Today's WSJ has a major front-page scoop: "Disney (DIS:NYSE) is in advanced talks to buy Pixar (PIXR:Nasdaq)":"Walt Disney Co. is in serious discussions to buy Pixar Animation Studios after months in which the two animation giants have been
exploring ways to continue their lucrative partnership, according to people familiar with the matter.
In the deal under discussion, Disney would pay a nominal premium to Pixar's current market value of $6.7 billion in a stock transaction that would make Pixar Chairman and Chief Executive Officer Steve Jobs the largest individual shareholder in Disney, according to people familiar with the situation. That would vault Mr. Jobs into an even more influential place in the media world, where he already holds tremendous sway as head of Apple Computer Inc. (AAPL:Nasdaq) Yesterday, Apple
reported that net income nearly doubled in the latest quarter on huge demand for its iPod music players.
People familiar with the situation caution that the talks are at a sensitive stage and that the outcome isn't certain, noting that other options are possible."
Disney needs some sort of deal to guarantee its future stream of animated films. Whether the best structure is a takeover or some other relationship is subject to debate.
What is especially curious about a Disney takeover of Pixar will be the potential role of Jobs in Disney. Disney CEO Robert Iger is 55, Jobs is 4 years his junior -- might there be succession issues?
Recall that when Apple bought NeXT, they got Steve Jobs as a consultant. From that role, he eventually engineered his return as CEO. Will a Disney/Pixar deal give Jobs a springboard to eventually take over running Disney?
I wonder if we will see history repeat itself...
Position: None
I don't know if we will get another chance like that to buy Japan. Holy cow! Still stuff to pick at there today...
Position: None
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Christopher Edmonds |
| Early View: Futures Higher, Inventories Today, a Pixar Mouse in the Disney House? |
1/19/2006 7:01 AM EST
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Good morning. Futures are higher this morning as the market rebounds from a lackluster Wednesday. S&P futures are up 2.20, Dow futures up 14 and Nasdaq futures up 2.5 points.
On the economic docket, expect December housing starts at 8:30 a.m. EST. Also, both crude and natural gas inventory data is expected at 10:30 a.m. EST today. The numbers are likely to show a light draw in crude oil but builds in both distillates, including heating oil, and gasoline. On natty, the EIA is likely to report a storage draw of about 35 Bcf. Anything light would lead to a selloff in natural gas, likely pushing the $8/mmBtu level.
Expect earnings today from AES (AES:NYSE), BB&T Corp (BBT:NYSE), Beazer Homes (BZH:NYSE), BlackRock (BLK:NYSE), Briggs & Stratton (BGG:NYSE), Comerica (CMA:NYSE), D.R. Horton (DHI:NYSE), Harley Davidson (HDI:NYSE), McMoRan Exploration (MMR:NYSE), Pfizer (PFE:NYSE), Union Pacific (UNP:NYSE), United Health (UNH:NYSE) and Wachovia (WB:NYSE).
My colleague Barry Ritholtz does a great job summing up the news that Pixar (PIXR:Nasdaq) and Disney (DIS:NYSE) may be chatting about a combination. What a difference a year (or two) makes.
Nigeria is still an issue. There were some rumors yesterday that tensions were easing. My sources tell me that is not the case. A big deal for oil.
Have a great day.
Position: None
Logitech (LOGI:Nasdaq) missed on both the top and bottom lines last night, and needless to say I'm disappointed. I'm not impressed with the mild guidance bump as the stock was already pricing in a great year. Margins disappointed as well. I'll update after the call should anything material come out of it.
Position: None
Big beat out of Pfizer (PFE:NYSE) on lower expenses -- stock acting happy so far. UnitedHealth (UNH:NYSE) looks about in line.
Position: Long PFE
Housing starts fell to 1.90 million units in December from 2.2 million in November.
Building permits fell to 2.06 million units from 2.24 million.
