24/7 Wall St.

The 52-Week Low Club

Christopher & Banks (CBK) Clothing retailer loses CEO. Drops to $11.69 from 52-week high of $31.25.

Cost Plus (CPWM) Home furnishing and entertainment products retailer loses CFO and drops guidance. Shares fall to $3.98 from 52-week high of $14.34.

Coldwater Creek (CWTR) Specialty retailer still falling after bad earnings. Down to $12.43 from 52-week high of $31.25.

Sourceforge (LNUX) Poor earnings fall-out. Still dropping. Down to $2.54 from 52-week high of $5.55.

Douglas A. McIntyre

Apple And NBC War Of The Words

Apple (AAPL) claims that it kicked NBC's programming off of its iTune service because NBC would not agree to pricing. NBC claims that: "We never asked to double the wholesale price for our TV shows. In fact, our negotiations were centered on our request for flexibility in wholesale pricing, including the ability to package shows together in ways that could make our content even more attractive for consumers," said Cory Shields, executive vice president of communications for NBC Universal, in a statement.

It hardly matters. What does is that the fighting between AAPL and its content providers has broken into open and public warfare. NBC contributed over 30% of the video programming on iTunes.

The situation also opens the door for other digital download businesses to offer video and music content owners the deals that they want. And, why shouldn't they? Nokia (NOK), Amazon (AMZN) have nothing to lose by taking the business on terms that get them all the content they want.

Apple has all leverage, all the power. And, they are acting that way.

It is going to cost them big time.

Douglas A. McIntyre

The Next Big Question For Dell: Share Buybacks, How Big? (DELL)

Dell Inc. (NASDAQ:DELL) had seen shares off roughly 1% after the earnings report yesterday on a day where the broader markets are up, although shares are barely lower at the end of the day.  PC's are actually in a good upgrade market it seems, even if laptops are maybe being tooled as the root of today's selling in the stock.

If you look around the world of headlines on Dell, you'll see various headlines all talking about the earnings and the turnaround with either a positive or negative pitch.  Let's go past this on down the road.  The company will have a conference call after its next report on November 29 and the shareholder meeting is set for December 4.  But shareholders may be figuring out that is just over 60 days that the company stock may have a new huge institutional investor acquiring shares again on the open market.  DELL ITSELF!

Its net income for the quarterly report was $733 million, while revenue was $14.77 Billion.  There are plenty of funds that can be used for buybacks and one thing is still clear: WALL STREET still loves share buybacks.  The problem has been that the ongoing SEC investigation has halted share buyback abilities, even though the company has completed its own internal accounting review. In March 2005 the company authorized a $10 Billion increase for its share repurchase program, and that is after it said it had spent more than $18 Billion to repurchase 1.2 Billion shares.   Last year it had to suspend its share buybacks pending the internal and SEC investigations. 

Wall Street is probably expecting even more than the original buyback plan to be announced.  Earlier this month Fitch reaffirmed the rating and took away a negative credit watch, but noted that an increase in share buybacks could be one of the risks.  The company said yesterday in the press release that it does NOT expect to resume its share repurchase program until after it has filed its fiscal year 2007 Form 10-K, which is expected to occur by the first week of November.  So now the question begs, "Just how much will be announced for the NEW share buyback plan once they are free to repurchase shares?" 

Whatever the amount is, the company should know that the amount announced probably needs to be more than a mere "we are resuming our share buyback plan" and that the new amount needs to be larger.  The company also may want to consider using the terms "rapidly accelerated share buybacks" to give some further juice to its shares.

Jon C. Ogg
August 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.

IPO FILING: Convio, Inc, (CNVO, BLKB)

Convio, Inc. has filed to come public via an IPO under the proposed ticker "CNVO" on NASDAQ.  This Austin, Texas-based NPO software and service operator has a pretty impressive underwriting group with Goldman Sachs as the lead underwriter and others listed as Thomas Weisel, William Blair, JMP Securities, and Pacific Crest.

The company has on-demand software and services that enable nonprofit organizations to more effectively raise funds, influence public policy and support their missions.  It claims it is leveraging the Internet to build strong relationships with constituents for fundraising, advocacy, email marketing and web content management complemented by consulting services.  Convio says it developed its solution based on interactions with more than 1,200 active NPO clients; but as of June 30, 2007 its clients include 22 of the 50 largest charities in the United States.  This includes the American Red Cross, American Cancer Society, CARE, Catholic Relief Services, Feed the Children, Inc., The Ocean Conservancy, Inc., Paralyzed Veterans of America, Public Broadcasting Service, Shriners Hospitals for Children and Smithsonian Institution.

For fiscal 2006 it posted $30.674 million in revenues, with an operating loss of $11.92 million, and a net loss of just over $12.5 million.  In the first 6 months of 2007 here are the stats compared to 2006

YEAR    REVENUE        OPERATING    NET
2007    $18.432M    -$6.345M    -$7.499m
2006    $13.714m    -$6.039m    -$6.196m

There are items that can explain this higher operating loss and higher net loss on revenues, but ideally that would look a little better.  As of June 30, 2007, it listed 301 employees that are all based in the United States: 114 in sales, marketing, account management and business development; 42 in R&D; 123 in services, support and operations; and 22 in general and administration.

This looks on the surface as though it has many overlaps with Blackbaud, Inc. (NASDAQ:BLKB).  Blackbaud can help manage a nonprofit organization's fundraising activity, address the accounting needs of nonprofit organizations, and organize an independent school's admissions and registrar processes.  There is obviously Not a perfect overlap per se, but in the realm.

Jon C. Ogg
August 31, 2007

IPO FILING: ARYx Therapeutics, Inc. (ARYX, PG)

ARYx THERAPEUTICS, INC. has filed to raise up to $86.25 million in an IPO under the ticker "ARYX" on NASDAQ.  The biotech has secured Morgan Stanley, CIBC World Markets, Jefferies & Co, and Leerink Swann as its underwriters.

The company actually has a fairly unique model developing a portfolio of internally discovered product candidates designed to eliminate known safety issues associated with well-established, commercially successful drugs.  It uses its own "RetroMetabolic Drug Design" technology to design structurally unique molecules that retain the efficacy of these original drugs but are metabolized through a potentially safer pathway to avoid specific adverse side effects associated with these compounds.

