If the last three months are any indication, the U.S. tech sector has shaken off its recession-heightened late-winter doldrums, and could see its fortunes soar in the year’s second half as businesses and consumers open their wallets and the broader economy picks up speed.

The technology-laden Nasdaq Composite Index was at the forefront of the most-recent market rally, having soared more than 45% since hitting its 52-week low on March 10. That outpaced both the Dow Jones Industrial Average – up 30% in that time – and the Standard & Poor’s 500 Index – up about 37%.

According to industry analysts, the technology sector – because it is heavily reliant on borrowing, as well as consumer demand – can serve as a harbinger of economic recovery.

“Technology tends to be a leader in the early stages of an economic turn. That’s what we took for as confirmation of a sustainable rally-money rotating into a sector that historically is seen as consumer- and business-sensitive, and requiring more leverage in terms of borrowed money, because it is more sensitive to the economy,” Marc Pado, U.S. market strategist at Cantor Fitzgerald told MarketWatch.com. “I expect technology to continue to lead well through this year and into February of next year.”

Spearheading the Nasdaq’s charge has been Redmond, Wash. software giant Microsoft Corp. (Nasdaq: MSFT).  While its fiscal third-quarter profit fell 11% from a year earlier, Microsoft beat analysts’ expectations, helping the company’s stock to surge more than 50% from its mid-March low. Microsoft is up about 16% in the past month.

Semiconductor manufacturer Texas Instruments Inc. (NYSE: TXN) could trade in the is up more than 45% in the past six months to its current level of about $21 per share. The company could trade up into mid-$30s within 12 months, according to Paul J. Nolte, director of investments atHinsdale Associates Inc., an Illinois money management firm.

Earlier this month, in fact, Texas Instruments sharply raised its second-quarter financial guidance. The reason: Customers had slowed the rate at which they were reducing chip inventories – a signal that the market for semiconductors may be stabilizing.

The company now expects to report earnings per share (EPS) of 14 cents to 22 cents, up from the previous forecast of 1 cent to 15 cents per share.

Opening New Windows

The long-suffering PC market may get a shot in the arm this fall with the Oct. 22 release of Microsoft’s Windows 7, which is all but guaranteed to generate better reviews than its predecessor, Windows Vista. Pre-release versions being publicly tested are already being called better than Vista, which was dogged by geeks and general end-users alike for its slow performance and questionable compatibility with legacy software and hardware.

Stopping short of admitting the goof and giving away Windows 7 to existing Vista users, Microsoft is offering cheaper upgrades to those who pre-order Windows 7 between June 26 and July 11.  The company will offer free Windows 7 upgrades to anyone who purchases a PC pre-installed with Vista after June 26.

Windows 7 is expected to be the operating system of choice for information technology (IT) managers who make purchasing decisions for corporate users.

“The upcoming introduction of Windows 7 could spur a rapid corporate PC upgrade cycle starting in late 2010/early 2011, catalyzed by the end of support for Windows XP and a recovery-based increase in IT spending,” said Jeffries & Co. Inc. analyst Katherine Egbert wrote in a recent research report.

But history shows that a release of a new operating system – no matter how positive the buzz – will translate into only a slight increase in PC sales, Microsoft Senior Vice President Bill Veghte said in a webcastearlier this month. On the business side, enthusiasm is high for Windows 7, but corporations will not rush to upgrade when it is released. The release “will get drowned by the macroeconomic environment,” Veghte said. “As the macro environment comes back, people will have to buy new PCs. People aren’t using PCs any less.”

Game On

Looking ahead, the tech sector is anticipating a slew of product releases in the year’s second half – many of them in the $22 billion video-game sector, which lives and dies on new releases.

Activision Blizzard Inc. (Nasdaq: ATVI), the largest third-party game publisher in the world, will lead the way with the latest in its rock music game series with the September release of “Guitar Hero 5″ on four platforms: Sony Corp.’s (NYSE ADR: SNE) PlayStation 2 and 3, Microsoft’s Xbox 360 and Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii. The third iteration of “Guitar Hero” became the first video game ever to achieve $1 billion in sales.

