Apple's headquarters in Cupertino, California. Firm notes that while the overall tone of the meetings was positive, most of the positive commentary was focused on the latter part of the year and the iPhone.

Retail momentum should improve after last quarter's decline in iPod growth. CFO Ron Johnson was very pleased with the momentum of the Apple retail stores, and reiterated that last quarter's average store revenue declines were an anomaly caused by the broader availability of iPods at third-party retail partners. He believes this distortion was largely a one quarter event.

Management cautioned investors not to limit the addressable market opportunity to Cingular's
current installed base. The company believes the iPhone will bring new subscribers to the Cingular network and international carriers will represent a healthy portion of the market.

Firm notes their concerns over slower Mac share gains and near-term iPod pressures persist. They believe the recent quarter's disappointing Mac shipments added risk to the story. In addition, as we enter the seasonally weaker period of the year, the firm remains concerned that iPod shipments may disappoint investors' heightened expectations.

They believe this risk is particularly pronounced given concerns that some consumers may delay iPod purchases ahead of the iPhone launch. As a result, the firm believes it may be difficult for the shares to outperform the peer group average, and are maintaining Neutral rating.

Notablecalls: I think these comments may pressure AAPL stock in the early going. While there is nothing really new to be found in the note it does highlight the obvious - the iPod fad is likely starting to fade.

Calls of Note Part 1

- JP Morgan believes that there may be more than simply soft 4Q results behind the decision of General Atlantic to pull out as an equity sponsor in conjunction with CEO Jim Crane's offer to buy EGL (NASDAQ:EAGL) at $36. Firm's sense is that a difference of opinion about control and input for GA in the management of EAGL was probably an issue.

They believe that the cash flow characteristics and growth potential of non-asset transportation companies are attractive to private equity investors and they believe Mr. Crane is likely to find another equity sponsor to help fund a buyout.

With little information in the press release, visibility is limited. However, the firm believes reward to risk is favorable for EAGL. Emergence of another equity sponsor clearly could boost the stock and even on lower 07 EPS they suspect potential downside is only to the high $20s area. Historically EAGL has meaningful EPS volatility especially during periods of weak demand. JPM has lowered their 2007 EPS estimate from $1.75 to $1.40 to reflect a difficult 1H07.

They uspect that another private equity buyer could show up and firm's sense continues to be that a $38 to $40 type of takeout price could be justified.

Notablecalls: Expect to see some buy interest in EAGL today. The 16% drop is share price looks like a bit of an overreaction.

Paperstand (TEVA, INFA)

Barron’s Online discusses Teva Pharma (TEVA), saying that despite challenges in ‘07, the co could win back its crown. Skeptics have reason to pan the co's ADRs, which fell 28% last year despite the co's skyrocketing profits, says Thomson Financial. After all, top-selling drugs responsible for last year's windfall face competition, fueling an earnings slump. Falling generic prices and fewer expiring drug patents has slowed growth in the US generic mkt this year. Meanwhile, Teva's decision to replace retiring CEO Israel Makov this month with an industry outsider has raised eyebrows. Yet with its multiple near a 5-year low and profits climbing in ‘08, Teva looks compelling. "For the highest reward, you have to be willing to buy Teva in ‘07, when earnings are likely to fall from last year's high levels," says Peter Schofield, of Knott Capital. "But once the mkt looks ahead to ‘08, it will start to reward Teva."

“Inside Scoop” section reports that Chmn and CEO Sohaib Abbasi, of Informatica (INFA), spent $510K on 40K shares of the co. Abbasi's latest purchase is notable for two reasons. It is only his second purchase of shares since joining Informatica and the stock has nearly doubled since Abbasi made his first purchase shortly after joining the company, says Ben Silverman, of InsiderScore.com.

MRU Holdings (NASDAQ:UNCL) - update

ThinkEquity's Audrey Snell is out positive on MRU Holdings (NASDAQ:UNCL) following two day rally in the stock. The firm increases MRU price tgt to $10 (from $7.25) on the strength of MRU's pipeline of loans, its upcoming securitization, and the introduction of calendar EPS ests of $0.38 in '07 and $1.02 in '08. Think assumes CY rev ests of $62.7M in '07 and $97.5M in '08. The firm believes that MRU first securitization will take place in Feb'07 and which they est at $125-$150M. Analyst concludes, that "As we receive more data on MRU's securitization and origination pipelines, and yields it is receiving in the mkt, it is possible that the P/E on the stock will expand, more in line with the industry's 13-15x avg."

The firm notes, that the private loan securitization mkt is strong, as longer-term fixed income participants hunt for yield, and yields on these pools have been advancing in the last 6 months and may well offer upside to their est on this first securitization by MRU. The firm has estd a yield of 12.5% on a $120M securitization. Recent sales in this mkt have yielded 15-17%, and in some cases, over 20%. Analyst has not included this potential in her numbers.

Also, the Bush administration proposed a 50bp cut in student lender rate subsidies and an increase in lender risk as part of a plan to save the govt $95bn in entitlement spending by 2012. The proposals would affect the large federal student lenders. MRU, however, is not affected for three reasons: 1) The vast majority of its loan volume to date has been in originating private student loans; 2) it is a relatively small and new participant in the federal student loan programs; and 3) its pricing on federal student loans is below the mkt avg, in any case, and is in line with the Bush administration proposals.

Reits Buy.

Notablecalls: Long UNCL around 6. See archives for further color.

Calls of Note Part 5

- Stifel comments on Texas Instruments (NYSE;TXN) after Infineon announced Nokia as a new customer for its single chip E-GOLDvoice system on a chip, which will be used in Nokia's entry level voice centric phones, to be introduced in 2008. The Infineon solution competes directly with Texas Instruments LoCosto platform and is obviously making substantial progress into TXN's biggest customer. The IFX solution also competes directly with Silicon Labs AeroFONE.

While the split between Nokia phones using Infineon versus TXN is yet unclear, assuming about 25% of Nokia's volume moves away from TXN, the 2008 revenue impact could be $700 million - $1 billion compared to firm's 2008 revenue estimate of $14.9 billion, or approximately 5 - 7% of revenue.

Although not a dramatic portion of TXN's potential revenue base, the firm does see this announcement as a major negative catalyst to TXN's shares.

Firm would expect TXN's shares to be pressured by this announcement and that an upside catalyst is unlikely until improving trends in the handset market become evident, or TXN's customer base stabilizes. Accordingly, they maintain Hold rating.

Notablecalls: Expect to see pressure in TXN today.

Calls of Note Part 4

- Goldman Sahcs is negative on Komag (NASDAQ:KOMG) saying Intevac's strong 2007 outlook for its hard drive media capital equipment business reaffirms their thesis that HGST (Hitachi Global Storage Technologies) is accelerating the build out of its internal media capacity to the detriment of Komag. We're already seeing evidence that HGST - Komag's third largest customer at 22% of revenue - is declining in dollars for Komag. In a year when firm's checks point to HGST pulling more business in-house as part of its ramp of perpendicular technology, the risk to Komag estimates remains downward. Given the utilization-driven leverage in Komag's model, this would mean that the impact on the bottom-line could be $0.05-$0.10 for even a small move away from Komag by HGST.

Even though Komag's P/E multiple remains low on an absolute basis at 7.8x GS 2007 EPS estimate of $4.40, contracting margins, earnings that may have peaked in 2006, and the real possibility of further estimate cuts take away much of the valuation support and will keep the stock moving downward. With less confidence in their out-quarter estimates, they are lowering their price target for Komag to $31 from $37. Maintains Sell.

Notablecalls: I suspect these comments will generate some selling pressure in KOMG today and over the s-t.

Calls of Note Part 3

ThinkEquity is positive on Acme Packet (NASDAQ:APKT) ahead of results scheduled for tonight saying industry sources and competitors' public statements lead tem to believe that 4Q06 was good across the SBC market. While the firm believes different competitors have brought differentiated products to market, a big factor in the sub-Tier 1 account wins (and even niche applications within Tier 1s) remains market coverage. They are not increasing their estimates today although they believe there is upside to their model if Acme can maintain its market share. Believes that Acme Packet (APKT) is a strategic asset in the heart of the fast-growth Internet infrastructure market.

Some private companies claim that they are maintaining 100%+ growth rates, albeit off modest bases. Also, AudioCodes, which owns the Netrake business, held its conference call yesterday noting that its SBC business grew in 4Q "a few times that" of 3Q.

Competitive products are also not necessarily directly competitive just because they are classified as SBC. A Bentley and a Ford both have four wheels, and engine and a steering wheel, but they remain very different in terms of market acceptance. The same thing is true with SBCs, in that an Acme SBC is dominant in a somewhat different part of the market than for example an SBC from a certain privately held company.

Firm's 12-month target price of $25 implies a market cap of almost $1.6bn. Approximately 10% of the market cap is in cash. With our 2008 revenue estimate at $149m, their new price target implies a valuation of approximately 10x estimated 2008 revenue, plus cash.

Notablecalls: APKT has been a recent momentum favourite and I suspect comments by ThinkEquity will generate some buy interest today. It also looks to have Cramer's blessing.

Kendle International (NASDAQ:KNDL) - possible bounce play

Couple of interesting comments on Kendle International (NASDAQ:KNDL) that issued 2006 and 2007 guidance late last night. It's a clinical research oganization (CRO) that provides services to the pharma and biotech industr. Peers include CVD, PRXL, ICLR and even PPDI.