The lead and most advanced product candidate, ATI-7505, is based on cisapride and has successfully completed Phase 2 clinical trials for the treatment of gastroesophageal reflux disease and symptoms associated with functional dyspepsia; its second product candidate, ATI-5923, is based on warfarin and is currently in Phase 2 proof-of-concept clinical trials for use as an anticoagulant to treat patients at risk for the formation of dangerous blood clots; its third product candidate, ATI-2042, is based on amiodarone and is in Phase 2 clinical trials for the treatment of atrial fibrillation, a form of irregular heartbeat.  Its targets are drug candidates targeting multi-billion dollar markets and it has a worldwide collaboration with Procter & Gamble Pharmaceuticals (NYSE:PG) for the development and commercialization of ATI-7505.

The company's main revenues appear to be collaborative revenues from P&G as it has no products on the market, so it is still just in clinical stages.  Additional milestone revenue could reach approximately $391 million over the remaining life of the collaboration, of which approximately $216 million could be earned prior to commercialization.

Jon C. Ogg
August 31, 2007

Bush Home Loan Speech Bombs

George Bush promised to do his best. And, that was the main message in his speech on the troubles in the sub-prime market. The address was not even long on promises. Congress will work on legislation to help home owners. Freddie Mac and Fannie Mae may help. And, anyone who committed fraud while making a home loan will be hunted down like a dog.

The best evidence for the lack of enthusiasm over Mr. Bush's talk is that mortgage companies and homebuilders are trading at their intraday lows. Beazer (BZH), which was as high as $11.04 today now trades at $11.07, up 1.8%. Countrywide Financial (CFC), which hit $20.95, is now up only .4% at $18.73.

Anyone who bought at these stocks at the open is taking a beating.

Douglas A. McIntyre

Why Wall St. Doesn't Like Dell's Numbers--Laptops

Dell (DELL) is not up this morning. Most investors thought it would be. The company reported preliminary results for its second quarter of fiscal year 2008, with revenue of $14.8 billion, operating income of $896 million and earnings per share of $0.32 . Those were better than last year's numbers which are still subject to some accounting changes.

The first culprit for a poor reaction to Dell's new is that the company said "near-term results could be adversely impacted by a slower decline in component costs in the second half of the year."

But, the other, perhaps more important reason is that Dell is not doing very well in the portable/laptop business. And, the industry is moving away from the desktop.

Percentage of Total Net Revenue:
-------------------------------------------------
Desktop PCs                                                    34%
Mobility                                                            26%
Servers and Networking                                     11%
Storage                                                              4%
Enhanced Services                                              9%
Software and Peripherals                                    16%

Laptops are driving the industry now.

Over at HP, desktop revenue rose modestly last quarter from $3.9 billion from $3.569 billion. Notebook revenue moved from $2.815 billion to from $4.084.

Dell did not show that kind of progress.

Douglas A. McIntyre

Beazer, Countrywide And The Housing Stock Sucker Rally

A number of home mortgage and home building stocks including Beazer (BZH) and Countrywide (CFC) are up ahead of President Bush's speech on what he will do to improve the sub-prime mess.

Of course, since no one is sure what he will say, or if any of its will require approval from Congress, putting a new number on the value of these companies is just a guess.

And, guesses can be wrong.

Douglas A. McIntyre

Yahoo! To Run At Social Network Business

A blog on CNET reports that Yahoo! (YHOO) is pushing into the social network with a product called Kickstart.

The new site wil, among other things, connect college students with people at companies where they would like to have jobs. CNET writes "Yahoo Kickstart connects college students with alumni at the companies that they are interested in."

It sounds like a very small, vertical business that will not draw much of an audience.

Douglas A. McIntyre

Apple (AAPL) Getting Into Ringtone Business

According to The New York Post, Apple (AAPL) intends to enter the ringtone business, which has been highly lucrative for cell carriers in Europe and Asia.

It is talking to several music publishers about financial arrangements.

The service will probably be announced next week when AAPL releases it updated iPod products.

According to the paper: "In a new twist, iPhone users will have the ability to choose any part of the song they want as their ringtone."

Douglas A. McIntyre

Wimax Goes To Japan, Good News For Sprint

The huge Japanese cell carrier NTT Docomo (DCM) is investing in a large WiMax deployment in that country.  Japanese ADSL provider Acca Networks will be its partner. Docomo has a number of ways to push the new ultra-high-speed wireless format. It has a large customer base and and a number of channels to sell new handsets.

WiMax is the technology that Sprint (S) is in the midst of deploying in the US to offer consumers a fast alternative to the 3G technologies from AT&T (T) Wireless and Verizon Wireless. Sprint is in third place in the US and is gambling the the technology will allow it to leapfrog its rivals.

With Japan's largest cell company adopting the tech, there must be some smiles at Sprint headquarters.

Douglas A. McIntyre

Amazon To Launch Music Store In September

The New York Post reports that Amazon (AMZN) will launch its online music store in September.

All of the music publishers who hate Apple (AAPL) must be heartened by the news.

Douglas A. McIntyre

The States Chase Microsoft, Google In Tow

The Justice Department seems satisfied that Microsoft (NASD:MSFT) is abiding by its 2002 deal not to act like a huge monopoly laying siege to all of its smaller competitors. Several state attorneys general do not see it that way. They believe that competition has not been flourishing in the desktop software business and that Microsoft is to blame.

It may be that, in this argument, Google (GOOG) has turned out to be Microsoft's best friend. Other company like Symantec (SYMC) have shown that they can take the lion's share of revenue for PC security. Windows Media is no longer the preferred format for online video. Adobe (ADBE) and its Flash format enjoy that distinction. If the government had not pressured Microsoft five years back, these things might not be true.

But, it is Google that makes Microsoft's point in two ways. The search company obviously has at least 50% of that critical market on the PC. And the company is launching desktop applications for word processing, spreadsheets, and power-point. Google is likely to continue to move into these markets with server-based applications, and most press and pundits thing that the company can do a good job of taking a piece of Microsoft's big revenue pie.

And, of course, there is always Linux, if it can ever get its act together.

Douglas A. McIntyre

Europe Markets 8/31/2007

Markets in Europe were higher at 6.40 AM New York time.

