Friday, February 18, 2011

Intel: Hold! Says Piper; Buy! Says Credit Suisse

A couple of interesting notes out today on Intel (INTC) taking very different positions.

Piper Jaffray analyst Gus Richard, who has a Neutral rating on the stock, writes today that the personal computer is still a strong source of free cash flow for Intel, but is not going to bring it growth anytime soon.

Richard thinks Intel’s “Atom” chip for smartphones and tablets is “beginning to look like bungled product,” and that the company would be best suited pouring the cash from the PC business into the network infrastructure market, by finding ways to integrate programmable logic devices (PLDs) with its microprocessors.

Richard notes the arrival of Motorola Mobility’s (MMI) “Lapdock,” which was unveiled last month at the Consumer Electronics Show, but which was shown off again this week at Mobile World Congress in Barcelona.

If you haven’t seen it, the Lapdock is a shell that’s just a screen and keyboard hinged together, into which you can insert Moto’s “Atrix” phone, which is due out at the end of this month. At any rate, Richard’s point is that the Lapdock shows that mobile phones can be the new computing platform. “This paradigm devastates the x86 and Intel’s lock on the computing market,” writes Richard.

As for Atom, “We are confident the 22 nanometer version slated for 2012 will likely beat all ARM [Holdings (ARMH)] implementations in terms of power and processor performance,” writes Richard. “However, Atom currently lacks the ecosystem to be successful, and the 22-nanometer version may arrive too late to save Intel’s mobile effort.”

Richard sees two options for Intel: “One is to become a foundry for OEMs like Apple (AAPL), and the other is to buy Altera (ALTR), or Xilinx (XLNX).” On the latter of these, Richard opines, “A PLD/processor solution, in our view, will ultimately dominate all infrastructure markets where one chip is needed to support many markets as OEMs cannot afford to develop a chip for every market.”

On the other hand, Credit Suisse analyst Jonathan Pitzer today reiterates an Outperform rating on Intel shares and a $28 price target, after hosting a meeting with Intel’s management in London this week, and he rattles off a slew of positives.

Intel reiterated a “low teens growth rate” for personal computers this year, on a percentage basis, even though analysts have been skeptical.

Pitzer points out the first tablet using Android based on Intel’s processor is “on track” for release in the third quarter of this year, and that the company has 30 tablet “design wins.”

Moreover, the battle with ARM has been “one-dimensional” so far, he argues, with the focus strictly on ARM’s advantage in power consumption. This year, the battle will go 3D, with more talk of Intel’s performance advantage and its value in the “ecosystem.”

Writes Pitzer, “It’s not ASP per chip, but rev per wafer; its not product GM but incremental gross margin.”

As for Intel’s proposed $9 billion in capex, it won’t hurt profit this year, he insists. “all else equal, depreciation growth in 2011 and 2012 will impact gross margin by 100bps and 110bps respectively.”

But “all else is not equal, the ramp of 22nm will include moving chipsets from “N-1″ to “N” for the first time ever, significantly increasing INTC’s consumption of leading edge silicon, and moving chipsets reduces costs and INTC’s P&L is significantly more leveraged to cost reductions than price declines.”

Intel shares today are up 22 cents, or 1%, at $22.19.

Intel To Spend $5B On Arizona ‘Fab 42′ Factory

Intel (INTC) CEO Paul Otellini, speaking on the occasion of President Obama’s visit today to the chip maker’s Hillsboro, Oregon manufacturing facility, said that Intel will spend $5 billion to build a new fab at the company’s existing facility in Chandler, Arizona.

The new “Fab 42,” as it’s to be known, will be “the most advanced high-volume semiconductor manufacturing facility in the world,” the company said. Intel said the factory will provide for thousands of construction jobs in Arizona and thousands of permanent jobs in the state.