- Jefferies notes the obvious negative here is that management's credibility may be tainted by this surprise guidance revision. The co had reaffirmed firm'sunderstanding of the guidance and management expectations as recently as a few weeks ago. For 4Q06, management is lowering revenue by a few million dollars, but basically cutting EPS in half (down $0.27 at midpoint). The reduced guidance is a result of "delays associated with anticipated signings of changes in scope." In their conversation with management offline, the firm was told that 2 large contracts had experienced delays, but were back on track. The negative leverage to EPS is certainly remarkable.

For 4Q06, KNDL reported a net book to bill of about 1.73, well above our estimate of 1.33. Net bookings were strong, coming in at $150MM - this is well above our $120MM estimate (the cancellation rate was about half of our high-teen estimate). On the call with management, we were told that business is strong and that the CRL CS unit continues to ramp nicely. We believe that investors may be skeptical of management's projections.

New business and backlog was above firm's estimate, and guidance for 2007 is actually OK, however they believe the multiple will compress. Expects a 12-15% KNDL sell-off in KNDL.

- Baird is much more positive saying that while 2006 ended on a disappointing note, and Kendle shares will likely lose a sizable portion of the recent move, and heighten CRO investors' overall consternation about the sector and about Kendle. There is nothing in Kendle's news that contradicts firm's bullish investment thesis on the sector, but this may not be immediately apparent to many observers. Kendle's 2007 outlook is better than expected and they continue to apply lower valuation inputs to Kendle than they would typically ascribe to a company with similar growth, margin and bookings metrics, given the inconsistent performance of the recent past and the Higher Risk rating that the firm ascribes to Kendle. Since 2006 is water under the bridge, and since their forward estimates are increased, and since their NTM- based valuation model now rolls forward to CY07, firm's price target for the next twelve months increases to $43 from $40. Baird thinks that their valuation inputs are fair to conservative, updated model realistic to conservative, and they expect Kendle to outperform the market over the coming year, though they would wait for a pullback to put fresh money to work. Firm is aggressive buyers below $33.

Notablecalls: Take a look at TZIX yesterday. They guided Q1 down but had a nice upswing in backlog. That saved the day. The stock gapped down but rebounded sharply. Not the same space but you do get the drift, right? I think KNDL's a buy if it declines past the $33 line in the sand drawn by Baird. There is still lots of appetite for CRO services in the drug development sector, as evidenced by the hefty btb reported by KNDL.

Travelzoo (NASDAQ:TZOO) - bounce play

While I don't usually like to highlight rating changes on the page I think these two are meaningful:

- First Albany is upgrading their rating on Travelzoo (NASDAQ:TZOO) to Strong Buy from Underperform as the basis oftheir Underperform rating-a 4Q:FY06 earnings miss-has passed. Now, they see a combustible mix of likely 1Q:FY07 upside, compelling valuation, and high short interest in Travelzoo shares. Firm also thinks the significant insider selling that pressured shares through 2006 is done.

Yesterday Travelzoo reported 4Q revenue and EPS of $17.7 million and $0.26 versus firm's expectation of $17.9 million and $0.27 and the Street consensus expectation of $18.3 million and $0.28, respectively.

Firm sees upside to the 1Q:FY07 Street consensus and to their Street-high expectations. They believe the 1Q:FY07 Street consensus, as it stood before yesterday's results ($20.5 million in revenue and $0.32 in EPS) inadequately accounted for the easy comparison Travelzoo will enjoy now that results will no longer "comp" the 2005 departure of 10% customer Travelocity. In fact they view their revenue and EPS estimates of $20.8 million and $0.33, respectively, to be conservative.

High short interest could be rocket fuel. With more than 11 days' of trading volume in Travelzoo shares sold short, the upside the firm sees to 1Q:FY07 estimates could drive significant share price increases. CEO Ralph Bartel was an active seller of Travelzoo shares in 2006. However, with his ownership now hovering a tad above 50%, we think his selling is mostly done.

Tgt goes to $38 from $26.

- Stifel notes that despite a weak quarter, they are upgrading their rating on TZOO shares to Hold. Based on after hours pricing of $29.80, the shares trade for 20.4x 2008 earnings. They remain cautious on TZOO but no longer believe the shares justify a Sell rating.

The company gives no information about its business to allow an investor to make a rational investment decision. That said, TZOO trades for 20.4x 2008 estimates based on after hours pricing of $29.80. TZOO is a high margin business in an industry with respectable long-term rates of growth. Given that after hours pricing suggests shares are within 6% of their $28 fair value estimate, they are adjusting their rating to Hold. Firm remain cautious on the company due to management share distribution, limited information, and slowing trends in the North America business. They would be buyers of the stock in the low-$20s, all else equal.

Notablecalls: The stock is a notorious short killer. Short interest stands at 30%+, so I would expect an explosive move upward from levels reached in after mkt. First Albany may have created something big here. Actionable call. Sitting at my old trading desk I would buy every stock below $32 level and then take the price up by another 1.5-2 pts. Actionable!

Calls of Note Part 2

ThinkEquity's Eric Ross notes they continue to hear from their sources that Advanced Micro Devices (NYSE:AMD) is going through an extremely tough quarter, with inventories piling up at the channel as Intel takes more shares in the server segment. Firm expects AMD to continue to experience share loss and ASPs erosion in the server space. Desktops and notebooks are also at risk. Near-term outlook remains challenging and it does not look like the environment will improve for AMD at least until the second half of this year. Firm reiterate their Sell rating and lowers price target from $15 to $12.

As witnessed by its recent share loss to Intel, AMD has lost its technology edge at least in the short term and is becoming more and more vulnerable to market share losses in its core chip business. With pricing extremely competitive, there is no overwhelming impetus by PC OEMs to use AMD parts. Checks indicated that some major PC OEMs have moved some longer-term designs back to Intel. AMD inventories have continued to build in the channel.

Firm continues to hear from several of channel sources that distributors are rapidly cutting prices in order to unload AMD parts. Some of these are in response to Intel's rebates and marketing dollars, but it is obvious price wars are coming. Also, Intel is taking more shares away from AMD in servers.

Estimates: 107 remains at $1.65 billion; CY07 remains at $7.12 billion. EPs goes Q107 from ($0.03) to ($0.12); CY07 from $0.50 to $0.40. Lower gross margins in 1Q07 from 45% to 42%.

Notablecalls: Expect to see futher pressure in AMD over the next couple of days. Eric is the man!

Calls of Note Part 1

- Bear Stearns notes that given the volatility in Motorola (NYSE:MOT) shares after its earnings miss and activist interest they've revisited their MOT valuation. After reviewing a variety of scenarios and valuation metrics including DCF, LBO, buybacks, and sum-of-the-parts they see a fair value range of $23-25 per share compared to the $19.73 closing price Tuesday.

After operating margins dropped from 11% to 7% q/q, firm's $23-25 range is based on mgmt's guidance to an OM rebound in 2H07 and long term margins in the 10-12% range. However, MOT's challenge in replacing RAZR and iDEN cash flow is huge and justifies a discount to peers. They expect continued volatility in the near term including a rough 1H06.

A big question is whether MOT (and tech in general) can handle more debt. Bear believes that from ~2x net cash today MOT could certainly buy stock back faster, and may be already. Were MOT to lever net debt to 2x EBITDA it could buy back ~1/3 of equity. While accretive on an EPS basis, they believe this may leave many tech investors unwilling to hold the stock. Recent tech LBO's though indicate that private equity firms may consider a run, but MOT's size could present a challenge.

Although handsets have seen strong, steady growth for 4+ years the firm believes there is still potential for a downturn in the business which could leave a debt-laden company impaired. However unlikely, the prospect of having to reduce R&D to make interest payments could make a cyclical downturn permanent. Connected Home and the gov't bus offer some diversification from MOT's handset business (still ~2/3 of cash flow) and they believe are better within the company than sold off.

Maintains Peer Perform.

Notablecalls: Considering I issued a short sell call on MOT yesterday, I thought it was important to highlight any subsequent broker chatter on it. The stock declined $0.30-$0.35 after the open but found some buy interest in the afternoon following chatter Carl Icahn is beginning to circle the boat in a more aggressive manner. Tight leash.

Color on quarter: Cisco Systems (NASDAQ:CSCO)

Several firms are commenting on Cisco Systems (NASDAQ:CSCO) after the co managed to report strong results and provide strong guidance last night:

- JP Morgan notes that at the risk of sounding like a broken record, Cisco reported YET ANOTHER extremely strong quarter, with revenue upside AGAIN coming from BOTH the core business AND SFA. Revenue growth was again very strong nearly across the board, driving core Cisco revenue growth of 17.7% y/y to $7,800M, $144M ahead of firm's estimate and guidance for 14-15% y/y growth, the fastest pace of core Cisco revenue growth since the July 2004 quarter, TEN quarters ago. Cisco saw strong growth across geographies, product groups, and customer categories.

Firm's one area of concern in the quarter is the health of the U.S. enterprise business, as order growth in the U.S. enterprise business slowed to "mid-single digits" y/y from 20% in Q1. They believe the slowing could be just as much a function of the tough >20% y/y comp from Q206 than anything, since mgmt expects growth to accelerate to 10% y/y in Q3 based on customer conversations and its sales pipeline. Furthermore, management also mentioned that it is seeing more orders from global companies placed internationally rather than the U.S., implying a mix-shift could be distorting the U.S. order growth trends.

