Oracle reported revenue for the three months ended Aug. 31 fell 5%, to $5.05 billion. Analysts were expecting $5.2 billion of sales.

Net income rose 4% to $1.1 billion, or 22 cents a share, by Generally Accepted Accounting Principles (GAAP), but the company leaned heavily on support contracts and cost cutting to maintain profitability. The world’s second-largest software maker blamed the drop on declining overseas sales and a stronger U.S. dollar.

“Oracle’s results were impacted by the reduced value of foreign currencies when compared to U.S. dollars, reducing Q1 GAAP earnings by $0.02 per share,” the company said. “Without this impact, Oracle’s Q1 GAAP and non-GAAP earnings per share would have been $0.24 and $0.32, respectively.”

Oracle issued a more positive outlook for its fiscal second quarter, which ends in November. The summer is traditionally a slow period for the company which typically sees business pick up as its fiscal year moves forward. Additionally, the global economy is showing signs of improvement.

Oracle President Safra Catz said profit would be 35 cents to 36 cents per share in the second quarter. The company forecast revenue of about $5.6 billion to $5.8 billion for the period.

However, analysts remain skeptical that a fledgling economic recovery will necessarily lead to an increase in earnings.

“Just because people are starting to feel better about the economy doesn’t mean they’re ready to spend money on software,” said Partrick Walravens, an analyst at JMP Securities Inc. (NYSE: JMP), told BusinessWeek.

Sales of new software licenses – a key indicator of future revenue – fell 17% to $1.03 billion. Sales of database and middleware licenses plunged 21.5%. Middleware is software that helps different kinds of programs share information.

Additionally, Oracle’s $7.4 billion acquisition of Sun Microsystems has not gone as smoothly as planned.

Sun Setbacks

In April, Oracle announced it would takeover Sun in a move that gives it control of the database market as well as Sun’s coveted Java programming language. Java-based software is not operating system-dependent and runs on over 1 billion devices worldwide, from cell phones to supercomputers.

JMP’s Walravens believes the buyout is partly responsible for Oracle’s lackluster first-quarter earnings.

“There’s a ton of pre-merger planning you want to do before an acquisition, and [first-quarter sales decline] shows management were probably distracted by the Sun purchase,” he told Bloomberg in an interview. Walravens rates Oracle’s shares “market perform” and doesn’t own them.

Of course, the bigger threat to Oracle’s business is an ongoing antitrust investigation that has been launched by the European Commission (EC). While, the U.S. Justice Department approved the deal last month, the EC is worried that by acquiring Sun, Oracle will be too strong a presence in the database market.

“Databases are a key element of company IT systems,” said Neelie Kroes, The EC’s competition commissioner. “In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.”

It’s possible that Oracle will have to spin off Sun’s MySQL open-source database to accommodate the EC. The commission has until January 19 to reach a verdict on the merger. But as the commission deliberates, former Sun customers are defecting to Oracle’s biggest competitors.

Hewlett-Packard Co. (Nasdaq: HPQ) says it signed deals with more than 100 Sun customers between February and July, BusinessWeek reported. Meanwhile, International Business Machines Corp. (NYSE: IBM) has lured 250 customers from Sun to its own computer systems since January, and is adding about two accounts a week, according to Inna Kuznetsova, IBM’s director of Linux strategy.

“The longer [the closing process] wears on, the more Sun’s business deteriorates, and the more market share IBM and Hewlett-Packard take away,” said Walravens.

Faced with an exodus of Sun clients, Oracle has taken some small steps to inspire more confidence in its fleeing customer base.

Earlier this month the company unveiled the Sun-Oracle Exadata Database Machine V2, a co-developed co-branded system that is meant to show that close engineering cooperation between the two companies is already underway.

The databased server is “a perfect example of what we can do together,” said Oracle’s Catz. “We continue to do what we can at arm’s length.

Oracle and Sun don’t have to be merged to make a product together. However, the first version of the machine was manufactured with Hewlett Packard.

“While the first version was built in partnership with H-P, this version leverages Sun’s hardware, clearly signaling the company’s intentions for Sun’s hardware division under the pending acquisition,” Tom Klasell, an analyst with Thomas Weisel Partners, wrote in a note to clients.

Oracle also took out an advertisement in The Wall Street Journal that said it plans to spend more money on Sun’s Solaris and SPARC development. That ad was meant to stem the tide of defections from Sun’s computer systems, as it made specific reference to increased competition with IBM. On its Web site, IBM describes Sun’s hardware business as “highly uncertain” and having an “undefined future.”

“I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” Rob Enderle, an independent analyst, told ComputerWorld.

The ad was a positive step for many Sun customers, but if Oracle is going to stop the bleeding it’s going to have to keep the pressure on until the merger is finally approved.

“A lot of our clients are nervous, and they want to know what’s going to happen,” Irene Griffith, Sun customer and owner of PetroSys Solutions Inc. in Houston, told ComputerWorld.

“IBM is very good at creating FUD” – fear, uncertainty and doubt, she said. Adding to her anxiety, Griffith said that she has been unsuccessful at getting information from Sun. “They’re not talking to us, they’re not reaching out to us,” she said.

Source: Oracle’s Future Clouded by Sun Takeover Complications

And as goes the semiconductor industry, so goes the U.S. economy.

These days, microchips are present in virtually every type of product – from coffee makers to cars: If it plugs into the wall or takes batteries, chances are good there’s a semiconductor inside.

Given the microchip’s ubiquitous nature, the companies that make them – as well as the companies that make the chipmaking equipment – can be viewed as a kind of leading economic indicator. Companies that intend to produce products down the road have to place orders for chips or for equipment now, meaning an uptick in semiconductor-sector business activity today and represent a jump in broader economic growth tomorrow.

