Color on Quarter: Palm (NASDAQ:PALM)

The Palm (NASDAQ:PALM) takeover saga continues as the company declined to comment the rumors on its quarterly conference call. Lots of comments about the results and takeover situation today.

- RBC says soft Q4 Guidance reflects higher 680 mix. Q4 guidance for $400-410M missed $416M conc, implying 0% Q/Q growth (vs. 6% Q3) reflecting expected higher (lower ASP) Treo 680 mix and ongoing PDA weakness. GM guidance for 36-36.5% was slightly down from Q3 and less egregious than expected. EPS outlook for $0.13-0.16 (inline with RBC) reflects ongoing cost containment, and appears conservative.

Firm says Palm appeared defiant, focused on turnaround, not takeout, increasing our conviction that no takeout is imminent. Palm affirmed pending Smartphone announcements (expected May, ahead of iPhone), aimed at recovering lost momentum. Turnaround remains possible -- but daunting hurdles remain.

Firm raises price tgt to $18 from $15.

- ThinkEquity says that although Palm's share price has reflected rife speculation on the takeover front, they think it prudent that investors focus on fundamentals. On this note, fiscal 3Q saw a return to revenue growth, gross margin expansion, record Treo unit sell-in and sell-through, and the revenue outlook (although lower than our model on whithering handheld units) points to improving Treo channel inventories. While one quarter does not a trend make, it appears we are seeing early signs of improved execution. Firm is raising their price target to $20. Maintain Accumulate rating.

- Merrill Lynch continues with their cautious view, noting that while Palm's Treo shipments grew 37% YoY in the Feb Q, the growth pales in comparison to the 90% YoY growth of RIM's Blackberry, by their estimates. Palm lost share despite 11% declines in average Treo selling prices versus only 3% drop in Blackberry selling prices, in the same period.

Palm's below-consensus May Q sales outlook of ~$405mn (~ down QoQ, flat YoY) and continued EBIT declines reflects the intensely competitive environment. Firm believes Palm benefited during the past quarter from a benign competitive environment at main carriers Verizon/Sprint. However, competition is likely to intensify when RIM launches its new Pearl/88xx at those carriers. The expected launch of Apple's iPhone at Cingular, featuring touch-screen features (similar to Palm's Treo), could also steal mindshare away from Palm.

Palm stock has appreciated ~31% in the past 2 months on speculation of a takeout. However, on the call management gave no indication of any imminent deal, which firm believes is likely to disappoint short-term oriented investors. Even if the deal were to materialize they do not expect any significant premium as Palm currently trades at a rich ~28x PE on firm's and consensus CY08 estimates. They are lowering FY08 est. by 20c to 61c and FY09 est. by 25c to 72c, on lower Treo ASP expectations, high opex, and faster declines in high-margin handhelds.

- Citigroup says that while the guidance is falling below existing estimates, overall they do not see the existing performance or future outlook in a negative light. Coming into the call, they had meaningful concerns about their near-term outlook, especially since they put themselves up for sale. Within this context the numbers were not that bad.

Having said that, they were surprised by management's decision to guide to flat to down operating expenses in 4Q. They argue that the lower spending is simply a timing issue. Given the ramp of competitive products expected to arrive in the market place (Q-derivatives, i-phone), firm would think that higher investment levels would be necessary. As was illustrated last year with the Moto-Q, competitive launches can cause short-term volatility in Palm's order shipments.

The company has made very little progress thus far in re-designing the Palm OS source code received from Access. This means it will be a while before they will be able to ramp up a WCDMA Palm OS product portfolio. Firm estimates that they are probably at least 1 to 1.5 years away from launching Palm 3G devices. With carriers allocating more 'shelf space' to 3G and less to GSM devices, this increases the risk level around their market share position. While the company can design Windows-based products with 3G, these products traditionally have been much volatile for Palm and more vulnerable to competitive pressure.

Notablecalls: The rumors of MOT-for-PALM still continued to circulate yesterday with chatters of deal already today. Sorry to dissapoint you guys and gals, still do not see it coming. Coming back to the reality, while the quarter was not bad, the guidance is not that nice. Given that we are getting nearer to expected iPhone launch I would expect consumers to postpone their purchase, thus hurting Palm's May qtr. However, while tempting, it is tough to short the shares today as most analysts seem to be rather positive and potential for more takeover chatter.

Color on Quarter: Jabil Circuiq (NYSE:JBL)

Several firms commenting Jabil Circuit (NYSE:JBL) after quarterly results.

- Citigroup notes that at first look Jabil's sales outlook appeared only a bit soft but additional analysis reveals that the outlook includes the company's recently acquired Taiwan Green Point which consensus did not include resulting in an organic outlook that indeed was lower than expected. While the company cites a host of issues (product, customer transitions, and exiting lower profitable business) investors will still interpret this as subdued demand and not the typical Jabil upside.

The biggest disappointment to investors is the company's head fake of a lack of operating profit turnaround. The company has been very vocal of operating margins to return to the 4-5% range in the next few quarters and this clearly is no longer in the case with an OPM outlook of 2.5-3.0% in May and 3.25-3.75% in August.

Firm sees no reason to buy Jabil as catalysts for operating turnaround are at least 3-6 months away, in their view, and with 50% of the Street with Buy ratings on the stock and EPS estimates significantly higher than ours, firm expects sentiment and estimates to shift lower.

As derivative Implications firm see additional risk to Solectron, Sanmina, and Celestica, which will implement the Cisco lean inventory management process during the next few quarters which has taken Jabil more effort to streamline.

- Jefferies says that although Jabil was unable to provide fiscal 2Q07 profit and margin data due to the ongoing option investigation, they believe profitability was well below their projections.

Just as Jabil resolves two (of the three) execution issues during the February quarter and the final issue is on the mend, Jabil's consumer business is now undergoing a reconfiguration due largely to pricing pressure, in their view. As such, Jabil expects a sequential decline in its consumer business in the May quarter (despite incremental revenue from a recent acquisition) and another decline in the August quarter.

- Cowen says they remain cautious on Jabil's shares near-term as the co is now transitioning two significant consumer customers (possibly Nokia & Philips) to different business models. This will hurt rev/margins for 3Q/4Q. Plus, Jabil said end market demand has been weak since December, but has now stabilized. With margins, May Q should be the trough, with improvement q/q for rest of CY07.

What's Wrong at Jabil? Good Q, tough to answer specifically. There has been options backdating, May 06 qrt with three operational issues (repair, ramping biz & component design), mostly now resolved. Nov 06 saw poor mix, an internally developed product write-off, and weak demand. Now Feb 07 qrt has big challenges hitting the consumer space. The Nokia cell phone biz will ramp down and new programs which incorporate vertical components (plastic/metal casings) will ramp up. Normal 'EMS' businesses with Philips will ramp down, as Jabil works to jointly develop and then build products (LCD TVs). All this hurting revs/margins near term. Firm's thoughts; 1. Jabil grew too fast in FY06, revs up 37% to $10.3B, and tried to do too many things with product design. 2. the consumer biz is very different than other areas of EMS. Very low margins, high turn inventory, all require a streamlined supply chain, with more vertical components in house, similar to the Hon Hai, Flex model. Jabil is working to adjust to this type of operation. Firm would look for visibility to emerge in August or Nov qrts.

- Bear Stearns taking their rating down to Peer Perform from Outperform as they no longer see compelling risk/reward. Firm says JBL is experiencing too many moving parts in its consumer business model which is driving near-term revenue deterioration as well as increased risk. Specifically, JBL is moving to a more product development-based relationship with PHG they believe, allowing it to perform more value-added R&D work and less commodity assembly. In addition, firm thinks JBL is moving the majority of its NOK business to a vertically integrated model which can also introduce new near-term risks. Firm believes JBL has the management team to execute on these challenges, however, they don't expect results for ~2 qtrs.

Notablecalls: Jabil has at least two more tough quarters ahead with both revenue and margins suffering. $23.5 level seems to act as a support for the shares N-T but I do not expect that level to hold given all the operational issues. Probably we are going to see lower share price no later than just after the opening bell rings today.

Calls of Note Part 2

Merrill Lynch is raising price tgt on MEMC Electronic Materials (NYSE:WFR) from $60 to $73 as a result of their higher 2008 estimates reflecting stronger polysilicon pricing.

Semiconductor wafer prices are also rising while volumes should increase after 1Q07. Given the sustainability of these trends, firm's price target only requires that the current 19x 2007 P/E is maintained as valuation shifts to their new 2008 estimates. This is conservative vs. their 21x sum of the parts peer valuation calculation.

Several poly suppliers have recently signed long term contracts with semiconductor and solar companies, and others are taking prepayments signaling a tight market for several more years. In the biggest move, REC, announced a 7-year agreement to supply poly to SUMCO, the 2nd largest semi wafer maker, with rising pricing through 2010! This shows that the tight poly market is increasingly impacting the semiconductor market and not just solar.

Falling solar costs from technology driving market growth Solar cell makers are finding ways to lower the cost per watt of electricity through technological advances which is spurring market demand and volume growth that keep poly supply tight.

Firm raised their operating EPS estimate (w/stock comp, 17% cash tax) for 2008 from $3.55 to $3.85 on stronger revenues of $2.32 billion (up 6% from $2.185 billion previously). Firm's estimates are slightly above consensus and reflect a higher contribution from solar, as their semi assumptions remain largely intact.

Notablecalls: Expect to see initial pop in the shares but wouldn't stay on board for too long after such a run over the past few days. Also, Merrill is just highlighting the same reasons that have been behind the run.

Calls of Note Part 1

Two tier-1 firms offering their views on Columbia Sportswear (NASDAQ:COLM) today.

- Merrill Lynch notes that as part of our Retailing Leaders Conference, they hosted an investor discussion with Columbia Sportswear's CFO Bryan Timm, VP of Sales Mick McCormick, and Director of Investor Relations David Kiser.

Firm notes the company has made significant changes in its footwear organization since the departure of former Vice President Brad Gebhard last October, overhauling the staff (including 100% of the senior merchandising team, the design leadership, as well as sales and distribution staff) and realigning production processes. Newly developed product will have a greater casual/lifestyle focus, with more year-round offerings (currently primarily cold weather products). The first line to incorporate these changes will be the spring '08 offering, which should post some good growth against slight declines in spring '07.