Astonishingly, Chambers also said he expects the torrid 40% y/y order growth pace in emerging markets to continue for the next 18-24 months, and that emerging markets order growth could continue to be double developed markets.

The pace of hiring actually accelerated in Q2, further proving management confidence in the longevity of the company's growth spurt, as Cisco hired an astonishingly high 2,732 people, up 42% from the 1,914 hired during Q1, and more than doubled its sales adds from Q1 to 650. Management said it continues to see near-term payback from hiring, implying that as Cisco has more feet on the Street, revenue growth could actually accelerate.

JPM notes they believe now more than ever that their thesis is playing out, and that the combination of the SFA acquisition and Cisco's renewed appetite for growth from both new technologies (video) and new markets (emerging markets, commercial market) continues to accelerate earnings growth. They continue to expect multiples to expand as Cisco remains on the offense, and with Cisco trading at 16.8x new CY08 EPS est of $1.62 (ex-stock comp), nearly at parity to peer JNPR at 17.3x, they remain Overweight.

- Morgan Stanley notes that strong results and guidance driven by routers, video and set top
box demand, reinforce their view that recent concerns over a potential slowdown in near-term revenue growth were overdone. Firm continues to believe that Cisco is the best-positioned company in the sector to benefit from transitions across enterprise, service provider, and increasingly consumer networks, raise price target to $32, and reiterate Overweight-V rating.

Results easily beat expectations driven by better than expected router and services revenue and broad strength across almost all geographies and end markets. A book to bill above 1.0 in both the core Cisco business and Scientific Atlanta, increasing deferred revenue, and guidance ahead of firm's estimates lead them to raise their F2007 expectations. Firm now models organic revenue growth of 16.4%, up from prior estimate of 14.7% and calendar 2007 adjusted EPS estimate moves up 3 cents to $1.42.

Notes they were buyers of shares ahead of the quarter and they are buyers today. Shares trade at 19x C2007 EPS and 17x C2008 EPS (excluding options) relative to group averages of 24x and 19x respectively.

- Merrill Lynch says they were impressed with the resilience in gross margin, even as low margin segments (mainly SFA and Advanced Svcs) grew well. Cisco also demonstrated cost discipline, with operating margin expanding from 29.2% to 29.8% QoQ. Nevertheless, the firm believes margins are peaking and should be flat to down in April as sequential growth will again be driven by SFA and Advanced Services, both of which carry mid-40% gross margins.

It's hard not to like Cisco's stock after such a solid result. Yet, despite some near-term upside potential, they are maintaining their recently instituted Neutral. Firm believes that a few of the growth drivers will start to moderate after the July Q, such as SFA, routing, and the impact of a larger sales team. They also believe shares are already trading at fair value.

- Banc of America has cautious comments on CSCO noting that although revenue guidance was strong, there was not much EPS pull through. Cisco reported solid 2QF07 results and revenue guidance, with SFA representing a little more of the upside and the product book-to-bill over 1.0. Firm remains Neutral on the stock as they expect slower growth in coming qtrs, with only limited leverage remaining in the model.

Unlike some of its smaller competitors, CSCO only grew its US enterprise orders by mid-single digits. While the firm believe timing of revenue recognition could be to blame, they view this performance, coupled with 10% growth guidance for April, as a sign that mkt share gains are becoming more challenging.

A growing contribution from the company's advanced service business, particularly in the emerging markets. This effort has been placing pressure on the company's service margins which have declined from nearly 68% during 3QF06 to 64.4% during the current quarter. The company expects these margins to remain near current levels through F07.

The company added ~650 new sales people during the quarter and reiterated its commitment to these hiring and product development efforts. As a result, the company expects opex to tick up, causing operating margins to dip back below the 30% level over the next several quarters.

With Y/Y growth rates for the overall company expected to decline in each of the next six quarters (Core business is expected to follow a similar trajectory) and margins near peak levels, the firm sees limited opportunity for multiple expansion from current levels. Maintains $30 tgt.

Notablecalls: The slowdown in U.S. enterprise business orders is likely going to hold back the stock. Not saying it's an outright short but I wouldn't be buying it either.

Paperstand (TIVO, AMZN, TI, TKA, OTE, PTEC, CTX, TRMA)

The WSJ reports that Tivo (TIVO) and Amazon (AMZN) are joining to help bring movies and television shows from the Internet to TV sets, in the latest move to bring online video into consumers' living rooms. In a deal to be announced today, TiVo and Amazon plan to announce a new way for consumers to watch movies and TV shows downloaded from Amazon's Unbox service on their TV sets via their TiVo digital-video recorders. Under the program, TiVo subscribers can rent and purchase TV shows and movies from networks and studios such as CBS and Viacom's Paramount Pictures, among others.

“Heard on the Street” column discusses European telecom mkt, saying that co’s have been competing against emerging-mkt rivals in places such as Southeast Asia and Africa. Now they are facing off against them in a new territory: their home turf. Financiers from India and Russia to the Middle East are sniffing around European assets. India's Hinduja Group and Russia's Sistema recently expressed interest in Telecom Italia (TI). Pirelli has said it wants to sell some of its 18% stake in Telecom Italia, which it controls. Pirelli recently said several interested parties had been in contact but no agreement had been reached. For investors in Europe's telecom co’s, such interest can provide a boost to the stock prices of potential tgts. Neil Galloway, of ABN Amro, considers as possible tgts: midsize firms such as Belgacom, KPN, Telekom Austria (TKA) and Hellenic Telecom (OTE).

“Inside Track” section highlights Phoenix Technologies (PTEC), whose CEO Woodson Hobbs made his first purchase of Phoenix stock last week even though a proxy fight with the co's largest shareholder is pending. He said he isn't very concerned about the outcome. Mr. Hobbs bought $456K of his co's shares even as the co prepares for a contested board election. Ramius Capital, which owns about 13.7% of the co's stock, is seeking to place 2 representatives on the co's board. Mr. Hobbs described the current proxy fight as "not that big of a deal," but said he would prefer for the co's nominees to be re-elected. He noted, however, that if Ramius is successful it will gain only 2 seats on Phoenix's 6-member board.

Barron’s Online highlights Citrix Systems (CTXS), as a bet on Microsoft’s Vista. Citrix's software programs let a computer user run Windows without actually owning Windows. Shares of Citrix could jump from their current $31 to $40 or more as the co becomes increasingly central in Microsoft's product plans later this year. Microsoft has yet another OS due this fall, named Longhorn. It could let a co run all its computers from a central copy of Windows running on the server without loading software on each PC, a feat known in software circles as "virtualization." But to do so, buyers of Longhorn are going to need Citrix's software, which has been developed in conjunction with Microsoft and which unlocks some of Longhorn's features. "Virtualization is a change that's going to be important to individual users of the software and to businesses large and small," says Martin Reynolds, of Gartner. "It's really going to change Vista from what we know it as today."

“Inside Scoop” section reports that a Norwegian venture capitalist is hooked on Trico Marine (TRMA). Kistefos AS spent $4.6M on 149K shares. The buys were made by Christen Sveaas, who is the sole owner of Kistefos. The purchase by Kistefos is the first time a co insider has bought shares of Trico Marine since Mar’06.

Motorola (NYSE:MOT) - short around current levels

Couple of firms comment on Motorola (NYSE:MOT):

- CIBC notes that based on checks, they believe MOT is experiencing a slowdown in handset demand in January. Channel overhang from a strong December push, saturation in demand for RAZR in certain regions, a slowdown in ASP discounting and stronger performance from NOK are to blame.

Firm believes Motorola's internal target for handset shipments in 4Q06 was only 58-60 million units. Yet, with the slow demand for the KRZR, Motorola pushed its channels for more volume, making for 6-8 million units upside relative to internal expectations.

Given the magnitude of the late 4Q06 push, the channel still feels the overhang with inventories of certain models available. Specifically, CIBC believes pockets of KRZR inventories remain, despite ASPs now dropping below $200 (~$190 based on contacts). Recent ASP concessions has created a wait and get a lower price approach with customers. Also, Motorola appears to have lost some share in January in North America, Europe and China.

At the same time, they believe MOT has taken its first steps in reorganizing its handset division. Through a regional overhaul, the handset unit is now aligned into four groups vs. seven before. Top management in the handset regional groups has also been realigned. Following unit and ASP adjustments, they are lowering estimates.

While Carl Ichan can make an impact on MOT stock price, the firm believes fundamentals are still weak and still see potential for downside. Maintains Sector Performer rating.

- Citigroup notes a couple of points of interest that they think could have an impact on the
financials and/or sentiment around Motorola:

Management decided to cancel their Handset-related meetings at the 3GSM conference in Barcelona. Management noted that they under-estimated the amount of time that carriers were demanding from their executives and simply could not accommodate investor meetings. This is a departure from their normal practice of meeting with investors each year at this conference. Given that Europe is a key focus for Motorola this year in terms of market share and that they are launching a set of new products in 2H07, their explanation for the cancellations makes some sense. Having said this, many will remember the following. Management also avoided meeting investors at CES and subsequently issued a 4Q06 preannouncement. This previous sequence of events will likely influence the way that investors perceive this recent development. Citi does not think this is in any way connected with Icahn's presence as the company still is hosting meetings for their Networks business.