The FTSE rose .6% to 6,248. BP (BP) was up 1.4% to 558.5. Rio Tinto (RTP) was up 2% to 3372.

The DAXX rose .4% to 7,553. Siemens (SI) rose 1.4% to 91.25.

The CAC 40 was up .8% to 5,638. Alcatel-Lucent (ALU) rose 1% to 8.07. Societe Generale rose 1.2% to 117.95

Data from Reuters

Douglas A. McIntyre.

SEC Pushes Harder On Exec Pay

Almost 300 CEOs are getting letters from the SEC. They include the heads of American Express (AXP), GE (GE) and Coca-Cola (KO). The agency wants more details on how their compensation is determined. This even includes details on specifi work done by pay consultants who work for board comp committees.

According to The Wall Street Journal: "The letters are intended to help issuers better explain why they've paid executives what they've paid them," said John Nester, an SEC spokesman The paper goes on to write: "Some letters posed highly technical questions, even though SEC officials had previously encouraged companies to simplify their often wordy proxies."

The issues here are not immensely complex, but they could be time consuming. The entire process which goes into setting pay for the senior management at a company may take several months and a number of board members and consultants.

But, there is a way around this. The SEC could ask that the audit firms that verify financials also supply all of the necessary information on management pay. Audit firms have the expertise to examine complex and detailed issues and they are responsible to a company's audit committee. Thus, the compensation committtee would set pay, and the auditors would report the factors that go into the calculations.

That way, no one can borrow the company plane without the audit firm knowing it.

Douglas A. McIntyre

NBC Joins Universal Leaving iTunes

NBC has told Apple (AAPL) that it will not renew its long-term deal with the iTunes store. The GE (GE) unit is "the No. 1 supplier of digital video to Apple’s online store, accounting for about 40 percent of downloads," according to The New York Times. Univeral Music, the world's largest music publisher also declined to sign another long term deal with Apple. Several other companies like CBS (CBS) will reach their end of their initial deals with Apple in the next few months.

The Zune could not hurt the iTune model. Neither, it appears, could cell handsets with music capability.

But, that leaves Apple as its own worst enemy. It has pushed so hard on the rates that it gets from content owners, they they are balking at staying on board.

It is easy to argue that the video and music content owners have no where else to go. They cannot do business without Apple. But, it is not entirely clear that this is true. Companies like Wal-Mart (WMT) and Amazon (AMZN) have large download businesses. Sony (SNE) is opening the Walkman plattform to MP3. And, the video content companies are opening their own websites. And, Nokia (NOK) has launched a big initiative to sell digital content thought its own online store

No one can predict who will blink first in the battle over who will set prices for iTunes content. But, for the first time in a couple of years, at least it is a horse race.

Douglas A. McIntyre

Toyota: No More Easy Growth

The nice thing about the management at Toyota (TM) is that they tell their rivals ahead of time how badly they are going to crush them.

The big Japanese car company says it will sell 10.4 million vehicles in 2009. That would be up 18% from 2006, according to Reuters.

The company is even willing to say how they will get there. First, increased market share in developed markets like the US and Europe. And, then taking big chunks of fast-growing markets like India and China.

Reuters writes that "Toyota said it planned to sell 1 million cars in China in the early part of the next decade. But, so will almost every large car company. Added together, the projections of the world's major car companies for China sales over the next decade and every man, woman, and child will have a car.

In India, several studies show that weak highway infrastructure will contain car sales, at leas until India's road builder catch up.

Last year, half of Toyota's cars were sold in the US and Japan. Those markets are not growing, and, with the amount of competition, Toyota may find that its next one or two percent market share comes much more slowly that the last few. Detroit is fighting for its life in the US and GM is doing particularly well in China.

In Japan, Toyota has to face Nissan and Honda (HMC). Neither is likely to give up the ghost.

India and China also have local car companies. And, the governments there may not let outsiders take damage these companies as has happened in the lassie fair.

The next million car sales are going to be much harder than Toyota may think.

Douglas A. McIntyre

S&P Chief Out, McGraw-Hill Chief Should Follow

McGraw-Hill (MGP) sacked the head of its S&P unit on the theory that the ratings agency should have seen sub-prime problems coming sooner and downgraded pools of the mortgage-backed securities. It might have saved a lot of investors money and saved the markets for fear and confusion.

According to The Wall Street Journal:"Critics charge S&P and others were too optimistic about the market for too long." That will be a battle for debate, and, perhaps, legal action for years to come. How far ahead does a rating agency have to see? How far ahead can it see?

There is clearly an argument that no one could know how fast sub-prime mortgages would come apart. The economy has been strong. Some mortgages have reset at higher rates. But, it would appear that companies like Countrywide Financial (CFC) were not walking around Wall St. several months ago saying that they had a problems. The hedge fund managers at Bear Stearns (BSC) did not issue any bulletins either.

S&P and Moody's (MCO) seem to have been lax in monitoring a lot of their ratings. Sub-prime is just part of that problem.

Moody's shares are down from a 52-week high of $76 to $45. McGraw-Hill shares have fallen from $73 to $50.

But, where was Terry McGraw when all of this went on? CEO and great-grandson of the company founder, he must have paid little attention to the financial services unit which brought in $821 million of the company's $1.718 billion in revenue in the last quarter. The division also contributed $401 million in operating profit according to the company 10-Q.

When an operation is that much of a company's revenue, the CEO needs to be nearly as aware of what goes on as the person running the business. McGraw cannot escape the fact that he has some responsibility here if the head of S&P did a poor enough job to be fired.

A scape goat. Almost certainly. McGraw will not get pushed out. But, he should.

Douglas A. McIntyre

The Ariad Pharmaceuticals Conundrum (ARIA, MRK)

Business Week has run a brief feature article on Ariad Pharmaceuticals (NASDAQ:ARIA) in its "Inside Wall Street" magazine section and noted that the company's partner Merck (NYSE:MRK), has "deep pockets."  Unfortunately it only spells out one side of the reality, and saying Merck or any other Big Pharma has deep pockets is like reannouncing the latest officially confirmed developments from the Department of Redundency Department.  It just isn't enough to go on, even with the positive analyst and holder citations you can see in the article.