These are steeper drops than forecast, but are still a pretty robust numbers and should be perceived as simply a healthy cooling of the housing market.
Weekly jobless claims fell by 36,000, dropping the four-week average to 324,000.
Position: None
Here's a few clips worth checking out on video today:
Jim Cramer tells you what he likes in today's market.
Robert Martorana offers insight on what to listen for in Pfizer's (PFE:NYSE) call.
David Peltier gives a rundown on premarket action.
Stay tuned for more video throughout the day.
Position: None
The Dow is above its 50-day simple moving average (SMA) at 10,818 with my monthly pivot, now a resistance, at 10,944. Below 10,818 is risk to the 200-day SMA at 10,538.
The Nasdaq is above its 21-day simple moving average at 2266 with the Jan. 17 low at 2294, which is a price gap that the Naz will try to fill. Below 2266 is risk to the 50-day SMA at 2246. Above 2294 is the Jan. 13 low, another price gap at 2308.
Position: None
From homebuilder Beazer (BZH:NYSE), to Knight Capital (NITE:Nasdaq), from semiconductor companies AMD (AMD:NYSE) and Seagate (STX:NYSE), to semi supplier Lam Research (LRCX:Nasdaq), from quasi-socialist healthcare company UnitedHealth (UNH:NYSE), to motorcycle vendor Harley-Davidson (HDI:NYSE) -- last night's round of earnings were mostly very strong, even amazing, if I may use the word.
Of course, we've only gone through a small fraction of the coming earnings reports. But it's sure hard to be bearish when the world is facing shortages in lots of sectors, demand and sell-through remain robust, and access to capital is so strong. As good as it can get? I suppose that's what the bear thesis will once again have to hinge upon: Guessing that the markets, the economy and society are finally as good as they can get. It will be as good as it can get ... someday. More in a column on this topic soon.
Position: Net long NITE
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Tony Crescenzi |
| Today's Low Jobless Claims Number |
1/19/2006 9:06 AM EST
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The 271,000 jobless claims reading for the week ended Jan. 14 was 44,000 below the consensus forecast and is the lowest claims figure since the week ended April 14, 2000 when claims were 257,000. That reading was the lowest
reading since at least 1987 (the last date which data are available). Adjusted for population growth the current reading is actually below that reading (the labor force grows by about 1% per year, meaning that claims
should rise similarly). Still, expectations for slower economic growth and hence slower job growth render these data somewhat less important in the current environment.
It is widely believed that seasonal hiring at the nation's retailers was weaker than normal this past season. It goes to follow, then, that layoffs will be lower than normal. This is one factor that could account for the
low reading on jobless claims. Seasonal adjustment factors "expect" an increase in claims related to layoff of seasonal workers, meaning that the data are adjusted downward to smooth the data against these seasonal layoffs. Nevertheless, the impact was not likely substantial and the claims reading was still likely low, even after accounting for this effect. A similar impact is likely in the January employment report.
Position: None
There is talk that the Iranians, facing possible sanctions from Europe -- like a freeze of their assets -- are pulling money out. The evidence for this is scant at best.
European debt markets have sold off, but the equity markets have bounced. The Swiss franc, the ostensible choice, is suffering in the foreign exchange market and is lagging behind the euro and sterling. Its stock market has underperformed in Europe. It is up 0.3% compared with 0.6% in Germany and 0.8% in France. Beware of post hoc explanations.
Position: Long AUD, short NZD
Well, bears, what's our next move? Keep shorting? Or bring 'em in? Fade the opening?
Position: None
I've been following Panacos (PANC:Nasdaq) for the last few months here and the stock hasn't done well for reasons I have discussed, unfortunately. Last week the company alerted investors that one of its drug/drug interaction studies was completed successfully and it has successfully completed its bioequivalence testing for its once-per-day pill formulation as well. I expect its second drug/drug interaction study will go without a hitch as well. It is time to revisit this name if you haven't already.
