This column by Doug Kass was originally published on Feb. 5 at 9 a.m. EST on Street Insight. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight,
Every few weeks, I recap 10 tidbits I've picked up from trading desks and other industry sources. These items have not been confirmed, but either have affected, or could affect, the stocks mentioned.
1. Apple's (AAPL - Get Report) Steve Jobs' problems regarding option grants run much deeper than is generally assumed. I am hearing that Jobs has personally hired a high-powered law firm in his own defense, and that the odds increasingly favor action by the SEC and the U.S. attorney's office.
As well, a recent regulatory filing by Apple filled with audacious statements ("The company intends to continue full cooperation ... the resolution of these matters will be time-consuming, expensive and will distract management from the conduct of the Company's business") has incensed the two aforementioned government bodies as well as certain members of Congress. I am also hearing that Google (GOOG) CEO Eric Schmidt has already begun low-level discussions with several Apple board members regarding his role as a possible temporary replacement to Steve Jobs should the options-backdating issues intensify at legal levels.2. Earlier this month, I heard (correctly) that the low-end cellular-phone market "has been jammed with inventory as demand erodes ... guidance will be lowered by the leading manufacturers as margins erode and average selling prices continue to fall." Since then Motorola (MOT), Nokia (NOK) and Ericsson (ERIC) have disappointed and guided down profit forecasts. Now I am hearing that the high-end market has weakened abruptly over the last three weeks, and more estimate revisions are in the offing. 3. In January, I also had heard that Dell (DELL - Get Report) would guide lower. Indeed, Dell missed, and Michael Dell has seized back operating control of the company from Kevin Rollins. I am now hearing that Dell -- in conjunction with Microsoft (MSFT - Get Report) -- is working on a SideShow-enabled MP3 player that will sport media capabilities along with wireless connectivity and will offer almost unlimited types of data that the SideShow platform is capable of displaying. 4. I also am hearing that Microsoft is planning the introduction of a Zunephone by Christmas 2007. Designed to compete with the iPhone's midyear entry, the effort is being managed by J. Allard (one of the chief architects of the Xbox), who recently replaced Bryan Lee as the head of Zune's operations. 5. I continue to hear the subprime carnage is accelerating. Several of these firms are believed to be close to shutting their doors. 6. Deals I hear that are imminent include the combination of Sirius Satellite (SIRI - Get Report) and XM Satellite Radio (XMSR) (Update: XM and Sirius announced Feb. 19 an intent to merge, subject to regulatory approval; Unilever (UN) and Richardson-Vicks; IBM (IBM) and SAP (SAP); and private-equity takeovers of the following: Nabors Industries (NBR)
Novellus Systems (NVLS)
Bristol-Myers Squibb (BMY)
Business Objects (BOBJ)
Triad Hospitals (TRI)
Gaylord Entertainment (GET)
Qwest Communications (Q). 7. While nary an analyst has mentioned this development, Nielsen/Net Ratings' reports for December 2006 reveal that Google's search business (+22.6% year over year) is growing more slowly than Yahoo's! (YHOO) search (+30.1%). For the full year, Google gained 560 million users (down from 1.06 billion the year before) and Yahoo! gained about 330 million users (down from 370 million users a year earlier). Although Google's search-share approaches 51% (compared with only 23.6% for Yahoo!), I am hearing this trend has not fallen on deaf ears as Google is planning some senior management changes in February, which will surprise investors and analysts. 8. Speaking of Google, both YouTube and its parent company are now aggressively adopting strategies of paying for content (broadcasts, videos, etc.). I am hearing investors should look for alliances with consumer-created content companies (C4s) similar to the models of Threadless, Eefoof and Revver, and watch for a progressive rise in Google's cost of goods -- both absolutely and as a percentage of revenue -- in coming quarters. 9. I am hearing that, at the urging of Prince Alwaleed bin Talal ( Citigroup's (C - Get Report) largest individual shareholder), former Bank of America (BAC) CFO Al de Molina has already been contacted by members of Citigroup's board of directors regarding naming him as a possible replacement to Charles Prince. At the same time, I am hearing that JPMorgan's (JPM) Jamie Dimon has informally approached Citigroup's Sallie Krawcheck for a senior position within his bank. 10. Finally, I am hearing that conversations regarding an alliance or merger between Toyota (TM) and Ford (F), though dismissed publicly, have proceeded apace in 2007.