We previously noted this just back on July 12, 2007 that Ariad Pharmaceuticals and Merck entered into a collaboration to jointly develop and commercialize AP23573 for use in cancer.  Oddly enough, shares of Ariad had risen sharply from the sub-$5.00 prices just a couple months before the announcement.

The article from Business Week points out that Merck has paid $75 million up front for the drug; future milestone payments for the phase II and III clinical trials, will fund the remaining development costs. Merck will pay $452 million in all for development, plus $200 million upon Ariad's hitting sales thresholds, and a further $200 million for global development.  Even to 24/7 Wall St,. a company like Ariad with a $333 million market cap would stand to benefit greatly on the surface if this all works out. 

A key problem may be that it seems no one has remained in very strong focus after such a long and lackluster history. The options show a fairly quiet picture: 2,151 of the SEP07 $5 CALL contracts are in the open interest, 2,545 of the OCT07 $5 CALL contracts are in the open interest, and only 2,394 of the NOV07 $5 CALL contracts are in the open interest.  In the JAN09 $5 and $7.50 Calls there are only just over 2,700 contracts combined in the open interest.  None of the premiums indicate a massive price move expected.  Visit the JAN09 PUTS & CALLS and you hardly see any big speculation.  So options traders aren't exactly lined up betting the farm on this one to be 'the next big thing in biotech' anytime soon.

It would seem that Ariad's biggest conundrum is that much depends on actual sales down the road.  Outside of the milestone payment received, this company has never generated anything to bother mentioning as far as revenues are concerned.  That isn't any easy situation for anyone to just openly accept as not being a risk. 

Options trading and the underlying stock volume may increase because of the Business Week exposure.  But with the Business Week phenomena usually being short-lived and with this edition being ahead of the Labor Day weekend, there may not even be many people that hear or see the tree in the forest to decide if it stands or falls.

Ariad closed Thursday at $4.82, down some 25% from the $6.40 highs after the Merck deal was announced.  Ariad has also been public since the mid-1990's and shares briefly traded north of $10.00 back in 2004 and north of $20.00 for an even briefer period in 2000.  There is promise to this company and that part isn't being questioned.  But it sure has a long way to go and will have a lot to prove when you consider its long past and the long stretch of the actual calendar ahead.

Jon C. Ogg
August 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Media Digest 8/31/2007 Reuters, WSJ, NYTimes, FT, Barron's

According to Reuters, Bush will outline a plan to help holders of sub-prime mortgages.

Reuters writes that Dell (DELL) topped Wall St. estimates but sees costs drops slowing.

Reuters writees that Freddie Mac (FRE) profits fell on mortgage defaults.

Reuters reports that state attorneys general found that Microsoft is not living up to its settlement over monopoly powers. The US Justic Department disagreed.

Reuters writes that Toyota (TM) plans to sell 10.4 million cars in 2009, up 18% from last year.

The Wall Street Journal writes that McGraw-Hill (MHP) replaced the head of its S&P unit as ratings agencies are under fire for the analysis of sub-prime and other debt.

The Wall Street Journal sent requests to a number of CEOs asking for more information about their pay packages. Letters are going to Pfizer (PFE), GE (GE), and Coca-Cola (KO).

The New York Times writes that NBC did not renew its deal with Apple (AAPL) to sell its shows for viewing on the iPod.

The FT says that the credit crisis is causing borrowing costs to go up at blue chip companies like GE (GE).

Barron's writes that Schering-Plough's shares could move up 20% over the next year.

Douglas A. McIntyre

Asia Markets 8/31/2007

Markets in Asia were up shareply.

The Nikkei rose 2.7% to 16,569. Honda (HMC) rose 4.4% to 3820. NEC (NIPNY) rose 3.8% to 547. NTT (NTT) rose 2.9% to 538000. Sony (SNE) rose 5.5% to 5580. Toyota (TM) rose 3.7% to 6760.

The Hang Seng rose 1.7% to 23,885. China Mobile (CHL) roe 3.1% to 113.7. China Netcom (CN) fell 1.8% to 18.66.

The Shanghai Composite rose 1% to 5,219.

Data from Reuters

Douglas A. McIntyre

The 52-Week Low Club

Coldwater Creek (CWTR) Week numbers for women's apparel company. Down to $12.85 from 52-week high of $31.25.

Chico's FAS (CHS) Apparel retailer reports poor earnings. Down to $15.35 from 52-week high of $27.94.

Energy Conversion Devices (ENER) Solar cell maker show poor numbers and profits may be delayed until 2009. Drop to $25.05 from 52-week high of $41.07.

Sirf Technology (SIRF)  Company makes chips for use in GPS devices. Received poor brokerage rating last week. Share won't recover. Falls to $16.20 from 52-week high of $34.15.

Douglas A. McIntyre

Dell: Nothing To Write Home About

Dell (DELL) closed up today. Its shares were up over 2% to $28.36. The company then reported preliminary results for its second quarter of fiscal year 2008, with revenue of $14.8 billion, operating income of $896 million and earnings per share of $0.32.

Several factors effected operating expenses in the quarter, including $102 million, or $0.03 per share, in incremental compensation expense related to payments for expired in-the-money stock options; $59 million, or $0.02 per share, in costs associated with the Audit Committee's investigation into certain accounting and financial reporting matters; and higher headcount and associated costs related to investments in sales and customer support.

The company highlighted areas outside PCs. Server revenue in the second quarter was $1.6 billion. For Q2, Dell was again No. 1 in the United States in server units shipped with 32.7 percent share. But, this is still a small part of the overall product and service revenue mix.

Percentage of Total Net Revenue:
-------------------------------------------------
Desktop PCs                                                    34%
Mobility                                                            26%
Servers and Networking                                     11%
Storage                                                              4%
Enhanced Services                                              9%
Software and Peripherals                                    16%

And its forecast was vague but carried a warning. "Near-term results could be adversely impacted by a slower decline in component costs in the second half of the year."

Dell's stock was fairly flat after hours.

Douglas A. McIntyre

No Company Deserves A "Sell" Rating More Than Wal-Mart

Merrill Lynch downgraded Wal-Mart to a "sell" this morning, more humiliation for a management that has already proven that "if it can go wrong, it will go wrong". In the Merrill research note, quoted by MarketWatch, the analyst said: "Following years of weak comps, declining new door productivity and aggressive expense management, margin erosion in the core U.S. division looks set to continue, and may, in fact, accelerate in the years ahead."

