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Friday, March 28, 2008

Research In Motion (RIMM) should continue strong

RIMM has been held down of late by iffy cell phone supply chain data, fears of reduced IT spending, Apple's impending entrance into the enterprise server market via Microsoft exchange connections and rumored 9000 series product delays.

RBC is raising estimates in front of the quarter, citing stronger subscriber trends. He's looking for an increase to May guidance. He says business continues to accelerate.

WES2008 (Wireless Enterprise Symposium) is right around the corner in mid-May. It's likely RIMM will unveil their new 9000 series there, along with a much awaited upgrade of the Blackberry operating system that will permit video recording (on camera enabled phones) and streaming media to the existing Blackberry handset base. They'll also be adding some better document rendering software.

I expect other analysts to raise numbers. The promise of new handsets is typically a positive for the stock. I would also expect a Verizon Curve at some point in the near future.

Engadget is out with some pics of the 9000 series and they look pretty hot.

I think RIMM is going to move appreciably higher over the next month as excitement over the quarter and the new handset builds. I'm a buyer.

Thursday, March 27, 2008

Thornburg deal still not done

Thornburg has a temporary stand still arrangement with their creditors that hinges on their ability to raise a billion in capital. They tried to sell a convert and investors balked. Now they're trying to sell an 18% secured note due in 2015. They disclosed that one investor is taking down roughly half of it. If they don't get it done, we're probably due for another leg down on credit market woes.

The brokers are already telegraphing that something is still very wrong. Look at LEH.

Oracle (ORCL) 3Q:2008 results

Oracle missed applications revenue by close to 20% relative to consensus, driving a top line miss. They said closure rates slipped in February and that those deals have since closed. It's not uncommon for software companies to miss business at the end of the quarter and then insist the business in fact closed in early weeks of the following quarter. I'm not saying that it isn't true, it just feels a little canned.

Currency itself helped the top line by 6.4% versus expectations of 6% so the benefit was greater than expected. Applications were down 13.1% organically ex currency. Database revenue was up 9.2% organically ex currency. Not very impressive growth.

The company said the pipeline, potential business and deal flow, is much larger than it was last year at this time but they're assuming a lower closure rate for Q4, their biggest of the year.

Numbers aren't really coming down -- in fact, I saw some creep higher. Revenue guidance suggests a midpoint above consensus for next quarter. Analysts believe this is a fluke quarter due to macro-economic concerns and that lower closure rate guidance and a higher pipeline will lead to an upside surprise in Q4. I don't know if I buy that but the sell side does.

I would assume Oracle is the first to report this corporate hesitance and that this trend will be echoed in the coming weeks by other software companies as they find business harder to close in an uncertain economic environment... but I don't think I want to play long-term software investor. I had a data point, it was ostensibly correct, the news is out. It's probably time to book the trade.

Wednesday, March 26, 2008

Oracle (ORCL) might be a little weaker

Oracle is sort of perma-cheap. People always refer to the valuation when they talk about it. They've been doing a lot of acquisitions over the last 3 years that have really bolstered the product line and kept the growth going. I think perceived weakness could surprise the "cheap" contingent on the downside.

I've picked up some weakness in North America towards the end of the quarter. The pipeline is definitely weaker, or at least skinnier up front than it was in quarters past. The economy could very well be catching up with them. The terminally weak dollar has to be helping them and may offset what I'm seeing. Irregardless of the currency factor, underlying business is starting to soften and they've seen some pushouts recently.

I have to put in a disclaimer here: software isn't my strongest suit and this could be a stray data point that doesn't reveal the whole picture. That said, it might be worth taking a small shot on the short side in front of the quarter.

Nokia (NOK) gives us another chance to sell it

It's over $32. I'd start laying Nokia out again. I still think they've seen business at the mid and high end slow down and it's got negative margin implications as the low end strength just isn't going to offset the high end weakness. I also think there's a brewing problem for them in low-end handset inventory -- I'm not sure where all those phones think they're going.

As the dust settles, expect M&A to continue

Businessweek discusses some of the recent companies acquired by large tech bellwethers and suggests this will continue.

I still believe this. Rates keep coming down, end market growth is stagnant, cash balances are large -- big companies will use this as an opportunity to snatch up mispriced industry leaders in new and related segments. I keep waiting for Intel to buy Broadcom for example. It's a great time to retrench.

Time to get out of Corning (GLW)

Jabil cited multiple customers in the display business cutting back and Corning's glass demand has been extremely strong. Jabil also cited slowness in telecommunications. both of these are bread and butter businesses for Corning. The stock has performed well. Though I remain positive on the digital TV cycle, I think it best to step aside as the outlook is vulnerable.

