Apple cuts iPhone production plans

http://www.digitimes.com/telecom/a20080124PB200.html

Often Apple rejiggles the supply chain when they've got new products coming. I think the 3G iPhone isn't coming till the back half of the year so this seems early.

I'd imagine they're going to cut iPod production too in the coming weeks.

THQ Inc (THQI) 3Q:08 Results

Every year they do this. Gigantic guidance for the December quarter that they miss by a mile. The big problem at this company is their hit products are inevitably the ones they have to pay big licensing fees to produce. I'm talking about the Disney games mostly. They pay way up for the rights and generally sell a few hundred thousand units on the strength of the images on the box cover. But there's no sustainability in those games. There's no ongoing stream. Once the movie fades from the box office, the games turn into unsold inventory.

This is not a stock to buy. If you need to play this sector, go with Activision, which is set to continue to dominate the category with the Guitar Hero and World of Warcraft franchises.

Western Digital Q2:2008 Results

I like the hard drive sector. Storage demands will continue to ramp exponentially as video chews up hard drive space.

Western Digital beat, guided higher. The stock trades at 8*2008 earnings estimates. It's stupid cheap.

Previous Seagate commentary

Dodd goes all Trump on us

Tightening credit conditions have been the main culprit of the weakness in the market. I wish I'd seen it as clearly as I do now. Just as the market cracked when multiple bidders couldn't get together financing for a purchase of United Airlines in 1989, this market was a sale when the private equity sector had to start cancelling deals because of financing problems. The aftermath of the junk bond and Savings and Loan crisis hung over the economy for multiple years afterward. This should be no different.

The mortgage market was poorly regulated and the Fed made rates extremely accommodative. In the stock market, you have to put up 50% leverage to go home with your positions. In the real estate market, you had to put down 10% -- but even that wasn't enough. Banks could sell a mortgage on one side and sell the loan on the other. Inflated home values only added to the value of the real estate loan portfolios they resold. Not surprisingly as it generates a return all around, this became popular.

At any rate, the banks have been the main root of the weakness as the piper has come to call. They staged an impressive recovery yesterday, rallying 10%.



Senator Dodd proposed the government go into the private equity business, suggesting a $20 billion fund should be created to take the other side of the ailing real estate market and soak up some of the excess troubled loans. Not surprising... also not really a solution. Not even close. There's a trillion dollars worth of ARMs out there.

Dodd proposes buying out troubled loans

AMD/IBM to strengthen ties, possibly merge

http://www.ft.com/cms/s/2/fb1583da-c9b6-11dc-b5dc-000077b07658,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html

IBM, Advanced Micro Devices, could set more formal chip ties, with merger possible, sources say

By David Zielenziger in New York

Published: January 23 2008 14:14 | Last updated: January 23 2008 14:14

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Advanced Micro Devices and IBM may establish a more formal semiconductor tie-up than their current partnership, specualted industry sources and analysts in conversations with mergermarket. A deal could see IBM’s microelectronics division merge with AMD at some point, possibly in the near term, said the sources.

Both listed AMD, based in Sunnyvale, California, and IBM, of Armonk, New York, are scheduled to report fourth-quarter results after Thursday’s US market close. While their respective executives are expected to be asked about their ties, neither company is expected to announce a more formal tie-up yet. An IBM takeover of AMD or a joint-venture company now might make sense, the sources said, because of an industry slowdown, which would better prepare any new operation for the eventual recovery.

An IBM Microelectronics/AMD deal would foster IBM’s continued move into technology services and away from hardware, while allowing it to retain hands-on management of a vital part of the computer industry, especially as chipmakers move to nanotechnology, said the sources. For AMD, which has not reported a quarterly profit since mid-2006, the move would be a big vote of confidence, the industry sources added.

“We blew it,” AMD CEO Hector Ruiz said last month when he met investors just after the company announced further delays in its latest Barcelona microprocessors designed to battle listed Intel’s leading Core 2Duo line. After battling Intel to as much as 40% of the market for chips in PCs and servers, AMD’s share fell back to about 25% last quarter, estimated market researcher IDC.

AMD, which reported cash and securities around USD 1.53bn in the third quarter, took in an additional USD 622m in November from Abu Dhabi’s state-owned Mubadala Development, which translated into an 8.1% equity stake. Not long after AMD was founded in 1969, it sold a 20% stake to Germany’s listed Siemens, which was long divested.

