From Briefing.com: 5:00PM Xilinx acquires DSP design tool leader AccelChip (XLNX) 28.79 -0.02 : Co announced that it has acquired AccelChip, the provider of MATLAB synthesis software tools for building digital signal processing (DSP) systems. Financial terms of the acquisition were not disclosed, however, the acquisition represents less than one percent of the total assets of Xilinx as of the end of its third quarter ended December 31, 2005. The company anticipates booking the acquisition in the March 2006 ending quarter. The majority of AccelChip employees, located at the Company's headquarters in Milpitas, Calif. and two design centers in North America, will become employees within the Xilinx DSP Division.
5:11 pm Weekly Wrap
It was a week of consolidation for the stock market. The early year rally gave way as the outlook shifted to upcoming earnings reports.
On Monday, the S&P 500 index posted its fifth straight increase. That made it five-for-five since the start of the new year, and since the release of the Fed's December FOMC minutes. The minutes had suggested the Fed might end their rate hike cycle sooner rather than later.
The impetus gave way as the week progressed. The S&P showed good resilience on Tuesday despite a fractional decline and managed a 5 point on Wednesday. On Thursday, however, the S&P dropped 8 points on little news. The upward momentum was over.
There was very little news this past week. There were only two earnings reports of note. Alcoa got fourth quarter earnings off on a sour note by missing estimates by a couple of cents. Genentech reported earnings in line with expectations, but revenues from a drug line considered a key source of growth were below expectations. That was it for earnings reports, although DuPont also warned of weaker-than-expected earnings due to hurricanes Rita and Katrina.
There were also very few economic reports. There was none of note Monday through Wednesday. New claims for unemployment were reported on Thursday in line with the recent trend (consistent with steady growth in payrolls). That day it was also reported that the November trade balance was less than expected due to lower oil prices. The government also reported a surplus for December. The deficit over the past twelve months is $320 billion, which amounts to 2.5% of GDP. That is right in line with the average over the past thirty-five years.
The best news came on Friday as December core PPI was up just 0.1%. That was the fifth straight month of a gain of 0.1% or less. Over the past six months, that index is up at just a 0.8% annual rate. This is a sign that high energy prices and a strong economy simply have not led to broad inflationary pressures. The total PPI was up 0.9% due to a pop in energy prices but a decline is likely for January.
December retail sales were up 0.7%, in line with expectations.
Oil prices firmed to over $64 a barrel. This was due in part to anxiety over the inability of the European negotiators to curtail Iranian's nuclear plans.
Natural gas continued to plunge, however, offsetting some of that market concern. That commodity is down over 40% in the past two months.
Earnings season starts up heavy on Tuesday. Forecasts are for fourth quarter operating earnings for the S&P 500 in aggregate to be up 13% over the same period in 2004. That is a good increase, but the market is worried that companies will signal a slowdown in earnings growth for 2006.
The stock market often has difficulty posting large gains in the early weeks of earnings season. There is caution until a clear picture develops. That could well occur this year. Next week's wrap will undoubtedly be focused on interpreting the early reports. --Dick Green, Briefing.com
Index Started Week Ended Week Change %Change YTD
DJIA 10959.31 10959.87 0.56 0 % 2.3 %
Nasdaq 2305.62 2317.04 11.42 0.5 % 5.1 %
S&P 500 1285.45 1287.61 2.16 0.2 % 3.1 %
Russell 2000 699.39 708.44 9.05 1.3 % 5.2 %
12:00PM ATI Tech: Apple Selects co's Mobility Radeon X1600 for the new MacBook pro notebook (ATYT) 16.98 -0.24 : Co announces that Mobility Radeon X1600 graphics have been selected by Apple (AAPL) for the world's first MacBook Pro notebook based on PCI Express technology and powered by Intel's (INTC) dual core engine. Backed by the co's new Avivo technology for video playback along with Mobility Radeon X1600's power management and graphics, the new Apple MacBook Pro provides long battery life without compromising performance.
12:49 pm Lucent (LU)
2.61 -0.10: Lucent Technologies on Friday lowered its full year 2006 revenue guidance and also reported a sequential decline in revenue for the fiscal first quarter, due to weakness in the U.S and China. The company also announced the appointment of Chief Financial Officer Frank D'Amelio to the position of Chief Operating Officer. In response to the disappointing news, shares of Lucent fell in late morning trading.
Headquartered in Murray Hill, New Jersey, the communications network equipment maker said it anticipates annual revenues to be essentially flat or to increase in the low single-digits for 2006, down from its previous forecast of an increase in the mid-single digits. For the latest quarter ended December 31, 2005, Lucent expects revenues to be about $2.05 billion, compared with $2.43 billion in the prior quarter. That represents a 15% sequential decline, and falls short of analysts' average estimate. According to Reuters Estimates, analysts were expecting the company to post revenue of $2.43 billion.