Intel begins shipping fixed B3 stepping 6-series chipsets to first-tier makers

intel has begun shipping its fixed B3 stepping 6-series chipsets to first-tier notebook and motherboard makers and a number of brand-name notebook vendors are expected to unveil their Sandy Bridge-based models at the end of the month, according to sources at Taiwan-based notebook ODMs.

Shipments of new devices equipped with the new 6-series chipsets from first-tier makers will help stir up demand, while minimizing the impact of the defective chips on PC sales, the sources noted.

Toshiba will unveil its Sandy Bridge-powered notebooks in Taipei on February 23 with the products to be available starting mid-March, according to Taiwan-based Grainew, Toshiba's distributor in Taiwan.

Toshiba is expected to release three new models, the 13.3-inch R830, 14-inch R840 and 15-inch R850, according to industry sources.

Acer and Asustek Computer are also expected to begin shipping Sandy Bridge notebooks in mid-March, the sources added.

Sony to launch tablet PCs with gaming, music and e-book reader functionality

Sony is expected to launch tablet PCs with multimedia functionalities in the second quarter of 2011, and is likely to outsource production to Quanta Computer, according to industry sources. Quanta declined to comment on the reports.

While running on Android 3.0, Sony's tablets will enable digital games, music and e-book reading, said the sources, noting that the tablet already has received PlayStation verification.

Meanwhile, Quanta said its clients for tablet PCs include vendors in the handset, telecom and PC segments and that its shipments of tablet PCs are likely to reach several million units in 2011.

iPhone Technology: It's Like Buying "B" Shares In Apple Inc. (Nasdaq: AAPL


This technology spent 20 years as a humdrum subset of the industrial microchip business - until its consumer-product potential was realized when Apple Inc. (Nasdaq: AAPL) made it a centerpiece of the must-have iPhone.

The sector's overall revenue is already projected to advance by 60% in the next three years.

But you have a chance to do even better.

You see, thanks to visibility it gained from its inclusion in the iPhone and iPad, this microchip technology - known as Micro Electronic Mechanical Systems, or MEMS - represents a ground-floor profit play with a big, and sustained, payoff.

"For the global MEMS market, the iPhone 4 was a breakthrough product," Jérémie Bouchaud, director and principal analyst for MEMS and sensors at market-researcher iSuppli Corp., told Money Morning this week in a telephone interview from Munich.

There's a hefty profit potential from this iPhone technology, especially if you focus on the smaller players whose sales are growing at double- and triple-digit rates.

But one stock in particular packs a promising profit punch. In fact, this company's technology was so crucial to the success of the iPhone and iPad that buying its stock would be like owning "B" shares in Apple.
A Move to the Forefront
What can save your life in an auto accident, make it possible to swing a bat with a Nintendo Co. (PINK ADR: NTDOY) Wii remote and roll the dice on an iPhone when you shake it?

With this bit of high-tech trivia, we're talking, of course, about MEMS.

This remarkably powerful microchip technology comes in many different forms. Some look like gears. Some look like springs. Some have mirrors and many have interlocking parts. But they all have some sort of three-dimensional mechanical component.

With MEMS technology, it's even possible to create mechanical membranes smaller than the size of a red blood cell.

The capabilities are limited only by the designer's imagination. Members of the MEMS family can sense motion or changes in pressure, filter noise in microphones, control light in displays, and much more.
Though MEMS technology has been around for more than 20 years - the first large-scale commercial use of MEMS chips was in automobile airbag sensors - engineers have only just begun to exploit the technology's true potential.

Its use as a core iPhone technology proved to be the game-changer. It opened the eyes of product designers, shifting what had been solely a commercial-industrial technology into one with all sorts of consumer potential.

"MEMS is no longer a niche product," Susumu Kaminaga, president of Sumitomo Precision Products Co. Ltd., said at last November's MEMS Executive Congress in Scottsdale, Ariz.