That does not leave much wiggle room for the company. Recent reports show that its sales in Mexico and the US Southeast are being hurt by higher Hispanic unemployment brought on by things like the slow housing market.

Wal-Mart probably cannot cut costs much more. With comparable store sales running up 1% to 2%, the company could begin to close some US stores. Right now, the company competes with itself. It has over 1,000 discount stores and 2,300 supercenters in its home market.

And, that is just too many when sales are so slow.

Douglas A. McIntyre

Sony Swings For A Double

The new Sony (SNE) Walkman will not be a home run. Apple's (AAPL) iPod has taken care of that. But, Sony management believes that the new version of its very old product will lift its market share in multimedia players from single digits to 10%. The upgraded version no longer uses a proprietary audio format. It runs MP3 just like everything else.

The little machine also plays video.

How Sony was trumped in the audio player market will be a matter for debate in the decades to come. It is now going down the same path in the video game platform business.

It has to be something beyond bad luck

Douglas A. McIntyre

Coldwater Creek: Retail Downturn Moves Up

Coldwater Creek (CWTR) does not sell the most expensive women's clothes, but it does market to the 35+ age group and to spas. So, not cheap stuff.

But, the company reported crummy earnings anyway. Maybe the older and more affluent are feeling pinched.

CWTR earnings fell down 27.6% from $12 million and it said the next quarter was going to be tough.

Wall St. did not like the news. CWTR is off over 20% to $13.65, a new 52-week low.

Douglas A. McIntyre

Will Nortel Buy Tellabs? Hopefully Not

Lightreading is reporting that telecom equipment company Nortel (NT) may be close to buying Tellabs (TLAB). NT may have already made an offer of $14 to $15. According to Lightreading, "Tellabs is seen as a solid technical fit for Nortel, according to sources close to both companies,"

While it may appear like a good fit, the price would be too hight. TLAB has a market cap of $4.5 billion. The price NT would pay probably moves that up to $6 billion. And, that is to buy a company which did $534 million last quarter with an operating profit of $28 million. So, the price would be almost three times annual revenue.

Nortel trades at about 70% of its annual revenue base of $11.5 billion.

Tellabs would get almost 45% of the company for bringing in 20% of the revenue.

Douglas A. McIntyre

More Bad News At Sears

Sears (SHLD) reported a poor quarter this AM.

The company reported net income of $176 million, or $1.17 per diluted share, for the second quarter ended August 4, 2007, compared with net income of $294 million, or $1.88 per diluted share, for the second quarter ended July 29, 2006.

For the quarter, our operating income decreased $178 million to $339 million in fiscal 2007, as compared to $517 million in the second quarter of fiscal 2006. The decline in operating income was mainly attributable to lower gross margin dollars generated at both Kmart and Sears

SHLD repurchased 9.6 million of our common shares at a total cost of $1.5 billion under our share repurchase program during the second quarter of fiscal 2007.

So much for Eddie Lambert's Big Idea.

Douglas A. McIntyre

Ciena Jumps Up On Good Numbers

Ciena (CIEN) network specialist, announced results for its fiscal third quarter ended July 31, 2007. Revenue for the third quarter totaled $205.0 million, an increase of 34.4% over the same period a year ago when the firm reported sales of $152.5 million.

Ciena's net income for the fiscal third quarter 2007 was $28.3 million, or $0.29 per diluted share. compared with a reported GAAP net loss of $4.3 million, or a loss of $0.05 per share, for the same period a year ago.

"Consistent execution of our network specialist strategy has enabled Ciena to benefit from two significant industry trends: the demand for increasing network capacity and the transition to Ethernet/IP-based network infrastructures," said Gary Smith, Ciena president and CEO

Shares are up almost 7% in the pre-market to $40.82, which means the company could open at a 52-week high.

Douglas A. McIntyre

Early Research Calls 8/20/2007

Merriman upgrades Taser (TASR) from neutral to buy.

Lehman (LEH) upgrades Motorola (MOT) from equal weight to overweight.

Sun Trust starts Penn Virginia with a buy and $54 price target.

Cowen upgrades Lab Corp (LH) from neutral to outperform.

RBC starts VMWare (VMW) at sector perform.

Douglas A. McIntyre

Intel See Asia Growth: Peanuts For AMD

Intel (INTC) says that its growth in Asia will be robust for the balance of the year, a sign that PC sales in the region are strengthening. IDC expects a 14% increase in PC sales in Asia to a total of 28.3 million PCs.

Reuters writes that "Intel's share of market for processors that power most personal computers was 85.3 percent in the second quarter in the region."  That figure was up a bit from the same quarter last year.

Which means that AMD is losing ground is the world's fastest growing chip market.

Douglas A. McIntyre

Ford's Slow Go On Jag And Rover

Ford (F) management won't say this, but it is in no rush to sell Jaguar or Range Rover until next year. Mahindra & Marhindra, the Indian car conglomerate,TPG Capital, Cerberus Capital Management, Ripplewood Holdings and One Equity Partners. Tata Motors of India are all kicking the tires.

Mahindra builds SUVs, so Rover would be a good match.

But, for now, Ford is probably just going through the motions. The value of the two car units is pegged at $3 billion to $6 billion, with most estimates at the low end. Ford does not want that money in its bank account while it is pleading poverty to the UAW in current contract negotiations.

But, if the UAW allows Ford and GM (GM) to put their pension and healthcare liabilities into a fund run by the union, watch how fast Ford unloads the units to put up its stake.

Douglas A. McIntyre

Europe Markets 8/30/2007

Markets in Europe were up modestly at 6.15 AM New York time.

The FTSE rose .6% to 6,167. BHP Billiton (BHP) rose 1.4% to 1409. BP (BP) rose 1.2% to 549.

The DAXX was up a fraction to 7,441. Duetsche Bank (DB) was down 1.2% to 89. Siemens (SI) was up 1.1% to 89.1.

The CAC 40 rose .7% to 5,557. Credit Agricole rose 2% to 27.42. ST Micro (STM) rose 1.7% to 12.46.