“While most chip companies have as yet cited but modest improvement, and forecasts have been held in check, signs of a strong upturn are brewing that will significantly improve upon higher – but still modest – expectations,” Rick Whittington, an analyst with JSA Research wrote in a Forbes column earlier this summer. “High proprietary chip content stocks are poised for breakout sales and earnings, probably quickly returning to levels before last summer’s plunge.”

While consumer spending remains the chief U.S. economic catalyst, accounting for more than two-thirds of gross domestic product (GDP), business spending remains a crucial contributor – especially at a juncture in which consumer confidence has been flayed. Indeed, business spending has stabilized and will return to growth in 2010, semiconductor and other electronics manufacturers believe. In the meantime, they are ramping up production to meet what they believe is a growing consumer demand.

Microchips are used in a broad scope of products: DVD players, automobiles, calculators, coffee makers and televisions, telephones – as well as such stalwarts as personal computers.

Like other economic indicators, electronic-order levels have yet to traverse the economic neutral zone to break into positive territory (marked by the “year-over-year growth” label) but at least the hemorrhaging is subsiding: Sales of semiconductors in North America in the month of July were $3.1 billion, an increase of 5.9% from June, when sales were $2.9 billion, according to the Semiconductor Industry Association (SIA). The continent’s 8% year-over-year decline is significantly less than the rest of the world’s 18.2%, and was the smallest decline of any major market in the world.

“Sales of consumer products such as netbook PCs and cell phones are supporting the modest recovery that is now under way,” said SIA President George Scalise. “Purchases of information technology products by the enterprise sector continue to be tempered by caution and longer replacement cycles. There is evidence of a return to seasonal industry patterns.”

That evidence was further backed up by trade organization Semiconductor Equipment and Materials International (SEMI), which said North America-based manufacturers posted a book-to-bill ratio of 1.06, meaning that $106 worth of orders were received for every $100 of product shipped.

Inventories for many chipmakers are at a lower level compared to their average level for the past three years, Purchasing.com reported, citing market research firm iSuppli Corp. But with the holiday season approaching and retail inventory levels already lowered by a weak consumer demand in the first half of 2009, chipmakers are once again ramping up production, according to iSuppli analyst Carlo Cireiello.

Semiconductor inventory levels are now at “appropriate levels, down from previously excessive positions,” Ciriello told Purchasing.com. Ciriello forecasted in July that chipmakers would begin building inventories 5.5% in the third quarter and 1% in the fourth.

Semiconductors are used in a broad scope of products: DVD players, automobiles, calculators, coffee makers and televisions, telephones. Money Morning took a look at a few of the bigger players (and related companies) in the industry.

Chipmakers Fuel Business Spending

Intel Corp. (Nasdaq: INTC) reported its first quarterly loss in July, losing $398 million after setting aside $1.45 billion in funds to pay a fine from the European Union, which said Intel used illegal rebates to thwart competitors, Bloomberg News reported. Still, the world’s largest chipmaker saw its sales beat analyst estimates and the company late last month boosted its third-quarter revenue forecast to at least $8.8 billion, from an earlier projection of $8.1 billion.

Before Intel raised its guidance, analysts polled by Bloomberg were expecting sales of $8.57 billion. A compilation of analysts’ estimates by Thomson Financial Network now has the chipmaker’s revenue at $8.93 billion. Intel’s revenue in the third quarter of 2008 was $10.2 billion.

“Intel’s second-quarter results reflect improving conditions in the PC market segment with our strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half,” Chief Executive Officer Paul Otellini said.

The increase in Intel’s sales forecast could be attributed to a rebound in PC orders by consumers in Asia, and Edward Jones & Co. analyst William Kreher says the higher guidance bodes well for the technology industry because Intel is a barometer for spending.

“Consumers are driving the strength and the relative strength in PCs,” Kreher told Bloomberg. “We do have an expectation that 2010 will bring renewed demand from the corporate sector as well.”

Chipmaker Marvell Technology Group Ltd. (Nasdaq: MRVL) Chief Executive Officer Sehat Sutardja also sees initial growth by consumer products such as cell phones, e-books and mobile Internet devices. Marvell makes chips that are used in everything from computer hard drives to smartphones such as Research in Motion Ltd.’s (Nasdaq: RIMM) BlackBerry and Apple Inc.’s (Nasdaq: AAPL) iPhone.

“Demand for a lot of consumer devices seems to be picking up from six months ago, both in the U.S. and non-U.S., particularly non-U.S.,” Marvell Chief Financial Officer Clyde Hosein said in an interview with Reuters. “That has picked up substantially since the April time frame and continues to improve or maybe accelerate.”

Investing to Build a Better Chip

If the health of microchip firms is a leading indicator of the outlook for the overall economy, then the outlook for semiconductor-equipment manufacturers is a harbinger of what’s to come for chipmaking sector.

The reason is simple: As chips become more powerful, they also become more complex – meaning the chipmaking process becomes increasingly demanding and deft. So before semiconductor firms can ramp up in a big way, they need to invest in the latest and greatest equipment.

That’s where the equipment stocks come into play.

Capital expenditures – known as “capex” in Wall Street parlance – is a closely watched statistic. Chipmaking firms invest in new gear to expand capacity, to move to the newest technology, or both.

Because of the global financial crisis, so-called “capacity utilization” – the number of chips being turned out as a percentage of what those factories are capable of turning out – plunged to 55.6% in the first quarter of 2009 from 89.7% during the same period a year ago, the SIA reported.