Indeed, the MEMS market happens to be at the start of a surge of growth that should see sales grow from $7 billion annually in 2010 to nearly $11 billion by 2014. That's nearly twice the $5.97 billion recorded in 2009 and well above the 5.1% growth expected for the semiconductor industry as a whole, says iSuppli, which was acquired by IHS Inc. (NYSE: IHS) last year.

MEMS chipmakers posted a year-over-year revenue increase of 18.3% in 2010, and revenue is expected to increase 9.5% in 2011. But that's for the entire industry. And, as we'll see shortly, some companies will enjoy revenue surges in the high double-digits, iSuppli said.

The Consumer Catalyst
One reason the use of MEMS didn't explode sooner is that it took approximately a decade of research to develop increasingly sophisticated variations of the chips - as well as the processes it takes to make them. The second reason for the delay in the blossoming of the MEMS market, quite frankly, is that many people who could have employed the technology simply weren't aware of what it could do.

The wake-up call came from Apple's first iPhone in 2007, which included a MEMS-based accelerometer. That's the iPhone technology that makes the screen orientation change when you turn the device on its side, and that enables the motion-triggered interaction with games that require you to tilt or shake the iPhone. But the iPhone 4 added more MEMs, including two noise-filtering microphones.

That's why the iPhone 4 was a breakthrough product for the MEMS market, says iSuppli's Bouchaud.

"Beyond the large number of MEMS devices in the iPhone 4 itself, the product's design has been highly influential on the rest of the smart phone market, amplifying MEMS sales growth, as other companies move to emulate the product's features," Bouchaud explained.

In recent years, MEMS have started to turn up in many additional consumer devices. Besides smartphones, automobiles and console games, MEMS have brought image stabilization to digital cameras and have made inkjet-printer heads more efficient and capable of producing higher-quality output.

Texas Instruments Inc. (NYSE: TXN) has developed a MEMS chip for its Digital Light Processing (DLP) technology that packs 2 million microscopic mirrors onto a silicon wafer 1 inch by 1 inch. It's used in digital projectors and HDTVs, and it's more recently been employed in so-called "pico-projectors" - handheld projectors that can beam a 20-inch to 40-inch image on a wall or other handy surface. Texas Instruments' DLP revenue grew 26% in 2010, largely because of interest in pico-projectors.

While the use of MEMS technology is expanding in many areas - including medicine, industry, wired communications, military and data processing - it's clearly the consumer segment that's expected to drive the most growth.

According to iSuppli, the consumer-electronics and mobile-handset MEMS market will grow 25% in 2011, accounting for about one-fourth of the total MEMS market. The company says revenue in this sector will more than double - from $1.6 billion in 2010 to $3.7 billion in 2014.

Smartphones and digital "tablets" will supercharge the MEMS market in a big way in 2011, with new models expected to include MEMS gyroscopes, accelerometers, pressure sensors and acoustic filters.

"With their focus on providing compelling user interfaces, tablets are emerging as a major growth area for MEMS," said iSuppli's Bouchaud, who expects tablets to be the second-largest portion of the consumer-technology MEMS market by 2014. "Tablets are like smartphones on steroids. There's more room, so they can use more MEMS."

Many companies design and manufacture MEMS chips, though some are better positioned than others for growth.

Take STMicroelectronics N.V. (NYSE ADR: STM). The Swiss company saw revenue from consumer-electronic-related MEMS components soar 63% last year, to reach $354 million. The Geneva-based firm had success with its gyroscopes, pressure sensors and microphones, which iSuppli believes should carry over into the current year.

For TriQuint Semiconductor Inc. (Nasdaq: TQNT), revenue from consumer products rose from $8.5 million in 2009 to $74.7 million last year - a whopping 778.6% increase.

One reason for TriQuint's success is its bulk-acoustic-wave (BAW) MEMS technology, used in phones to filter radio waves. Within a year TriQuint had seized 26% of the global BAW market from leader Avago Technologies Ltd. (Nasdaq: AVGO). Nevertheless, with $207 million in revenue from consumer devices, Avago maintained its No. 2 industry ranking.