Position: Long PANC
Individual companies are not just sector plays. You'd think that the Intel (INTC:Nasdaq) failure vs. its main competitor would teach investors a lesson, that all companies in an industry are not the same. All homebuilders are not alike. All hard-drive companies are not alike. Yet, the market continues to trade them as such. Very frustrating.
Position: None
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David Merkel |
| When Good Things Happen to Bad Companies, and Vice-Versa |
1/19/2006 10:32 AM EST
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Great companies often come with great expectations and high multiples. Most of my investing revolves around buying investments where expectations are diminished, thus allowing for the possibility of positive surprises. An example of that are my holdings of Pfizer (PFE:NYSE). Does this company face challenges? No doubt. Is it as bad as the current stock price would indicate? My guess is no. Based off the response of the market to Pfizer's earnings release, we very well may have a positive surprise, at least for the day. That said, positive and negative surprises have a nasty tendency to come in bunches, because market players are slow to adjust to changing conditions.
Now, I don't know the stocks of Apple (AAPL:Nasdaq), Intel (INTC:Nasdaq), or Yahoo! (YHOO:Nasdaq) that well. The economic prospects of their companies are considerably brighter than that of Pfizer. My contention is that high multiples bring high expectations, and it is more difficult to continually beat high expectations, than it is to beat low expectations on average.
Doing this in a diversified portfolio, over longer time horizons (1-3 years), you can beat the market. Over short time horizons and in concentrated portfolios, the ride is less certain. There are many ways to manage money. This is what fits my personality best, and has paid off for me.
Position: Long PFE
After a couple of volatile days, stocks are stabilizing today. The VIX, which hit a three-month high yesterday, is down 3% to 12 percent this morning. The put/call ratio has remained relatively bullish through the past week and is currently showing two calls being purchased for every one put option. Whether this is a sign of complacency -- and will prove to be a contrary indicator -- remains to be seen.
Earnings news continues to drive option volume. Leading today's most active list are Apple (AAPL:Nasdaq), eBay (EBAY:Nasdaq) and Advanced Micro Devices (AMD:NYSE). Companies slated to report earnings after the close that are seeing above-average option volume include Motorola (MOT:NYSE), F5 Networks (FFIV:Nasdaq) and Merrill Lynch (MER:NYSE).
One consistent feature of options on earnings has been a sharp decline in implied volatility, immediately after the report, regardless of the results or response. For example, the implied volatility in Yahoo! (YHOO:Nasdaq) options dropped some 12 percentage points yesterday, even as the stock tumbled 10%. Usually a sharp decline in leads to an increase in implied volatility or higher option prices.
News that Disney (DIS:NYSE) is in talks to acquire Pixar (PIXR:Nasdaq) has led to some speculative calling buying in Pixar. The July $65 call has traded over 1,500 contracts, which is already two times the average daily volume and nearly double the strike's prior open interest.
Tomorrow is expiration and much of today's volume will involve closing January positions and rolling into February or other months in what are basically neutral trades, so don't read too much into large or lopsided volume. And remember, options on indices, such as the SPX, cease trading today, but are settled based on tomorrow's opening price.
Position: None
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Cody Willard |
| Exciting Earnings, Boring Markets? |
1/19/2006 11:36 AM EST
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So, after all these wildly strong earnings reports (along with a few weak ones), the markets are just gonna stand there with their teeth in their mouths now? Somehow, I don't think we'll close with the Nazz up 13. Up or down? Up is the better bet, although I'm not making any trades on that idea. There are many more earnings tonight. Be ready. The title for "story of the day" is a toss up between the Street's and the media's blowing off of OBL along with the many, many stocks from all kinds of sectors that are up well over double digits on the day. Shorts are in big-time pain. (Of course, the fade of that fader's fading fade would mean that hurtin' shorts is a bearish thing. And finally, no, I'm not using the Apple weakness to buy (yet?).