They are encouraged by the increased promotional support that Verizon seems to be providing for the KRZR.

Firm thinks that Motorola's experience with the KRZR punctuates two of our key thesis around the North American wireless industry. First, you have to provide exclusives (at least on a short-term basis) to get carriers to push your product. It means a slower volume ramp but the probability for achieving longer-term success goes up dramatically. Secondly, evolutionary products are truly confined to wholesale price points in the $200 level or below. The problem for Motorola and the KRZR is that is virtually impossible that the amount of cost reduction that they have seen with the KRZR has come close to matching the price deterioration. Thus, they think this product likely has seen meaningful margin contraction in 1Q07. Maintains Hold and $22 tgt.

Notablecalls: The problems in the handset space started with inventory builds at the low-end. ASP's fell and margins got crushed. I now hear the high-end market has started to show signs of weakness. This of course means we are going to see estimates going lower over the next couple of months. Btw, I think MOT's a short off of these comments. Tight leash.

Calls of Note Part 3

- ThinkEquity comments on National Semi (NYSE:NSM) following warning saying that while they believe orders at NSM have picked up recently, they believe the upturn is modest compared to improvements at Maxim and Texas Instruments. Reasons for a more-protracted inventory adjustment at NSM include the company's high exposure to wireless analog ICs (MXIM and TXN's analog businesses are more diversified), and a sell-in revenue recognition policy which leaves NSM's guidance more vulnerable to volatility in distribution order patterns.

NSM stated that the shortfall for revenues was due largely to weaker-than-expected orders from distributors over the holiday period. Firm believes distributors continued to take down inventory in December, evidenced by SIA data and negative commentary about December from competitors. In their view, weakness in December is broadly known.

They believe ADI is likely to trade down on the NSM pre-announcement. Analog Devices is on a January quarter with a looming earnings report on March 8, and is seen as a share loser in China, where its DSPs are used in wireless handsets. Furthermore, firm's checks indicate ADI has been aggressive in its efforts to retain market share for analog ICs. While Maxim is scheduled to report earnings on February 7, they believe its shares will see limited negative impact on the NSM pre-announcement having previously traded down on Linear Technology's weak CQ1 outlook.

Firm continues to believe bellwether high performance analog is turning a corner.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 2

- Merrill Lynch notes they have reviewed estimates for broker/dealers with a February 1Q. Raising GS 1QE to $5.07 from $4.89 and '07E to $17.98 from $17.48 for GS on the expectation of higher I-Banking results this quarter and better Trading results throughout year (on higher ROA and asset growth); current environment continues to favor GS' business mix. They are also raising BSC '07E to $14.82 from $14.36 on higher Trading results (but maintaining 1QE). These est. changes coupled with a higher S&P 500 multiple drives a higher price obj. for their Buy rated companies: GS to $230 from $222; LEH to $94 from $87; BSC to $190 from $170.

Market conditions remain robust overall, with strong equity markets, low interest rates, narrowing credit spreads, and a more supportive Fed as of Feb. 1. Trading revenues generally receive the strongest qtr-to-qtr bump from 4Q to 1Q, and 2007 appears to be no exception. Measurable volumes in Equities and Fixed Income appear slightly below 4Q, but trading profitability can belie this, and they expect this to again be the case in 1Q07.

M&A closings are running up 18% sequentially in 1Q and up 34% YoY. Announcements are running down slightly (-6%), but continue to outpace closings.

Equity Underwriting is running down 23% this quarter (+8% YoY), with International activity driving the downturn (-32% seq. while US is +6% seq.). Lucrative IPO activity remains strong, but is down 33% sequentially (+9% YoY), though Feb. looks off to a strong start.

Notablecalls: The charts on some of these brokers look pretty good.

Calls of Note Part 1

- JP Morgan rates Frontline (NYSE:FRO) shares Underweight and continues to recommend selling the stock. Although two recent spin-offs and vessel sales will likely enable FRO to boost its near-term dividend payouts significantly, they believe that the medium-term (through 2008) earnings and dividend impacts from the asset sales and an unfavorable 1H07 fundamental tanker outlook will place material pressure on the shares once the company distributes all of its financial engineering cash flow as dividends, likely as early as next month.

Financial engineering may add as much as $3.50 per share to near-term dividends.Firm estimates the Sealift and Sea Production transactions will provide a net cash inflow of roughly $260 million, which could be paid as dividends as early as March.

JPM's 2007 and 2008 EPS estimates now stand at $2.35 (down from $2.50) and $0.50 (down from $0.80), respectively, reflecting the sale of the FPSO asset. However, they note these estimates do not include any potential equity in earnings from FRO's minority stakes in its recent spin-offs.

Given their belief spot rates will fall nearly 30% in 2007, the firm believes stocks of those companies with heavy spot-market exposure (like FRO) will underperform this year.

Firm's Underweight rating on FRO is based on belief that tanker spot rates will continue to decline this year and next from the peak levels earned in 2004 driving unfavorable year-over-year earnings and dividend comparisons through 2008. As one of the tanker companies with the most leverage to the spot markets, they believe that FRO is heavily exposed to the rate weakness they forecast through 2008 and would expect the stock to underperform the peer group over the 9-12 month investment horizon owing to the 58% EPS decline they project in 2007. On valuation, FRO is trading at 14.4 times new 2007 EPS estimate of $2.35, representing an 11% premium to the peer group average, while its forward EV/EBITDA multiple of 8.7 times represents a 10% discount to the industry average.

Notablecalls: I suspect JPM's comments may create some selling pressure in FRO.

Color on news: Sallie Mae (NYSE:SLM)

Several firms are commenting on Sallie Mae (NYSE:SLM) after substantially worse-than-expected proposals from the President's budget, which included a surprise 50 bp yield cut proposed for FFELP originated loans:

- JP Morgan notes they believe the provisions pertaining to the student loan industry that were included in the Fiscal 2008 budget proposed by the Bush Administration on Monday would place a significant drag on ROE and EPS growth at SLM. However, the firm believes it is still too early to determine if the budget will be passed in its current form and are therefore maintaining Neutral rating.

They believe the proposal as stated could turn SLM's FFELP business into a breakeven business if the 50bp reduction is applied to all FFELP loan originations without other corresponding changes by Sallie to boost revenues. The reduced profitability could be partly offset by lower borrower benefits or higher fees passed on to borrowers, but the FFELP program will need to remain competitive with the Direct Lending program.

Firm would expect EPS growth to fall to a low double-digit rate for the next several years if the proposals are passed as presented. 2008 EPS could be pressured by over $0.30 if the 50bp reduction affects all FFELP loans and if SLM needs to take a charge to increase its loan loss reserve with the lower principal guarantee.

Perhaps the biggest surprise with the student loan cuts was that they were included in the budget at all. The market expected the student loan industry to come under attack from the Democrats when they gained control last November because of their history as proponents of the competing direct lending program. However, it was widely expected that the Dems would have trouble getting a tough bill out of the Senate because of a lack of a filibuster proof majority, which is essentially the issue that killed a housing GSE bill in the previous Congress. The fact that these proposals come from a Republican President may signal that the FFELP lenders cannot count on help from the Republicans.

JPM notes they believe the current budget proposal may be a back door way for Bush to generate more interest in the Direct Lending program by reducing the attractiveness of the FFELP program for lenders.

- Keefe, Bruyette notes the hares of Sallie Mae and Nelnet (NNI) closed down 8.8% and 9.6%, respectively following this news as the proposed reduction in the lender yield was 50 bps compared to the 10 bps reduction investors expected from HR5. In firm's view, investor concern and the panic over the proposal is understandable but they believe the shares still seem undervalued.

Yesterday's release is the first step of a long budget process. The next step, which they believe will occur in March, is for Congress to pass a non-binding budget resolution which instructs individual committees on how to handle budget related items. The congressional committees will then consider legislation that impacts the federal budget. Each chamber of Congress will probably try to complete its own budget bill in the late spring or early summer and then try to pass a compromise budget bill in the summer or September. Firm thinks that sometime in March or April, the student loan debate should become clearer and investors should have a better idea of which way Congress will go. However, in KBW's view, yesterday's release is going to be popular with Democrats and will leave Republicans in a political corner from which they will have a difficult time opposing the Administration's plan.

Firm estimates that the President's proposal could decrease Sallie Mae's 2008 EPS by $0.28 and reduce the company's valuation by $13 assuming the company does not lower borrower benefits to offset the impact of the proposal. If Sallie Mae chooses to reduce borrower benefits to help partially offset the impact of the proposal, they estimate that it would reduce 2008 EPS by $0.15 and reduce the valuation by only $8 per share. If Sallie Mae eliminates borrower benefits completely, they estimate that it would only reduce valuation estimate by $5.

They continue to believe that proposals such as HR5 and the White House's budget proposal will force smaller lenders to exit the market and put their portfolios up for sale. The larger survivors could actually benefit by purchasing these portfolios in fire sales.

Firm is are lowering their year end 2007 price target for Sallie Mae to $52 from $60 assuming that the 2008 budget is adopted as proposed and that Sallie Mae chooses to partially reduce borrower benefits. However, they are maintaining EPS estimates, until the budget is finalized. Firm is maintaining Outperform rating on Sallie Mae because they believe the company's potential as a takeover candidate limits significant further downside to the shares.