Firm sees moderate fall backlog growth, in the 6-8% range. They continue to see relatively moderate fall backlog growth, due to a warm winter in the US and Europe, and the likelihood that footwear orders will be down y/y. (While retail inventories in the US have now cleared given a much colder and wetter February, they got the sense that European outerwear inventories remain thick.) This represents a deceleration from last fall's 8.7% constant dollar organic backlog, which included low single digits growth in footwear orders (keep in mind that footwear SKUs will be down 33% for fall '07).

Management pointed out some key differentiators between the two brands. North Face is far more of a fashion brand than Columbia (which is more focused on authenticity and value) and has a very small sportswear business (39% of Columbia's sales, and up 18% this past fall). While North Face does provide markdown support to retailers (Columbia does not), management also pointed out that Columbia provides much higher initial mark-ups to retail customers.

Firm thinks investors will have one more big opportunity to buy COLM, after March results, assuming conservative backlog growth and guidance. They reiterate Buy and call COLM their best retail idea.

- Morgan Stanley says they're getting more cautious on COLM's order backlog. Recent sales data and discussions with retailers for COLM's outerwear business cast some doubt as to the quality of current order backlog levels -- a key stock driver. While market share in core Outerwear (50%+ of EBIT) is rising nicely yy, they're seeing 20%+ declines in avg price point suggesting that retailers are heavily discounting product to clear the shelf for spring merchandise. Not a shocker given the rough winter for the cold-weather apparel business, but never a good data point to see for an apparel brand.

Why This is Important: By firm's math, 65% of COLM's sales, and nearly 75% of annual cash flow comes from the fall selling season. Advance orders are being booked today, and reported by COLM next month w/1Q EPS. The North Face (owned by VFC) is not slowing down nor are smaller brands like Spyder and Marmot (owned by K2) that are gaining share. In addition, they're seeing new competitors like Merrill (owned by Wolverine Worldwide) get into the Outdoor space. Furthermore, there's an overinventoried US retail base that firm thinks is only holding margin steady due to vendor markdown support, and yet COLM is one of the few brands that does not offer such margin support. When all is said and done, they think that the outerwear space will be a share-grab for fall '07 (orders being placed now), and firm's concerned about COLM's relative positioning.

Notablecalls: Ouch! COLM shares are going to get hurt today. While Merrill seems to be positive at the first glance - best retail idea after all - they are also not expecting to see strong backlog that seems to be priced into the stock. And backlog is just about everything this stock is about. Actionable!!

Paperstand (C, HRB, VLO, BCS)

The WSJ’s ”Heard on the Street” column reprots that a faction within Citigroup (C) is pushing Chmn and CEO Charles Prince to bid for ABN Amro (ABN). The Dutch banking giant announced earlier this week that it is in exclusive talks about being taken over by Barclays. An offer by Citigroup could assuage some of the problems that have plagued the world's largest bank. But it would be difficult: Since ABN's negotiations with Barclays are exclusive, any move by Citigroup would have to be unsolicited, and might be considered hostile. Still, Citigroup has been studying how well ABN would fit as a possible acquisition tgt. The 2 banks have complementary businesses in the US and Latin America, and a deal would give Citigroup a stronger foothold in continental Europe. There also is the possibility that Citigroup could push for part of ABN's assets, such as LaSalle Bank or Banco ABN Amro Real. Hostile takeover bids in the banking industry are difficult to win, and hostile deals of all stripes are particularly tough in the Netherlands, where co’s enjoy many defenses that aren't allowed elsewhere. The Dutch central bank has already said it would frown on such a situation.

“Ahead of the Tape” highlights H&R Block (HRB), whose CEO Mark Ernst, has said repeatedly the co will announce whether it has reached a deal to sell Option One Mortgage by the end of March. But it may have to lower its $1.3bn asking price on the unit, which deals in risky subprime mortgages, if it wants to cut a deal by then. In regulatory filings, H&R Block said Option One's delinquency rate in its F3Q rose to 11.2% from 5.6% last year. B/c of a jump in defaults, the lender recorded loan-loss provisions of $111.1m, a nearly 750% increase from $13.1m a year ago. Of those delinquencies, 84% were on loans written during previous qrtrs, indicating that H&R Block had sharply underestimated the increase in defaults, and raising questions about whether loan-loss provisions will have to be raised again, diminishing the value of the co. "There are likely to be more provisions in the future, and you would think an astute buyer would know that," said Donn Vickrey, of Gradient Analytics. Pressure is building as the unit drags on H&R Block's stock, down 12% since the end of Jan. Last week, S&P's said it may downgrade its credit rating on H&R Block's ability to meet certain financial obligations due to the impact of Option One's mortgage operations. That puts greater pressure on H&R Block to unload Option One, as a downgrade could pinch other parts of the H&R empire, according to UBS. Tick tock, tick tock.

Barron’s Online out saying that shares of US oil refiners have pumped out high-octane returns in recent years. But the biggest among them, Valero (VLO), could still produce a refined performance in the coming year. In N-America, Valero is bigger than Exxon or BP in its capacity to turn crude oil into gasoline, diesel and other fuels. At 18 refineries, many on the Gulf of Mexico coast, it can produce 3.3m barrels of refined product daily. With cumulative stock returns of nearly 400% over 5 years, it's reasonable to ask if Valero's run is over. While triple-digit returns may not continue, the stock has fallen about 13% from its all-time high reached last April, and dividends are on the rise. Refining demand is strong going into the summer-driving season, capacity is tight, and interruptions - for repairs or to crude supplies - would boost the prices Valero can charge customers. That scenario should last for several more years, given the industry's limited ability to expand. "This is a perfect storm, when everything goes right for the refineries," says Fadel Gheit, of Oppenheimer.

“Inside Scoop” section reports that longtime Bear Sterns (BSC) director Paul Novelly is making a bullish call on the financial-services giant as the stock pulled back from its record high. In the two previous trading days, Novelly doled out $6.67m to purchase 45K shares on the open mkt. Novelly now directly holds 170K shares of the co plus another 2,900 restricted shares. Ben Silverman, of InsiderScore.com, says Novelly's purchase is notable considering that he "is someone who is self-made, who understands how to create wealth and manage it… through the good times and the bad."

Color on Warning: Motorola (NYSE:MOT)

Motorola (NYSE:MOT) getting plenty of comments after cutting its guidance last night.

- JP Morgan notes that MOT dramatically reduced Q1 guidance on handset shipments that fell well below even their very low expectation due to lack of high-end WCDMA models and a decision not to chase low-end market share with price. Although they are now forecasting a more drawn-out handset margin turnaround, firm continues to believe that a handset business of the scale and reach of MOT's should be able to sustain double-digit op margins and remain hopeful that the new leadership team, following the appointment of Greg Brown as Pres. and COO and Tom Meredith as acting CFO, can get there. With share price support provided by Carl Icahn, a larger buyback, and MOT's attractiveness as an LBO candidate, firm is maintaining their Overweight rating.

- RBC takes their rating down to Sector Perform from outperform and lowers price tgt to $19 from $22 as they believe Motorola shares may just drift sideways for the balance of the year.

Firm says Motorola is trying to move away from the price game for market share, but the product portfolio at the moment is lacking in the high-end and the low-end. Carriers and customers may also be balking at Motorola's decision to firm-up pricing and with a weakened derivative product portfolio, Motorola has limited ability to raise prices. Peering into Motorola's upcoming family of products reveals more of the same, which is why they believe Motorola is now a 2008 story.

- Goldman Sachs' bottom line message remains avoid shares. 1) They believe we are looking at a multi year recovery. Based on their recent analysis of the handset industries profit pools, firm believes that Motorola, despite the weakness, should and will continue to invest in emerging markets. This long-term strategy will require double digit margin targets in handsets to be years away. 2) Based on the same analysis as their analysis of the 4Q06 miss, firm believes the high-end of the product line is suffering large losses, as is the low-end, while mid-tier product profits are likely stable. Further, Nokia was a major driver of this quarter's weakness. 3) One of Motorola's steps towards improvement will be an aggressive ramp in 3G and Qualcomm should benefit. 4) Firm's reverse DCF shows that shares are currently pricing in a longer term operating margin in mobile devices of 8-9%. Before turning more positive on shares, they look for shares to reflect a longer term outlook around 5%, suggesting a price closer to $15-16.

- Merrill Lynch notes that management (implicitly) expects the handset margins to be around 8% in 2H. However, given the poor reception for Motorola's new handsets, firm believes it would be more prudent to conservatively model breakeven levels for 3Q and 3% for 4Q. Firm also notes that the history of consumer electronics companies' product cycles works against Motorola. While management looks for a quick second half recovery, the experience of Nokia and Apple shows that recovery could take a few years. The abrupt declines in profits suggest that the required changes could be fundamental and involve changes to the R&D and perhaps selling processes.

Notablecalls: Buyback and Icahn may make the investors to buy the stock but will sure not make the consumers buy the phones. Valuation may also look compelling, but there's no quick fix for the Motorola's problems. As long as there is no reason to buy Motorola phones, there is no reason to buy the stock either. The question is, when is it time to make a leap of faith in the mgmt/product portfolio? It will probably take some time.

Calls of Note Part 4

Friedman, Billings, Ramsey's checks indicate significant price cuts on Intel (NASDAQ:INTC) server processors scheduled for July, coincident with the AMD Barcelona launch. Essentially, these cuts bring quad-core processors to dual-core price points, which will likely be negative for INTC server margins, but would allow it to gain further share. On desktop and server, firm does not believe INTC has matched recent AMD price cuts, and they believe the end markets are performing in a seasonally normal manner. Net for INTC, firm thinks these cuts likely delay margin improvement until later in 2H, when 45nm processors begin to ship. But they do not see a risk to INTC estimates, and are willing to be patient with the stock at the current price. These price cuts are, however, more significant for AMD and are likely to create further pressure for the remainder of the year.

Notablecalls: Nothing to comment here, all too clear.

Calls of Note Part 3

JP Morgan out positive on Cymer (NASDAQ:CYMI) following their visir this week. They came away from in-depth discussions with management feeling comfortable about Cymer's margin expansion program and its prospects for sustained competitive advantage. Cymer is one of their OW-rated top picks within the second tier of our Share Gain and Margin Expansion Thesis.