Position: Net long AAPL
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Cody Willard |
| eBay and What's Really Boring |
1/19/2006 11:52 AM EST
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As I highlighted here, I was long both common and calls in eBay (EBAY:Nasdaq) coming in to today. I'm selling some common. Keeping size. Not doing much else tradingwise. No sense forcing things, as I keep saying.
Also, in my previous post I didn't mean to imply that the "action" is boring -- just that despite all the impressive action underneath, the indices are doing a whole lot of nothing but standing still.
Position: Net long EBAY
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Justin Ferayorni |
| Immucor wins a nice account and is running |
1/19/2006 12:15 PM EST
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Well, I've been trying to juggle a few things this earnings season more efficiently - it is never easy. I am planning on putting together a more formal article on Immucor (BLUD) - a diagnostics company which shares most of the US market with JNJ for blood type testing - but unfortunately the stock is running on us and I want to make readers aware of it.I have a bullish outlook and think the stock will be about $40 within a year's time. Immucor has a razor/razorblade model and they are the leader in automation for their products. After a couple of psychological setbacks in 2005 the stock is ready to reflate. New products and some important customer wins (hence today's stock action) will help to continue to drive growth. One fundamental misunderstanding will be corrected over time by the market as well: free cash flow greatly exceeds net income due to an accounting nuance that frankly makes no sense. Immucor is forced to book 100% of the costs of their systems upon sale but amortize the revenue of the capital equipment over its 5 year use-life. This doesn't properly match dollar flows. For example, in fiscal 2006 their GAAP earnings should come in near 80 cents while what I will call "normalized adjusted earnings" which better approximates economics of the business will hit $1/share. In fiscal 2007 these figures should rise to $1.20 and $1.40, respectively.Sorry about the tardiness, folks, but the train hasn't fully left the station yet.
Position: Long BLUD
In response to readers asking about Logitech (LOGI:Nasdaq), it appears that weakness in the core keyboard/mouse business as well as weak video game results caused the nasty shortfall. Plus, the stock had run quite a bit in recent months so expectations were extremely high. The video game business will come back, but I'm waiting for signs of stabilization in the keyboard/mouse business before getting bullish again, though the stock could get a short-term bounce.
Position: none
I just got this in a market research newsletter called TrendCentral: This fall Levi's is introducing iPod-compatible RedWire DLX jeans. A tech geek's dream, the hooked-up denim will have a joystick remote control built into the watch pocket, a separate pocket designed to hold (and conceal) the iPod, and a retractable headphone unit. First, this is indeed, along with all the cars now being rolled out with iPod-compatibility, another indication that Apple has already won the digital music player wars. Sorry, Dell, Microsoft, Real, Napster, Sony, etc etc. Second, I'm all about wearing only classic ol' Levi's 501s and all that these days, but, can you imagine how stupid an idea an "ipod" jeans is? Almost as bad as the story that made the rounds in the blogosphere recently about "researchers" saying music could be stored in breast implants in the next fifteen years. And, no, I'm not making that up. There are so many ways to win with Apple, but Levi's and silicon aren't two of them.
Position: Net long AAPL
Jim, besides the earnings volatility issue, I think a lot of the big banks are being held back by their diversification. Investors tend to get more excited about smaller financials with more concentrated and less capital-intensive business models. For example, M&A/restructuring play Lazard (LAZ:NYSE), a stock Will Gabrielski and I just added to the new Breakout Stocks newsletter, trades at 18X forward earnings, and derivatives broker GFI Group (GFIG:Nasdaq) has been bid up to 24X forward earnings.
Position: nada
Shares of Nvidia (NVDA) are up over 6% today and the January $45 call has traded over 1,500 contracts which is 5 times the average daily volume and more than 120% of the strike's prior open interest. The stock also saw above average call volume yesterday and the implied volatility has bumped up to 50% from 45% one week ago. The company does not report earnings until February 16.