Notablecalls: Looks like there may be some more selling pressure in SLM and related names this AM. Prudential and Lehman took their ratings down yesterday afternoon. Suspect there will be couple of more downgrades. Not actionable but good to know category.

Calls of Note Part 3

Citigroup is somewhat cautious on Finisar (NASDAQ:FNSR) saying that while the co remains their top stock pick for the next 12-month based on its strong potential upside to $5, they expect most of the stock appreciation in 2007 to occur in the second half of the year. Firm's checks indicate the January earnings report will likely look a lot like the October report. That is, weaker than consensus revenues at the low end of the guidance and lower than consensus revenue guidance somewhat offset in earnings by strong GMs driven by high end products that are performing well. They believe the same issue that impacted October revenues is still a problem -- low end LAN/SAN (particularly SAN) inventory in the EMS channel.

Citi's thesis regarding strong CY2H 2007/FY1H 2008 financial and stock performance hinges on the ramp with Cisco in 10G modules for Cisco's enterprise switching line. They believe Finisar has already started to ship 10G SR (short reach standard for single-mode fiber) products to Cisco and is about one month away from full qualification on the much larger 10G LRM (long reach standard for multimode fiber) opportunity.

Reiterates 12-month price target of $5 and Buy rating on FNSR but thinks in the next month or so the stock will likely pull back to $3 or slightly below. Frm would likely be aggressive buyers anywhere below $3. At $3 the stock would be trading at just 11.5x CY 2008 EPS of $0.26.

Notablecalls: Expect to see some selling pressure on FNSR over the next couple of days.

Calls of Note Part 2

- Thomas Weisel comments on Coinstar (NASDAQ:CSTR) after their store survey found a relatively modest ramp in coin-sorting units over the last several months and the run rate will have to ramp in order for the company to meet its goal.

Using the store locator on CSTR's website and searching all 40,000-plus zip codes, the firm got a monthly count of domestic coin-sorting locations. Locations rose from 12,218 at December 27, 2006 to 12,246 on February 1, 2007. The 28-unit increase compares with an average of 36 per month since September.

Firm notes the survey is new and back data limited, so they are reluctant to make too much of the apparent slow unit growth. It would appear that the pace will have to accelerate to meet their 800-unit estimate for 2007. Each 200 units adds an estimated $4mn to revenue, $1.2mn to EBITDA and $0.02 to EPS. TWP's estimate for 2007 is $0.99.

They see the stock as fairly valued against their estimate of earnings power. Assuming $160mn of EBITDA in 2009 and an 8.5x multiple they get to a future value of $44/share and discount that back to a current fair value of $29-32/share. Maintains Mkt Weight.

Notablecalls: Not actionable but good to know category. Please see the archives for further color on CSTR.

Calls of Note Part 1

JMP Securities is maintaining Market Outperform rating and $22 price target on Juniper Networks (NASDAQ:JNPR) in the wake of learning about the company's expanding role in Verizon's managed service offering. Contacts close to Verizon indicate that the service provider is preparing to make a major push to expand its managed WAN service offerings throughout 2007. With integration of Verizon and the former MCI largely complete, firm's checks indicate that Verizon is about to step up its presence in the enterprise managed services market.

It appears that Verizon selected Juniper for its line of SSG (Secure Services Gateway) products. The SSG combines Juniper's leading security solutions with an enterprise router. They have also learned that Verizon is eager to begin evaluating Juniper's yet to be released "branch office in a box" solution. This solution combines enterprise routing, security, and WAN Optimization functions into a single integrated box.

Verizon win should result in increased enterprise awareness and better service provider traction. While managed service CPE equipment is generally owned by the service provider, it resides at a customer's site. This creates an opportunity for Juniper to introduce itself to enterprises, many of which are not aware of Juniper's growing enterprise product line. Firm believes that many enterprises will think "If Juniper's products are good enough for Verizon, they are good enough for us", resulting in awareness growth for Juniper.

Notablecalls: Interesting comments by JMP. Think the revenue impact isn't that big but I suspect the note is cool enough to generate some buy interest.

Paperstand (TRI, MLS, HOG)

The WSJ reports that Triad Hospitals (TRI) was expected last night to announce a deal as early as this morning to sell the co to private-equity buyers for about $4.4bn. The likely buyers of the co were CCMP Capital Advisors and the private-investment arm of Goldman Sachs. Rival Blackstone Group also was in the hunt and might still snatch Triad at the last moment.

According to the WSJ, Simon Property (SPG) and hedge fund Farallon Capital Mgmt yesterday lobbed in a roughly $1.56bn offer for Mills (MLS), a move designed to derail a $1.35bn agreement with Brookfield Asset Mgmt. Investors had for weeks been expecting a higher offer for Mills, as co's largest shareholder, Farallon has aggressively pushed for a higher offer for the co.

“Heard on the Street” column discusses Harley-Davidson (HOG) saying that riders of Harley motorcycles tend to be a loyal bunch. The co's mgmt team, however, has shown less fidelity, judging by its recent history of selling shares. Together with a slowdown in Harley's US motorcycle sales and its aging leather-clad customer base, the trend of insider-selling may be a reason to gear down expectations for the co's high-octane stock price. The stock is up 129% over the past 5 years. "We would become more aggressive with the stock in the mid-$60s," says Craig Kennison, of Robert W. Baird. Apparently the share price also is rich for Harley's mgmt. As the stock rocketed to dizzying levels in Oct and Nov, 7 execs, including Chmn Jeffrey Bleustein, CEO James Ziemer, the general counsel and the chief accountant, sold a record number of shares, which represented the highest amount of insider selling in dollar value in Harley's history. "When you have consensus-selling, it's definitely more telling of how investors should play the mkt than when just a few insiders sell," says Jaseem Hasib, of Thomson Financial.

Barron's Summary

“Preview” section highlights Cleveland BioLabs (CBLI), which is developing treatments against radiation exposure. Any day now the Department of Defense will put out a request for a proposal for a contract for a drug to treat exposure to radiation. A pre-announcement from DoD emphasized treating gastrointestinal exposure, which Cleveland BioLabs is equipped to handle through the drugs it is developing, says its CEO, Michael Fonstein. "When radiation goes up, you die from GI syndrome," Fonstein told. He says the drug has been successfully tested on monkeys. The contract will be awarded in July. While its value isn't known, Fonstein notes that a similar contract recently awarded for a nerve-gas antidote was valued at about $200M. He thinks the radioprotector could be sold to DoD by year's end. Meanwhile, the co expects to start human trials on its drug to protect good cells during cancer radiation this fall.

Notablecalls: Barron’s mention of such a small co might cause a pop in the shares on Monday morning. CBLI mkt cap stands at $75M.

Fund manager picks include ANAD, DISH, WFR and SIFY.

Microsoft's (MSFT) shares shot up 40% in the months before Vista's launch. Some bulls think Vista could deliver a further 20% gain, but the downside, at this point, looks even greater.

The shares of Mohawk Industries (MHK) are primed to climb at least to 90 and probably above 100. The stock looks to have been unduly punished by worries about the housing mkt.

While the stock of Ceridian (CEN) has run up some 20% since William Ackman, of Pershing Square Capital Mgmt, started buying, more gains lie ahead. If Ceridian is split up, investors could reap another 20%, or far more.

“The Trader” discusses Allstate (ALL), saying that the co continues to effectively put its capital to work. Last qrtr, it generated an annualized ROE of 22.4%, the 5th straight qrtr it steered ROE above 20% and well in excess of the industry avg of 15%. Bear Stearns analyst David Small expects this outperformance to continue in ‘07, given its strong profitability, the aggressive pace of share buybacks and the prospect of increased dividends. His price tgt: 69.

“The Trader” column highlights SVB Financial Group (SIVB) as takeover tgt. The co’s shares popped last week after Merrill Lynch announced a $1.8bn deal to acquire First Republic Bank. If Merrill was willing to pay a 44% premium to reach First Republic's coterie of wealthy clients, then prospects look bright for SVB's niche business and its coveted clientele. At 47, shares trade at about 15x ‘07 earnings. Oppenheimer's Christopher Nolan reckons the stock should be worth 54, or 61 if SVB were bought, based on what a potential acquirer can pay and still have the deal earnings-accretive in the 2nd year, or about 20x ‘07 earnings.

“Technology Trader” column discusses Dell (DELL), saying that the return of Michael Dell means no quick fix for the co. The return of Dell doesn't signal any great shift in strategy or operations at the struggling computer maker. The fact is, Michael Dell has never strayed far from the controls, even while Kevin Rollins was CEO. Over time, however, Michael Dell, as the single leader of the co, could help restore confidence among employees, investors and others. Though often brusque and not particularly well liked within the co, he has always commanded respect as the visionary founder. "That can go a long way to help," says Cindy Shaw, an independent analyst. "He faces a host of challenges, but he is tenacious and he has a very good feel for what needs to be done." Article suggests that with his name above the door, and his fortune in the stock, Michael Dell has every incentive to succeed. But his co's position and the industry's conditions aren't going to make it easy.