Management believes it is on plan to deliver margin expansion throughout 2007 and into 2008. Key drivers include mix and supply chain management. Firm is comfortable with their GM forecast of 51% in 2007 and 53.5% in 2008, up from 48.3% in 2006. Management still believes a 55% GM is attainable.

As Nikon ramps its 610C immersion tool that uses Cymer's most advanced lasers, the mix shift should be solid, especially in C2H07 on an XLR-500 ramp. Cymer expects accelerated lithography market unit growth with compelling ASP expansion in 2008 on immersion penetration in volume production outside of Flash, which should be very good for mix/margins. Importantly, later in 2007 and into 2008, Cymer's ring technology should ramp sharply, once again stretching the technology advantage versus is competitor Gigaphoton.

Notablecalls: While not much new, this note should alleviate concerns about gross margins and competitive position that have weighted on the stock. As such, would expect to see buying interest in the stock today.

Calls of Note Part 2

Piper Jaffray highlights raised concerns for Zoran (NASDAQ:ZRAN) after major Taiwanese fabless IC design company Mediatek Inc. announced that it will invest $37 million in private U.S.-based digital camera chip designer NuCORE Technology. Mediatek would own a 69% stake in the firm after the stock swap. The company indicated it would use the alliance to expand its product line and more importantly to accelerate penetration of this new market, as well as for potential technology synergies with its handset chip business. The San Jose, CA based NuCORE Technology Inc. was started in 1997 by founders with background from Hitachi medical imaging and Intel Japan, focusing on digital image processing chips for video and digital cameras.

Firm believes this represents an increased medium-term business risk to Zoran, where Digital Still Camera (DSC) segment accounted for 33% of 2006 sales (42% in 4Q06). According to NuCORE, its Japan R&D team enables close cooperation with camera OEMs and sensor manufacturers, while its Taiwan sales serve the contract manufacturers in the outsourced market. While firm believes that Zoran continues to have a strong position at Taiwanese contract manufacturers for DSC, Mediatek's entry represents a significant threat given the latter's track record of success entering markets such as DVD chip and chipsets for GSM/GPRS handset applications.

While it is too early to quantify the potential impact on Zoran's DSC business given the lack of details of Mediatek's plan at this stage, firm notes that the Taiwanese IC company's historical entry into the DVD market increased pricing and thus margin pressure significantly.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 1

Two notes out today dismissing Palm's (NASDAQ:PALM) status as takeover candidate following Motorola's (NYSE:MOT) warning.

- Merrill Lynch says Motorola's 1Q07 warning and accelerated share-buyback makes it an unlikely bidder for Palm, in their opinion. While they have been consistently skeptical of a Palm takeout, Motorola could have been the most likely bidder given the pre-existing relationship/synergies between Palm's Treo smartphone and Motorola's Good Technology (push email system) acquisition. However, firm believes Motorola's organic challenges, and presence of an activist shareholder (Carl Icahn), make it less likely for the company to chase Palm at this stage.

In addition to Motorola, Nokia has been cited in media reports as another possible strategic bidder for Palm. However, firm thinks Palm will be a poor fit for Nokia and a potential Nokia-Palm combination could introduce several integration challenges for Nokia. Palm traditionally focuses on the US market with high exposure to CDMA carriers and dependence on Palm/Microsoft operating system, while Nokia focuses on the non-US GSM/WCDMA markets using the Symbian operating system.

Palm's large cash balance (~27% of current market cap) has also raised the possibility of a private equity bid/LBO. However, the uncertain cash flows related to the hit or miss nature of Palm's products make a private equity takeout questionable, in firm's opinion. While Palm does have a loyal user base, firm's store checks point to market share shifts in favor of Palm rivals, RIM (Blackberry) and Samsung (Blackjack), that have recently launched several thinner and cheaper smartphones, compared to the Palm Treo. The expected entry of the Apple's iPhone is another competitive risk.

- JP Morgan says speculation that MOT is about to acquire PALM may be misplaced. In their mind, this raises further doubts regarding the entire speculative bubble that developed in recent weeks regarding a potential sale of PALM to strategic or private equity investors.

Nokia still doesn't make sense to them. Nokia could step in as a potential acquirer, but lacking the Good Technology back-end (owned by Motorola) to a Treo-based solution, it would seem a highly risky approach to trying to win enterprise business. Intellisync doesn't come close to either Blackberry or GoodLink, in firm's view. They remain skeptical.

Notablecalls: PALM traded down a bit in the afterhours yesterday, but I believe there is further downside to the stock. Anything above $19 should be good for shorting. Given Nokia's track record of acquisitions so far (small acquisitions for technology), I really don't see them buying Palm.

Paperstand (BKS, BGP, CNB, CPO, WBSN)

The WSJ’s ”Ahead of the Tape” column reports that deal rumors have swirled around Barnes & Noble (BKS) and Borders Group (BGP) ever since activist hedge fund Pershing Square Capital Mgmt took large stakes in the 2 booksellers late last year. A merger is one of the more daring notions afloat, and perhaps the most likely outcome. Both co’s report earnings today, and Borders is expected to announce restructuring plans that could ignite more deal chatter. Hurt by competition from discounters such as Wal-Mart (WMT) and online retailers like Amazon (AMZN), the co’s have struggled to increase profits in one of their biggest businesses: best-selling hardcover books. BKS slashed fiscal-year earnings tgts and said "Harry Potter and the Deathly Hallows," set for release in July, will produce little profit, b/c the co will have to offer it at a steep discount to compete with rivals. Goldman Sachs analysts are skeptical about a buyout of either co, due in part to their soft earnings growth. Goldman thinks a merger makes more sense.

“Heard on the Street” column out saying that as the outlook for home builders grows grimmer, regional banks that extended loans to construction co’s could start having some costly regrets. According to the article, Colonial BancGroup (CNB) is among the banks most heavily exposed to the once-hot Florida construction mkt. Colonial lent far more to construction borrowers as a percentage of its so-called core capital last year than recommended by Federal Deposit Insurance Corp. guidelines. Colonial's construction-lending ratio is 413% of core capital, compared with the FDIC's minimum threshold guideline of 100%. "If you have more than twice as many loans on your books as your liquidation value, then you're essentially just waiting for the vultures to swoop in," says Richard Suttmeier, of RightSide Advisors.

Barron’s Online highlights Corn Products Intl. (CPO), saying that with demand for its corn syrup and other sweeteners rising, the co could hit pay dirt. Sure, the stock has had a rocky ride. Before rebounding recently, the shares dropped 17% off Dec's record high, reflecting worries that fast-rising corn prices, its biggest cost, could hurt profits. Yet Corn Products remains poised to produce robust earnings. Farmers are gearing up to plant a bigger corn crop this year, which could put a lid on corn prices in ‘08. And if not, rising demand for high-fructose corn syrup, an essential ingredient in soft drinks, gives Corn Products leverage to boost US prices as rivals diversify into ethanol production. Sales in Mexico continue to rise, and the co's S-American business grows more profitable. "Fears about corn prices drove the stock low enough so that the risk-reward ratio looks compelling," says Christina McGlone, of Deutsche Bank, who recently upgraded Corn Products to Buy.

“Inside Scoop” section reports that Blum Capital Partners senses upside in Websense’s (WBSN) stock. Blum disclosed that it had picked up a 6.6% stake, or 2.95m Websense shares so far in the 1Q. Blum snapped up the stock 2 weeks after shares of Websense delivered a disappointing 4Q earnings report. Ben Silverman, of InsiderScore.com, says that what he finds interesting about Blum's buy is that the investment firm does not "seem scared off" by Websense's purchase of PortAuthority, even though the deal will be dilutive to Websense's ‘07 EPS by 10-15c. Blum is a "long-term value investor, and they like to take big stakes," says Silverman. While Blum typically looks for co’s generating strong cash flow, Websense's ‘06 cash flow actually decreased year over year, which Silverman says may mean that Blum intends to help Websense unlock value in its stock.

Calls of Note Part 5

- FBR says that given the liquidity crunch facing many nonprime originators, the option to receive a secured loan could provide temporary relief for originators that are in need of increased liquidity. While the firm believes investors would view such actions as a positive for the subprime sector, as they signal that capital is available, they do not believe attractive financing terms would be available for NEW or NFI. While other originators are facing a liquidity crunch, they believe the companies most likely to receive secured loans are still originating loans, have access to warehouse lines, generally possess better collateral performance, and are running at generally low levels of leverage. As such, they would not expect NEW or NFI to garner attractive financing terms to enable such a transaction.

With regard to NFI, while operationally it is in better condition than NEW, the firm believes the shear leverage (31x) leaves NFI very little in the way of assets to pledge for a secured commitment. Furthermore, the potential liquidity liability associated with the FY07 income carryforward (approximately $150 million cash liability as a dividend, or an estimated $68 million cash liability as a tax and penalty payment in de-REIT scenario) would use much of any injection of liquidity without improving the operating condition of the company.

Notablecalls: Thought it was important to highlight the call as the subprimes are the trader's favourites these days.

Calls of Note Part 4

- JP Morgan is raising their C07/C08 ests on MEMC (NASDAQ:WFR) as the polysilicon/wafer pricing environment is turning out to be better than previously expected. The desire by solar cell makers to aggressively expand manufacturing capacity is the primary driver for continued polysilicon shortness, with no near-term relief in sight. Additionally, the two large Japanese semi wafer makers are beginning to experience material polysilicon cost increases as their buffers to polysilicon pricing volatility have largely run out. Going forward they expect both Shin-Etsu and SUMCO to pass along the increased cost of polysilicon to their customers, allowing MEMC to raise wafer prices in tandem.

Utilization rates and capacity expansion plans at many solar cell makers continue to be limited by the amount of polysilicon they can acquire. For example, Solar World, which acquired Shell Solar, disclosed in a recent quarterly report that the former Shell facilities operating in the U.S. were only at 50% utilization rates due to a lack of polysilicon.

Overall semi wafer demand has been relatively flat for the past three quarters as declining logic/analog wafer starts offset wafer start growth for memory applications. Firm believes indications of an increase in Back-End utilization rates signals that C1Q07 is the utilization rate trough for the semi industry.

Reiterates OW, and they would be buying now. JPM is raising C07 revenue and GAAP EPS estimates to $2.0bn/$3.25 from $1.9bn/$2.98 and C08 estimates to $2.4bn/$3.80 from $2.32bn/$3.35, primarily on higher gross margins for semi wafers.