Data from Reuters

Douglas A. McIntrye

Novell: Why Linux Is The Next Netscape

Novell (NOVL) reported next to no reveue growth in its last quarter. The number was $243 million, up less than 3% from a year ago. According to TheStreet.com, cash flow dropped from $36 million to $26 million. That is about what Microsoft (MSFT) spends to operate its corporate jet each month.

The other "big" company in the open-source enterprise Linux software business is Redhat (RHT). In the last reported quarter, revenue there was $119 million.

A recent study from Gartner actually shows Microsoft (MSFT) taking back market share in the server OS business. That means that one of the largest markets for Linux may not be a growth busienss any more.

Novell and Redhat live in the shadow of the ogre in Redmond. Microsoft recently said that Linux violates a number of its patents.Could be.

But, Linux is not big, and it is not growing much as an alternative for enterprise application software.

Linux has become the next Netscape.

Douglas A. McIntyre

Investment Bankers: Coal From Santa

According to Bloomberg, when investment bankers look into their Christmas stockings, all they will see is coal. The news service owned by New York's mayor writes "Standard & Poor's said business conditions for securities firms are worse than in the second half of 1998 and revenue from investment banking and trading could fall 47 percent in the final six months of this year."

S&P looked at the largest banks and investment backs in drawing its conclusions. The second part of their analysis was obvious. Bonuses will be cut to keep these firms profitable. That may mean a recession in New York City and falling real estate prices. But, the bankers will be back in a year or two and all will be right again.

Douglas A. McIntyre

Tivo: Not Much Of A Business

Tivo (TIVO) was, at one point, the next big thing. Recording and time shifting TV programs. Watch them when you want to. Not VCR required.

In the last quarter, TIVO has revenue of only $62.7 million. The DVR business has destroyed the TIVO growth opportunity and now the company is close to irrelevant.

TIVO added 136,000 new subscribers in the quarter. DirecTV (DTV) is not selling TIVO to its customers any more. Comcast (CMCSA) will start marketing a TIVO product later in the year.

According to USA Today: "TiVo's failure to anticipate how quickly consumers and retailers would fall in love with HDTV products added static to a fuzzy financial picture." A very good point from MacPaper.

With its stock down from almost $13 in March 2004 to just above $6 now, TIVO is now roadkill on the high tech super highway.

Douglas A. McIntyre

Yahoo!: Changing Generals After The War

Yahoo! (YHOO) has announced that its head of sales is out. That part of the company will be combined with a business development unit and run by a new chief. It does mean that YHOO has lost its two most visible sales executives, the ones with the greatest ties to Madison Avenue, wherever that may be. Having this kind of turmoil among the people who bring in the money doesn't sound wise.

But, no matter. Yahoo! has already lost the war for getting rapid growth from its current businesses. Display ad growth is slowing across the industry and Yahoo!'s improvement there is almost at a standstill. The company's new Panama project, which was build to take market share from Google's text ad business, has not show that it can push back the tide of a stagnant topline.

Yahoo! does have e-commerce and licensing businesses, but it is not in a lead position in any of these. Its jobs site is fairly large. The company has modest shopping and travel businesses, but they are not at a scale where they can pull the company out of the mud.

All of this means that, withing reason, it does not matter who runs the revenue operations at YHOO. The company does not have the tools it needs to restart growth.

M&A is almost certainly Yahoo!'s only way out. It is risky. With its stock so low, the portal company will have to give up a large part of its equity to get anything good. It will probably have to gamble that the social network business can eventually bring in a lot of revenue. Facebook is now the No.17 site in the US in terms of traffic. Yahoo! could makes some buys in vertical markets, perhaps pick up Monster (MNST) or CNET (CNET).

But, this is all old news. Yahoo!'s future strategy is endlessly debated.

In the meantime, the company is not doing anything.

Douglas A. McIntyre

More Competition For Motorola

There is no rule about kicking companies when they are down, and Motorola (MOT) is figuring that out.

Recently Samsung caught MOT in global market share, at about 15%. Nokia (NOK) is the leader with over 36%. In fourth place sits Sony-Ericsson.

Sony-Ericsson has always been a large niche player with 9% of the market. It is highly profitable becuase it concentrates on upper end phones with multimedia capacity and cameras. It has never been a threat in huge markets like India and China because its handsets cost too much.

That is changing. According to The Wall Street Journal, Sony-Ericsson is releasing a number of low end products aimed at emerging markets.

The first two things that this says are that the No.4 handset company is willing to give up operating margins to expand revenue. The cheap phones just don't pay-off as well at the bottom line. The second aspect of Sony-Ericsson's decision is that it needs to take share from Nokia in the emerging markets world. In some of these countries Nokia has over half the market.

But, Nokai will do just fine. Its stock is at a six year high and its has just launched a music service and handsets to go after the Apple (AAPL) iPod and iPhone.

The company that cannot take having another handset operation with a broad range of products is Motorola (MOT). The Sony-Ericsson move means that the US company now has new competition at both ends of the market, which will makes its turnaround much more difficult.

Who said life was fair.

Douglas A. McIntyre

Media Digest 8/30/2007 Reuters, WSJ, NYTimes, FT, Barron's

According to Reuters, Yahoo! (YHOO) has pushed out its top sales executive and combined its sales and e-commerce units.

Reuters writes that Microsoft (MSFT) has purchased a corporate group chat provider.

Reuters writes that Apple (AAPL) is about to introduce a new series of iPods.

The Wall Street Journal writes that a battle between banks and KKR is heating up over the purchase of First Data (FDC).

The Wall Street Journal said that Altria (MO) was working on spinning off its international operations.

The Wall Street Journal says that Sony Ericsson is starting to build phones for the low end of the market.

The New York Times reports that the CFO of Gap (GPS) left to go to Visa.

The FT reports that the Pritzgers will sell a $1 billion stake in Hyatt Global.

Barron's writes that Tivo (TIVO) issued weak Q4 guidance.

Douglas A McIntyre

Asia Market 8/30/2007

Markets in Asia rose

The Nikkei was up .9% to 16,152. Hitache (HIT) fell 1.5% to 724. Sony (SNE) rose 1.1% to 5290.