And with more than 40% of the industry’s “fab” capacity sitting fallow, new plants aren’t being built – especially since they cost about $3 billion each, TheStreet.com reported. Several of the equipment players have filed for bankruptcy as a result.

Coming into this year, only three semiconductor firms planned to invest more than $1 billion in new equipment: Intel, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE ADR: TSM) and Samsung Electronics Co. Ltd.

That’s down from eight companies in 2008 and 16 in 2007.

But the tide appears to be turning – and investments will ramp up as the worldwide economy improves. Already, United Microelectronics Corp. (NYSE ADR: UMC) announced it is boosting its outlays for new equipment to $500 million from the $400 million it planned earlier in the year. Chartered Semiconductor will increase capex to $500 million from the $400 million announced earlier this year. That will be an increase from the $349 million the company spent in 2008.

Chartered Semiconductor Manufacturing Co. Ltd. (Nasdaq ADR: CHRT) is boosting its outlay from the $375 million planned early in the year to $500 million now, according to TheStreet.com. And Toshiba Corp will spend $900 million – down from $3.2 billion last year, but still more than many analysts initially expected.

Additionally, U.S.-based equipment firms will benefit from a weaker U.S. dollar, which makes American products cheaper in foreign-currency terms.

One such U.S. firm is longtime industry leader Lam Research Inc. (Nasdaq: LRCX), which is experiencing an improvement in its business despite a loss in its recently reported fourth-quarter results. Those results included better-than-expected revenue.

During the fourth quarter, which ended June 30, the company said “business conditions improved … contributing to Lam’s ability to show improved financial results for the quarter. Shipments and revenues increased as a result of customer investments to add [leading-edge capacity] in both foundry and memory.”

And while business continues to improve, Lam said it hasn’t lost sight of the need to carefully manage cash and to invest considerable care in choosing where to make next-generation strategic investments.

Lam’s shares have surged nearly 42% so far this year, although they remain 21% below their 52-week high of $37.96. The shares closed yesterday at $30.16, up 5 cents each on a day the major U.S. stock indices were down for a fourth-straight day.

Older PCs Set Stage For Hardware Refresh

Dell Inc. (Nasdaq: DELL) Chairman and Chief Executive Officer Michael Dell is on a mission to save his company $4 billion a year.

The company outsourced 40% of its manufacturing as of its second quarter, helping it achieve an 18.7% gross margin that exceeded analysts’ expectations. Dell’s profit of 28 cents a share also beat Wall Street’s estimate of 28 cents.

CEO Dell sees Microsoft Corp.’s (Nasdaq: MSFT) October 22 release of Windows 7, as well as faster processors from Intel, as the ignition for PC and server purchases next year.

“The size of the installed based of old hardware has never been greater,” Dell said in a conference call with analysts. “I’m here to tell you there’s going to be a refresh cycle next year. It’s not going to come in the first month or the second month, but over the course of the year.”

Dell remains confident that a majority of its business customers are deferring purchases and will accelerate IT spending to take advantage of technology improvements like Windows 7 and Microsoft’s Office 2010, according to Chief Financial Officer Brian Gladden.

“This acceleration remains predicated on an improving economy and related improvements in customer profits and government tax receipts,” Gladden said.

For Hewlett-Packard Co. (NYSE: HPQ), its earnings of 91 cents a share narrowly beat Wall Street estimates of 90 cents, and Chief Executive Officer Mark Hurd sees stabilization, but was reluctant to say the bottom has been reached.

“Business is stabilizing, and we are confident that HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve,” Hurd said.

Both H-P and Dell have already credited consumers in Asia for a rebound in orders in PCs, Bloomberg reported.

Source: Semiconductor and Electronics Makers Anticipate a Bounce in Business Spending Next Year

Shares of Apple Inc. (Nasdaq: AAPL) have gained 100% since the start of the year, and with the likely release of an innovative “tablet” computer and the pending debut of its wildly popular iPhone in China both in the offing, the company’s stock could still find some room to run.

Shares in the Cupertino, Calif.-based company are at their highest level since August 2008, thanks to a successive string of upbeat earnings reports, a near-$30 billion cash reserve and recession-defying sales of its products.

The iPhone alone sold 5.2 million units in the second quarter, compared to 717,000 the year before, and its Macintosh computers, which still have a miniscule share compared to Windows-based PCs, are gaining momentum.

Several market research firms, including Deutsche Bank AG (NYSE: DB) and Barclays PLC (NYSE ADR: BCS), now have price targets for Apple stock that exceed $200 a share.

Apple’s shares closed Friday at $170.05, up 60 cents, or 0.35%, each. An advance to $200 would represent a gain of about 18% from current levels.

Sales of Apple’s now-ubiquitous iPod have slowed, but Apple executives anticipated that would be the case, as sales of its music-playing iPhone and iPod Touch grow.  Both of those devices have access to thousands of applications sold in the App Store.

A tablet computer from Apple, which has been a hot news topic in the tech world since last spring, moved closer to reality last week. The Wall Street Journal reported that since returning from leave to undergo aliver transplant, Apple Co-Founder and Chief Executive Officer Steve Jobs has devoted almost all of his time to this specific device.

Pundits have already dubbed the gadget the “MacBook Tablet” or “iTablet,” and executives believe it will have positive implications for media going forward.

“It’s a portable entertainment device,” one entertainment executive toldThe Financial Times. “It’s going to be fabulous for watching movies.”

Recording executives say Apple plans on using the large screen for interactive booklets and liner notes that typically accompany compact discs. And book publishers could view the tablet as an alternative to Amazon.com Inc.’s (NASDAQ: AMZN) popular Kindle or Sony Corp.’s (NYSE ADR: SNE) Reader in the growing e-book market.