Notablecalls: Think the wording is strong enough to create some further buy interest in WFR. Tight leash, as the stock made a nice upward move yesterday and is prone to some profit taking. See archives for further color on WFR.

Calls of Note Part 3

- TWP is reducing their estimates on AMD (NYSE:AMD) following a round of checks indicating upcoming price cuts and continued channel headwinds. Furthermore, with negative free cash flow expected through most of 2007, they expect management to turn to the capital markets to raise cash over the next several months. However, the firm maintain Market Weight rating and are waiting for more concrete performance benchmarks of Barcelona, although they are incrementally more negative on shares given pricing, channel and financial challenges.

AMD exited 2006 with $1.54bn in cash, $3.8bn in debt and is planning $2.5bn in capital expenditures in 2007. As a result, the firm now is modeling negative free cash flow throughout 2007, with a need to raise cash by 4Q, unless capital expenditure (capex) is reduced. Checks indicate that management may be planning for a $1bn convertible during 2Q. TWP believes ongoing concerns regarding potential financing is likely to continue to weigh on shares, although they believe that management may have other options (including the possibility of lowering its capex requirements).

Given the recent decline in stock price of approximately 39% over the last three months (versus a 0.88% decline in the S&P 500), the firm believes that much of widely known issues are already baked into the current valuation. Given management's recent commentary and checks that indicate additional upcoming headwinds, however, they are cautious on the name and will monitor 1) the timing and performance benchmarks of Barcelona, 2) the health of the channel and 3) the overall pricing environment for potential upside. As such, they believe shares are fairly valued, trading at 1.1x P/book versus historical average of 2.0x, 4.8x P/EBITDA versus historical average of 10.0x, and 1.0x P/sales versus historical average of 1.0x.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 2

- Merrill Lynch met with Netlogic's (NASDAQ:NETL) management recently and came away positively about the company's growth prospects. NETL appears well positioned to benefit from emerging trends such as 10G, IPTV, and VoIP, and is expanding its addressable market through new products. Despite the recent run up, the firm sees further upside in the next 12-months and are raising tgt from $26 to $32.

MLCO expects NETL to report an inline to slightly better Mar-07Q, and believe that Jun-07Q revenue guidance will be more or less inline. Cisco should rebound this quarter as inventory adjustments at that customer appear to have ended. Going forward, sales to Cisco will likely remain flattish until NETL's new wins begin to ramp in early 2008. On the other hand, revenues from ALU, JNPR, Arris, and FDRY are expected to grow strongly throughout 2007. They believe NETL's new product ramps are on track and expect the company's tier 1 wins for its content processor (NETL7) to start to ramp in 2H.

As Triple Play gains traction, TCAM technology adoption is broadening which should help NETL to diversify away from Cisco. NETL appears particularly well-positioned at Edge Router and IPTV system vendors such as ALU, JNPR, RBAK, MOT, and BigBand. NETL's sales to these customers should grow strongly as routers with higher TCAM content begin to ship over the next few quarters.

Notablecalls: The tgt raise is substantial enough to generate some buy interest.

Calls of Note Part 1

- JP Morgan says that Varian Semi (NASDAQ:VSEA) is one of their absolute Top Picks within their Share Gain and Margin Expansion Thesis and is on the JPMorgan Focus List. Based on an unchanged 17x target P/E multiple applied to firm's new C2008 GAAP EPS estimate of $4.10, up from $3.40 previously, they are raising their March 2008 stock price target to $70 from $58.

In line with firm's detailed memory-related research and their recent report on TSMC stepping up to the plate with new orders, the firm sees some modest upside to previous Varian forecast, especially for C2H07 on the TSMC business. As such, they are raising C2H07 revenue estimates by $5mn. per qtr. New C07 and C08 rev ests are $1.0bn and $1.2bn, respectively.

JPM raised VSEA to OW and substantially increased revenue forecast when Applied (AMAT) announced its departure from the Ion Implant business but left their margin forecast
unchanged. Firm is increasingly confident that Varian is likely to see better pricing with Applied out of the market. They also see an increase in high margin spares-related business.

VSEA trades at 12.0x new C2008 GAAP EPS estimate of $4.10 vs. group average of 13.4x. In their view, VSEA is one of the most potentially explosive equipment stocks on share gain and margin expansion, as well as solid execution.

Notablecalls: Looks like an actionable call! Expect to see strong buy interest in VSEA today.

Color on quarter: Adobe Systems (NASDAQ:ADBE)

Most firms are positive on Adobe Systems (NASDAQ:ADBE) following Q1 results:

- Goldman Sachs notes Adobe reported solid 1Q results, though revenues of $649 mn were a bit lighter than their $662 mn estimate, EPS (ex-ESOs) of $0.30 was ahead of their-and Street-$0.29 estimate, and continuing to demonstrate the company's close focus on costs and their ability to steer to EPS as the quarter progresses. Creative Solutions, in particular, delivered revenues of $346 mn, ahead of firm's $320 mn estimate, indicating strong demand for the product suite which is only likely to amplify, in their view, as CS3 launches later in the quarter.

Results should prove to be a positive for the stock. With the product cycle trough (for Creative Suite products) now behind us, the firm is looking for a succession of catalysts starting with next week's announcement of CS3 followed next day by the company's analyst day.

The key risk is that investors will tend to sell on the news as CS3 launches. GSCO notes that in each prior cycle, Adobe shares ran up significantly ahead of the release and then tended to trade down in the aftermath. Increased competition from Microsoft is also a threat with the launch of Vista. Maintains Buy with a $47 tgt.

- Piper Jaffray says that for Q2, Adobe guided to $0.34-$0.36 on $700m-$740m vs. Street
estimates of $0.35 on $718.1m. The firm is confident in this guidance, given CS3's impact on the second half of the May quarter will be significant.

They believe there are two risks to ADBE shares. The first is multiple compression. There is always the potential that investors believe this is the Adobe of old, and the way to trade the stock is to sell the stock before CS3 ships. (Typically the stock trades off 15% in the three months following shipment.) Firm believes this risk is low, given the sell off already happened in the month of January, and now investors are focusing on earnings growth and the upcoming easy comps in August and November. The second risk is the majority of the sell side is positive on Adobe, and investor optimism can only go down (i.e. Microsoft and Vista). Overall, they believe the positives well outweigh the risk. Maintains Outperform and $51.

Notablecalls: Yes, ADBE stands on the eve of its biggest product launch ever. But don't forget the co has a close to $25 billion market cap and trades at 25 times its 2008 EPS estimate. Quite simply, I don't think the almost 2 pt gain reached in after hours will hold today. Sitting at my old trading desk I would have loved to put out a short line in the stock around $43. Not sure it will get there this AM, though.

Paperstand (CMGI, SBUX, JAS)

According to the WSJ, Barclay’s (BCS) talks to buy ABN (ABN) are forcing banks world-wide to evaluate their next moves. Elite global banks such as Citigroup (C) or HSBC (HBC) could emerge as 11th-hour bidders for ABN. HSBC's recent missteps in the US mkt for risky subprime mortgages may sideline the big British bank, but several investment bankers believe that Citigroup Chmn and CEO Charles Prince could use ABN as a chance to show he has the troubled bank moving in the right direction. Several European banks could also bid. ING Groep (ING) says it is "following developments."

“Heard on the Street” column discusses Starbux (SBUX) saying that the shares of the co may have more perk in them than some investors realize. At Starbucks's annual meeting, scheduled for today, execs plan to reaffirm the co's growth plans and shed light on their vision for the future. That usually wouldn't mean much to the co's investors, who have been accustomed to rapid growth and rising shares. But this year is different. "Ppl want to be reassured that there is not a brand problem," says UBS analyst David Palmer. Part of what has always driven Starbucks's stock is the magic surrounding its brand, led by Chmn Howard Schultz’s cheerleading, and investors are sure to get a dose of that at today's meeting. Last year, Mr. Schultz and CEO Jim Donald mixed homespun anecdotes with financial charts showing the co's rapid growth before crooner Tony Bennett appeared on stage for a surprise performance. "To the degree that ppl need to see confidence from Howard," Mr. Palmer said, "we believe that they will see it."

Barron’s Online highlights CMGI (CMGI), saying that recently some of the savviest hedge funds, including Renaissance Technologies, have been buying CMGI stock as the co morphs again. Today CMGI gets paid a fee to streamline the delivery of electronics for firms such as Hewlett-Packard and Eastman Kodak. After a year of little or no attention on Wall St., WR Hambrecht analyst Robert Stimson initiated coverage of CMGI on March 9 with a Buy rating, saying the present value of CMGI's assets is $2.50, 35% above a recent price of $1.85. "Where there has been enormous opportunity in tech is with some of these fallen angels," says Stimson. But after a 40% jump this year in CMGI shares, is there any upside left? Barron’s thinks so. CMGI may be a cheap bet that there's value in the electronics supply chain. Trading below the co's $1bn in trailing 12-mo sales, and with $275m of cash and $2bn of net operating loss carry-forwards, the co may even be an attractive take-out tgt for freight giants such as FedEx or UPS. "As (CMGI) improves its gross profit and operating profit, this is a business whose sales can rise by 20% or more a year," adds Stimson.

“Inside Scoop” section reports that Tennenbaum Capital Partners and longtime insiders at Jo-Ann Stores (JAS) collectively grossed nearly $73m by selling 2.96m shares on the open mkt. Ben Silverman, of InsiderScore.com, said there may be some concern that Tennenbaum Capital dumped its stake "unceremoniously," but the mitigating factor is that the fund "really bought at the right time." Silverman notes that fellow value investor Olstein Capital Mgmt also reduced its stake drastically a few months ago. In Dec, Olstein sold 1.26m Jo-Ann shares for $30.5m, slipping its holdings below the 5% threshold. It held stakes of 9.1% at the end of ‘05 and 7.9% as of mid-Oct ‘06, notes Silverman. With Jo-Ann rallying, Silverman says "the expectations are high and it's a valuation question now."

Calls of Note Part 5

- BB&T Capital Markets is out with an interesting call on Railroads noting that the "rail renaissance" has been very good to railroads and railroad investors in recent years. However, railroad management teams are seemingly running the businesses for their debt holders and credit rating agencies (i.e. focusing on repaying debt and maintaining investment grade credit ratings), and the firm believes many equity investors are simply fed up. Shareholders want their money, and they want it now. They want bigger dividends. They want bigger share repurchases. They simply want to get paid. So it's time to send a loud and clear message to the market, and in firm's view there is no better way than a material stock repurchase. But they don't mean over the next few years, per the current authorizations, they mean today. BB&T believes the rails can afford it, so it's time to pay up.