"While we are disappointed, we consider this to be a temporary setback to the progress we have made, and we are confident that our performance will be much stronger for the remainder of the year," the company noted. "Our customers continue investing in the next generation of networks that will be based on IMS, and despite this quarter's results, we continue to see opportunities in the market that align with our strengths and investments in IMS, 3G mobile, services, next-gen optical and access."
Lucent attributed the first quarter decline to lower sales in the U.S. and China, but said that it expects revenues in the second half of the year to be significantly higher than in the first half of the year. According to research firm CIBC, the weakness in the U.S. is likely due to weaker CDMA wireless sales to Verizon (VZ) and Sprint Nextel (S), while the weakness in in in China is probably a combination of PHS phase-out and lower spending by China Unicom (CHU) on its CDMA network as it waits for 3G. Although revenue expectations for the second half of the year represents a potential catalyst for shares, the company's ongoing struggles to generate strong top-line growth and improve operations continue to cloud prospects.
--Richard Jahnke, Briefing.com
09:59 am Pfizer (PFE)
24.68 +0.10: After the close on Thursday, Pfizer Inc. said it had reached an agreement with drug maker Sanofi-Aventis (SNY) to acquire the worldwide rights to the inhaled insulin drug Exubera for $1.3 billion. The two companies, along with Nektar Therapeutics (NKTR), formed an alliance in 1998 to jointly develop, manufacture, and market Exubera for the treatment of diabetes. There will be no changes to the contractual terms between Nektar and Pfizer.
In addition to Sanofi-Aventis's global Exubera rights, Pfizer will also obtain the insulin production facilities in Frankfurt, Germany, that was jointly owned, the company said.
According to the World Health Organization, diabetes is reaching epidemic proportions, with approximately 194 million people worldwide diagnosed with the disease. In addition, it is estimated that the number of people with diabetes will more than double by 2030, driving related health care costs to as much as $286 billion worldwide.
Exubera, which is expected to improve the lives of the people with the disease, is currently under regulatory review in the U.S. and Europe for the treatment of adults with both type 1 and type 2 diabetes. Though, in October, the U.S. Food and Drug Administration pushed back its decision by three months on whether to approve the first inhalabe, non-injectable insulin drug while it considered additional data. A decision is expected later this month.
--Richard Jahnke, Briefing.com
09:30 am Tyco (TYC)
30.31: Wrapping up a strategy that Tyco management began mulling as long as four years ago, its Board of Directors has approved to separate the electronics and health care businesses from its remaining security and fire-protection operations. For an estimated cost of about $1.0 billion, primarily for tax and debt refinancing, Tyco intends to accomplish the widely anticipated separation through tax-free stock dividends to Tyco shareholders, after which they will own 100% of the equity in three publicly-traded companies.
The three distinct businesses will be called Tyco Electronics, Tyco Healthcare and Tyco Fire & Security and Engineered Products & Services (TFS/TEPS). The latter and largest of the trio will retain current Tyco Chairman and CEO Ed Breen and Chief Financial Officer Chris Coughlin to oversee an $18 bln business best known for its ADT home alarm systems. According to Breen, the separation is "a logical next step in Tyco's evolution" that will "ultimately create more value for our shareholders" as each stand-alone business will be able to achieve full potential by pursuing their own growth strategies as independent companies. Tyco expects to complete the transactions during the first quarter of calendar 2007.
Unfortunately for existing shareholders, the announcement has done anything but boost the value of the stock, as the shock of a subsequent earnings warning has rocked the stock to the tune of 8.5%, shaving roughly $5.17 bln off Tyco's market cap in pre-market trading.
Management said that earnings from continuing operations will be roughly $0.38 per share in its first quarter, excluding one-time items, below previous EPS guidance of $0.40-0.42 and the Reuters Estimates consensus of $0.42. Tyco also lowered its full-year 2006 earnings forecast to a range of $1.85 to $1.92 per share from continuing operations compared to a previous expectation for annual earnings growth of about 10%. The Reuters Estimates consensus was $2.01. While we have an Overweight rating on the Industrials sector, investors should remain on the sidelines until greater progress can be seen.
--Brian Duhn, Briefing.com
09:20 am General Motors (GM)
20.96: With shares only a tail pipe's length above twenty dollars per share, GM said it expects "improved" financial results this year. After losing $3.8 bln in the first three quarters of the year, we'd hope to see some earnings or sales projections. But to no avail. What we got was a statement from Chairman and CEO Rick Wagoner saying the company, aiming to improve its financial position in 2006, is rapidly moving to implement its North American turnaround plan, including new products and plant closings and union concessions in order to reduce costs.