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“It would be a color, flat-panel TV to the old-fashioned, black-and-white TV of the Kindle,” one book executive told the FT.

Hollywood and video game executives haven’t been briefed on the tablet, but both have shown optimism for it. A large selection of movies and games are already available for the iPod, iPod Touch and iPhone.

Apple is one of the most secretive companies in Silicon Valley. Its iPhone 3G S, which sold 1 million units in its first weekend, wasn’t announced until a few days before its release. By contrast, one of its primary competitors Palm Inc.’s (NASDAQ: PALM) Pre smartphone, released a few weeks before the 3G S in June, was first announced in January at the Consumer Electronics Show. Apple is aiming for a September or October launch of the tablet, The FT said.

While tablet computers are nothing new – they first debuted in the early part of this decade – they only comprise 1.4% of the global portable market, The Journal said. Toshiba Corp., Hewlett-Packard Co. (NYSE:HPQ) and Fujitsu Ltd. (OTC ADR: FJTSY) all attempted to sell tablets, but ultimately the devices proved to be too cost-prohibitive for consumers.

Despite the worst economic downturn since World War II, Apple is having no trouble convincing consumers to buy iPhones with pricey plans and more expensive Macs. Oppenheimer & Co. analyst Yair Reiner told the FT he expects Apple’s tablet to cost between $600 and $1,000, the range for many Windows-based laptops today.

The tablet is considered by analysts to be Apple’s answer to popularnetbooks, which are smaller laptop PCs designed for navigating the Internet. They usually cost between $200 and $400. CEO Jobs and others in the Apple brass ruled out developing a netbook in a conference call last fall.

“We don’t know how to make a $500 computer that’s not a piece of junk,” Jobs said at the time.

The iPhone Meets the Red Dragon

Apple, whose Mac computers have played second fiddle to personal computers since 1984, found mainstream success in the gadget realm starting in 2002 when it debuted the iPod. To date, roughly 300 million iPods have been sold since 2002. In 2007, Apple debuted the iPhone, which has sold more than 26 million units.

The iPhone will make its debut in mainland China in the fourth quarter with state-owned China Unicom Ltd. (NYSE ADR: CHU) having cut a deal to act as the exclusive carrier for three years. Like AT&T Inc. (NYSE: T) in the United States, Unicom will not share revenue with Apple. Instead, it will offer a subsidy to consumers to lower the price, which is expected have a similar $99 to $299 range with two-year service contracts.

Unicom, which is rolling out its third-generation network (3G), enabling wireless video and high-speed Internet navigation, has 141 million wireless users. Unicom will be competing with an estimated 1.5 million gray market iPhones, The Journal reports, citing research firm BDA China Ltd. Unicom, which just reported a 45% drop in profit, is counting on Apple’s iPhone to gain share over market leader China Mobile Ltd. (NYSE: CHL), which has over three times Unicom’s subscribers.

The overall Chinese mobile market, which has 687 million subscribers – more than twice the population of the United States – is highly competitive. Several phones running Google Inc.’s (Nasdaq: GOOG) Android operating system are due by year’s end, and China Telecom Ltd. (NYSE ADR: CHA) is in talks with BlackBerry maker Research in Motion Ltd. (Nasdaq: RIMM) and Palm to bring those phones to the world’s fastest-growing major market.

“It’s essential for Apple to be in China; it’s a huge market,” CIMB Securities Ltd. Deputy Head of Research Bertram Lai told Bloomberg News. The iPhone “is not just the premium product, it’s an aspirational product,” he said.

Source: Hot Stocks: Up 100%, Apple’s Shares May Still Have Room to Run ]]> http://www.contrarianprofits.com/articles/hot-stocks-up-100-apple%e2%80%99s-shares-may-still-have-room-to-run/20247/feed 0 http://www.contrarianprofits.com/articles/in-the-race-for-a-us-economic-rebound-growing-debt-and-budget-deficits-remain-the-biggest-possible-roadblock/20117 http://www.contrarianprofits.com/articles/in-the-race-for-a-us-economic-rebound-growing-debt-and-budget-deficits-remain-the-biggest-possible-roadblock/20117#comments Mon, 24 Aug 2009 22:33:22 +0000 William Patalon III http://www.contrarianprofits.com/?p=20117 Even as investors get more and more bullish about the outlook for the U.S. economy, the economy’s underlying foundation continues to erode.

In a report to be released this week, the Obama administration will boost its 10-year projection for the federal budget deficit to about $9 trillion – an increase of roughly $2 trillion, or 29%, from its prior projection, Fox News reported over the weekend, citing a source from the Office of Management and Budget (OMB).

The new cumulative deficit projection – for 2010-2019 – replaces the administration’s previous estimate of $7.108 trillion. Changes in budget projections – whether they result in a surplus or a deficit – are often refined as economic conditions change. This new projection was necessary because the recession has…

After the Commerce Department reported last week that retail sales fell 0.1% in July from June, and 8.3% year-over-year, retailers will stay in the limelight this week as several high-profile companies report second-quarter earnings. Target Corp. (NYSE: TGT), Limited Brands Inc. (NYSE: LTD), and Gap Stores (NYSE: GPS) are among the big-name retailers set to report.

Meanwhile, the Hewlett-Packard Co’s (NYSE: HPQ) report will provide a further glimpse into the world of technology, and The Home Depot Co.’s (NYSE: HD) results will confirm or counter claims that the recent housing rebound is for real.  On that note, the upcoming economic releases include July housing starts and existing home sales, while the wholesale inflation gauge may show that price pressures are not yet creeping into the producers’ side of the equation either.