Dividends and share repurchase authorizations are increasing, to be sure, but why wait to buy the stock? Instead of buying stock over the course of years, why not go the market immediately with a tender offer for the entire repurchase authorization? The firm believes that if the Class I rails levered up to the 50% debt-to-cap level, they could use the cash to repurchase from 10%-31% of their shares outstanding, which could add 5%-17% to 2007 EPS. Bottom-line: if your stock is such a great value, buy it aggressively. And buy it now, not "opportunistically" over time. If that requires levering up a bit, then so be it. They believe the end result would be accretive to EPS, and likely applauded by the market.

Buy the stocks, and buy them now. That's BB&T's message to investors and railroad management teams. It's easy to tell investors that your stock is undervalued and your outlook is solid, but it's another thing altogether to step up and buy back 10%+ of your shares outstanding. That's how you send the right message to shareholders, and that's exactly what they think the Class I rails in their coverage universe should do. Firm remain bullish on their railroad coverage universe, and continues to recommend Buy rated names: BNI, CNI, CSX, GWR, NSC, and UNP.

Notablecalls: BB&T's John L. Barnes III sure comes across as a strongly opinionated fellow. The rails have been acting pretty OK lately so would not be surprised to see some further buy interest in select names.

Calls of Note Part 4

- ThinkEquity's Eric Ross comments on Sandisk (NASDAQ:SNDK) saying NAND prices have fallen sharply, and they fear there may be difficult news in the near term. ASPs have plagued a larger portion of the quarter than many investors expect. In addition, any improvement in NAND pricing may shift capacity back to NAND, muting any recovery. The firm does not believe we have reached the bottom quite yet.

Prices have fallen 35%+ Q/Q in the March quarter alone. Every company has pre-announced and said that pricing is falling sharply: Hynix, MU, SanDisk, and Samsung all announced sharply falling prices. Prices continue to fall, albeit not at the same rate. Some sources phrased this as, "prices bottomed out." But, when the firm asked for a more-clear definition, they said they intended to say, "declines have bottomed." Firm believes some investors intended the former. Most supply chain sources expect prices to continue to fall for at least another month or two, and likely to some degree (albeit slowing) until the end of the year.

Investors are looking to demand to pull the industry out of the slump-NAND Flash drives for PCs and cell phone handset volumes. The firm agrees these will be drivers, but they fear there may be difficult news beforehand.

Many dual DRAM/NAND makers have moved back toward DRAM. Samsung and Hynix have allocated larger portions of capacity to DRAM as NAND prices plummeted and DRAM was more profitable. Now, neither is very good. They are likely to shift back if NAND pricing begins to improve, muting any real recovery for a quarter. Mr. Ross does not expect this to occur until the summer at the earliest. It is possible we will see some misses by NAND makers in the March quarter.

The firm is cutting their ests on SNDK: 1QCY07 from $840.0 million to $788.0 million; CY07 from $4.032 billion to $3.928 billion; 1QCY07 from $0.18 to $0.08; CY07 from $1.02 to $0.84; Reits Accumulate and $45 tgt.

Notablecalls: NAND's a tough business to be in. I continue to see no reason to own SNDK around current levels.

Calls of Note Part 3

- Goldman Sachs notes that based on their recent channel checks, they believe LG Electronics' handset business is tracking ahead of expectation, but handset upside could be offset by the weaker-than-expected display business. Appliance remains on track.

Firm expects LGE to ship 16.3 mn handsets in 1Q (vs. 15.5 mn guidance). 'Chocolate' shipments remain strong, and the recently launched 'Shine' phone seems to be off to a strong start. Overall, handset profitability could see a modest improvement in 1Q to around 3% OPM, helped by 1) higher volume, 2) favorable product mix, and 3) FX.

Display remains the weak link, and they expect losses to widen in 1Q. PDP is the main culprit, suffering from low utilization and ASP declines. In addition, LCD TV prices for new models were recently lowered, while LCD TV panel prices have fallen less than expected, further pressuring TV margins.

GSCO is encouraged by the signs of improving execution in LGE's handset business. 1Q could mark the third quarter of stable handset margins (albeit a low margin), and be a step closer to regaining investor confidence.

Notablecalls: There aren't many positive signals coming from the handset industry but looks like GSCO managed to spot one. The Chocolate is a chic phone and that pretty much tells me consumers are willing to buy new handsets, provided they are new & cool. That's what Motorola (NYSE:MOT) is currently lacking. However, given the low valuation and pessimistic sentiment, an opportunity for a leap of faith may be in the cards here. Not a high conviction call here but I thought to express my view on this one. See archives for more color on MOT.

Calls of Note Part 2

- CIBC is out with a call on Digene (NASDAQ:DIGE) noting the stock has declined 25% since its earnings report last month, and is down 10% in the recent weeks since Roche filed its long-awaited (and delayed) PMA for Amlicor HPV. In their note, the firm details why they doubt Roche will be competitive, and argue that DIGE is a solid buy on the recent weakness.

Firm spoke with several investigators from Roche's clinical trial (who cumulatively performed over 4,000 samples) and they also spoke to their contacts at Roche. They found two key issues: 1) "clinical sensitivity" for Roche is inferior to Digene and 2) throughput on Amplicor will be an issue.

All investigators the firm spoke with said Roche's PCR-based diagnostic yielded too many false positives. They suspect Roche now increased the cutoff rate to improve results, but this would mean that new validation studies and LT follow-up are needed. CIBC feels this will delay Roche's approval.

The investigators were all very clear that "efficiency is king," and they noted that Amplicor is a much more manual process that requires hours of additional "hands-on" time. Firm's Roche contacts confirm this, and does not expect filing for their automated platform (TaqMan) for at least two years. Reits Sector Outperformer and $58 tgt.

Notablecalls: That's what I call research! CIBC's Amit Hazan has gone the extra mile for investors here and the results speak for themselves. To make things more interesting, note that TWP has downgraded DIGE to Market Weight from Overweight this morning as they are transferring the co from the Life Science industry while maintaining estimates. That may create some weakness but also a superb s-t buying opportunity as CIBC's comments should outweigh the downgrade. Think I'm going to call this one actionable.

Calls of Note Part 1

- Piper Jaffray comments on Apple (NASDAQ:AAPL) after speaking with 20 Apple specialist resellers over the past several days.

Firm believes that, on average, Street models assume around 1.45m Mac units for the Mar-07 quarter, which is down 10% q/q from Dec-06. In their checks with 20 Apple retail stores, 85% of resellers expect Mac sales in Mar-07 will decline slightly vs. Dec-06, while the other 15% expect Mac units will be flat q/q. In general, resellers defined "slightly decline" as a 5%-10% drop from Dec-06 to Mar-07. They believe, therefore, Street estimates are achievable and may be slightly conservative.

They believe Apple's new OS, Leopard, will likely be released in mid April. Slightly more than half of the resellers in checks said Leopard related purchase delays are having a slight negative impact on Macs, while slightly less than half said Leopard is not having any impact on Macs.

As was the case in the early days of the iPod, Apple resellers in firm's checks expect AppleTV will need to be more fully understood by consumers before it turns into a major contributor. Almost all (95%) resellers in the sample said they expect AppleTV will have a minor impact on business in the near term (next 1-2 qrtrs). Maintains Outperform and $124 tgt.

Notablecalls: So it looks like the Mac business is growing as expected. That's surely good news. Can the same be said for iPods? I'm not so sure. Overall, AAPL continues to represent the only growing part of the PC business. That's enough to sustain the valuation for now. I don't expect the call to have a major positive impact on the stock today. We may see SOME buy interest, though.

Paperstand (MATK, DRC)

The WSJ reports that ABN Amro (ABN) is nearing a deal to be acquired by Barclays (BCS) for more than $80bn. The two banks had discussed a deal as long as a year ago, but talks foundered. The chief execs resumed talks at a meeting in Geneva about 6 weeks ago, even as ABN Amro publicly asserted that it wanted to remain independent. Under the terms being discussed, Barclays would offer a mix of cash and stock for ABN Amro, valuing the bank's shares in the range of low €30s, slightly above their current trading price.

The WSJ discusses new Detroit woe – makers of parts won’t cut prices. Navistar has supplied diesel engines to Ford (F) for almost 30 years. Yet in late Feb Navistar, embroiled in a financial dispute with Ford, temporarily cut off all engine shipments to its single biggest customer. The move dramatized a broad shift in the balance of power in the struggling US auto industry. The dispute involved competing views of warranty claims and price contracts. But at its core was the engine supplier's refusal to play an old Detroit game, in which US car makers have deflected the pressure of global competition by repeatedly forcing suppliers to trim their own prices. For the old Big Three of Ford, GM (GM) and the Chrysler (DCX), the case was evidence of a new reality. It finds itself surrounded by parts suppliers from which it can no longer easily squeeze price concessions.

“Heard on the Street” column discusses Martek Biosciences (MATK), saying that one of its accounting methods has led to concerns that Martek is trying to make profits look more robust than they really are. The bone of contention: Martek's treatment of what it calls "idle" assets. Martek noted in its F1Q results that it has $94.3m of property, plant and equipment, "being held for future use." Martek doesn't depreciate assets designated this way. Such an approach is pretty rare; co’s typically depreciate assets that they are either using or could be using. Martek's approach lessens the bite that depreciation charges take out of net profit. In F07, the move could boost net profit by about $3.9m, or about 20%, according to Glass, Lewis & Co. A similar gain over the past year could have helped the co avoid 2 consecutive years of declining net profit. Plus, if Martek was fully depreciating its assets and taking a bigger hit to profit, the co's share price would be an expensive 37x expected F07 earnings, as opposed to its current multiple of 30x. Robert N. Freeman, an accounting professor at the University of Texas, said "You're in a gray area."