A Look Ahead
The use of MEMS technology is also expanding in other sectors, if not quite as rapidly. Bouchaud identifies three other drivers of growth, consisting of:

Digital displays, such as Texas Instruments' DSP technology.
Increasing demand from such emerging economies as Brazil, Russia, China and India (the BRICs).
And sensors for use in medicine and energy.
Increasing investment in infrastructure in the BRIC nations, particularly China, will help propel MEMS sales for use in fiber-optic networks and smart meters. iSuppli's Bouchaud said rapidly rising automobile sales in China also will spur demand. A typical car uses between 20 and 30 MEMS chips, incorporating them in such systems such as tire-pressure monitors, emission controls and electronic-stability control.

The next few years will also see growing demand for MEMS sensors for use in medicine and energy.

Hewlett Packard Co. (NYSE: HPQ), a leader in MEMS inkjet technology, also has developed an extremely sensitive sensor that will help find new oil reserves, among other applications.

"We've already announced a collaborative agreement with Shell Oil Co. [Royal Dutch Shell PLC (NYSE ADR: RDS.A)] to develop a wireless-sensing system that acquires extremely high-resolution seismic data on land, in areas very difficult for Shell to do while exploring for oil wells," Hewlett-Packard Co. (NYSE: HPQ) strategist RichDuncombe told Electronic Design. "We'll be providing this ‘system' level solution to anyone that needs it, and we see plenty of market opportunities to do this."

MEMS contained in so-called "smart meters" also will help make home heating-and-air conditioning systems safer and more efficient, which should save money while conserving energy.

Healthcare-related MEMS devices, some current and some in development, could have a dramatic impact on people's lives, while also providing yet another avenue for growth.

Portable home healthcare devices that incorporate MEMS can monitor vital signs and can detect patient mobility or a fall.

Implantable devices have an even wider variety of applications. Some can monitor respiration, blood pressure or glucose levels; others can dispense drugs.

"MEMS technology has allowed us to build a novel mini ophthalmic pump that is miniature in size, is biocompatible, can be refilled while it is implanted, and can be programmed for drug delivery," Prof. Mark S. Humayun ofthe Doheny Eye Institute at the University of Southern California told Electronic Design.

Some implantable devices can even transmit a signal that can alert a doctor about a change in a patient's condition. Other devices on the way would monitor or even treat people's vision, hearing, or cardiovascular system. One of the newest devices can treat aneurisms.

"MEMS technology is moving from commercialization to personalization beyond present consumer electronics applications," Benedetto Vegna, vice president and general manager of STMicroelectronics' sensors and high-performance analog vision division told Electronic Design.

Of course, many of the same firms that lead in the consumer market for MEMS are major players in the overall market. Hewlett Packard and Texas Instruments were the market revenue leaders in 2009, according to the latest available data.

Germany's The Bosch Group claimed third, according to iSuppli, followed by Canon Inc. (NYSE ADR: CAJ) and Seiko Epson (PINK ADR: SEKEY). STMicroelectronics was sixth, helped by adding chips for auto airbags to its thriving consumer MEMS business.

Action to take: There are several solid investment candidates in the Micro Electronic Mechanical Systems (MEMS) market.

There's Texas Instruments Inc. (NYSE: TXN), the U.S. semiconductor heavyweight that's doing big things in the MEMS market. There's also TriQuint Semiconductor Inc. (Nasdaq: TQNT), which saw revenue from consumer-related MEMS products zoom from $8.5 million in 2009 to $74.7 million last year - a whopping 778.6% increase.

But if you're looking for a nice balance between size and growth potential, and market muscle and investment upside, look at the Geneva-based STMicroelectronics N.V. (NYSE ADR: STM), which contributed a key iPhone technology to Apple Inc. (Nasdaq: AAPL).

STMicroelectronics has been a market leader as a MEMS supplier, particularly in the fast-growing consumer segment. In fact, company revenue from consumer-electronic-related MEMS components reached $354 million last year, an increase of 63%.