The Hang Seng rose 1.8% to 23,413. China Mobile (CHL) rose 2.6% to 101.8. HSBC (HBC) rose .4% to 138.8.

The Shanghai Composite rose 1.1% to 5,168.

Data from Reuters

Douglas A. McIntyre

The Odd Case Of Google Finance

Google (GOOG) Finance launched to a fair amount of fanfare in March 2006. The market assumed that Google's lead in search could fuel a large audience for the new product. At the time, Jupiter Research made the point that financial advertising was one of the top four categories that would dominate web marketing by the end of the decade.

When the site launched, CIO quoted a senior Google manager as saying "development of such a website has been one of the top requests from Google users."

GOOG still describes a number of features which the company says make Google Finance special. Among them are ease of searching by company name or ticker, interactive charts, news powered by Google News with its 4,500 sources, and liberal use of blog content.

All of that is true. But, the audience for Google Finance has stayed fairly small and its parent does not seem to want to change that.

The financial sections of the large web companies, AOL, Yahoo! (YHOO), and MSN all contribute about 7% to 9% of the total US monthly unique visitors generated by these portals. For example, AOL Finance had 11.7 million unique visitors in July, according to comScore. The Time Warner online network had 123.7 million unique visitors for the month. But, in July, Google Finance had 689,000 unique visitors to 123.9 million for all of Google.

That monthly number puts Google Finance in an audience league with SmartMoney and FastCompany.com. In July, TheStreet.com (TSCM) generated almost three times the unique visitors that Google Finance did.

No one outside Google can answer the question of why Google Finance's traffic is modest. One would have to assume that if the search company really wanted to push the marketing button the audience for the product could certainly be five or six million unique visitors per month.

Google may simply think that it is not worth the effort. For a company with a revenue run rate of almost $16 billion, having a finance section that brings in $300 or $400 million may not be attractive. Google is not in the display advertising business and that is the source of most of the advertising revenue at the portal financial sites. Even with targeted AdSense text ads it is not likely Google Finance will be a significant contributor to it parent's overall revenue.

Google Finance will probably remain what it is--one of the many services that Google offers to people who come to its sites. Like Maps or Photos, it makes Google broad and deep. It does not seem to make a financial contribution to the search company, but it is part of the "one stop shopping" experience that the internet behemoth has developed.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Is Level 3 (LVLT) Akamai (AKAM) And Limelight's (LLNW) Next Nightmare?

From Silicon Valley Insider

Telecom giant Level 3 Communications (LVLT) is readying a super-cheap video streaming service that could prove to be a major headache for content delivery networks like Akamai Technologies (AKAM) and Limelight Networks (LLNW),  continue here...

If Seagate Won't Sell, Why Not Buy Western Digital? (STX, WDC, KOMG)

Seagate Tech (NYSE:STX) has been a great performer today after it raised guidance.  But it also noted strongly that it wasn't for sale.  This is in the 48 hours after rumors and hopes from some that Chinese companies might want to acquire Seagate.  As the leader in hard drives and with a near-$14 Billion market cap (and still 10% under yearly highs), that would be a stretch anyway.

But this leaves an obvious choice: the second company in the batch, Western Digital (NYSE:WDC).  Western Digital is a stock that has been a member of our BAIT SHOP, meaning it could be takeover bait, for quite some time.  Its shares rose 7% to $23.00 today, and Seagate shares rose almost 4% to $25.39.  The fact that Western Digital is acquiring Komag (NASDAQ:KOMG) should not hurt our stance that it would be a great company to acquire.  In fact it might even be better even if it is not as cheap as it used to be.

Western Digital (NYSE:WDC) would make a fine takeover target.  It isn't as technologically advanced and doesn't have the depth and breadth that Seagate (STX) has.  It would also be a far easier deal to absorb.  Western Digital has a $5.1 Billion market cap and the soon to be added Komag (KOMG) has right under a $1 Billion market cap. 

We first published a free version of Western Digital (NYSE:WDC) being a Bait Shop stock last November showing this one as a real buy (First added at $18.20 in September).  We frequently make some of the updates available for free after subscribers of the Special Situation Investing Newsletter have had their chance to review and make their decisions.    We even gave an update on this earlier in the year  when we got a bit cautious on technology stocks as a chance to lighten up and then to get back in cheaper.

Flash drives are not going to kill hard drive stocks.  We outlined before how hard drive makers are merely going to make or partner to make flash drives on their own.  Western Digital won't give the business away.

We've been positive on Western Digital (NYSE:WDC) for some time, and there seems no reason to change.  If the Chinese or others want to buy a disk drive comapny, Western Digital is the one they should buy.  This probably wouldn't face any of the regulatory scrutiny that Seagate may have faced.  The IBM PC-unit to Lenovo got done and that was a far greater risk to national security.  No one seems to care that the helpless gateway is becoming part of Acer.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

The 52-Week Low Club

Progressive Corporation (PGR) CEO was spying in church on people who had the sued the company. Seriously. Stock down to $20.23 down from $25.54.

Kellwood (KWD) Women's sportswear maker out of favor. Down to $19.42 from $34.84.

Sourceforge (LNUX) E-commerce and community website company has bad quarter. Drops to $2.57 from 52-week high of $5.55.

Triad Guaranty (TGIC) Mortgage company. Bad time to be doing that. Down to $15.68 from $58.62 as 52-week high.

Conexant Systems (CNXT) Still falling. $1.06 from 52-week high of $2.36.

Douglas A. McIntyre

US Investment Bank Ratings OK, Or So Says Moody's (MCO, MHP, XLF, GS, MS, MER, LEH, BSC, C, BAC, JPM, WFC, WB)

Stocks Tickers: MCO, MHP, XLF, GS, MS, MER, LEH, BSC, C, BAC, JPM, WFC, WB

You will have to have a subscription in order to access the full article, but Moody's has an article stating that major US investment banking leveraged loan commitments do not imperil the firms' underlying credit ratings and that they have sufficient liquidity to fund commitments.