Barron’s Online “Inside Scoop” section reports that the Chmn of Dresser-Rand (DRC), William Macaulay, has just filled up his tank with shares of the co. Mr Macaulay spent $4m on 150K shares on March 15. The purchase came the week after private-equity firm First Reserve, where Macaulay holds the Chmn and CEO posts, launched a secondary offering of its remaining 11.6m Dresser-Rand shares. Ben Silverman, of InsiderScore.com, says Macaulay's buying is a positive signal, especially since the stock is currently trading near its 52w intraday high. "In a sense, he could be reinvesting in Dresser-Rand," says Silverman, "What I think is good is that he is planning to stick around as Chmn, and that he feels that the stock is going to appreciate in the long term."

Quote of the Day

We believe Vista is a disaster. No one seems to want it-no corporation wants to be the first to use it, and no consumer (save a few early adoptors) wants to spend a dime to get anything other than future-proofing; no one in the supply chain believes it could provide anything of a driver for PCs. We believe Vista will be a non-driver, but Vista-premium features could be a real driver in 2H07. No one we spoke with believed. Ironically, most new $300 PCs are Vista compliant, although may run a bit slow in the graphics and are certainly unfit for power users.

Eric Ross, ThinkEquity Partners on CeBit 2007 PC And Processor Demand (March 19 2007)

Notablecalls: Must say I agree. Not actionable but surely entertaining.

Calls of Note Part 7

- JP Morgan is raising 2007 and 2008 EPS estimates ahead of Genentech's (NYSE:DNA) investment community meeting on March 23. Given strong Avastin and Lucentis trends exiting 4Q06 as well as impressive operating leverage, they would not be surprised to see 2007 earnings guidance raised at the meeting. However, even if guidance is unchanged, Genentech's P/E is near a 4-yr low on the back of concerns from the AVAiL data, making the risk/reward in DNA shares very compelling.

DNA shares began to weaken after the AVAiL data on Feb 21, with further pressure on YTD performance from a weak biotech tape. Consensus ests for 2007 began the year at ~$2.55, and they are now 12.5% higher, yet DNA shares are flat YTD (BTK index: -5.1%). In firm's view, concerns over Avastin growth due to AVAiL results as well as Herceptin competitive fears from the coming 30001 study from GSK's Tykerb (1H07e) have contributed to DNA weakness. JPM would argue that these concerns are largely priced into DNA shares; indeed their growth ests for both Avastin and Herceptin in 2007 and 2008 are beatable (Avastin: 29.4% and 22.5%; Herceptin: 15.3% and 11.7%).

Firm is raising their 2007 and 2008 estimates to $2.91 and $3.47 respectively from $2.83 and $3.43 previously largely on higher Lucentis estimates. Reits Overweight.

Notablecalls: Expect to see some buy interest in DNA today.

Calls of Note Part 6

- Bank of America notes their channel checks indicate that AMD (NYSE:AMD) is preparing for another round of price cuts on Apr 9th, in an effort to 1) bolster flagging demand for its products and 2) preempt Intel's price cuts scheduled for Apr 22nd. These price cuts, which the firm believes will be across of several AMD's desktop products (including Semprons, Athlon X2s), and will range between 26-42%.

BAC is reducing their below consensus FY07 GAAP EPS from a loss of $0.45 to a loss of $1.00 (consensus a loss of $0.39) saying AMD's elevated cost structure, attributable in part to a significant depreciation ramp through 2007, will make it even harder for AMD to avoid more pressure on GMs, despite the slight relief accruing from increased 65nm volumes.

They expect the aforementioned cuts to have little impact on Intel. Succinctly put, while the price cuts will put some pressure on Intel's low-end offerings, they expect blended pricing for Intel's desktop processors to trend flat with higher volumes in the premium Core 2 Duo segment offsetting price erosion in lower end processors; the stability in notebook and server pricing (no price cuts) should serve as anadditional mitigating factor.

Maintains Neutral on AMD but thinks it's premature to bottom-fish on the stock.

Notablecalls: Ouch!

Calls of Note Part 5

- Merrill Lynch comments on FTI Consulting (NYSE:FCN) noting the shares have risen 15% since the company reported its strong 4Q06 results and outlook on February 15th. Firm reiterates their Buy-rating on the stock, but is highlighting the potential for temporary downward pressure on the stock price as consensus estimates currently may not fully reflect the seasonal weakness in 1Q. MLCO's revised 1Q EPS forecast of $0.36 is now 8% below consensus of $0.39. However, for the full year, they see more upside potential than downside risk to their estimates, and view any short-term weakness as a buying opportunity.

Firm looks for revenue growth to remain solid in coming years and to prove resilient in the event of a US economic downturn, cushioned by the counter-cyclical nature of the Restructuring business (17% of sales), which would benefit from any pick-up in bankruptcy-related activity. Tgt remains $39.

Notablecalls: The stock sure looks like it wants to move somewhat lower.

Calls of Note Part 4

- Bank of America comments on CBOT Holdings (NYSE:BOT) saying they have lifted their '07/08 EPS estimates to $4.99 and $6.14 from $4.84 and $5.85 to reflect current volume trends and expectations that the higher volatility environment we are currently experiencing could last for some time.

They are also raising their price target to $195 from $170 to reflect current ICE bid and potential for counter- bid by CME. BAC believes that CME will likely have to raise its bid for BOT given higher price ICE is currently offering. According to their analysis, CME could pay from $205-215 for BOT and still make a deal work. That said, given the conservative nature of CME management, they can not yet be sure that they would get that aggressive, and are raising BOT price target to $195.

Notablecalls: Would not be surprised to see some buy interest in BOT following the call. Note that ICE has not ruled out going hostile on BOT.

Calls of Note Part 3

- JP Morgan notes that based on their listings and revenue per listing analysis, they feel comfortable that eBay's (NASDAQ:EBAY) 1Q is tracking ahead of street consensus estimates of $1.71B and $0.30.

QTD listings up 11% Y/Y. On a reported basis (incl. Taiwan and China), QTD listings are tracking up 8% Y/Y. Ex. Taiwan and China, listings are up 11%. As of 3/16, the firm has tracked 507.4M total new listing, with 369.4M in the US, UK, and DE. Based on analysis and checks, the firm believes that RPL in 1Q is tracking slightly above their estimate of $1.88 due to product mix and stable conversion trends, and as such, they are confident that 1Q is trending above consensus estimates.

Based on their checks, the firm believes that keyword pricing remains stable. According to SEM executives at the JPMorgan Internet Conference, Yahoo!'s Project Panama launch has resulted in lower click prices for brand advertisers. As companies with strong brands such as eBay tend to attract more clicks, they in turn are required to pay less for the same ad position. Net/Net, they believe eBay may realize lower search marketing expenses while maintaining or increasing its lead volume from search. Reits Overweight.

Notablecalls: Expect to see some buy interest in EBAY this morning. I don't see the comment as anything major, though.

Calls of Note Part 2

- FBR notes that recent checks suggest that despite a flattening in poly spot prices, MEMC (NYSE:WFR) has been able to sell higher than the previously expected amount of poly into the spot market, a trend that is expected to continue into 2Q07, therefore providing upside to their estimates. To that end, they increasing their revenue/EPS estimates and actually going above the consensus. 1Q07/CY07 pro forma EPS estimates have changed from $0.69/$3.01 to $0.70/$3.12, which compares to consensus estimates of $0.69/$3.04.

FBR's price target has also increased from $45 to $54, which is 5x CY08 EV/Sales and 10x CY08 EV/ EBITDA, which is driven by higher estimates, as well as some multiple expansion because of higher growth prospects. Unlike the previous years when a combination of insufficient transparency and restatements of quarterly results made us doubt long- term growth prospects, they have now increased confidence in MEMC's ability to capitalize on not only the shortage of poly, but also benefit from the secular growth of the solar industry.

However, their concerns are: 1) continued share loss in the semi wafer market, particularly in Japan and Korea, 2) ineffectiveness of long-term strategy at Chinese/Taiwanese solar cell/module manufacturers, which would adversely impact MEMC as two of its current solar wafer customers reside there.

Maintain Market Perform rating, but would become more aggressive if the shares pull back or more upside to estimates is determined.

Notablecalls: There was some chatter of a poly glut on Friday. Some names were hit pretty bad, including WFR which lost 2 points initially but managed to recover some of it after lunchtime. FBR has never been a fan of WFR and with the firm raising their ests above consensus, it warrants some attention. Not calling it outright actionable as the stock has been acting heavy over the past couple of weeks.

Calls of Note Part 1

- JP Morgan's Semiconductor team notes recent checks in the semiconductor space indicate Consensus estimates need to be lowered for 2Q07 and 2007. They believe this will cause a sell-off in semiconductor stocks, which the firm believes will be the last chance to buy stocks before the second half rally.

The firm compared their 2Q07 and 2007 estimates to Consensus for our large-cap and broad-based stocks, and it appears Consensus estimates are an average of 1% above their estimates for 2Q07 and only slightly below normal seasonality. They believe Consensus estimates are too optimistic and are based on a "quick recovery" scenario in 2Q07.

Consensus estimates should be reduced over the next four weeks as it becomes clear 2Q07 guidance will be below normal seasonality. JPM believes this should also mark the last major estimate cut for the semiconductor sector. Analysis indicates AMD, CY, INTC, and ONNN should experience the largest estimate cuts, while TXN, BRCM, ALTR, XLNX, and FCS should experience smaller reductions.

Firm believes the lowering of Consensus estimates should trigger a sell-off, and they strongly encourage investors to begin or add to long positions during the weakness. They believe this is last chance to buy before stocks rally in 2H07. Top Picks include: TXN, MCHP, BRCM and NVDA.

Notablecalls: Agree with JPM here. The consensus numbers have been raising on heels of positive comments from several industry names. The truth however is that the U.S. economy has entered a period of choppy growth (At best! More likely slowing growth and eventually deceleration) and Semis have rarely done well during times like this. The HOLDRS (SMH) have gone nowhere over the past 6 months and I suspect the next leg will be down.

Paperstand (CYH, TRI, IFX, AUO)

The WSJ reports that Community Health Systems (CYH) was last night nearing a deal to Triad Hospitals (TRI), breaking up an existing $4.5bn buyout plan by a group of private-equity funds. Exact details of the offer weren't clear late yesterday, but one person familiar with the plan described it as being "several hundred million dollars" greater than the offer tabled in Feb by a duo of CCMP Capital Advisors and Goldman Sachs Capital Partners.