We like that a lot.

STMicroelectronics has reaped the benefits of dominating the "accelerometer" MEMS market by raking in 50% of the revenue for that segment.

But the company isn't resting on its laurels, which we like even more. STMicroelectronics is preparing for any slowing growth in the MEMS consumer segment by investing in the next big growth driver - gyroscopes.

The company has already seen some early returns from that investment: Gyroscopes accounted for 85% of STMicroelectronics' consumer MEMS revenue growth in 2010, according to market-researcher iSuppli Corp. Nor is it stopping there: STMicro is also expanding into microphones and pressure sensors, which should begin to pay off in 2011.

Thursday, February 17, 2011

Nokia: MKM Says Sell; Revenue To Plunge, Brains To Drain

MKM Partners analyst Tero Kuittinen today cut his rating on shares of Nokia (NOK) from Neutral to Sell on “increasingly sharp competition” and a massive brain drain that he expects to result from deep employee dissatisfaction at the company’s casting its lot with Microsoft (MSFT).

Kuittinen describes the avalanche of devices based on Google’s (GOOG) “Android” operating system: “A wide range of impressive new Android dual-core phones are arriving to market in the first half of this year, and Motorola [Mobility (MMI)] is rushing to launch quad-core tablets and handsets in the second half.”

All this, while Nokia has tossed aside its own Symbian platform, making devices based on that software lame ducks.

We think the new Nokia management is unwisely focused on smartphone development at the expense of a much-needed strong revamp of the feature phone platforms. The Windows crash development project has the risk of consuming the vast majority of management’s time and attention just when Nokia badly needs a new direction in the budget phone market, where its share was already sliding dangerously in Asia during 4Q10.

The result is that Kuittinen cut his 2011 EPS estimate to €0.49 from €0.55, as he expects sales to plunge to €40.3 billion this year from €42.45 billion last year, and €2.6 billion less than he had ben estimating.

More important, perhaps, Kuittinen predicts a gutting of the engineering base, as operations may move to North America:

We expect mass defections from Nokia’s key hardware and software employees, as many are deeply disappointed about the company’s new direction. We also believe there are already concrete plans to move Nokia’s smartphone development to North America, and this project, if realized in 2012, further risks demoralizing the work force and creating disruptions in product development.

Nokia’s R&D, furthermore, pressured by the drop in revenue, could be cut by the company to just 8% of revenue from the 12% level it’s expected to be at in the current quarter.

Kuittinen sets a €5.50 price target on Nokia shares, down from €8 previously, and a $7.43 target for the American Depository Receipts (ADRs).

Nokia ADRs today are down 4 cents at $9.06. The ordinary shares traded down 1.3% today to €6.68.


HTC expects to sell 1.5 million Flyer tablet PCs, says paper

Smartphone vendor HTC expects to sell 1.5 million units of the Flyer tablet PC, which was recently unveiled during the Mobile World Congress (MWC), according to a Chinese-language Economic Daily News (EDN) report. The company indicated that the Flyer will be available in the second quarter of 2011 and will contribute about NT$3 billion (US$102 million) in revenues.

HTC has plans to introduce two more tablet PCs in 2011, the report said.

Global desktop shipments to reach 152 million units in 2011

Benefiting by the economic recovery, shipments of desktop PCs, which account for 65% of enterprises' PC purchasing, reached 148 million units, up 16% on year in 2010, according to Digitimes Research senior analyst Joanne Chien.

Chien expects purchasing from the enterprise market will continue to boost desktop shipments in 2011, but only about 3% on year to 152 million units. Within the 2011 desktop shipments, 20% will be all-in-one PCs which are expected to become the new growth driver for the desktop market in the future.