But the music from Activision won’t stop with the last strum of a toy guitar: The company will debut “DJ Hero” in October for the same four platforms. “DJ Hero” will ship with a mock turntable and should appeal to fans that don’t turn to rock for their music fix.

Activision will release new titles for proven franchises such as “Modern Warfare” and “Tony Hawk.” The first “Modern Warfare” title, released in 2007, has sold 13 million copies worldwide and is one of the best-selling games on Xbox 360. The new “Tony Hawk” game represents the 12th installment in the series since it was started 10 years ago.

While sales of console games typically garner most of the attention, it is Activision’s “World of Warcraft” (WoW) playing the role of its single largest sales generator. In 2008, WoW accounted for $1.1 billion in revenue, or 38% of Activision’s total revenue. Sales from all of Activision’s console titles were $1.2 billion. WoW has more than 11.5 million subscribers, Activision said.

Since its dropping down to its 52-week low of $8.14 in January, Activision shares have risen steadily, and are now trading in the $12 range. With a war chest stuffed with nearly $3 billion in cash and ratingsof mostly “Buy” or “Strong Buy” from analysts, Activision may warrant closer study by individual investors, too.

Activision’s rival, Electronic Arts Inc. (Nasdaq: ERTS) also has some potential-big-hit titles coming in the year’s second half, but saw its losses more than double to $1 billion for the fiscal year that ended March 31. Like most game publishers looking to cash in on the holiday shopping season – primetime for consumer spending – EA is saving its best for the second half of 2009.

Titles such as “Madden NFL 10,” “The Beatles Rock Band” and “Left 4 Dead 2″ will sell well, but the outlook for EA on Wall Street is mixed, with the majority of analysts rating the company as a “Hold.”

Some analysts say that EA can weather the current downturn in consumer spending, as it sits on more than $1.6 billion in cash, according to its annual regulatory filing with the Securities Exchange Commission (SEC), but the outlook for the 2009 Christmas shopping season remains uncertain.

Will iSpend?

Following a sharp drop in its stock after the revelation that its chief executive officer’s health may be worse than previously thought, shares of Apple Inc. (Nasdaq: AAPL) have slowly been climbing back toward its 52-week high of $180.91. The shares are currently trading at about 21% below that peak.

The Cupertino, Calif.-based company on June 8 removed a barrier that had stopped many consumers from purchasing its popular iPhone when it lowered the price of its 8-gigabyte 3G model to $99. With wireless plans starting at around $70 per month, Apple’s phone – and perhaps more importantly, its app store – will find its way into the hands of many more consumers in the second half of 2009.

Couple the 8GB iPhone 3G with the newly released, feature-rich 3GS model – and then stir in a barrage of television commercials – and the result should be a marked improvement in revenue.

It is unlikely that Palm Inc.’s (Nasdaq: PALM) Pre will put a dent in iPhone sales, partly because of sustained shortages as Apple floods the market with its phone. However, Sprint Nextel Corp. (NYSE: S) customers locked in their contracts looking to upgrade to a phone with a growing app catalog will see the Pre’s similarities with the iPhone.

Sprint Chief Financial Officer Bob Brust told investors via a webcast at Wachovia Corp.’s Annual Mid-Year Equity Conference that Pre shortages still exist weeks after its launch.

“We still have a backlog of subscribers but it’s not unmanageable and we get shipments every week,” Brust said. Sprint is the exclusive carrier of the Pre.

Analysts estimate that 50,000 to 100,000 Pres were sold in its debut weekend earlier this month, while Apple said the new iPhone sold 1 million units in its opening weekend.