Tuesday, March 25, 2008

Jabil Circuits (JBL) cites customer slowdown for reduced outlook

Jabil reporting an in line number with guidance well below the street for next quarter. The 34 cents analysts are expecting will be replaced with a paltry 18-22 cents non-gaap. Revenue guidance comes down to 3.05 - 3.15 billion for next quarter with the street at 3.25 billion. The full year will show some but not a lot of growth.

Jabil is a contract manufacturer. They're slaves to the ebbs and flows of their customers. This would be an ebb. I don't like these companies because they're just big rollups of manufacturing divisions -- they bought businesses companies were willing to sell because the companies couldn't make much money doing the manufacturing themselves. They're glorified sweat shops. Sure, they work great when there's a macro positive shift in demand. Most of the time, though, they run a bunch of disparate, unrelated businesses that they're subject to customer orders on and don't actually control gyrating inside their results.

Suppliers have seen weaker ordering patterns as the quarter has progressed. There's no reason to think Jabil would have seen anything differently as they're the assembler of those fine consumer electronics you're not buying because the economy is so scary.

FYI, Jabil's big customers are Cisco, Hewlett Packard, Nokia, and Philips. If they say there's weaker trends in handsets, it's probably Nokia. I'll listen to the call because I like it when analysts try to figure out which customer is weak even though Jabil won't tell them until they get offline.

Postscript 4:48pm

Display business particularly weak, down 40% this quarter and looking down another 20% next quarter -- that's Philips. I'd short a little at 38.14, its unch'd after the bell. They're also saying telecommunications is weak -- hello again, Ericsson.

Monday, March 24, 2008

Everything’s coming up roses

Existing home sales were up 3% versus expectations of a 1% decline for the month of February. Prices fell more than expected to $195,900 from $201,100 in the prior month. Overall, this is a slight dollar increase in sales month over month. Naturally, depressed home builders are flying today.

JP Morgan raised their $2 bid to $10 for Bear Stearns. JP Morgan management is planning to buy the Bear Stearns employee vote by promising existing Bear employees their 2007 compensation plus 25-35% of their 2006 compensation if they stay on until the deal closes. In meetings with JP Morgan management, Bear employees were told they would be evaluated equally with the JP Morgan analysts. JP Morgan analysts were told they would get preferential placement post-deal. I would hope that the Bear Stearns analysts are actually the ones being told the truth as analysts should be evaluated on their abilities and not on their political positions but I may be naïve.

The Fed, in their continuing effort to blur the lines between central bank and brokerage account, have begun to set up an LLC to hold the securities that Blackrock will be managing on their behalf. Expect an IPO of Federal Reserve, LP around Q4. I can't wait to read the offering document.

Consumer PC and internet entertainment might benefit from a recession

The PC is more embedded in our lives than ever before and is as indispensable as the wired telephone once was. There's just a ton of information out there on the internet. More than that, though, once the exclusive refuge of anti-social geeks, the PC has ironically been transformed into a social tool.

The film industry was born and boomed during the Great Depression. People need escape from harsh reality. In some ways, the internet is probably our time and technology adjusted equivalent. Spending is being reigned in, people are spending more time at home, internet usage is taking consistent share from standard media like television. It follows that consumer internet experiences will continue to enjoy robust interest.

I can't say that I have evidence of this. I like Google. It makes my life easier. It parses search results better than any other engine I've discovered. I see the weak Comscore data and I wonder why. I tried to buy the stock around here but it was too scary. My belief is that they're going to wind up proving a lot more recession resistant than people think. As people are driven home by the economy, they'll spend more time at their computers.

I also think the PC is going to start to show resilience. There may be a weak quarter here or there. The supply chain is more efficient than its been in years past. We're trading at post-bubble valuations and the scenario is completely different. There wasn't a massive overbuild over the last couple of years in PCs – it was in homes. The PC market has been shifting to notebooks which have a higher average selling price which has offset the slowness in the desktop market.

In 2000, inventories were just out of control. The build was unrelenting on the way in and it took several quarters to work through the excess inventory. That's not what I see here. There's definitely some hesitance in the channel. How could there not be? They read the same papers… er, web pages… we do.

Over the next year we'll see the industry start to figure out how to push PC content onto the television in more user-friendly way than the back alleys of bittorrent. Apple is fringing on this concept but the iTunes lockout limits the utility of the Apple TV. Someone will break it open. When your PC truly becomes an on demand video device that will project all of its content onto your television, there will be a golden age of sorts where bandwidth, traditional media and internet video providers will enjoy a confluence of growth.

In the meantime, I just don't see the PC as a place to cut out expense for the average consumer. And I don't see my or anyone else's web usage going down. Sure, maybe we'll buy less crap we don't need from Amazon and eBay. Entertainment, whether it be online video, games, social networking… that's not stopping if people go out to dinner less frequently. It's only going to get stronger.

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