IBM, which reported USD 13.8bn in cash and investments in the third quarter, has long used its microelectronics division as an in-house source as well as direct supplier of chips to industry customers like listed Dell under long-term contracts. In the early part of the PC revolution, IBM held a minority stake in Intel as a means to assure supply, but that stake was sold in the 1990s.

AMD and IBM, though, have been technology partners for the past several years and are jointly completing a USD 3.2bn chip plant in Malta, New York, with a USD 900m subsidy from New York State. AMD, which completed a USD 3bn plant in Germany in 2006 and has an investment in Singapore’s listed Chartered Semiconductor, has looked to the plant as a technology refreshment.

IBM, with a market capitalization of USD 140.5bn, has recently been buying services and software companies and expects to complete its USD 4.9bn takeover of Canada’s listed Cognos this quarter. It has divested all but a small stake in China’s listed Lenovo, which bought its PC business; printers, Federal Systems and other hardware lines starting as early as 1990, but accelerating after its near-bankruptcy in 1992 and turnaround led by former CEO Louis Gerstner. Current CEO Samuel Palmisano, who succeeded him in 2002, has continued the strategy.

IBM no longer breaks out its microelectronics revenue but includes it in its systems and technology segment, which had nine-month revenue of USD 14.59bn. By contrast, AMD had nine-month revenue of USD 4.24bn.

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Earnings tonight: COF, EBAY, ISIL, QCOM, WDC

Apple support at 135?

20* trailing cash flow is $131. 20* next year's EPS assumptions is about the same. Hard to take it down a lot more than that I think.

Texas Instruments 4Q:2007 Results

Despite concerns of a slowing market, Texas Instruments managed to get close enough to the consensus that the stock didn't fall apart. Their guidance is good considering it seems to be a foregone conclusion that companies will guide down and they didn't. They're gaining share and that's helping.

My experience with this company is they're a slow boat -- it takes a long time for their business to turn in either direction. They're very channel dependent -- cell phones, the bulk of their sales, don't sell directly through to an end user. When Texan books a wireless sale, it goes into the vast EMS chain. Next it's assembled into an OEMs product. Then it's shipped into a wireless carrier's inventory. Ultimately, it emerges in the hands of a wireless user when they buy a phone. This process can take months. Theoretically, it would be very difficult to keep track of one's channel inventory with the parts passing through so many hands.

Texan doesn't see inventory issues or a fall-off in consumer demand. They wouldn't... yet. Give them a few months.

Motorola 4Q:2007 Results

Now here is a company that's in serious trouble. The handset business is falling off a cliff with sales down 38% this quarter and guidance of a softer Q1.

Like Apple, Motorola saw a fall-off in business in December. LG and Samsung are taking significant market share with low cost, high functionality handsets. The reRAZRs just aren't cutting it. Their Q phone is getting squished like grape between the Blackberry and the iPhone.

A couple of weeks ago I was at CES and I saw the Motorola booth was mobbed. Curious, I wandered over to see why. There were people lined up to play with the RAZR retread. It surprised me. Why would people line up to play with a phone that most of them probably had at some point?

I can't explain human behavior but I do know that Motorola has a lot of brand equity. It's too bad they don't have some products to back it up.

AAPL Q4:2007 Results

Revs below the high end, negative.

iPod shipment # of 22.1 mil units looks very low relative to consensus of 24-25 mil.

iPhone shipments look on the weaker side -- the 4mm shipment # they gave at MacWorld implied more like 2.6mm units for the quarter, what happened there? One would think the weakness in iPods would have been caused by iPhone cannibalization but that's not the case here.

Mac sales look slightly disappointing relative to consensus of 2.34mm units.

There's a decent bulge in non-current deferred revenue -- iPhone subscriber revenues. That account is $620mm, up from $290mm last quarter. That's good for longer-term earnings visibility obviously.

Guidance is below the street for next quarter -- 3% on revenues, 10% on EPS... often is. They're conservative.

Stock is down 8% in post-market trading at present.

Expectations have passed the company's ability to deliver for the time being.

They're still growing at over 30 percent on a year over year basis, which is an acceleration from the prior year's growth rate, and they still have a hot product line-up. It's not a sale here.