Source: Rebounding Tech Sector Stars Could Play Key Role in U.S. Economy’s Second-Half Rebound

[Editor's Note: This tech-sector preview is the opening installment of a new Money Morning series that will make economic projections for key U.S. sectors for the last half of 2009. As part of that series, look for forecasts for housing, energy, U.S. stocks and the emerging markets.] ]]> http://www.contrarianprofits.com/articles/rebounding-tech-sector-stars-could-play-key-role-in-us-economy%e2%80%99s-second-half-rebound/18629/feed 0 http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-june-24-2009/18282 http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-june-24-2009/18282#comments Wed, 24 Jun 2009 15:00:17 +0000 Money Morning Staff http://www.contrarianprofits.com/?p=18282 Existing Home Sales Rise, But Miss Estimates; Boeing Shares Plummet; Automakers Get $8 Billion for Fuel Efficiency; Sprint CFO Not Concerned About Pre Shortages; Kroger Beats the Street; MySpace Lays Off 300 More; Best Buy Testing Used Game Waters; Madoff’s Lawyer Pleads for Leniency

In spite of tough economic times, smartphone sales represented 23% of all mobile phone sales in the fourth quarter of 2008, up from just 12% a year earlier, according to market research firm The NPD Group Inc. Another firm, Gartner Inc. (NYSE: IT), says smartphone sales will increase 25% even as the overall mobile phone sector contracts.

Some of the millions of jobless Americans are turning to smartphones as a tool in their job searches, as a means to enhance communication with potential employers.

“I don’t know if it’s really an expectation, but if another job candidate returns an e-mail message eight hours later, and you get back immediately with a message that says ‘Sent from my iPhone,’ I think it has to be a check box in your favor,” jobseeker Helene Rude told The New York Times.

While Apple Inc.’s (Nasdaq: AAPL) iPhone typically gets all the headlines, it is Research in Motion Ltd.’s (Nasdaq: RIMM) line of BlackBerry phones that commands 55% of the market share versus Apple’s 20%, according to market research firm International Data Corp.

The key factors in RIM’s success are market penetration, choice of models, price and, most recently, enticing promotions such as buy one, get one free. BlackBerry phones are on all U.S. carriers, and range in price from $30 to $250. Apple’s two iPhone models, the 3G and 3G S, will cost any user who signs a new contract $99 and $199, respectively.

Smartphones are proving to be profitable, as well. Canada-based RIM last week announced a net income of $643 million, or $1.12 per share diluted on revenues of $3.4 billion. That compares to a net income of $482.5 million, or 84 cents per share diluted on revenue of $2.2 billion in the same period a year ago. Approximately 81% of RIM’s revenue came from sales of BlackBerry devices.

Few smartphones are limited to one carrier. Among them are the iPhone, which can be used only on AT&T Mobility LLC’s network, and Palm Inc.’s (Nasdaq: PALM) newly launched Pre, available only through Sprint Nextel Corp. (NYSE: S).

Apple’s recent price drop on its 8 gigabyte iPhone 3G model to $99 will be interesting to watch, as it will put the company’s wildly popular App Store in the hands of more consumers, who are being bombarded by a series of “there’s an app for that” TV commercials.

Other smartphone makers are playing catch-up in the app department, which will not only be an important factor in consumers’ purchase decisions, but another revenue stream for smartphone makers and their wireless carrier partners.

Apple Chief Executive Officer Steve Jobs told The Wall Street Journalthat his company’s App Store generated $1 million a day in its first month.

Apple’s App Store launched in July last year, followed by Google Inc.’s (Nasdaq: GOOG) Android Market (for HTC Corp.’s G1 phone) in October, BlackBerry App World in April and finally, Palm App Catalog, still in its infancy after its debut with the June 6 launch of the Pre.

Source: Research in Motion Still Leading the Smartphone Pack

• Freddie Mac (FRE) yesterday (Wednesday) posted a second-quarter loss that was more than three-times larger than Wall Street expected, The Associated Press reported. Freddie lost $821 million, or $1.63 a share, for the quarter that ended June 30, compared with a profit of $729 million, or 96 cents a share, in the year-ago period. Revenue fell to $1.69 billion from $2.34 billion. Stock analysts surveyed by Thomson Financial expected a loss of just 53 cents a share.