Market Matters

While many more bearish analysts continue to proclaim “gloom and doom” and a drop back to the March-lows in equities, at least one noted naysayer may have shifted to the other team.  Hedge fund manager John Paulson purchased over $165 million shares of Bank of America Corp. (NYSE: BAC) to become the banking giant’s fourth largest shareholder.  Paulson was among the select few who predicted the subprime debacle, so his allocation into financials may be interpreted as a nice vote of confidence from an unexpected source.

Meanwhile, the U.S. Federal Reserve made a few bold moves to promote its case for recovery as well.  Following the policy meeting, Federal Reserve Chairman Ben S. Bernanke announced his intent to cease the program of buying up to $300 billion of Treasuries in October, as a major economic lifeline may have served its purpose well.  Additionally, banks have scaled back borrowing from the Fed’s emergency short-term lending facility, a sign that the frozen credit markets have thawed considerably.

Finally, the Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” was expanded, allowing car buyers to receive vouchers for future purchases as automakers report dwindling inventories.

Retailers took center stage in the earnings game as Wal-Mart Stores Inc. (NYSE: WMT) and Kohl’s Corp. (KSS) beat expectations, but still offered cautious projections for the months ahead (including the upcoming holiday season).  Macy’s Inc. (NYSE: M) posted a declining profit, but gave an optimistic outlook, as it benefits from cost-cutting measures.  Liz Claiborne Inc. (NYSE: LIZ), on the other hand, reported a wider loss and new streamlining plans and J.C. Penney Co. (NYSE: JCP) issued some pessimistic comments about the state of the consumer.

Seemingly recession-proof McDonalds Corp. (NYSE: MCD) announced strong July same-store sales as its coffee drinks competed effectively with the “big boys.”  On the transactional front, China continued its expansion into the global commodities markets as China National Petroleum Corp. and CNOOC Ltd. (NYSE ADR: CEO) have eyes on the Argentinean unit of Repsol YPF SA’s (NYSE: REP) to the tune of $17 billion. Microsoft Corp. (NYSE: MSFT) and Nokia Corp. (NYSE ADR: NOK) are teaming up to take on PDA leader Research in Motion Ltd. (Nasdaq: RIMM) in an alliance that brings the popular software together with a solid cellular player.

Fixed income investors got a boost from a successful 30-year bond auction, as $75 billion in new Treasury securities were well-received during the week.  The Treasury also announced a plan to issue more TIPS (inflation-adjusted bonds), a move aimed at alleviating concerns in China (the largest foreign holder of U.S. debt) that the government would allow a surge in inflation as it tries to finance the stimulus plans.

Higher inflation would increase the yields on TIPS and result in greater costs for the government.  Bond prices fell mid-week after the Fed announced its intent to end its Treasury purchase program, though the auction news was a welcome relief and a late-week flight-to-quality also ensued.

Investors focused on the lackluster consumer activity – illustrated by both earnings and economic releases – and worried that economic growth will be stunted as long as shoppers remain in hibernation.

Despite favorable reviews by the Fed, major equity indexes gave up slight ground during the week with the Standard & Poor’s 500 Index and Nasdaq Composite Index still flirting with 1,000 and 2,000 respectively.

Economically Speaking

No rest for the weary (especially when auditioning to keep a job).  Fed Chief Bernanke guided the latest Fed policy meeting that saw strong signs (and language) pointing to the recession nearing an end.  The Fed claimed the economy is “leveling out” and felt the Treasury purchase program could go away with no material detriment to the nation’s financial system.

The accompanying statement also indicated that the funds rate would remain just above zero for “an extended period” as many anticipate the recovery will be slow to take hold.  Noted economists apparently have Bernanke’s back as a recent survey revealed that most prefer he remain on as Fed Chair for another four-year term and President Barack Obama should reappoint him based on his strong performance in righting the ship during the worst economic downturn since the Great Depression

Treasury Secretary Timothy F. Geithner shared some tough talk as he objected to certain concerns that major financial companies have not learned their lessons and the recent profits are indications of pre-crisis-like risk-taking.

The economic data of the week offered mixed signals as retail sales surprisingly declined in July despite the popularity of the “clunker” program, though continuous claims for unemployment benefits fell to the lowest level since April.

The anticipated rebirth of the consumer may be on hold for now as the Reuters/U. of Michigan sentiment index fell again and individuals continue to worry about the state of the job market.

While the trade deficit increased in June, exports climbed for the second consecutive month and manufacturers experienced increased demand for products like semiconductors and telecommunication devises.  Likewise, industrial production rose in July as the “new and improved” domestic automakers attempt to get back on track.

On another favorable note, inflation remains a non-issue as the consumer price index (CPI) was unchanged from June and prices have fallen by 2.1% over the past year.  On the global stage, the French and German economies posted surprising growth in the second quarter and, though the broader Eurozone countries continue to contract, the recovery is already taking hold in that region of the world.

Weekly Economic Calendar

Source: Will This Week’s Earnings Reports Reflect a Recovery or a Relapse for the U.S. Economy?

– thanks chiefly to three key factors. Indeed, executives said that Apple:

• Is gaining market share in its computer business, while PC rivals are losing ground.
• Once again obliterated forecasts in its iPhone business.
• And continues to see growth in its company-operated retail unit – at a time when many retailers are literally running on fumes.

Apple said earnings zoomed 15% in its fiscal third quarter – the best non-holiday quarter in the company’s history – at a time when virtually every other major electronics manufacturer is looking at slumping sales and market-share performance.

Apple’s business “continues to hold up really well in this tough economy,” Shaw Wu, an analyst at Kaufman Bros., told Bloomberg News.