Position: none
For people who follow my column and buy what I recommend, this is a good time to add to their position in Dow Chemical (DOW: NYSE) with a limit order of the June $35 deep in-the-money calls at $7.60.
Position: long DOW calls
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David Merkel |
| A Well-Done Block Trade is a Thing of Beauty |
1/19/2006 2:01 PM EST
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My compliments to the buyer and the trader (at Lehman Brothers, I think) of ~1.25 million share block of Assurant. You paid up 30-35 cents at $44.35 and stripped the market of its supply of readily available Assurant stock. It's up more than 50 cents from there now. Looks like one great trade.
Position: long AIZ, LEH
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David Merkel |
| Risk Control on Deep-in-the-Money Options Trades |
1/19/2006 2:20 PM EST
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Lenny, on your Dow Chemical options trade, it looks like the options that you bought are levered roughly 4.4 times to the price of the underlying Dow Chemical common stock. In order to control the over all risk of a trade like this, do you:
Diversify, having many trades like this one going at once?
Have a stop loss point where you close out the trade?
Keep some cash or bonds on the side to moderate the volatility of your options trades? (and moderate time decay...) You made a lot of money playing baseball, so perhaps you don't need to control for risk. This isn't a huge portion of your assets, right?
Or something else?
I like the idea of cheap leverage, with downside protection. I'm just curious on what you do for risk control.
Position: none
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Cody Willard |
| Google Sell Calls Lack Credibility |
1/19/2006 2:30 PM EST
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Maybe the names have changed, but aren't all these people who are telling me to sell my Apple and, in this case, my Google these days the same folks who told me to sell them several hundred percent ago? Where was these people's "smart" advice to buy these stocks that they now think they have the credibility to tell us to sell? And now we're back to using the "consumer's gonna collapse and rates are going higher, and yada yada" nonsense as the reason behind the so-called "sell" call? Literally, I can't believe I just read this: Consumer spending, which accounts for two-thirds of overall gross domestic product, coupled with corporate restructures following 9/11, boosted earnings to record levels. These earnings have been used for share buybacks and dividends. Now that interest rates are higher and taxes probably will be raised in the future, consumers will begin to close their wallets.
A decline in spending could lead to depleted corporate profits and lower GDP, a trend that is currently taking place. According to The Wall Street Journal's economic forecast survey, which consists of 56 leading economists, GDP is expected to grow 3.3% in 2006. That level would be a marked slowdown from the 4.1% growth in GDP over the past 30 months.
And if GDP expands beyond that 3.3% level forecast, Google could face a new headwind. The Federal Reserve could continue boosting interest rates longer than the market currently expects, and an extended period of rate hikes would undermine the positive market vibe surrounding Google. I believe that would crimp the momentum-driven ascent of Google's share price. I might not bring it up, if I hadn't mocked literally that very concept in a column two weeks ago. I'm writing a column about click fraud and other so-called Google "issues" that will run probably tomorrow. In the meantime, I think this needed to said.
Position: Net long AAPL, GOOG
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Cody Willard |
| The Reason Google's Down is A Reason It Should Be Up |
1/19/2006 3:27 PM EST
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By the way, the reason behind today's Google sell off is news that they're refusing to comply with subpeonas for info on Google users' porn. That Google's going to bat for its users and fighting such overzealous, liberal Republican-rooted (and yes, I do mean liberal in regards to the Bush administration: socialist programs for health care, social security and big government pushes) violations of individuals' rights is exactly the type of action Google should be taking to protect its brand and loyalty. I think this is a classic opportunity to "flip" the logic. I want to buy Google on this news. Not sell it! That said, readers know I'm not in any rush right now, and I'm still sitting tight with my remaining core Google position.
Position: Net Long GOOG
Sorry, I am not one of the people who told you sell Google several hundred percent ago, but I do applaud you for the good call. However, the fact that so many people have emailed me stating that "I have no idea what I am talking about" does almost make me wish I could short the stock.
