Dell 4Q:2008 Results (2)

I'm re-reading what I wrote and it sounds silly.

Dell is seeing softness in the PC market overall. Their consumer business is a very large portion of mix in Q4. Price pressure in consumer, though somewhat offset by lower DRAM costs, caused them to have negative operating margins in what is 50% of their business in the seasonally strong Q4.

I didn't mean to say that lack of flat panels drove the miss. It contributed to it. What I mean is that Dell has relied on selling third party, big ticket items to drive the top line and they haven't been able to add anything with real meat to it. They're gigantic at this point -- a 60 bil/year company. It's hard to juice revenues at this point. Their domestic market business growth period is probably done ex standard economic growth. All the expansion has to come from international arenas. If the global economy slows, which markets are suggesting, the only thing they'll be able to do is control costs.

And wouldn't you know it, that was the focus of the guidance and the call -- cost controls. I still think normal seasonality is going to get you below reduced analyst expectations and that the stock is vulnerable near-term.

Nvidia (NVDA) still can't buy AMD

eetimes runs another article suggesting NVDA should buy AMD. They can't. It'd be a virtual monopoly in add-in cards. Next.

They also throw IBM out there as a suitor -- always a possibility. I also like STM as a potential buyer but they didn't mention them.

Take Two (TTWO) says informal buyer approached them

There was an article in the WSJ a couple of days ago talking about how the management company's compensation package was altered after the company was approached by Electronic Arts. These guys saw a buyer and their compensation package was instantly tripled in the event of a takeover.

I don't trust them. We had informal talks with an unnamed buyer is pretty open-ended and doesn't really leave them on the hook for anything, nor does it discuss price. It's an attempt to manipulate Electronic Arts into paying more. I doubt it works.

Omnivision (OVTI) 3Q:2008 Results

Surprisingly, Omnivision managed to beat earnings consensus despite coming in at the low end of guidance for revenues. Next quarter's guidance of 170-190mm is below the consensus of 194mm. Gross margins and ASPs are expected to stay flattish which will get them to 27-40 cents for next quarter. VGA camera sensors, the kind that go in low end phones and cameras, made up 70% of the mix for the quarter and the company is saying 2 megapixel mix will increase going forward. China, where Omnivision does a lot of business, will be slower next quarter due to seasonal factors and an inventory adjustment. The company is indicating a stronger second half.

It's hard to get excited about Omnivision as they make a very low end product in a highly competitive consumer electronics space. However, for those same reasons, it's not a space where there's a lot of capital expenditure. Samsung has been trying to get a good product in this market to reduce their need for purchasing outside sensors. ST Micro makes a good product they've been using as leverage to undercut competition for other phone slots. Micron needs to gain share in this space so they can spin out and monetize their sensor business and I think they're going to take a lot of share at Nokia.

Omnivision, however, looks kinda dirt cheap. It's 12-13* earnings, will presumably ramp for the rest of the year following Q4 based on the company's comments, and has over $9 in book value. Furthermore, 20% of the float of outstanding shares is short. I'm not entirely convinced business will ramp all year starting in Q1:2009 like the company is indicating but this stock can keep moving higher near-term – its not hard to see it at 18. I would not buy this and put it away. It's a trading stock.

Dell 4Q:2008 Results

Dell misses revenue forecasts by 300mm, coming in at 16 billion. Corporate spending is slowing, particularly in the financial vertical. Does that sound surprising? Of course banks are reigning in spending – they're under siege.

There's no revenue or earnings guidance and that's concerning. Dell for the last few years has been adding ancillary products to the model to drive the top line – they did it with printers (LXK) and with storage (EMC). They tried to do the same with flat panels and failed. In some respects, the struggles the company are going through are a result of that failure in flat panels to drive the top line.

Beware the possibility of revenue guidance down 7-10% sequentially for next quarter which would be in line with normal seasonality and far below analysts consensus of down 3-4%. They're also talking about substantial costs associated with business realignment. The stock is $20.35 now and I'd be a seller into the conference call.

Freddie Mac (FRE) sounds insolvent

This company is saying 2/3 of their portfolio is sub-prime crap. They're leveraged beyond belief. I have no idea what the stock reaction is going to be but my reaction is you've got to be insane to think interest rate cuts are going to fix the real estate market any time soon. (I am not a financial stock analyst and these are just layman's opinions. Beware.)