Take computers. Apple’s computer business is defying trends in the category. Overall, industry PC shipments slumped between 3% and 5% during the April-June quarter. And market leaders Hewlett-Packard Co. (NYSE: HPQ) and Dell Inc. (Nasdaq: DELL) showed declines in PC sales of 19% and 27% respectively in their last reported quarters.

But Apple said that computer sales grew 4% following its June price cuts on some of its popular laptops. The company also said it sold 2.6 million Macs in the just-finished quarter, a jump of 18% from the quarter that ended in late March. One key: About half of the consumers who purchased Macs in one of the company-run Apple retail stores had never before owned an Apple computer, the company said.

While Apple’s Mac platform has made modest gains on Microsoft Corp.’s (Nasdaq: MSFT) Windows in the first half of the year, Apple seems just fine with not being the best-selling player in the market.

“Our goal is not to build the most computers; it’s to build the best,” Cook told analysts in the conference call. “At this point, we don’t see a way to build a great product for this $399, $499 [price point],” referring to the rise in popularity of sub-$500 netbooks, which are smaller, lightweight laptop PCs that are designed primarily for navigating the Internet.

Sales of the company’s popular iPhone continue to defy analyst estimates: Apple moved more 5.2 million iPhones in its third quarter ended June 30, more than sevenfold of last year’s 717,000. There are two driving forces behind the huge jump: The release of the iPhone 3GS in June, and the simultaneous price cut of the 8-gigabyte 3G model to $99.

In the quarterly conference call Tuesday, Apple execs would not break down sales of each model, citing competitive reasons. However, the 3GS model, which sold more than 1 million units in its first weekend, remains in short supply and Apple is “working very hard” to fill demand, Chief Operating Officer Tim Cook told investors.

In the midst of a global downturn, the performance of Apple’s company-operated retail chain is enough to make rivals turn green. Even in the face of Microsoft opening stores this fall near Apple’s retail locations and tightening consumer spending, Apple is seeing modest sales growth at its 258 stores, six of which were opened in the last quarter. Retail sales rose to $1.47 billion in the quarter, compared to $1.44 billion in the same quarter last year.

Apple remains on track to open 25 stores in its fiscal year ending September 30, Chief Financial Officer Peter Oppenheimer said.

Apple easily exceeded Wall Street’s expectations for its third quarter, reporting a net income of $1.23 billion, or $1.35 a share, on revenue of $8.34 billion. That compares to a net income of $1.07 billion, or $1.19 a share, on revenue of $7.46 billion in the same quarter last year.

Analysts were expecting earnings of $1.17 a share on revenue of $8.20 billion.

Looking ahead, Apple’s forecast is for earnings of $1.18 to $1.23 per share on revenue of $8.7 billion to $8.9 billion. The company’s guidance is conservative when matched up with Wall Street’s average earnings estimate of $1.30 per share on $9.05 billion in sales.

Much has been made of Apple’s huge cash reserves, now at $31.1 billion. “Our investment priority for the cash continues to be preservation of capital, which has served us well in the current environment,” said Oppenheimer, who added that in the current quarter Apple did make a $500 million payment to Toshiba Corp. for the manufacturing of the flash memory that is found in many of Apple’s products, including the iPhone.

While acquisitions made by Apple are rare, if it does make any, it will likely be for a small company that can easily be integrated into its existing projects.

Although Apple has long been one of Wall Street’s high-tech darlings, analysts continue to warm to the company’s current game plan, and are upgrading its stock – a potentially bullish development for existing shareholders, or for investors considering a move into Apple shares.

Canaccord Capital Corp. said Apple’s decision to add video functionality to the iPod lineup is “very positive” as it expands its market into the low-end camcorder area, according to bloggingstocks.com. Canaccord also views the launch of the iPhone 3GS in all countries by the end of this year as another strong potential catalyst for Apple sales and profits.

Canaccord boosted its rating on Apple’s shares to “Buy” from “Hold.” It also raised its target price from $150 to $200.

Shares of Apple climbed 3.45% yesterday (Wednesday), or $5.23 to close at $156.74.

Source: Hot Stocks: Three Reasons Apple is Bucking the Recession

Google Inc. (Nasdaq: GOOG), not satisfied owning the search engine market, yesterday (Wednesday) revealed it is going to assault Microsoft Corp. (Nasdaq: MSFT) on the turf it has dominated for two decades: the operating system (OS).

In a blog posting, the Mountain View, Calif.-based company introduced the Google Chrome Operating System, which shares the same name as the web browser it introduced in September. Google expects the OS to be available in the second half of 2010, and it initially will run onnetbooks, or low-cost laptops designed for Internet access. The company is working with multiple manufacturers such as Acer Inc., Hewlett-Packard Co. (NYSE: HPQ) and Toshiba Corp. to bring Chrome OS-backed netbooks to the market, Google said.

No. 1 computer seller H-P told the Dow Jones Newswires that it is “studying” the Chrome OS.

“We want to assess the capability it may have for the computer and communications industries,” said H-P spokeswoman Marlene Somsak.

Dell Inc. (Nasdaq: DELL) is also giving consideration to Chrome OS.

Analysts were mixed on the news.

“There is a possibility that the new OS can break the paradigm Microsoft and Intel created over the past 20 years,” aid Yukihiko Shimada, a computer analyst at Mitsubishi UFJ Securities Co. told Bloomberg News. “There is plenty of business opportunity for Google in this market.”

However, FBR Capital Markets Corp. (Nasdaq: FCBM) analyst David Hilal said Google could capture some share on the netbook front, but could find it tough to get beyond that.

“I really don’t picture Google going upstream to laptop or PC market,” he said in an interview with MarketWatch.com. “They may try, but that is a much tougher row to hoe.”