GM hopes to reduce structural costs to 25% of revenues by 2010, from 34% today. Its pension fund was 6% over-funded at the end of 2005, helped by a 13% return on assets. GMAC expects over $2.5 bln in net income in 2006. GM didn't provide an update on the sale of its financing unit, which is viewed as critical in raising its rating and reducing borrowing costs.
We have long argued GM has been missing the other 50% of the story. It needs to sell more vehicles. The automaker's strategy centers on a product portfolio over the next two years comprised of full-size sport utility vehicles and pickup trucks, crossover vehicles and a "significantly expanded line-up for Saturn." It hopes new vehicles will account for 30% of sales volume in '06. The question is whether GM's cars and trucks will resonate with a more energy-conscious consumer? Most likely, GM's strongest sales figures won't come from the US, but from Asia where it has had considerable sales success.
GM's comments come three days after Jerome York, an advisor to Kirk Kerkorian's Tracinda Corp., outlined a list of demands that included calling for GM to cut its dividend in half, reducing executive pay, as well as the number of brands, and most importantly, to set clear financial targets. Clearly, GM missed the last one, saying it would not provide financial forecasts for 2006.
Without the benefit of when the North American business will turn a profit, coupled with expectations GM will be forced to reduce its dividend, there are few investable themes for owning GM. That said, shares are trading at all-time lows and are sure to entice those bottom fishers out there willing to wait it out. Today's news does little to change our bearish view on GM's fundamental outlook, but we would concede the downside risk at this juncture appears limited.
--Kimberly DuBord, Briefing.com
09:09 am Boston Scientific (BSX)
25.05: In the ongoing saga for embattled medical device maker Guidant Corp. (GDT), Boston Scientific late Thursday improved its offer by about $330 million and added other incentives, such as certainty of value and certainty of completion, to address the outstanding issues raised by Guidant's board. The company's updated $25 billion, or $73 per share, cash and stock bid came about 24 hours after rival Johnson & Johnson (JNJ) raised its offer from $21.5 billion to $23.2 billion.
"We have increased the value of our offer, satisfied any perceived antitrust concerns and provided shareholders increased certainty of value by agreeing to pay interest on the $73 share price if the transaction is not closed by the end of the first quarter," the company said.
Boston Scientific said it notified Guidant that its latest offer will expire at 4 pm EST on January 13, 2006, unless its board of directors declared its new offer superior to JNJ's by then. If such a declaration is made, the company said its offer will remain open until the close of business on January 24, 2006.
Under the terms of the updated offer, each share of Guidant common stock will be exchanged for $36.50 in cash and $36.50 in BSX stock, based on the average closing price of Boston Scientific's stock during the 20 consecutive trading day period ending three days prior to Guidant's shareholder meeting to approve the transaction. Conversely, JNJ's latest offer, valued at $67.92 per share, would pay $37.25 in cash and 0.493 shares of JNJ common stock for each outstanding Guidant share.
--Richard Jahnke, Briefing.com
09:06 am AIG (AIG)
70.26: Finally, after eight months of uncertainty, the world's largest publicly-traded seller of property-casualty insurance could close the books on an accounting scandal that has plagued American International Group since delaying its annual report three times and restating five years of financial statements last May. According to The Wall Street Journal, AIG is expected to pay more than $1.0 billion to settle civil-fraud investigations by state and federal authorities. Last spring, New York Attorney General Eliot Spitzer and the New York State Insurance Department filed a civil suit against the insurance giant and former Chief Executive Maurice "Hank" Greenberg, alleging they misled investors by using improper accounting.
Currently, the two sides are haggling over payment of around $1.5 billion, which would represent one of the steepest monetary penalties ever paid by a financial company. Nonetheless, before a settlement is formally announced it would have to be reviewed by the Securities and Exchange Commission's five commissioners later this month. The deal, which could be completed within two to three weeks would put an end to the biggest blemish since AIG opened its doors 87 years ago. However, it would not include a deal with Greenberg -- the very man who built AIG into an industry leader over 37 years as CEO. Mr. Greenberg and his lawyers are fighting the lawsuit in court and are not participating in any settlement discussions.
We maintain a Market Weight rating on Financial and believe the insurance groups continue to hold appeal given its defensive orientation. Our favorite areas, though, include the diversified banks (i.e. BAC, C, JPM), for the differentiation they provide in service capabilities, and the investment bank & brokerage group (i.e. GS, MWD), on the belief that M&A activity will be quite strong in 2006.