• Sprint Nextel Corp. (S) reported a $344 million loss yesterday (Wednesday), compared with a profit of $19 million a year ago. Revenue fell 11% to $9.06 billion. Sprint ended the quarter with just under 52 million customers, down from 54 million customers a year ago.

• Time Warner Inc.’s (TWX) second-quarter earnings fell 26% on declining subscriber fees at its AOL online unit and lower ad revenue at the Time publishing business, The Associated Press reported. Time Warner said net income fell to $792 million, or 22 cents per share, from $1.07 billion, or 28 cents per share, a year ago. The media conglomerate also took legal and tax steps that make it possible to split its AOL online business and sell it in parts.

• Mining giant Xstrata PLC (PINK: XSRAF) launched a $10 billion takeover bid for the world’s third-biggest platinum producer Lonmin PLC (OTC: LNMIY) yesterday (Wednesday), though Lonmin swiftly rejected the bid. “This is an opportunistic and entirely unwelcome attempt to acquire Lonmin at a price which undervalues its unique assets,” the company said.

• Bond insurer Ambac Financial Group Inc. (ABK) said yesterday (Wednesday) that net income rose to a record $823.1 million, or $2.80 a share, from $173 million, or $1.67 a share, a year earlier.

• Playboy Enterprises Inc. (PLA) yesterday (Wednesday) reported a second-quarter loss of $2.1 million, or 6 cents per share, compared to a profit of $1.9 million, or 6 cents per share, in the second quarter of 2007. Revenue dropped 14% to $73.4 million from $85.7 million in the year-ago period, The Associated Press reported.

• Oil prices fell below $118 a barrel yesterday (Wednesday) – $30 below their July 11 high. Light, sweet crude for September delivery settled 59 cents lower at $118.58 a barrel, after earlier falling as low as $117.11.

Source: Global Investing Roundups Thursday, August 7th, 2008

These losses came only three months after Nomura declared a loss of $1.5 billion on write-downs due to its bond insurer exposure in March 2008, and nine months after declaring a $700 million write-off of its subprime mortgage exposure and exiting the business.

This is the third or fourth time this has happened to Nomura, ever since it started serious international expansion in the early 1980s. It puts lots of resources into businesses in New York, or sometimes London, then a few years later retires to lick its wounds after reporting huge losses.

Unfortunately, it is not likely Nomura’s losses will cure it of its bad habit this time around, either.

Nomura President Kenichi Watanabe told executives in March that the firm would “aggressively take risks” and boost profit by expanding its global investment banking, fixed income and private equity businesses. He also told The Financial Times that Nomura should expand aggressively internationally, using London as its international “factory” in which products would be developed and exported to both New York and Tokyo.

Nomura is the undisputed leader in investment banking and brokerage in its home market. A year ago, it might have worried somewhat because Citigroup Inc. (C) bought a majority stake in its nearest competitor, Nikko Cordial Corp. (PINK ADR: NIKOY). However, the sub-prime crisis broke last summer, and has enveloped Citigroup in an ever-increasing spiral of losses and disasters. Thus, the last thing Citigroup has thought about is aggressive expansion in Japan, so Nomura should easily able to pick up a few more points of market share in its domestic business. But to do so, Nomura needs to shelve its ambitious U.S. expansion plans and focus on its own backyard.

Nomura is not the only Asian firm to fall prey to the allure of U.S. expansion. SK Telecom (ADR: SKM), the South Korean wireless telephone giant, has more than a 50% share of its domestic market. And the new government has finally allowed it to push aggressively for expansion. SK Telecom also has a joint venture in China, one of the largest consumer markets, where it has made more than a 50% profit in two years. The South Korean telecom has another major position in the cell phone market of Vietnam, one of the fastest growing and most exciting emerging markets in the world. In short, SK Telecom profits should be rocketing through the roof.