Comparing the Chrome OS to its Chrome web browser, Google said it is “going back to the basics and completely redesigning the underlying security architecture of the OS so that users don’t have to deal with viruses, malware and security updates. It should just work.”

The move represents a natural progression for Google, which for years has been experimenting in applications beyond its search. Its most successful experiment is undoubtedly Gmail, which earlier this week left its beta phase after five years. Since Gmail’s inception, the company produced Google Apps, which gives users a central location for calendar, word processing and spreadsheet applications-all of which are compatible with Microsoft Office applications.

Google Apps, a prime example of cloud computing, allows for a more consistent collaboration between users: Instead of emailing attachments, the document will be on a central server where anyone with permission can access edit it within the web browser from any computer.

Chrome OS will utilize the same “cloud” that Google Apps is using. For app developers, “the web is the platform,” Google said. This will give Chrome OS a competitive advantage over the top three operating systems on the market right now (Windows, MacOS and Linux) because any app that runs in the Chrome OS will also run on the others.

“We hear a lot from our users and their message is clear-computers need to get better,” Google said. Whether Google can make an impact on the quality of computers is an entirely different issue. It faces a steep uphill battle against not only Microsoft, but also Apple Inc. (Nasdaq:AAPL), which is slowly eroding Microsoft’s commanding lead in the OS market.

Last November, Microsoft’s Windows OS market share dropped to 89.6%according to market research firm Net Applications. That marked the first time the OS held less than a 90% share of the market. In May, that share was down to 87.8%, while Apple’s MacOS was up to 9.8% from November’s 8.9%.

The news of a Google OS could ice its relationship with Apple, where Google Chief Executive Officer Eric Schmidt has a seat on the board of directors. The two companies have already been competing on the mobile phone front with Google’s Android OS competing with Apple’s iPhone.

In November 2007, when Google announced it would develop the OS for a line of T-Mobile USA Inc. phones, some analysts were surprised that Schmidt would remain on the board of operations at both companies.

In May, The New York Times reported the Federal Trade Commission launched an inquiry into the close ties of the two boards. And now with the Chrome OS news, respected tech site CNET is calling for Schmidt to step down from Apple’s board.

When Chrome OS is released, it will mark the third major front in its war with Microsoft. The other two are cloud applications and search.

Microsoft is attempting to chip away at Google’s ubiquitous search engine with its newly launched Bing search engine. To a lesser extent, Google competes with Microsoft with its Chrome web browser (which has 1.8% of the market share in May versus Microsoft Internet Explorer’s 65.5%) and on the mobile phone front, pitting its Android OS against Windows Mobile.

Chrome OS, an open source project that will have its code readily available for anyone to see-will be free, Google spokesman Eitan Bencuya told Money Morning in an e-mail. This strategy removes an important barrier for many and will likely serve as a funnel to Google’s other products and lucrative ads.

Microsoft is set to debut its latest version of Windows, Windows 7 on October 22. Market research firm International Data Corp. (NYSE: IDC) expects Windows 7 to become the dominant OS by 2012.
Shares of Google were boosted 1.48% by the news yesterday, closing at $402.49, up $5.86.

Hot Stocks: Google Fires Shot Across Microsoft’s Bow with New Operating System ]]> http://www.contrarianprofits.com/articles/google-fires-shot-across-microsoft%e2%80%99s-bow-with-new-operating-system/18922/feed 0 http://www.contrarianprofits.com/articles/what%e2%80%99s-behind-china%e2%80%99s-assault-on-google/18401 http://www.contrarianprofits.com/articles/what%e2%80%99s-behind-china%e2%80%99s-assault-on-google/18401#comments Fri, 26 Jun 2009 17:00:11 +0000 Jason Simpkins http://www.contrarianprofits.com/?p=18401 The feud between authorities in China and Google Inc. (Nasdaq: GOOG) escalated Wednesday night when Chinese users were blocked from Google’s global Web site for a period of at least two hours.

For weeks China has been chastising Google for disseminating “huge amounts of porn and lewd information.” The company has made a strong effort to accommodate Beijing’s high “moral” standard by launching a separate Chinese Web site, Google.cn, to filter out sensitive information.

Still, China’s war on the search engine has only intensified. That has led some analysts to believe that the communist government is acting on behalf of Baidu Inc. (Nasdaq ADR: BIDU), or perhaps as part of a smear campaign to drum up support for its latest attempt to tighten its grip…

No matter which path GM chooses – conventional restructuring or bankruptcy – the U.S. Big Three of GM, Ford Motor Co. (NYSE: F) and Chrysler LLC will have to adjust to the U.S. auto market’s post-financial-crisis “new reality.” Automakers will sell only 10 million cars and trucks in the U.S. market this year, the worst in at least 3 decades – and roughly 38% less than the 16 million vehicles that were sold in the United States annually in recent years before the financial collapse caused an accompanying collapse in auto sales.

Part of the reason for the slump in new vehicle sales is that consumers are increasingly turning to used cars. Pre-owned car sales are up 10% this year over last, as credit availability increases, but buyers focus on affordability. In fact, according to the most-recent report, used-car sales jumped in April, and the trend is expected to continue at least until the middle of the year as pent-up demand for affordable, pre-owned vehicles jacked up the used-vehicle segment of the auto marketplace.

Market Matters

U.S. Treasury Secretary Timothy F. Geithner put his most optimistic face forward in assessing the progress with the bank bailout plan. Geithner pointed out that the 19 stressed-tested banks have already raised $56 billion in capital [including Bank of America Corp.’s (NYSE: BAC) $13.5 billion stock offering] and several could begin to pay back Trouble Asset Relief Program (TARP) money shortly.  He also indicated that the public-private partnership to remove “toxic” assets from banks’ books should be up and running in the next month-and-a-half, a move that may instill greater confidence in the financial markets.

