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Tuesday, January 6, 2009

Tech Roundup – January 6, 2009

China's Ministry of Public Security and six other government agencies have launched a program to crack down on "unhealthy content" (porn) on leading Chinese websites. While the health benefits of pornography are debatable, historically Chinese crackdowns on service providers have led to fines, tariffs, restricted growth opportunities and significant stock price contraction. Baidu (BIDU) is China's largest search portal, followed by Google (GOOG). SOHU and SINA are also exposed. Baidu (BIDU) looks like a short into strength.

DRAM prices shot ~5% higher as speculation of Samsung capex cuts spread from the Korea Times to the spot brokers. MLC flash was up even more – as much as 12% in 16gb. Samsung indicated they will raise DRAM contract price slightly for the first half of January. Nanya stated they intend to raise prices 10%. If successful, this will be the first price hike since June. Still like Micron (MU) on better short-term DRAM trend and likelihood of Taiwan bailout funds via Nanya JV application. Sandisk (SNDK) likely to continue to rally to ~14 according to the chart.

SMIC (SMI) is discussing a strategic stake sale to Intel according to unnamed Reuters sources. The stock is up over 100% in the last month.

Microsoft (MSFT) said they've sold over 28 million xbox 360 units in total since its 2005 launch. They sold 10.4 million by end of 2006, 17.7 million by end of 2007, 28 million by end of 2008. The price of the xbox 360 has dropped 60% since its launch. Last year less xbox units were sold than its first year. The platform is consistently losing momentum and is a big top line contributor in the December quarter. Analysts seem resolved to a revenue shortfall from Microsoft this quarter. Makes sense.

Oppenheimer upgrades Apple (AAPL) on reduced uncertainty about the health of Steve Jobs. Technically the stock looks like a sale at ~99.

Emulex preannounced a shortfall for the current quarter – revenues will be 107-108 million vs. prior guidance of 111-116 million. Goldman Sachs downgrades. Emulex derived 28% of sales from IBM, 15% of sales from HPQ and 7.25% of sales from Dell last quarter according to Connexiti.

Morgan Keegan is positive on Arris (ARRS), expecting the company to beat consensus slightly on better margins from CMTS (broadband equipment). They expect guidance to be in-line and that Arris will outgrow many of its peers due to further rollouts of DOCSIS 3.0 and HD at cable operators. Valuation is attractive with CY09 P/E near 8x.

UBS upgrades BMC. 70-75% of revenues come from the deferred revenue line, 55% of overall revenues come from maintenance of existing customers. Mainframe software is less susceptible to spending cuts as mission critical applications run on it. They don't believe there is significant downside risk to estimates. UBS also says consensus estimates for Autodesk (ADSK) and VMWare (VMW) are too high. In the case of Autodesk, 67% of company sales are tied to building and manufacturing and sales are calculated on a "per seat" basis. As job cuts in these industries are ongoing, estimates are vulnerable.

CSFB takes their enterprise hardware numbers lower, citing considerably weaker trends in the latter part of December. They expect enterprise spending to freeze further in the March quarter as budgets are in flux and headed lower. Their prior estimates already were discounting a severe recession according to the analyst. Estimates are cut for EMC, IBM, JAVA, NTAP and a couple of others.


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