Yesterday, the OHFEO said they're taking portfolio cap limits off for the GSEs. Why it's a good idea to let these companies get even more leveraged is completely beyond me.

It's still very scary out there.

iPhone Follies

My iPhone went back to the Apple store 10 days after I bought it. When I returned the phone, I was helped by 2 separate, smiling and somewhat scruffy employees. There was a long checkout line that I got to the head of within 5 minutes. I heard cool music waiting on the line. I was out of there with a shiny new gift card for $400 within 10 minutes of entering the store. This is what makes this company great, I thought to myself – they effectively massage and control even the customer service experience into a good one. I dazedly wandered out into the crisp January morning and wondered if it was too late to buy the stock (it was).

Before I returned it, I called AT&T to make sure I didn't have to do anything else and to make sure I wouldn't be charged a disconnection fee, that I wouldn't be charged for service I would no longer have after I switched to Verizon. That's not how it happened at all. So far I've logged close to 3 hours of looped advertising for AT&T services I don't have or want on music hold and 3 separate customer service reps have fixed the problem for me only to have it return. 3 months later, I'm getting calls from nasty bill collection agents who are vocalizing threats to my credit report if I don't pay up. They want $318 for 10 days of service -- $113 for the month plus a $175 early termination fee (I was within the 30 day trial AT&T grants you and not eligible for the fee). I'm being shaken down.

This is not the Apple customer experience I expect.

The stock rallied sharply yesterday on Apple's statements that they're not wedded to the current iPhone model of a single carrier. Thank God.

Western Digital (WDC) guides above consensus

In their 10Q filing, Western Digital guides revenues to 2.00 – 2.08 billion with EPS of $1.05 - $1.11. When they reported just a few weeks ago, they had guided to 1.925 – 2.00 bil and $0.85 - $0.91. There's a lot of leverage in their model clearly as small changes to the top line affect EPS significantly. I've been looking for a reason to say the stock should be sold as it's up 25% from when I suggested buying it after their last quarterly report.



The chart says it's a sale under 32.5, where it will have violated the trendline it recently broke above and an outright sale at $37 if it gets there in the next couple of days. There's nothing wrong with selling ½ here and leaving the rest on. It's still cheap but the environment is worse than it was a month ago.

FormFactor (FORM) CFO resigns

I wrote about this company when they reported. The CFO resigning to pursue other interests is a big fat red flag. The stock is down a lot, he's got options, the company is telling you its a temporary business condition. The CFO is telling you he doesn't want to stick around for the recovery -- maybe he's telling you there won't be one... or that the books were cooked. All we know is for whatever reason, he'd rather be somewhere else.

I maintain that there's no way to know how profitable the business actually is because the cost accounting has been screwed up for years. Their customers are all memory manufacturers. Hate this stock.

IBM increases buyback, guides up a nickel

I like the stock but it shouldn't rally $5 on an accounting adjustment to earnings due to an increased buyback. That's just silly. As I said, though, I like the stock... so I can't tell you to sell into this. It's still cheap.