However, an analysis by The Wall Street Journal rained on Geithner’s parade by estimating that small and mid-sized banks could face losses on bad commercial real estate loans of $100 billion by year-end 2010. A Money Morning investigation of the looming commercial real estate crisis predicted that this sector of the real-estate market would pose major problems for the U.S. economic recovery.

Meanwhile, GMAC LLC may be close to receiving a fresh $7 billion in new (bailout) money as the government continues to seek ways to rescue the auto industry.  GM reached an agreement with its main union (UAW) that would reduce retiree benefits and overall labor costs to make them comparable to those of their foreign rivals.

As another negative earnings season comes to a close, investors searched long and hard for a bright spot – any bright spot.  With most Standard & Poor’s 500 Index companies reporting, earnings plunged more than 30% in the first quarter and are on track to fall 13% for the full year, the worst annual performance in six years.

Still, Thomson Reuters PLC (Nasdaq ADR: TRIN) says that a consensus of sell-side analysts projects a 29% increase in earnings in 2010 as cost-cutting measures pay off and relative results begin to look more attractive.

The Lowes Cos. Inc. (NYSE: LOW) reported better-than-expected quarterly profits and raised its outlook for the year, but The Home Depot Inc. (NYSE: HD) saw its numbers disappoint investors who were looking for stronger signs from the home improvement giant.  Likewise, Hewlett-Packard Co. (NYSE: HPQ) reported weaker earnings, and that spawned renewed pessimism for the high-tech sector.

On a brighter note, retailers Sears Holdings Corp. (Nasdaq: SHLD) and Aeropostale Inc. (NYSE: ARO) reported better-than-expected quarterly profits.  Ratings upgrades brought early promise as Citigroup Inc. (NYSE: C) boosted its forecast on homebuilder Lennar Corp. (NYSE: LEN); Deutsche Bank AG (NYSE: DB) raised its views on McDonalds Corp. (NYSE: MCD); and Goldman Sachs Group Inc. (NYSE: GS) made Bank of America a “Buy.”  However, S&P warned it may downgrade the United Kingdom’s debt below AAA due to ongoing economic obstacles, a development that prompted others to wonder if U.S. securities could face similar dire possibilities.

Crude oil surged past $62 a barrel on lower inventory data and gasoline climbed above $2.36 a gallon heading into the Memorial Day holiday weekend, a far cry from the $3.80 of this time last year – although it was 30 cents higher than late April levels.

Economically Speaking

While Geithner was “spinning” the bailout progress in the most favorable light possible, the U.S. Federal Reserve meeting minutes painted a picture of a more sluggish economy than most had predicted just three months ago.  In fact, the policymakers negatively revised their projections for economic contraction and warned that the unemployment rate could push toward 10% by the end of the year.  Still, central bank Chairman Ben S. Bernanke believes improvements are on the way as the impact of the Obama administration stimulus package aids in the recovery over the year’s second half. Furthermore, the Fed stands prepared to buy more U.S. Treasury and mortgage-related securities should such moves be deemed beneficial.

In the “it could be worse” category, Mexico (-21.5%), Japan (-15.2%), and Germany (-14.4%) each reported severe economic declines (as measured by gross domestic product, or GDP), as these three primary U.S. trading partners suffered the ill effects of the lower domestic demand for foreign-made goods and services.

Though the economic calendar was rather light during the week, some positive signs did emerge from deep within the numbers.  While analysts were surprised by a decline in April housing starts, the losses stemmed from a reduction in apartment activity, and single-family construction actually jumped by almost 3%, its second consecutive positive monthly showing.

Additionally, a private survey of the nation’s construction professionals depicted that homebuilder sentiment soared to its highest level in eight months, another sign that the prolonged housing slump may finally be nearing an end.

Finally, leading economic indicators, a predictive index that forecasts activity for the ensuing six months, turned positive after six straight down months.  Unfortunately, labor continued to struggle as the number of folks who have been receiving unemployment benefits for over a week hit a new record high.  While the economy definitely seems to be moving past the dreaded recession, any recovery will be limited as long as the labor picture remains weak and employees hold off on purchases until their job situations become more stable.  And the risk of a “double-dip” downturn remains somewhat high.

Weekly Economic Calendar

Source: As GM Cruises Toward Government Deadline, U.S. Automakers Must Learn to Deal With a Permanently Smaller Market

Earnings Announcements: BKS, FL, GME

Monday

Earnings Announcement: LOW

Tuesday

Economic Reports: Building Permits, Housing Starts

Expectations are for both of these reports to show a modest improvement versus the previous month. With the deteriorating housing market, I don’t think these reports will meet expectations. Until the existing inventory is whittled down, these reports should show a drop in permits and starts. Of course, I have been wrong before, but I can’t imagine any builder wanting to add more inventory to the drastic oversupply right now.

Earnings Announcements: HD, HPQ

Wednesday

Economic Reports: FOMC Minutes

The market will scour these minutes for any indication of the Fed’s future course on interest rates. With inflation a growing concern, this becomes an even more important ‘heads up’ for possible moves.

Earnings Announcements: TGT, SKS, LTD

Thursday

Economic Calendar: Philadelphia Fed

This report will give some insight into the manufacturing sector in the tri-state area. Is it possible the report will show some good news? Perhaps. The report is expected to show a reading of -18, which is a marked improvement from last month’s reading of -24.4. The report is moving in the right direction, which means less contraction in the manufacturing sector.
Source: Housing Back In The News, More Retailers Report Earnings