Although Taiwan-based motherboard makers had played important roles in the desktop market, their shipment performance in 2010 was not as pleasant as the global desktop shipments. The top-four makers Gigabyte Technology, Micro-Star International (MSI), Elitegroup Computer System (ECS) and Pegatron Technology, together saw their production volumes in 2010 drop 9.9% on year with volumes in 2011 expected to maintain at a similar level as in 2010.

The under-performing results of motherboard makers in 2010 was mainly due to the desktop DIY market being impacted significantly by brand desktops, while motherboard makers' orders were taken largely by system integrators. Some Taiwan makers' brand motherboard businesses also lost sales to new brands such as ASRock as well as China-based brands.

In 2011, Taiwan's top-four motherboard brand vendors/makers are estimated to ship a similar amount of motherboards as in 2010 with the brand segment to grow 2.1% on year to 52.18 million units and OEM segment to grow 0.3% on year, Chien added.


Compal to see notebook shipments reach 4-4.5 million units in March, says paper

Compal Electronics reportedly will ship 4-4.5 million notebooks in March, benefiting from Acer starting to ship its new Intel-based notebooks, according to a Chinese-language Economic Daily News (EDN) report.

Within Compal's March shipments, Acer is expected to contribute about 40% of the volume, compare to February, Acer's notebook orders to Compal in March will grow 30-50% on month, the paper added.

Apple secures 60% of global touch panel capacity, causing tight supply

In order to achieve its internal goal of shipping 40 million iPad products in 2011, Apple has occupied close to 60% of the global touch panel capacity causing tight supply among Apple's competitors, according to sources from upstream component makers.

Sources from tablet PC makers also pointed out that the component shortage is causing their shipment volumes to be unable to catch up with their orders, especially for second-tier players. Touch panels are currently suffering the most serious shortage due to Apple holding control over the capacity of major touch panel makers such as Wintek and TPK, and with US-based RIM, Motorola and Hewlett-Packard (HP) also competing for related components, second-tier players are already out of the game, the sources noted.

The sources pointed out that glass capacitive touch panels are the part that the second-tier players are unable to acquire, although thin-film capacitive touch panel makers are already capable of making their products fit onto tablet PCs, since thin-film technology still has obvious differences in terms of durability and feel compared to glass technology, despite that thin-film panels will still see demand from smartphones, tablet PCs are expected to be dominated by glass panels.

Sources from iPad distributors pointed out that in 2010, Apple's order forecasts to its OEM partners were all high and the biggest problem on the supply side was not capacity, but low yields of touch panels. In 2011, Apple's strategy of taking up most of the capacity should help the company quickly expand its sales, while reducing its competitors' shipment growth.

Several notebook brands such as Samsung Electronics, Acer and HP have all started turning to smaller touch screen suppliers helping players such as Sintek Photronic, Egalax-empia Technology (EETI), AimCore Technology and J Touch to see increasing utilization. Samsung's recent cooperation with Sintek was also meant to secure related supplies to avoid shortages ruining the vendor's product plans.

Anadigics Q1 View Misses, Stock Off 9%

Shares of wireless chip maker Anadigics (ANAD) are down 57 cents, almost 8%, at $5.96, after the company reported Q4 results ahead of expectations, but forecast a surprise net loss this quarter and much lower-than-expected revenue, citing “softness in China” and an inventory pile-up.

I would note the company’s remarks below about “WiMax” wireless networking, in particular, being weak, which may be having a somewhat negative impact on Clearwire (CLWR), which is down 14 cents, or 2.6%, this morning at $5.24. Clearwire reports quarterly results this evening.

Q4 revenue rose 44%, year over year, to $60.2, beating the average $58 million estimate, yielding EPS of 7 cents, a penny better than expected.

For the current quarter, the company forecast a net loss of 7 cents to 8 cents per share, versus the 4-cent profit analysts had been expecting. Revenue is expected in a range of $42 million to $44 million, versus the $55.5 million the Street has been modeling.