Earnings Estimate Cheat Sheet – February 26-29, 2008

Symbol	Revenue Estimate Current Q	Operating Profit Estimate Current Q	EPS Estimate Current Q	EBITDA Estimate Current Q	Revenue Estimate Next Q	Sequential Revenue Growth Estimate, Percent	Operating Profit Estimate Next Q	EPS Estimate Next Q	EBITDA Estimate Next Q	Revenue Estimate Full Year	Operating Profit Estimate Full Year	EPS Estimate Full Year	EBITDA Estimate Full Year	Revenue Estimate Next Year	Operating Profit Estimate Next Year	EPS Estimate Next Year	EBITDA Estimate Next Year
ADSK	581.4	167.6	0.54	176.2	582.7	0.21%	161.6	0.52	169.0	2,154.2	591.6	1.91	635.2	2,457.8	700.6	2.24	733.3
AXTI	16.0	1.4	0.04	--	16.2	1.00%	1.4	0.04	--	56.6	5.1	0.15	--	71.3	7.2	0.21	--
BEAS	428.5	113.6	0.22	125.6	384.5	-10.27%	83.3	0.17	88.9	1,523.1	338.5	0.69	356.0	1,662.9	397.6	0.77	429.6
BORL	66.1	(2.5)	(0.04)	3.0	65.6	-0.82%	0.2	0.00	--	273.5	(12.5)	(0.20)	9.7	271.8	3.6	0.01	19.0
CATS	17.5	0.0	0.03	--	17.5	0.12%	0.3	0.03	--	75.5	2.3	0.18	--	76.0	3.9	0.19	--
CRM	209.2	4.9	0.04	8.4	228.5	9.25%	8.6	0.06	13.3	741.0	14.4	0.14	37.9	1,027.6	52.9	0.32	75.8
CTRP	46.0	15.4	0.21	15.4	48.1	4.52%	15.6	0.21	15.7	160.0	53.1	0.75	56.4	242.8	81.0	1.09	84.7
DELL	16,249.1	959.1	0.36	1,047.2	15,834.9	-2.55%	881.8	0.35	976.9	61,354.4	3,627.3	1.37	4,217.6	65,258.1	4,045.2	1.56	4,572.0
DWA	276.8	110.7	0.72	119.5	188.7	-31.81%	48.0	0.38	53.6	749.0	273.9	1.94	282.4	664.6	191.5	1.47	215.1
ESPD	38.5	--	0.01	--	--	#VALUE!	--	0.20	--	158.2	5.6	0.07	25.1	1,252.9	126.7	0.70	126.7
ESST	18.4	0.2	0.00	--	15.0	-18.48%	(0.9)	(0.02)	--	71.1	--	(0.07)	--	65.3	(1.7)	(0.03)	--
GMKT	72.8	11.3	0.23	13.9	70.4	-3.35%	9.9	0.19	13.0	241.0	29.8	0.69	38.3	315.2	49.1	0.92	62.7
IMMR	9.2	(1.6)	0.00	(0.8)	--	#VALUE!	--	--	--	34.0	125.6	4.16	129.8	40.0	(7.1)	0.00	(2.9)
LEAP	428.9	28.4	(0.17)	113.6	454.6	5.99%	26.3	(0.04)	115.2	1,624.4	72.2	(0.86)	378.3	1,926.6	107.8	(0.38)	484.5
MENT	274.2	77.7	0.72	84.2	195.0	-28.87%	11.5	0.08	--	856.6	104.0	0.99	131.3	893.8	122.8	1.07	131.3
MXWL	15.3	(3.2)	(0.21)	(1.9)	15.0	-1.71%	(3.3)	(0.18)	(1.4)	55.6	(16.7)	(1.03)	(12.1)	67.1	(10.0)	(0.57)	(3.3)
NIHD	913.6	177.0	0.59	253.8	972.1	6.41%	205.5	0.70	280.9	3,266.8	609.0	1.98	904.9	4,262.7	910.8	3.07	1,249.4
NT	3,281.2	315.9	0.47	404.8	2,605.5	-20.59%	101.8	0.12	193.2	11,032.6	464.8	0.52	705.9	11,410.1	854.9	1.18	1,123.3
NVLS	319.4	30.0	0.23	48.2	329.7	3.23%	39.3	0.29	57.3	1,365.1	179.1	1.35	244.9	1,473.2	225.7	1.71	284.0
OVTI	226.2	27.3	0.47	28.0	198.0	-12.49%	19.0	0.33	15.3	831.8	90.9	1.66	94.1	905.6	81.6	1.60	100.8
SNIC	31.0	(4.7)	(0.14)	(3.5)	31.7	2.29%	(2.8)	(0.07)	(0.8)	133.9	(0.7)	(0.12)	1.9	142.3	8.7	0.25	16.3
SONS	97.3	7.1	0.03	--	90.7	-6.78%	6.4	0.01	--	320.4	(67.9)	(0.12)	(2.7)	406.2	44.2	0.12	71.1
UTSI	640.6	(49.6)	(0.43)	--	563.5	-12.04%	(27.7)	(0.28)	--	2,301.4	(208.7)	(1.85)	(148.8)	2,290.3	(212.0)	(1.31)	(35.9)
VIA/B	3,994.3	1,003.5	0.83	1,095.6	2,931.9	-26.60%	637.9	0.50	748.2	13,198.6	3,008.6	2.35	3,410.1	13,909.2	3,282.5	2.65	3,707.2
WJCI	--	(1.8)	(0.02)	0.3	--	#VALUE!	--	(0.02)	--	--	(8.7)	(0.12)	--	--	--	0.02	--
XMSR	304.0	(159.5)	(0.63)	(111.3)	315.0	3.62%	(80.9)	(0.39)	(39.2)	1,133.7	(479.0)	(2.06)	(282.3)	1,361.4	(396.2)	(1.62)	(185.3)