--Brian Duhn, Briefing.com
08:58 am IBM (IBM)
83.57: After Thursday's close, IBM announced the SEC has launched a formal probe on how Big Blue disclosed and accounted for stock options. IBM has been cooperating with the SEC since an informal investigation was launched in June 2005. The tech giant said it would continue to work with the SEC, which has told the company it hasn't been accused of breaking any laws related to its earnings and options expensing.
The SEC's upgrade of its investigation to formal status provides investigators the power to issue subpoenas and to force executives to testify. According to Bloomberg, the analyst community has been concerned IBM used an accounting change to mask a profit shortfall last year. In April, CFO Mark Loughridge urged analysts to cut profit estimates to $0.90 per share, from an average of $1.04, to reflect $0.14 per share in options expenses. Just nine days later, the company reported profits of $0.85, missing even the lowered consensus estimate that included an option expense of only $0.10 per share. A Merrill Lynch analyst concluded the lower than expected compensation costs indicated that IBM missed estimates by an even wider margin than had been disclosed.
IBM said the investigation, which could result in the company paying fines, wasn't an indication that violations of law occurred, according to a statement released by the company. Shares fell just over 1% in extended trading and are now trading around $82.65. The formal status means the bar has just been raised and the SEC believes the issues at hand are more serious. The investigation will likely weigh on shares for the near-term. We currently hold an Overweight rating on the Technology sector, but despite the company's status, Big Blue remains outside our bullish view for a number of reasons.
--Kimberly DuBord, Briefing.com
09:00 am Leap Wireless: Stanford Research initiates Buy. Target $43. Firm believes the co is well-positioned to produce favorable operating cash flow growth, owing to opportunities to generate profitable subscriber growth in existing and new markets.
08:59 am Target: Banc of America Sec initiates Buy. Target $63. Firm believes the co can continue to deliver sustained earnings growth through innovative merchandising, expense control, and visible square-footage growth.
08:58 am Siemens AG: Lehman Brothers downgrades Equal-weight to Underweight . Firm believes the market is paying a premium for Siemens and that premium is being justified on near-term expectations of value creation which they believe will be difficult to realize.
08:57 am SanDisk: Bear Stearns downgrades Outperform to Peer Perform. Firm is citing valuation and the belief that the co will need to make price moves when the tightness eases to sustain demand momentum.
08:57 am LifeCell: Piper Jaffray upgrades Market Perform to Outperform. Target $18 to $18. Firm is saying they have increased confidence in continued sales growth and diminishing concern over the recent recall or pending competitive launches.
08:54 am Sirius Satellite: Stifel Nicolaus upgrades Hold to Buy. Target $8.25. Firm is saying that they are convinced satellite radio will be standard in cars by early next decade, driving industry subscribers to $37 mln by 2010 and to $50 mln by mid-next-decade.
08:53 am Markel Corp: Stifel Nicolaus initiates Buy. Target $380. Firm is saying they believe that concerns over reserves and the surprisingly large exposure to the 2005 hurricanes are now priced into the shares, which should respond to the positive post-hurricane reality.
08:51 am Wal-Mart: Banc of America Sec initiates Neutral. Rating is on valuation, saying they believe comps are the most important driver of stock performance for WMT. They believe WMT's 2-year comp trend has decelerated from 17% in 1999 to 7% in 2005; overly ambitious square footage growth, higher energy prices, and competition have all been headwinds.
08:49 am ValueClick: Thomas Weisel initiates Peer Perform. Firm is saying they believe that the stock has priced in many of the improvements expected from the Fastclick acquisition as well as the ongoing secular trend benefits of online advertising.
08:48 am Quality Distribution: Stifel Nicolaus upgrades Hold to Buy. Target $11. Firm believes the co's days of reporting "recurring nonrecurring charges" are finally behind it, and we now expect it to report clean earnings throughout 2006.
08:41 am Advanced Micro: JMP Securities reiterates Mkt Outperform. Target $30 to $30. Firm also raises their Q4 EPS est to $0.28 from $0.21 (consensus $0.25), as they believe that AMD will likely beat its guidance of 7-13% sequential processor revenue growth. In particular, their checks indicate that AMD continued to gain share in consumer/retail media-center desktop PCs and notebook PCs with its Athlon64 and Turion64 products while the co's Opteron server chips continued to gain share against INTC with a broad range of OEMs including HPQ, SUNW, IBM, and Fujitsu- Siemens. Given strong 4Q cell phone demand, they say AMD likely observed improving unit demand and pricing for its Spansion flash memory business, which was spun off as an IPO toward the end of the quarter.
08:40 am aQuantive: Oppenheimer initiates Neutral. Firm is saying given the recent stock appreciation they believe the stock is fairly valued at current levels, and see limited upside potential for the time being.
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