”Heard on the Street” column out saying that Infineon (IFX) could be singing an upbeat new tune by the end of the year, all b/c of a ringtone. And that could be music to the ears of Infineon's investors. The share price of Europe's largest maker of microprocessors has risen some 65% since the start of ’06, up 7% this year alone. But even at its current price, the co still trades at about half the going rate of its US-based peers. Investors are buzzing over industry speculation that Infineon will supply the main chip to drive the highly anticipated iPhone from Apple (AAPL). "We believe Infineon is the dominant supplier of the [electronic brains] for the iPhone," says Jagdish Rebello, of iSuppli. Proponents of Infineon take the long view: By the end of ‘07, the co will have cashed out big from its majority stake in its old memory-chip business and completed the turnaround of a money-losing cellphone technology division, which had been a drag on earnings. Now is a good time to buy, they say. Infineon has new contracts in the pipeline, including a deal with Nokia (NOK), and "it's trading at a deep discount" to its peers, says Robert Turner, of Turner Investment Partners.

The NY Times reports that more than 60m cans and pouches of dog and cat food sold under dozens of brand names were recalled on Saturday after being linked to the deaths of 10 animals. The food was manufactured by Menu Foods, which makes wet food sold as store brands for co’s like Wal-Mart (WMT), Kroger (KR) and Safeway (SWY).

DigiTimes reprots that Samsung Electronic and LG Electronics recently visited AU Optronics (AUO), Chi Mei Optoelectronics and Chunghwa Picture Tubes to secure TV panel supply, with the TV makers placing orders 2 months earlier than originally planned. Since Samsung and LGE will source 50% (5.5m units) and 35% (2.5m units), respectively, of their TV panels this year from Taiwan, a tight supply of TV panels is expected to occur, with TV panel prices to switch from dropping to rising by May at the earliest should Taiwan-based panel makers stick to their quotations.

Barron's Summary

According to the Barron’s, Textron (TXT) has doubled in the past 5 years, to around 90. If it can deliver efficiently on its backlog of orders for jets and helicopters, another doubling is likely in the next 5 years.

At around 19.40, Saks' (SKS) shares are now 37% higher than they were last August. They could keep climbing to the mid-20s as margins and earnings grow.

Ryder (R) trades around 49, or an inexpensive 10 times analysts' 2008 estimates. It could rally into the 60s if the company bests its conservative earnings guidance.

”The Trader” section out saying that shockwaves from the epicenter of the quaking mortgage world will shake homebuilders. Although subprime loans make up just a fraction of all mortgages, any tightening of lending standards could crimp home demand and prices, and delay the already-slow convalescence of the ailing housing mkt. At some point, slip-sliding homebuilders may be worth buying again. A number of these stocks are trading just 10-20% above their tangible book value, historically a turning point for slipping shares. Not all homebuilders will fare equally as lending constricts. Toll Brothers (TOL) and KB Homes (KBH) are highly correlated stocks that have traded in sync 86% of the time over the past year. But Michael Benhamou, of Louis Capital, sees a possible divergence ahead. For one thing, tightening credit will hit the lower end of the housing spectrum harder, and KB Homes serves a wider swath of first-time home owners. The avg price of homes sold by KB is $277K, compared with $690K for Toll. As lending tightens for new buyers, Benhamou reckons "Toll will outperform KB Homes by 15% over the next 3 months."

“Technology Trader” column wondering, why is ST Micro (STM) trading at such high multiples, compared those of rivals. At a recent $19, ST enjoys about twice the earnings multiple of the better-positioned Texas Instruments (TXN). ST has won Buy ratings from analysts like Mark Lipacis of Prudential. In his notes, Lipacis reports that ST has the industry's best cash-flow yields, given that its free cash flow should be better than 7% of his forecast for ‘07 revs. TI ranks 3rd, with about 5.2%. The Pru analyst says that such free cash-flow percentages were strong predictors of stock performance last year. But ST's cost controls will only go so far, if its sales don't keep growing. Although full-year sales rose 11% in ‘06, on a sequential basis sales flattened and then turned downward after the JunQ06. In Jan07, ST told investors to expect sales to slide 3-11% sequentially in the MarQ07. ST bulls are banking on a sharp rebound in sales in the 2H. The visibility's not great, therefore, on an ST sales revival. So why does it trade for 23x trailing earnings, while TI trades for 11x? Well, both ST and Infineon (IFX) have been flagged as potential buyout candidates that private equity buyers could load up with debt, like Freescale. So much private equity money is looking for work these days that you can't rule out any deal, but ST's challenges look kind of difficult to this yokel.

Fund manager picks include BBG, SWN, XOM, PBR, NOV, GRP, SLB, LNG, NRG and CBI. Another fund top holdings include: TEX, DHI, NVR, KBH, BRKB, GS, JOYG, AIG, CTX and UNH.

Calls of Note Part 6

Oppenheimer says they are seeing NAND flash pricing stabilizing and module manufacturers scrambling to build spurring demand - positives for SanDisk (NASDAQ:SNDK).

Firm's channel checks with leading Taiwanese flash module manufacturers - Transcend(#3), A-Data (#4) - indicate Flash prices moderating and module manufacturers scrambling to build inventory post Chinese New Year.

Outlook for the June quarter is for NAND ASPs pricing declines to be much more moderate, with June quarter capacity addition more muted. On the supply side: Samsung's output in Q406 was almost 70% at 63nm. Samsung continuing at 63nm, and has not added significant capacity in Q1 and not adding significant capacity in Q2, continuing output in Q1/Q2 on 63nm. Believe Samsung 51nm which could add to supply will be a mid to late Q3 event. Given that Samsung is still on 63nm in 1H07, firm believes it is being less aggressive on pricing since it does not have any cost levers. Nevertheless, Samsung is working aggressively on 51nm. Also, Samsung has not changed its NAND/DRAM allocation since moving 50% of capacity on its new fab to DRAM in Dec-06.

Also Samsung's move into retail card market appears to be much more exaggerated than actual reality. With a lack of brand, or retail distribution pipeline, firm estimates little to no risk to SNDK.

Toshiba appears to be the most aggressive in capacity additions in 1Q/2Q, pulling in 56nm - but has also been less aggressive in pushing prices. Flash card OEMs seeing SNDK/Toshiba gaining flash card market share in 1H07 over Samsung and Hynix.

Also NAND spot prices for the 2 weeks ending Mar 15th are down only 3% for 1Gb, 1% for 2Gb, 1.5% for 4Gb a substantial moderation. Firm reiterates Outperform rating on SNDK with a $50 PT.

Notablecalls: Not much new as Oppenheimer was upgrading the shares just a few days ago based on stabilizing prices.

Calls of Note Part 5

RBC says their checks indicate that Zoltek (NASDAQ:ZOLT) has made significant progress in negotiating an extension to the Vestas contract at terms better than their prior expectations. The current 3-yr $80-100M contract expires at the end of 2007. Firm believes a new contract size could be 2 - 2.5x prior yearly levels. While the impact to RBC's estimates would depend on the contract details, a contract of this size could represent 10-20c side to their 2008 estimates, and further 2009 growth. Firm believes Zoltek is in a superior negotiating position vs. Vestas, who has limited alternative options. A new material contract would likely require a press-release intra-qtr (rare for this company) and be a major catalyst for the stock. Investors adding to positions before this catalyst will likely benefit from both forward earnings and multiple expansion.

While they are remaining conservative on their valuation and price target for the moment, firm believes another solid qtr of execution (esp on the revenue, gross margin and Abilene yield fronts) after the solid Q107 will go far in alleviating investor concerns. In addition, a new Vestas contract could cause them to reconsider the substantial multiple discount to growth their current target reflects. Firm's current PT is 19x calendar 2008 EPS of $1.67 (a 0.3 PEG ratio).

Notablecalls: Actionable call alert! Think the stock has at least a point of upside in it today.

Calls of Note Part 4

Baird says preliminary dealer survey results suggest U.S. demand for Harley-Davidson (NYSE:HOG) is trending slightly below their forecast. Firm trimmed their estimates to reflect softer retail trends and weaker profits from financial services.

Firm contacted 39 Harley dealers in the last week to assess market conditions. A few trends have emerged, but their checks will continue through late March, which is the most important period in the quarter.

Preliminary results suggest Q1 retail volume in the U.S. will be up 1-2% versus their prior +3% forecast. Parts sales are trending flat as some dealers report strike-related shortages. Relative to expectations, dealers report modest disappointment with many citing weather as a factor.

Dealers are comfortable with new bike inventory and report a shortage in used bikes. Some dealers report that competitors are selling MY07 bikes below MSRP, but pricing has improved since Q4. A few credit the improved pricing environment to reduced shipments during the strike.

Most dealers (74%) report no change in terms of the availability of credit, but a handful indicates that conditions have worsened. Firm estimates that Harley sells about 10-15% of bikes to subprime borrowers, suggesting that tighter credit standards could curb retail demand.

Baird adjusted their estimates to reflect a slightly more conservative posture with respect to retail demand and HDFS profitability. However, it is important to note that HDFS represents just 13% of operating profit, so even a 20% drop in income from financial services would reduce EPS by just 3%. The more significant concern, reflected in firm's nearly flat U.S. retail forecast for 2007, relates to the impact of tighter credit markets on the availability of retail credit.

Notablecalls: Not much new, more like a review of already known concerns. Also, the chart is rather showing signs of bottoming. Not actionable, but good to know category.

Calls of Note Part 3

Baird out with an interesting note on Syntax-Brillian (NASDAQ:BRLC), saying that per their checks, Target stores will start rolling out Olevia TVs within the next two weeks. Some stores already have models on display, while others have them in stock, ready to display in the near future. Firm's checks indicate Target will sell 32-, 37-, and 42-inch models, with the majority of stores carrying 32- and/or 37-inch models. Firm expects the Target rollout to be mostly complete in 2Q. Firm views it as incrementally positive for Syntax-Brillian, as the company continues to execute on its strategy to expand retail distribution in the U.S., Asia, and Europe.

Notablecalls: Can't say I'm too familiar with the name, but Baird's comments caught my attention. Expect to see buying interest in the stock today.

Calls of Note Part 2

Bank of America believes Intel's (NASDAQ:INTC) stock has come under pressure in recent weeks amidst concerns that Intel has responded to AMD's aggressive price moves with a new (unscheduled) round of price cuts. The increase in HP's B/S and channel inventories have only served to exacerbate these concerns.