CFO Tom Shields remarked in the press release that the company is “seeing indications of greater than normal seasonality in the first quarter of 2011 primarily due to softness in China and through our distribution channels relating to excess inventories, coupled with a continued market correction expected to further impact our Cable and WiMax revenue.”

During a conference call with analysts this morning, CEO Mario Rivas addressed the assembled from Barcelona, where he’s been attending the Mobile World Congress, and where he had been meeting this week with “strategic chipset partners,” he said.

Turning to the disappointing revenue outlook, Rivas said, “First of all, let me be specific that we have not lost any significant customer — so let’s remove that from our discussion. However, in the first quarter, what we are experiencing is a combination of the cable and WiMAX market that is currently very soft and has placed considerable strain on the inventories of our customers, including our distributors.”

Rivas added, “In wireless, most of the additional weakness arising in our revenue guidance is coming out of Asia, including our distributors. This, too, is believed to be a short-term inventory correction, coming from our new product design taking hold, commencing during the June quarter.”

Google Offers ‘One Pass’ To Challenge Apple Subscription System

In a slap at Apple’s (AAPL) recently announced publisher subscription terms for its iPhone, iPad and iPod, Google (GOOG) today debuted a subscription payment system of its own, dubbed “One Pass,” that claims greater flexibility in the control publishers have over terms of subscriptions.

A Wall Street Journal article by Amir Efrati, Mary Lane, and Russell Adams goes through the various ways in which Google hopes to make the system more appealing than Apple’s, including taking just 10% cut of subscription revenue, rather than the third that Apple charges, and letting publishers hold onto more of the subscriber information.

Google shares today are down $1 at $623.22.

Motorola Defends $800 Price On Xoom Tablet, Says WSJ

Following up on the news today from Motorola Mobility (MMI) about retail distribution for its forthcoming “Xoom” 3G wireless tablet computer, The Wall Street Journal’s Ben Rooney offers a brief note that CEO Sanjay Jha, speaking at the Mobile World Congress in Barcelona, defended the device’s expected $800 price tag.

The Apple (AAPL) iPad starts at $499, giving the Xoom, which uses Google’s (GOOG) “Android” operating system, an entry point much higher. But Jha pointed out that with a 3G connection and a free upgraded path to a 4G modem, plus 32 gigabytes of on-board storage, the device is more comparable to the higher-priced models of Apple’s iPad, which top out at $829 with a 3G connection and 64 gigabytes of storage.

Moto said the tablet will be carried by The Carphone Warehouse, Best Buy and Dixons Retail Plc., and by Deutsche Telekom A.G., “in selected markets.”

Motorola shares today are down 44 cents, or 1.5%, at $29.23.

Wednesday, February 16, 2011

RIM: Citi Says Buy As Nokia Promotions Going Away

Woah — Citigroup analyst Jim Suva today raised his rating on Research in Motion (RIMM) to Buy from Sell, without passing through Neutral, and set an $80 price target, writing that Nokia’s (NOK) deal with Microsoft (MSFT) should start to benefit RIM as carriers flip their promotion dollars to RIM.

Suva’s had a Sell rating since November of 2009.

Nokia’s shift in strategy is going to create a “multi-quarter gap in Nokia products and carrier promotion support,” writes Suva, after meeting with “several international carriers” at the Mobile World Congress show in Barcelona, which is going on all this week.The carriers, “commented on their forthcoming shift to promote other handset OEMs ([Google's (GOOG)] Android, Apple (AAPL), and RIMM) until Nokia’s product strategy is more realizable. Nokia, he notes, has 35% global maret market share to RIMM’s 3%.)

Suva notes that “carriers do not want to promote and push devices that will become obsolete in the near future as long term customer support is important to carriers,” and anyway, products that get carrier support are supposed to have longer shelf life, he observes. “This promotion commotion shift away from Nokia to other OEMs … will take center stage as Nokia loses share in the quarters ahead.” And the shift “should materially help RIMM’s sales & profitability for the next several quarters, and valuation at 10 times consensus is very compelling when we see upside to expectations.”