But they’re not. Instead, after having already blown $500 million last year on a joint venture with Earthlink Inc. (ELNK) in the United States, SK Telecom is now attempting to buy a minority stake in Sprint Nextel Corp. (S), a money losing company that is likely to cost the South Korean firm between $3 billion and $5 billion. This is madness; SK Telecom is throwing away both the cash flow from its existing Korean operation and the exciting growth potential in China and Vietnam to pour money into the U.S. telecom market that is both less advanced technologically, and less attractive in terms of growth.

Tata Motors (ADR: TTM) is another fine example of this “bad habit.” Tata was not content with its the Tata Nano in late 2008, which is priced to sell for $2,500 and could revolutionize the Indian, and potentially the world automobile market. Instead, Tata bought Jaguar and Land Rover from Ford Motor Co. (F) for close to $3 billion this year. And while those brands may be very attractive long-term strategic purchases, their large price tag has left Tata Motors short of funds at a time when it needs to devote resources to the Nano project.

As a direct consequence of the purchase from Ford, Tata Motors is now proposing a major series of stock issues, which will inevitably dilute current shareholder equity and reduce the value of their holdings. With interest rates in India rising and the economy slowing, the risks for Tata have been notably increased – simply because the company could not resist Western expansion when it did not reliably have the funds in-house to undertake it.

Nomura, SK Telecom and Tata Motors are all fine companies. But each would be even better company if management had not succumbed to the fatal temptation of pouring money into the U.S. market where they had no significant comparative advantage.

Their shareholders are suffering accordingly – Nomura is down 28% in the last year, SK Telecom is down 25% and Tata Motors is down 43%.

Source: The “Bad Habit” Asian Firms Just Can’t Seem to Shake

• Wells Fargo Co. (WFC) stock jumped 32% after the nation’s fifth largest bank raised its dividend by 10%, from 31 cents a share to 34 cents. The company reported second-quarter profit fell 22% as more customers defaulted on loans, but the dividend hike was enough to answer any questions concerning the company’s stability.

• Light, sweet crude for August delivery fell $4.14 to settle at $134.60 a barrel on the New York Mercantile Exchange yesterday (Wednesday) after sinking as low as $132 earlier in the day. Over the past two days crude prices have dropped $10 a barrel.

• The National Association of Home Builders/Wells Fargo housing market index fell in July to a record low of 16, down from 18 in June, the Associated Press reported. The index has been on a downward trajectory since May, as tighter lending standards, rising mortgage defaults and fear about the housing market’s future have sidelined buyers.

• Russian energy giant OAO Gazprom accused Belarus underpaying for gas deliveries and threatened to go to court if the situation is not rectified, Thomson Financial reported. “If the Belarussian side continues to fail to honour its obligations to pay in full for Russian gas, Gazprom reserves the right to start court proceedings,” Gazprom said in a statement.

• Shares of Gannett Co. Inc. (GCI), the largest U.S. newspaper publisher, tumbled yesterday (Wednesday) after the publisher announced a 36% decline in second-quarter profits from the same period the year prior, Bloomberg News reported. Shares shed 78 cents, a decline of 4.5%, to close at $16.57.

• Struggling Sprint Nextel Corp. (S) is an attractive takeover target for Korea-based SK Telecom Co. Ltd. (ADR: SKM). The two mobile carriers are a good technological fit and Sprint is hurting for cash, while SK Telecom is looking to expand its presence in the United States, BusinessWeek reported.

• Executives from Time Warner Inc.’s (TWX) AOL unit met with Microsoft Corp. (MSFT) yesterday (Wednesday) to discuss a possible merger. Microsoft is seeking alternatives after Yahoo! Inc. (YHOO) shunned its buyout bid. While the two firms have been in ongoing discussions for some time now, the chances of reaching a deal remain less than certain, MarketWatch reported.

• Delta Air Lines Inc. (DAL) stock jumped over 25% yesterday (Wednesday) despite announcing a $1 billion quarterly loss. The Atlanta-based carrier was profitable before special charges, Reuters reported, causing shares to gain $1.24 to close at $5.91.

Source:  Global Investing Roundups Thursday, July 17th, 2008