Firm believes concerns over additional price cuts overblown. Our checks suggest that Intel has not initiated any broad-based price cuts this quarter post the pre-scheduled Jan 21st price reductions. In fact, contrary to what had been reported in Digitimes, where a 5-10% reduction for two Intel processors was reported (Pentium D series 915 and 820), they believe the only cut initiated (~10%) was on the 915 on Mar 4th. They note that this was a pre-scheduled cut, and that perhaps more importantly, our checks still support no change in ASPs for premium Core 2 Duo desktop processors.

Jan SIA data confirms a stable pricing environment for Intel. The channel data points are also consistent with firm's analysis of the Jan SIA data for microprocessors (MPUs), which showed that pricing (on a 3-mo moving avg. basis) rose 3.7% M/M - the biggest rise in 18 months. Given the ASP declines in AMD processor ASPs, the uptick in pricing reported by the SIA was by definition driven solely by improving ASPs for Intel.

Concerns over HP's inventories - much ado about nothing? The focus on an increase in channel inventory (+1 week Y/Y to 5 weeks) at HP, attributable to the increase to the build of Vista-ready systems at qtr end, seems overblown. Importantly, an analysis of Jan and Feb motherboard and notebook shipments points to a seasonal qtr for PCs (and by extension MPUs), with little evidence of inventory build. This backdrop combined with stability in Intel ASP, suggests that Q1 sales are tracking to at least the mid-point of Intel's outlook for slightly below seasonal growth (-7%).

Notablecalls: This note should generate mild interest in the shares today, but I like it more in longer perpective, say 1-2 months. Intel has been enjoying torturing AMD of late and now has it just about where it likes AMD to be - beaten down. Now Intel can concentrate on its own gross margins and as the margins go, so does the stock.

Calls of Note Part 1

JP Morgan out with loud praise for ASML (NASDAQ:ASML), saying to buy ASML by June or risk missing a big move in their view. ASML is their top large cap pick and to paraphrase Chris Danely, it is in the front seat of their mini van. Firm sees sustained competitive advantage, share gain, and margin expansion, and they believe investors should be buying the stock aggressively now or risk missing it for a potentially long time. Firm believes the stock is at, or very close to solid valuation support, memory-related weakness is minimal, and consensus is about a year behind the curve relative to their EPS estimates.

Due to general market weakness, the likelihood of roughly 60 unit orders in C1Q07 and C2Q07 vs. 84 in C4Q06, and concern that Nikon is closer than previously expected in immersion created the recent dip in ASML shares, in firm's view. Recent comments suggest a better immersion unit split for Nikon vs. ASML at Toshiba. This has created fear that Nikon is closer to ASML in immersion than previously expected. Firm sees Toshiba as a huge win for ASML as it represents share gain in Japan that has been traditionally off limits (at a very tough customer). Nikon will remain a strong competitor, but they think ASML is poised to grow its market share throughout the immersion era based on solid positions at its core customers plus increased penetration in Japan and at Intel. As such, the company's overall market share should trend up to the 65%+ range over the next few years. ASML's unit orders should dip in 1Q, but TSMC is back with 90nm orders now and 65nm to follow while Intel is preparing for a sharp 2H07 unit ramp. Bottom line, most of the 1H order drop is low ASP i-Line tools and the value of orders should remain strong on an increase in leading edge dry ARF and 1900i orders.

Firm expects a new order cycle and traditional seasonality to drive substantial upside in equipment stocks in C2H07 as we have stated repeatedly since January. Also, they continue to recommend buying the low end of a likely first half 2007 trading range, which has been largely defined in our view.

Notablecalls: ASML seems to be trading relatively flat in the Europe. Buying the shares near the yesterday's close should provide oppty to unload them for 25-50c profits later today as JP Morgan's comments are strong enough to create buying interest.

Calls of Note Part 7

- Merrill Lynch notes tt seems the long road to finality in the CVS/Caremark merger saga might be only a few days away. While anything is still possible and it would not be prudent to say the merger is a lock, the firm believes there is a good chance the deal becomes finalized. CVS shareholders will vote on March 15 and CMX holders on March 16.

In a scenario where CVS or CMX shareholders vote no to the CMX deal, the firm still sees limited downside to CVS stock. In fact, either way they believe the stock is undervalued. Assuming a minimum P/E multiple of 15.5x on their standalone 2007 EPS estimate of $1.90, MLCO estimates downside risk of approximately 9% to $29.50. However, if the CMX merger is not completed, they believe investors will refocus on fundamentals and see potential upside of 24% to $40. If the CMX deal is completed, the upside could be 39% to $45 assuming 20x on pro forma 2008 EPS of $2.25 (firm's current $2.15 standalone estimate plus $0.10
accretion).

They see positive catalysts for CVS regardless of the outcome. If ESRX wins out, CVS will receive a $675 million break-up fee and still generate strong sales and earnings growth over the coming years. Maintains Buy.

Notablecalls: It sure looks like CVS may have some upside over the next couple of days. Not a very high conviction call but it's in a defensive sector and 40% upside sounds pretty good.

Calls of Note Part 6

- Citigroup comments on TiVo (NASDAQ:TIVO) after Steve Sordello, CFO, presented at firm's Small/Mid-Cap conference today. The presentation was generally positive and well received.

The company outlined five growth drivers in 2007, namely: 1) premium content (eg. AMZN deal and broadband content), 2) Comcast rollout later this spring, 3) a new HD box that will be cheaper than the current box, 4) a mix shift in advertisements and subsidies, and 5) DVR advertising. TIVO expects to see lower cash intensity as it moves away from retail rebates. As such, mgmt does not foresee a need to solicit addt'l capital from the market.

TIVO envisions only requiring a "modest upcharge" for Comcast subs to get a TiVo box. This is a positive for TIVO as it presents less of an economic hurdle to overcome in penetrating cable MSO households.

While TIVO regards DTV's ownership change as a net positive, it remains focused on cable. Expects DISH trial to conclude by yr. end. Reit Buy & $11 tgt.

Notablecalls: Looks like TIVO investors have some catalysts to look forward to. I would not be surprised to see some buy interest over the next couple of days.

Calls of Note Part 5

- Merrill Lynch comments on AudioCodes (NASDAQ:AUDC) after the co warned that 1Q07 sales would be $36-38mn, or 15% below firm's $43.7mn forecast. MCLO believes the shortfall was broad-based and attribute it to underperformance at recent acquisitions and to consolidation turmoil among AudioCodes' large customers like Nortel, Alcatel-Lucent, and Verint. Although recovery could take time and near-term visibility remains low, the firm maintains Buy rating as: 1) AudioCodes remains well exposed to secular growth in VoIP (20%+ CAGR till 2009, per Synergy); 2) the 22% decline in the stock already reflects most of the bad news; and 3) they believe management will cut costs aggressively to improve profitability, especially at their recent acquisitions. Firm also highlights the support from ~$3 in cash/share, which is ~39% of the current market cap.

While topline visibility remains limited, management could cut costs aggressively, especially in the underperforming acquisitions that have added $5-6mn in opex (+35%) without adding much by way of sales. Firm is lowering FY07 pro-forma EPS estimate to 33c from 47c, but believes a potential top-line recovery could eventually lead to EPS upside of as much as 40c. Lowers tgt to $10 from $14.

Notablecalls: Interesting comments by MLCO's Vivek Ary. While AUDC was an accident waiting to happen I would not be surprised to see some more downgrades today. Think the stock may be a buy if it gaps down this AM. That's the s-t call. Longer term, I suggest you read what Blodget has to say about VoIP. Mixed emotions.

Calls of Note Part 4

- Deutsche Bank notes that last week they met with Seagate's (NYSE:STX) CFO Charles Pope and came away very comfortable with the company's ability to return to its pre-Maxtor operating model. Firm continues to believe Street estimates are too low, and do not fully factor in the benefit of Seagate's technology lead in PMR and the cost savings resulting from the closure of the Maxtor facilities. They also believe recent concerns about Flash taking over the HDD market have been overdone.

The firm came away from our meeting very comfortable with STX's ability to return to its 24-26% GM target range in the March Q, and believes investors do not fully appreciate the significant leverage of STX's model from the ramp of PMR and the closure of Maxtor. The ramp of new low-cost drives (primarily due to PMR) gives STX a significant cost advantage versus competitors, particularly in notebook where pricing has been aggressive.

STX plans to ramp Woodlands #3 over a 3-year period (similar to its Woodlands #2 ramp), which the firm believes is slower than many investors expect. They view this slow and steady ramp as a positive for Komag (NASDAQ:KOMG), as model suggests STX will continue to rely on Komag for media. This contrasts with market sentiment that Komag's STX business to be significantly curtailed with the Woodlands #3 ramp.

STX's shares have been under pressure in recent weeks and are are now trading at 9x FY08 EPS estimate of $2.75, below STX's median FTM P/E of 12x. Reits Buy and $31 tgt.

Notablecalls: Nice comments by Deutsche. Think there will be some buy interest in both STX and KOMG. The sentiment in KOMG has been very negative lately, but the stock showed some signs of s-t bottoming yesterday.

Calls of Note Part 3

- CIBC notes that after a round of meetings in Asia with supply chain members, they believe Motorola (NYSE:MOT) is experiencing stronger than expected weakness in just about every area of its handset operation. Firm is lowering their 1Q07 handset shipment targets from 56M to 52M, reflecting a 20.9% QoQ decline.

They are growing increasingly skeptical of MOT's ability to deliver on its 2H07 double digit handset operating margin. Firm's checks suggest the SCLP could be delayed from late 1Q/early 2Q to late 2Q and they believe new 3G models are not expected to deliver in volume through 3Q07.

CIBC believes shipments could fall more than 20% sequentially with weakness across most areas. Checks show softness for the core RAZR and that newer products (KRZR and RIZR) are yet to gain traction. The low end is weak with MOTOFONE shipments possibly cut in half from 4Q06.

While they view Motorola s turnaround as a question of when and not if, they suggest investors don't wait for the fix as they believe it could take more than two to three quarters to materialize (at best). Firm is also unconvinced that Carl Icahn can make a material impact in the near term, which also limits the opportunity for near-term upside to the stock.

Adjusting 1Q07 estimates to revenue of $9.7B and earnings of $0.15 per share from $10.3B and $0.19. Maintains Sector Perfomer rating.

Notablecalls: Nothing really surprising here. Please see archives for further color on MOT.