Color on quarter: Millipore (NYSE:MIL)

Couple of interesting comments on Millipore (NYSE:MIL) after the co released strong results and guidance last night. Please note that this color is requested by a long-time reader of NC:

* UBS previewed MIL on Jan 22 saying that while they expected the core MIL business to have a strong finish to 2006, lingering issues at Serologicals could limit upside. Firm also noted that on the 3Q conference call, management did not back earlier 2007 (first given in April when the Serologicals deal was announced) EPS guidance of $3.60-3.75 (ex-options; or an estimated $3.40-3.55 with options) as they evaluated the Serologicals forecast "from the bottom up". In response, the Street cut its estimates such that the current 2007 consensus stands at $3.33. Based on management comments at a competitor's conference, the company appeared to the Serologicals issues under control and the integration remained on-track. That said, the firm was looking for 2007 EPS guidance in the range of $3.30-3.45. However, they noted that if management were to reiterate their prior forecast, they would expect MIL shares to move up sharply as they believed many potential investors remain on the sideline ahead of the call.

Reviews:

- UBS notes Millipore reported 4Q06 revenues of $383M, above both the firm and Street estimate of $365M. Excluding the +4% FX impact and $93M in Serologicals, 4Q06 total revenues grew at 9% organically, in-line with their 7-8% estimate. Millipore's core businesses - Bioprocess and Bioscience - recorded a solid quarter, growing at 12% and 7% organically Y/Y.

Firm ups their 12-month price target on MIL shares to $85 from $80. MIL shares are currently trading at 20x 2007 and 17x 2008 estimates versus 22x and 19x for the life sciences group average. Since the acquisition of Serological, MIL shares have traded at a discount due in part to concerns
Serologicals would drag on the top-line and hurt margin expansion. In their view, MIL's 4Q results and better than expected 2007 guidance helps alleviate many of these concerns and as a result they believe MIL's multiple can expand. UBS expects MIL shares to be up +5% in response.

- Merrill Lynch notes Millipore delivered a solid 4Q06 and provided above-consensus guidance for 2007. On the back of these results, they are raising their 2007E EPS from $3.34 to $3.42 and reiterating Buy recommendation. MIL is a leader in a fast growing industry and a derivative play on biotech drug discovery and production. Firm thinks the co's growth opportunities, strong management team, recent acquisitions, and attractive valuation continue to create a compelling investment opportunity.

Critically, management reaffirmed the 2007 guidance that it had originally given back in April, 2006. Consensus expectations had come down below this range and ML thinks investors were expecting management to lower its 2007 guidance on the call; its affirmation should be well received. In addition, management stated that the integration of Serologicals was on track and should be complete by 2Q07.

Notablecalls: First of all, please note that NC does not usually do requests. Calls sent to NC email will of course be considered and some may indeed end up on the page. The situation in MIL looks interesting as management reiterated 2007 guidance, assuring investors business continues to flow as expected. This kind of stability is considered important in a space notorious for it's lumpiness.

MIL has a tendency to move up even following a sizable gap-up, so I would be on a lookout for some follow-through.

Color on earnings: Rackable Systems (NASDAQ:RACK)

Several firms commenting Rackable Systems (NASDAQ:RACK) after co offered cloudy outlook for 1Q/FY 2007.

- First Albany believes RACK is facing a perfect storm of intensifying competition that has yet to play out. With the recent deceleration of the U.S. x86 unit growth to negative territory, Rackable's large size deals are easy targets for other OEMs desperately seeking growth and revenues to leverage fixed costs; unfortunately, Rackable cannot effectively retaliate against their predatory tactics, given its limited customer reach and product breadth. The company's increasingly undifferentiated products and large customers' inordinate pricing power further contribute to the pressure on margins.

Reiterates Underperform rating.

- RBC lowers their estimated upside FTM P/E to 30x (was 35x) but kept their downside P/E assumption of 20x due to net cash per diluted share of ~$5.45. Rackable is currently trading at 25x firm's current FY07 estimates, but after-hours trading levels suggest downward pressure on this multiple. Accordingly, in the near term firm believes the stock will reflect the potential for further downside execution relative to Street consensus.

Firm lowers 12-month price target to $25 (was $30) given the reduced long term operating targets and the recent volatility in quarterly execution. They now assume a probable, though not certain, FTM price downside/upside scenario of $15/$35 (was $15/ $40) on execution below/above their new estimates. Firm continues to rate the shares Outperform with a Speculative risk assessment on a 12-month basis, given the potential return-to-target and upside/downside profile.

- Thomas Weisel notes that Very poor execution shakes confidence in Rackable story somewhat, but strong growth potential still exists and all the bad news seems to be out there. The stock is expected to be range-bound, until evidence of improvement emerges, but current valuation appears to be assuming a lot of bad news, thus, the current level appears to be a good entry point for patient investors.

Issue No. 1 - the gross margin shortfall: Four major factors negatively affected gross margin: 1) 170bp shortfall due to DRAM procurement issues; 2) 120bp hit due to predatory pricing on one major deal; 3) 60bp hit due to slippage of a 1mn high-margin storage deal and 4) 30bp due to supply chain mis-management. The good news is that most of the issues are short term in nature, and even the predatory pricing seems unsustainable.

* Issue No. 2 - reducing guidance: Three major factors here: 1) the DRAM issue will also affect 1Q07; 2) more aggressive pricing is now being assumed throughout 2007 and 3) no large new deals are expected in 1Q07, which means seasonality hits and revenue are expected to be well below consensus.

* The good news: Management is still extremely confident in its ability to deliver more than $500mn in revenue for 2007, although it is lowering the bottom of its range to reflect a slower start to the year and risk of further slippage. In addition, new margin guidance of 18-22% assumes a lot of worse-case developments, thus, there is a strong possibility that new consensus EPS estimates will undershoot their true potential.

Notablecalls: RACK looks like a low downside/high upside/very high risk investment. One for longer term investors that can stomach volatility. As for the s-t, stock will probably stay range-bound for a while, as the confidence has really gotten hit. It will take time and hard evidence for the mkt to get more positive on the stock.

Calls of Note Part 1

- Goldman Sachs has added Murphy Oil (NYSE:MUR) to the Americas Investment Buy List, as they view favorably management comments on its earnings call that it would more meaningfully consider M&A opportunities in order to become less reliant on high-risk exploration. While some may be concerned that this could mean an ill-advised acquisition simply to grow, firm's history with Murphy suggests management will be wise with shareholder funds. They think M&A activity could help highlight its substantial asset value, which the firm pegs at $75 per share using $60/bbl WTI oil long-term. They see 20% upside to their new $60 probability-weighted, NAV-based 12-month target price.

Catalyst: The key catalysts for Murphy Oil shares are: 1) M&A/restructuring activity (including acquisitions, asset divestitures, or mergers) that help investors better recognize the significant value of its assets; 2) successful ramp-up of the Kikeh field in deepwater Malaysia later this year; and 3) WTI oil prices moving back above $60/bbl, as the firm expects.

Notablecalls: Expect to see some buy interest.

Color on quarter: Intuitive Surgical (NASDAQ:ISRG)

Several firms are commenting on Intuitive Surgical (NASDAQ:ISRG) after the co issued Q4 results and 2007 guidance last night:

- Deutsche Bank notes the co reported another solid quarter placing 50 systems and provide guidance significantly above their and Street consensus. The outlook remains increasingly promising with not only da Vinci prostatectomies expected to increase by 50% in 2007 but da Vinci hysterectomies are expected to grow a significant 150%. Firm believes this bodes well for the future growth of robotic surgery and reiterates Buy rating. Target remains at $140.

The primary driver to the growth versus firm's initial estimates is the launch of a new vision system (higher ASP), greater system utilization, and higher service revenue. Partially offsetting the top line upside is a slightly lower gross margin (higher initial COGS of the video system), and greater investment into the sales force and R&D. Net/net, both firm's top and bottom line estimates have moved up.

Penetration of da Vinci's two primary markets, prostatectomy and hysterectomy continue unabated with 2007 procedure growth in prostatectomy expected at 50% (almost 50% penetration) and hysterectomy at 150% (approx. 5% penetration). This bodes well for future system purchases as utilization has traditionally been a leading indicator.

- Piper Jaffray notes ISRG placed 50 systems to customers this quarter, compared to 42 last quarter and 40 last year. The new S system accounted for 47 units and 16 systems were sold to repeat customers. Intuitive just launched a new high definition visualization system at a list price of
$120,000, for the S system. The new system will help keep ASPs high and will stimulate more expensive disposable tool purchases. However, it will hurt margins for most of 2007 as the components are expensive.

ISRG beat its goals for prostatectomy and hysterectomy procedure penetration. Piper believes that more than 8,000 daVinci prostatectomies (DVP) were performed in the quarter and approximately 26,000 for all of 2006. The company expects to grow this volume by over 50% in 2007. Firm believes that about 1,300 hysterectomies were performed in the quarter and about 4,000 for the year. The company expects this number to grow over 150% in 2007.

ISRG will not be delivering much operating leverage in 2007, as it plans to expand its operating expenses at the same rate as forecasted revenue growth and margins are shrinking due to the new HD system. The company is investing in a new European HQ in Switzerland which will help lower the tax rate in 2008 and beyond. Operating leverage should resume in 2008 with lower tax rates and infrastructure costs behind it.