The perceived problem here is that this is after the ratings agencies have been under scrutiny over a failure to adequately monitor ratings of outside firms with the proper scrutiny.  it hasn't even been two weeks since Moody's (NYSE:MCO) and S&P owner McGraw Hill (NYSE:MHP) were both being listed as being caught in the soup and not having been vigilent enough in their ratings.  That also happened after the Enron and Worldcom fiascos and has come back up front and center after this CDO and structured finance meltdown of the last 6 weeks.   You can look at the SPRD for financials and will see that this has had an impact, and here is the full composition of that SPDR. This is for the Financial Select Sector SPDR (AMEX:XLF)

This report out of Moody's would probably be bringing more controversy if it wasn't the week ahead of labor Day.  That being said, you'll have to decide entirely on your own if Moody's is accurate or if they are missing the boat again. 

There have been more rumors of 'major broker/dealer leverage' about to crush major firms, and just as many rumors refuting or giving the all-clear signal.  For that reason we are not addressing any of the rumored names to avoid any of the coverage issues that many are passing around Wall Street as if it is gospel.

Moody's noted that these investment banks have ample enough earnings and are diversified enough to absorb the already known and coming mark-downs.  It states these will generate positive earnings, although at a lower level than over the recent periods.

Here is a list of major brokerage and investment banks in order of market capitalization that are listed as being able to absorb the malaise:

• Goldman Sachs (GS) $70 Billion in market cap.
• Morgan Stanley (MS) $63+ Billion in market cap.
• Merrill Lynch (MER) $62+ Billion in market cap.
• Lehman Brothers (LEH) $29 Billion in market cap.
• Bear Stearns (BSC) $15.7 Billion in market cap.

This may go a bit further than the intent, but this could also have implications in the money center banks that have large brokerage, trading, investment banking, and loan exposure internally and from outside funds.  As far as major money center banks that 'could' tie in to the report, these are the following (once again, in order of market cap only):

• Citigroup (C) $230 Billion in market cap.
• Bank of America (BAC) $221 Billion in market cap.
• JPMorgan Chase (JPM) $147 Billion in market cap.
• Wells Fargo (WFC) $119 Billion in market cap.
• Wachovia (WB) $91.5 Billion in market cap.

Once again, these stocks of investment banks and money center banks that cross over here on the leveraged and structured loan products are mentioned solely in order of market cap and are not necessarily any of the rumor stocks out there.  This also follows a downgrade of Bear Stearns (NYSE:BSC) just this morning by CIBC.  Just yesterday you can see where Merrill Lynch's analyst that covers the sector made some key downgrades. We'll see if this opinion changes after the layoffs at brokerage firms start coming out more.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

A Lot to Chew for Organic Investors (HAIN, UNFI, WFMI, OATS)

This week may be less active in shares traded because of the pre-Labor Day absence of many Wall Street pundits.  But it is a very important week for organic food and health(ier) food companies.  Whole Foods (NASDAQ:WFMI) has closed the Wild Oats (NASDAQ:OATS) transaction, and the stocks should trade as one after this week.  Whole Foods has surprisingly seen its shares rise more than 20% off of the post-Mackey SNAFU lows from just a few weeks ago, and that has been during a time that the market hasn't been all that hot.

Hain Celestial (NASDAQ:HAIN) is also reporting earnings after today's close.  Analysts are looking for $0.28 EPS and revenues of just under $227 million.  For the coming quarter estimates are $0.28 EPS and $239 million in revenues.  Hain Celestial shares are in the mid-point of its 52-week trading range.

United Natural Foods (NASDAQ:UNFI) is in the spotlight ahead of its earnings this Friday.  United Natural Foods has seen its stock under pressure since the Whole Foods and Wild Oats merger was announced as two key customers were consolidating into one. Analysts expect United Natural Foods to post earnings of $0.34 EPS on revenues of $723.3 million, and next quarter is expected to show $0.34 EPS on revenues of just under $744 million.  This report will also mark the year-end for United Natural.  If it offers fiscal July 2008 estimates, those estimates are $1.46 EPS and $3.141 Billion in revenues.  The best thing about this report is that the forward guidance may clear up much of the uncertainty that has surrounded this stock, and this stock is only about 10% above a key support level that has been in place for about two and a half years.  This one has been overly punished, as shares are down $11.00 from the $38.40 highs over the last year.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

A 360-Degree Review of Dell Ahead of Earnings (DELL, HPQ, GTW, STX, VMW)

Dell Inc. (NASDAQ:DELL) will post earnings after the close this Thursday and analysts, according to First Call, have estimates at $0.30 EPS and $14.63 Billion in revenues for the past quarter.  The coming quarter is expected to have $0.33 EPS and $15.1 Billion revenues.  Dell recently said it had completed its own internal investigation and reviews, and it would be filing all of its past financial statements with the SEC.

Dell gave last preliminary numbers on May 31 and shares had closed at $26.91 on that day.  So at $27.20 this morning shares are up roughly 1% since then.  Shares have recovered off recent lows with the market but are basically in the middle of a trading range of $26 to $29 since last earnings.

The chart has looked weak since July, although that coincides with the weak market as well. H-P's stock chart has also been range-bound since mid-July.  Options can be tricky a day before an event, but it appears that as of today that options traders are braced for a move of up to $0.95 to $1.05 in either direction.  Keep in mind those numbers can change tomorrow and are arbitrary since it is a static snapshot this morning that takes no recent history into consideration.  Wall Street analysts still have the stock price targets north of $32.00.

Its chief rival, Hewlett-Packard (NYSE:HPQ), just beat earnings expectations and gave the all-clear signal ahead for guidance.  To top it all off, Seagate (NYSE:STX) just raised guidance on 'strong pricing trends in hard drives' and that is not a normal event.  Neither event signals a weak PC-market at all.   Dell has seen some problems causing delays in recent days, so the company will likely need to be specific on shipments ahead.

A development that has come up is the Acer acquisition of Gateway (NYSE:GTW).  Dell may address this as 'stronger competition out of Acer,' but for whatever it is worth Gateway itself being considered a competitor in the industry has been a moot point for years.  Acer is a more formidable competitor, but Acer and Gateway are already on major retail chain shelves right next to each other.  Based on how little coverage this acquisition has been given it won't probably be a huge threat.

The last couple of items are important, but may be further out than this and next quarter.  At some point the company will be able to resume its share buybacks since it is now going to be current in SEC filings.  The SEC investigation will keep a cap on that for the time being, but it could be telegraphed as far