Position: No position in keeping with TSC editorial policy
Cody, I can't agree more and I believe this controversy is actually going to help Google. They are certainly doing the right thing by standing up for users while the average company would likely fold and give in. Besides, according to some sources, porn accounts for as much as 25% of search requests so that is a revenue stream they will fight to protect.
With all that's going on the world, there are better uses for our tax dollars.
Position: none
Frank, I'm sorry I might have come across harsh in that post. My main point is that I can't understand the desire of so many smart people to want to somehow explain that "if" nineteen different, mostly macroeconomic "ifs", come to fruition, that Google and Apple and F5 will get crushed. And therefore people should sell/short those great companies. I've argued with Barry, Tero, and most of the other Bear Cultists who have proferred such analysis on the site. Nothing wrong with a little disagreement on RealMoney, though, that's for sure. It is value-add, in fact.
And Michael, regarding porn searches as a percentage of total searches, I do find it interesting that a good 5% or so of the people who click onto my blog do so having found it by searching for "amateur pics" or other related searches. I've used those terms in posts when I've bashed the runaway spam problems out there. Ironic.
Position: net long goog, aapl, ffiv
Google (GOOG:Nasdaq) may be done going up, which I doubt and am not predicting, as Frank says, but it won't be because of click fraud, GDP growth or higher interest rates. Google stops going up when its growth rate slows and the 2008 earnings estimates look aggressive. That's my take.
1.) Click fraud: Non-event, already priced into ROI's, and if it was a real problem, people would stop buying online ads and revert back to print and TV. Also, I think Google offers so much in return to advertisers relative to alternatives right now, call it X, that it can have a 0.5X negative hit from click fraud and still be superior. This is Cody's story to tell, which I am looking forward too.
2.) GDP growth has nothing to do with secular growth stories, and won't mean anything to the online ad market, which is something like 5% of total ad-spend, for many years. That is, assuming it continues to take ad-dollars from traditional mediums like print and TV. We should not bet against this trend based on recent earnings from Yahoo that, while short of expectations, showed huge y/o/y growth.
3.) Interest rates are interesting. If interest rates go higher, it will probably trail continued GDP expansion (not saying it is real GDP, but nominal GDP growth is what it is, growth), so that nixes concern number 2. Higher rates reduce the present value of future earnings, but if we really priced Google on EPS in a traditional sense, it wouldn't be as high as it is trading today. Also, as long as the online ad market is taking share, overall ad budgets can contract without having any impact on Google's growth, in my view.
Google is not cheap. If you were to consider what you are paying to own General Electric (GE:NYSE) or FedEx (FDX:Nasdaq), where you can see and hold the assets in your hand, you could argue Google is way overvalued. And if we see a prolonged correction, Google could get cut in half. But the key words in this paragraph are "could," and "if."
Until any of these concerns are more in the "likely to happen soon" camp, I wouldn't sell all my Google. (Of course, I don't own any due to TSC policy) Also, I think it's safe to wait for evidence of a real threat to Google's corner on the ad-market, because you likely have several hundred points of the houses money to play with. So if you lose 50 points in a day, you aren't wiped out.
Position: None
Mot's mostly strong. FSL looks great at a glance. Semi biz on fire. More coming.
Position: Net long MOT
Another in a long string of beautiful quarters for F5. Beat and raise, beat and raise. Did it again, despite Lehman's handwringing from last week. I own a lot already or I'd be buying after hours. Cree looks fine, but I would have expected better.
Position: Net long FFIV
Mea culpa on my Mot post earlier. That's not a pretty report. More later
Position: long mot
Nice quarter from FFIV!