Revenue growth guidance of 35% was in line with 2007 consensus. Piper is raising their estimates to 38% revenue growth from 35% in 2007, and raising EPS to $2.62 from $2.50. They are holding their 2008 revenue growth assumption to 35% off a bigger base and raising EPS estimate to $4.03 from $3.33. Maintains Outperform and $130 tgt.

- Bear Stearns notes that despite their revenue optimism, their gross margins are moving lower, due to the 3DHD launch in 1Q'07. Full-year 2007 gross margins guidance is 65-66%, below firm's prior GM assumption of 68%. Bear's higher sales assumption basically offset theirlower GM assumptions, keeping 2007 EPS at $2.60 per share.

They continue to rate ISRG Peer Perform. ISRG continues to make outstanding headway in penetrating its anchor prostatectomy markets, as well as the growing gynecological oncology market. However, given current valuation levels, the firm prefers to wait for a more compelling entry point.

Notablecalls: Impressive quarter by ISRG. I love the fact that many of the systems were sold to existing customers. It shows how satisfied the hospitals are with ISRG's products. Despite that I suspect that in the s-t the stock's a sell around $115-120 level. Both Wachovia and Cowen made nice calls on ISRG when the stock was trading sub-$90 and I suspect there will be some profit taking following the recent run. Also, sequentially declining revenues and lower GM (albeit s-t) do not sound THAT good.

Color on quarter: Amazon.com (NASDAQ:AMZN)

Several firms are commenting on Amazon.com (NASDAQ:AMZN) after the co issued Q4 results and guidance last night. At least one firm is downgrading their rating this AM.

- Goldman Sachs notes Amazon reported 4Q2006 revenue, OI, and EPS of $3,986 mn (up 34% yoy), $229 mn (up 24% yoy), and $0.26 versus their $3,732 mn, $225 mn, and $0.27 estimates. Operating income grew for the first time in 4 quarters, reflecting yoy growth of 24%; however, operating margin missed our expectations by 30 bps and incremental margin of 4.4% disappointed relative to GS 5.3% forecast and the company's 6.0% guidance. 2007 operating income guidance at the midpoint is $595mn, 10% below firm's estimate and consensus, reflecting operating margin of 4.5% (vs. 5.3% forecast) and down versus 2006 at 4.7%, negating the expanding margin thesis. 2007E incremental margin of 3.6% is below firm's 7.7% forecast and ~480 bps below Street forecasts. Incremental margins are the best proxy for long term margins and another year below double digits begs the question on whether long-term margins can reach high single digits, which is required to justify a return from current levels. Results/guidance reinforce their doubt that Amazon margins are truly at a trough and they see a return to double digit incremental margins as unlikely in 2007.

- Stifel is probably the most optimistic of the bunch saying the midpoint of 2007 guidance is down about 20 bps YOY but the midpoint of revenue is up by $700 million (6 percentage points) versus original expectations. They expect that operating profit guidance is conservative and that leverage shows in Amazon's business in 2007 and continues in 2008. Firm believes, though, that this is a balanced investment thesis of revenue growth and operating leverage. They think the leverage comes, in the meantime the revenue growth is extraordinary at 30% ex-currency in the quarter and 28% domestic ex- Toys adjustment. Thinks of Amazon as the online version of Costco and, just as was the case in COST's business, that AMZN will lever and experience a cycle of outsized equity returns. Amazon is singularly focused on one extremely important constituent " ITS CUSTOMER " and they believe that this attitude toward its business may be its most valuable hidden asset. They have patience, they trust management, and they believe business is performing quite well; sooner or later, the stock will follow. As we wait, AMZN trades for a 3.6% forward taxed FCF yield which is about a 30% discount to Wal-Mart and Target despite AMZN having a capex-to-operating cash flow ratio of 30% well below WMT and TGT at around 80%. Maintains Buy and $44 tgt.

- RBC Capital notes that although 4Q06 results were a clean beat, initial FY07 guidance disappointed yet again as Amazon pointed the way toward another year of pro forma operating margin compression. FY07 pro forma op margin guidance calls for 4.0%-4.9% range vs. consensus 5.1% and FY06 ending 4.9%. Firm's revenue estimates for FY07 and FY08 rise by 6% and 8%, but EPS estimates are down by 7% and 14% respectively. Although they are rolling their valuation metrics to 2008 estimates, firm's price target remains unchanged at $37. In short, margin compression has eliminated about six months of shareholder value. Maintains Sector Perform.

- Bear Stearns is downgrading their rating to Underperform from Outperform saying that as they watch gross margins decline for the 4th consecutive quarter YoY and 2007 operating margin guidance lower than 2006, they think the NT performance of the stock will be challenging. So while the firm remains positive LT, they are downgrading from Outperform to Undeperform based on margin erosion, lack of NT leverage, and valuation.

Firm notes Jeff Bezos made a very interesting comment at Web 2.0 in November about his business and the industry by saying "I've always believed that a low margin / high volume business is easier to defend than a high margin / low volume business". While the firm agrees with his philosophy as a company, they think it is difficult for the stock to outperform in a possible declining margin environment.

Over the long term innovations and endeavors may be what helps Amazon maximize its value and are a big reason why Amazon is a great company. However, it may take some time for the Street to see any proof and hence could make it a tough stock. With declining NT margins and a lack of demonstration of leverage to show Amazon is on its way to double digit operating margins, the firm does not believe Amazon's current valuation levels support any NT outperformance to the industry.

Notablecalls: AMZN is sacrificing s-t margin performance in order to grow over the next 3-5 yrs. I believe they can easily double their revenue base in that timeframe. Operating leverage will kick in at some point for sure and the stock will probably be higher than it's now. But meanwhile, it's a tough stock to own. A leap of faith is needed to own this one and I suspect it's too early to take it. I see very little reason to own this one around current levels.

Paperstand (CAM, VIVO)

The WSJ’s ”Heard on the Street” column out saying that for the scores of co’s swept up in the options-backdating scandal, repercussions have included financial restatements, regulatory investigations and exec resignations. In what would ordinarily seem like bearish news, however, there may be some buying opportunities. A number of bets have paid off as many stocks have dipped on adverse disclosures about possible backdating, only to bounce back within weeks, days, or even hours. Gartmore Small Cap Fund had nearly a 30% return last year partly b/c it purchased stocks when they fell on backdating news, says Charles Purcell, senior portfolio manager of the $937M fund. "The underlying businesses were the same, and we were going to get past this eventually," he says. "It's taking advantage of the 'groupthink.' "

Barron’s Online discusses Cameron Intl. (CAM), which is the 2nd-largest maker of "subsea trees," the contraptions that help bring oil from ocean-floor wells to the sea's surface. Cameron's order backlog for deep-sea exploration products is growing and should bolster earnings in the next several years. The global oil-field-services co makes other products that help control oil and gas flows, contain pressure and separate impurities, on land and offshore. They should largely do well even if oil prices fall below $50 per barrel. In addition, Cameron shares might not be getting credit for the higher prices on its newly-acquired Dresser valve business. "I'm very excited about the stock b/c Cameron should exceed earnings expectations in ‘07 due to a record order backlog, rising margins, a clean balance sheet, excessive cash flow and fewer shares outstanding," says Timothy Call, of Capital Mgmt.

“Inside Scoop” section reports that Meridian Bioscience’s (VIVO) Chmn and CEO is leading a slew of insider-selling as the co's stock trades at record highs. William Motto, now rounding up his third decade as Chmn of Meridian's board, sold 200K shares for $5.85M on Tue. Last month's proxy filing indicated that he directly held a 2% stake with 523K shares. Overall, seven execs and directors sold about 326K shares on the open mkt for $9.3M over the past 90 days. Jonathan Moreland, of InsiderInsights.com, says Meridian's "stock has done fabulously over the past 5 years, so you would expect a lot of selling, particularly options-related selling."

Color on quarter: Google (NASDAQ:GOOG)

Google's (NASDAQ:GOOG) 4th qtr report seems to be as uneventful as it can be for such an unpredictable monster.

- Bear Stearns believe that the main topic on investors' minds for Google's 4Q results, was how to gauge the organic growth rates and margins by excluding Checkout from the core results. They believe the true net revenue growth rate was not 19.6% but ~21% (when adjusting for the FX benefit and the negative impact from Checkout). EBITDA margins would increase from 62.1% reported to 63.6% PF (i.e. organic basis). Firm thinks this offsets some fears that Google's core margins are eroding significantly.

In addition to management's qualitative comments about the tremendous adoption of Google Checkout, firm's math indicates that Google processed ~$900M of transactions during the quarter. This would be a tremendous amount if correct in that it would represent about 12% of the domestic online non-credit card payment market.

- Citigroup notes that Google continues to execute very well, creating the opportunity for EBITDA margins to rise over time -- firm will continue to be contrarians on this point, although Q4 results don't provide any evidence. EBITDA margin was down 100 bps Y/Y to 62.1% and below firm's 63.3% estimate. The negative surprise was aggressive R&D spending and rising Other Cost of Revenue (data center/depreciation costs, credit card processing, payment processing, and content licensing costs). But firm continues to view R&D spending as a benign, somewhat discretionary source of margin pressure. And they view headcount ads as having flattened out at about 1,300 per quarter. And on a base of 11,000 employees that has to be less dilutive than on a base of 6,000 employees. So there should be leverage in this opex line at some point. The Other Cost of Revenue expense increase could, arguably, be more structural. Especially if content licensing costs are a major factor. But firm believes depreciation costs are more material here, creating the opportunity for long-term leverage from this line as well. In terms of the model, firm continues to forecast modest (40 bps) EBITDA margin expansion in 2007 and modest increases thereafter.