Position: none
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Cody Willard |
| Parting Earnings Comments |
1/19/2006 4:42 PM EST
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Hey, Jim, as I wrote in last week's newsletter: Lehman Brothers even came out today with a
cautious research note on F5 in which the analyst says that Lehman expects F5's quarterly U.S.
sales to come in slightly soft when it reports earnings on Jan. 19. I believe that Lehman is wrong. And, I sure agree. It's a nice quarter out of F5. I'm keeping it as my largest position for now.I have to say, despite having talked in the WSJ a few weeks ago about having been a seller of Motorola, I'm still not seeing why that stock's being taken apart so badly here. Were expectations that high? I didn't think so. Email me if you want to put in your two cents' worth. Love to hear it. I'm gonna hop on all these conference calls, and then am off to some function at NYU. Will be back tomorrow. Have a great night.
Position: net long MOT, FFIV
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Tero Kuittinen |
| For Motorola, Time Blunts Every Blade |
1/19/2006 4:59 PM EST
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The Motorola debate over this winter has largely focused on the RAZR strategy. Can a phone vendor defy the industry rule of "12 months and out" regarding a model platform? Could the life span of a really hot range be extended beyond four quarters, even with slightly outdated specifications? How about slapping pink covers on a 15-month old war horse and passing it off as a hot new phone? Well, Motorola came darn close to pulling it off, but I think the RAZR transition problems are now popping up. Phone-volume growth of 40% is great. But this is a company coming off 66% volume growth from 3Q 2005 -- and during that quarter, the industry growth was probably slightly below 20%. In 4Q 2005, the global volume growth probably topped 30%.
So Motorola has moved from posting 66% volume growth against about 20% sector growth, into posting 40% volume growth against about 30-35% sector growth. This smells like deceleration. Motorola's volume growth rate is now just 10 points above Samsung or Sony Ericsson growth rates -- not 20-40 points above, the outperformance level that it reached during earlier quarters.
Of course, the whole thin-phone market has been overhyped -- the category of 15 mm or thinner phones probably makes up less than 5% of 4Q 2005 sales.
Is this really a problem? Surely nobody expected the 60% volume growth to last? Some deceleration was widely expected, but Motorola hyped the RAZR mystique heavily and managed to supersaturate the U.S. financial media with breathless puff pieces treating the RAZR platform like the next iPod.
Even when the new spinoff models such as PEBL and SLVR were conspicuously late in major markets and then started shipping in notably thin volumes, the expectations continued to balloon. Motorola may have missed the phone volume consensus by only 300,000 units or so, but plenty of investors expected the company to beat the Street consensus by 2 million to 5 million units, the way Motorola beat 1Q, 2Q and 3Q volume projections.
The issue here is the speed with which Motorola's volume growth is decelerating -- even though the absolute growth rate is still hot. The phone industry's history is rich with dramatic reversals of fortune -- zero to hero and back is a maneuver that has been executed in about six quarters. Gotta catch the CC now -- this quarter has a lot more drama than the 3Q ever had.
Sony Ericsson showed a sudden spurt of volume growth as it accelerated ahead of Samsung. Now Motorola's volume momentum has dropped a notch below where it was expected to dip.
After Samsung, SE and Motorola, the industry is probably a bit behind its expected 4Q phone-volume outcome. Where aret he missing phones? We need to monitor the evolving narrative...
Position: none
I did a segment by segment comp on this Q results vs what Goldman was looking for in their model.
Phones came in a tad light, but volumes were up rather impressively on a year over year basis.
The government business was strong, set-tops were roughly in-line (SFA missing not a good sign here though), and network sales were soft.
Even so, the market is reacting poorly to guidance, though I don't see anything too alarming here. Would expect a pullback to be a good buying opportunity as shares are very inexpensive on an earnings basis given the potential for margin expansion (which I think I am even seeing in the guidance, though still need details). Also, the back half of 2006 will likely lead to renewed DVR demand with higher storage requirements for HD programming, and Motorola rolls out new phone and PDA's. Specifically, I can't wait for the Q PDA, because the Treo 700 is definitely a step down from the 650 and even the 600.
Position: none
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