- JP Morgan notes that 4Q saw ~140 bps sequential erosion in Google's gross margins, to 86.7%. Firm believes the primary drivers for this erosion were: 1) rising TAC and 2) Checkout transaction processing fees

Traffic acquisition costs rose to 81.4% in 4Q'06, up 187 bps sequentially and 269 bps Y/Y. Firm believes the increase was due largely to the renegotiation of several big contracts - as well as new deals - with large partners, primarily AOL, MySpace and eBay. While firm thinks TAC rates are rising industry-wide, they believe Google's best-in-class monetization will allow it to remain profitable even in an environment where TAC rates are rising.

Google reported lower margins related partly due to credit card processing fees for Google Checkout. Google has been offering free processing to vendors who accept Checkout as a payment method. Although firm expects this promotion to continue to have a revenue impact in the short term, they believe the longer-term impact from high Checkout acceptance rates among online vendors could create significant revenue upside.

Notablecalls: While Google's growth is slowing (relatively talking of course, 70% y/y growth is nothing less than impressive), the main theme is costs assotiated with the future growth. I seems to me that costs are getting exponential compared to growth (data centers, hirings, TAC, content licencing etc), reducing the actual cash flow even when reported earnings still do not show it. As for the stock, don't really have a feeling except that I wouldn't buy the stock on this report.

Calls of Note Part 3

- Piper Jaffray says they recently visited Crocs' (NASDAQ:CROX) booth at three industry tradeshows and left increasingly confident in current FY07 estimates and the potential for outperformance. Fall styles continue along the brand evolution continuum established with the spring collection including several price points, segmentation, and retail differentiation opportunities. Firm thinks this strategy has been very well received by retailers as they devote more space to the brand. Based on an early glimpse of the fall line, they estimate the classic beach/cayman styles represent less than 5% of the assortment and are quickly trending to less than 35% of sales. Additionally, approx. 56% of the collection is now priced at $30 & above versus just 48% in fall 2006 as the company continues to leverage its price-value positioning.

Firm's checks indicate that core retail partners continue to experience robust brand growth, despite often stated declines in their footwear categories. Central to firm's thesis remains the view that given Crocs' category creator status, meaningful opportunities exist to leverage price, style, exclusive partnerships (i.e. licensing), and positioning to deliver sustainable growth among core retail accounts.

Ups tgt to $57 from $54. Maintains Outperform.

Notablecalls: Not actionable but good to know category. For you CROX fans out there.

Calls of Note Part 2

- Merrill Lynch is raising their already above-consensus earnings estimates on Texas Instruments (NYSE:TXN) from $1.61 to $1.68 for 2007, and from $2.09 to $2.18 for 2008. The changes all flow from revisions to their wireless expectations for TXN. Although they do see slowing wireless growth for the company, they think that the street is being overly conservative.

ML Semi team notes that comments from their colleagues covering the wireless handset business suggest that unit growth this year could be in the 13% range, with 2008 at 8%. They'd already been below the earlier, lower estimates in their own model and the disconnect between the end-market view and our TXN view was becoming too large to ignore. Firm also wanted to make sure that we adequately reflect the potential impact of market share gains by Nokia, as well as TXN's progress at Motorola.

TXN continues to be one of the more reasonably valued stocks in firm's universe of coverage, at 18.6x 2007e GAAP earnings and 14.3x 2008e GAAP earnings. They don't see much gross margin leverage at TXN, but they do see decent operating leverage as the company digs itself out of the 2-quarter revenue hole it's in at the moment. At $35 the stock would still only be slightly above firm's normalized fair value suggested by firm's discount model, and would additionally be on 16x calendar 2008 earnings estimate. Rating stands at buy.

Notablecalls: Expect to see buy interest following the call.

Calls of Note Part 1

While most firms are happy with FormFactor's (NASDAQ:FORM) results and guidance (ests and tgts get upped), JP Morgan is somewhat more cautious:

- JPM notes Formfactor reported rev/pf EPS of $98.7mn/$0.48, beating their estimate of $92.5mn/$0.35 and consensus, due to a strong top line, significantly lower tax rate, and higher other income. C1Q07 rev/pf EPS guidance was up modestly to $98mn-$102mn/$0.36-$0.40 with GMs declining and OPEX increasing as the company begins adjusting its manf in preparation for a new assembly and test facility that is expected to come on line in Singapore in 2008.

They expect DRAM probe-card fundamentals will be strong in 2H07. Barring share loss in the
DRAM segment, Formfactor is likely to see revenue grow materially going forward. Although it is unclear why quarterly DRAM related revenue has leveled off, the firm suspects we have been in a consolidation period for the current level of DRAM probe card shipments and additional test capacity and/or incremental increases in wafer level test for DRAM are needed to reignite Formfactors DRAM probe-card revenue growth rate.

Recent improvements in Formfactor's manf facility has reduced average probe card lead-times.
Turns biz during the quarter is near 60% vs. 40% previously. This has a positive effect on the company's competitiveness as lower lead times are a key differentiator, but a negative effect on management's ability to predict the outlying quarter's financial results. Going forward they expect an increased level of volatility in earnings results vs. management guidance.

Reiterates Neutral rating FORM shares are trading at 23.9x times C2007 estimates of $1.70, a substantial premium to their consumables group average of 16.3x, which they believe is unwarranted given increasing competition and risk associated with its pending manf expansion into Singapore.

Notablecalls: Not sure if this is enough to stop the stock from moving beyond the $42-$42.5 level reached in after hrs action.

Color on news: Dell (NASDAQ:DELL)

Several upgrades and positive comments on Dell (NASDAQ:DELL) this morning after news that Michael Dell will assume the duties of CEO, effective immediately:

- JP Morgan is upgrading Dell to Neutral from Underweight saying their bearish thesis on the story had been predicated on a change in the business leadership structure at the company, and they believe this announcement begins to address this issue.

Dell expected to miss January quarter consensus revenue and EPS estimates. Firm's prior estimates of $0.31 on revenues of $15.36 billion were below consensus, based on fundamental concerns that overall gross margins, relative growth in PCs, and Dell's enterprise business could disappoint in coming quarters. After a brief honeymoon period, they believe fundamental concerns will return to the story. In addition, the firm continues to believe the investigations into Dell's accounting practices remain a key unknown that investors should monitor.

For the December quarter, they now expect revenues of $15.10 billion and EPS of $0.29 down from $15.36 billion and $0.31. For fiscal 2008, they forecast revenues of $59.68 billion and EPS of $1.23 versus $60.65 billion and $1.29 previously. They caution that the lack of details in Dell's preannouncement suggests that estimates and consensus may need to come down further once the company reports results.

- Merrill Lynch is upgrading DELL to Buy from Neutral saying Michael Dell's resumption of the CEO role and Kevin Rollins' resignation indicate a new level of board commitment to serious change at the company. They expect more aggressive efforts to lower the cost structure ahead. Dell's high exposure to the corporate PC market should swing from a fundamental negative to a positive as the corporate PC market slowly shifts out of a multi-year slump into a Vista-led upgrade cycle in C2008

Firm believes investor sentiment, which is justifiably negative, is unlikely to deteriorate further. The weak January quarter has been anticipated for weeks and the company's admission that results will miss consensus should take the punch out of anything but an extreme miss when full results are reported in a few weeks. Moreover, the notion that historic advantages of the direct model have weakened, though accurate, is now part of the consensus view.

According to the firm the risk to their call on Dell is that execution in the next 2-3 quarters could be inconsistent, potentially creating stock volatility. Nonetheless theysuggest investors use any weakness to build positions as evidence for revenue and margin recovery should become more apparent to the market in 6-12 months as we approach a 2008 corporate PC upgrade cycle. By the time investors are widely confident about improving prospects, the stock will have moved.

- UBS notes that while they believe this evening's announcement will likely be viewed as a near-term positive by some investors, they believe the management changes at Dell were likely fueled by a string of recent disappointments and tough fundamentals, punctuated by the 4Q07 revenue and EPS shortfall that was also announced this evening. Firm notes that several times last year in the press, Michael Dell defended Rollins' skills and stature at the company, which could imply that just recently challenges have escalated to a level where such a drastic change was needed.

Despite Michael Dell returning to CEO, the firm continues to believe that it will take a long time for him to implement changes and realize sustainable improvements. Under a new CEO, they would not be surprised to see the company announce a formal restructuring plan within a few months and additional cost reduction initiatives in the coming month to help improve profitability and drive sustainable improvements. So far, "Dell 2.0" is not a clear enough plan with real tangible financial targets for the firm to get excited. UBS believes Dell's reappointment to the CEO position was likely fueled by a string of disappointing results, punctuated by a major 4Q revenue miss.

During their career, the firm has seen many examples of highly regarded former CEO's coming back to lead companies after a successor's failure, only to be met with further challenges (Xerox in 2000 comes to mind). In short, Dell is not out of the woods yet and Michael will be tested perhaps as he never has been before in his career. They believe Dell needs to quickly outline a credible turnaround plan and rectify issues with the SEC and justice department (these are not small tasks).
Maintains Neutral.

Notablecalls: Not actionable but good to know category.