Suva adds that Europe, where Nokia has had 30% of cellphone units and 35% of smartphone units, may offer “the best combination of critical mass and available market share for RIM.” He insists that “While RIM’s market share has seen some pressure of the last two quarters due to Android, we nonetheless believe that RIM should be able to capitalize on a confusing Nokia strategy.”

Suva is keepnig his estimate for EPS this year of $6.32, as the fiscal year ends this month. But for fiscal 2012, he’s looking for $6.74, way, way up from $5.62. He sees RIM’s sales rising 12% in the calendar year 2012, to $26.55 billion, which is double the growth rate he had ben predicting previously.

RIM shares this morning are up $1.58, or 2.4%, at $66.88. Nokia shares are up 7 cents, or 0.8%, at $9.14.

Apple: iPad Gives Them Top Mobile PC Share (Update)

With Apple’s (AAPL) iPad still categorized in different ways — maybe a personal computer, maybe a new kind of category unto itself — it was only a matter of time before some industry observers would start to factor the device into their overall personal computer market numbers.

Today, DisplaySearch, part of research firm NPD, announced Apple’s shipments of worldwide mobile PCs topped those of Hewlett-Packard (HPQ) when including tablet shipments in Q4. Apple shipped a combined 10.2 million notebook computers and tablets in Q4, for 17% share, beating out HP’s 9.3 million units, or 15.6% share.

DisplaySearch analyst Richard Shim remarks, “Apple’s iPad business is complementing a notebook line whose shipments widely exceed the industry average growth rate.” Total mobile PC shipments in Q4 were 59.6 million, the firm reports.

Apple shares are up $2.85, or 0.8%, at $362.74.

Update: I should note that a piece by Yenting Chen, Yen-Shyang Hwang, and Joseph Tsai in DigiTimes this morning projects a strong Q1 for Apple’s notebook computer shipments, given that the company is not impacted by the defect found by Intel (INTC) in its companion chipset to the Sandy Bridge processor, which has delayed some PC shipments by various vendors. The article cites anonymous retail vendor sources.

Update 2: A note from MacTrast’s J. Glenn Kunzler this morning states that Apple is expected to use a special metal alloy made by Liquidmetal Technologies (LQMT) to design its next MacBook laptops in such a way as to make them 20% lighter than existing models. The article cites an anonymous source who claims to be “an insider in the manufacturing process of the upcoming MacBook and MacBook Pro.” A story by Apple Insider today claims that Apple’s next MacBook refresh is expected in “early March.” The rumor has helped push up Liquidmetal shares by 13 cents, or 20%, to 76 cents.

AAPL: VZ iPhone Store Sales Disappoint, Says Boy Genius

Making the rounds this morning, a post by Jonathan Geller at Boy Genius Report cites an anonymous Apple (AAPL) source as saying sales at Verizon Communications (VZ) stores of the iPhone at Apple’s stores have fallen short of both Verizon and Apple’s expectations over the first five days of general availability.

The article cites specific data from five Apple stores, without disclosing which stores they are. The five stores seem to have produced a total of 3,992 sales of the Verizon model, and 3,009 sales for the AT&T (T) model. Geller also writes that “we have been told that online pre-orders between Verizon and Apple amounted to 550,000 units.”

My attention was drawn to the report by an outside communications firm for AT&T.

Moto Xoom Still Leads Samsung Tab, Says Gleacher

Gleacher & Co. analyst Mark McKechnie today reiterated a Buy rating on shares of Motorola Mobility (MMI) and a $40 price target, following a Q&A session with CEO Sanjay Jha during the Mobile World Congress in Barcelona this week.

He notes the company’s been under pressure from the announcement on Monday that Samsung (SSNLF) is getting ready to offer the successor to its “Galaxy Tab” tablet computer using Google’s (GOOG) Android software in a new version, called “Honeycomb.”

That version is geared especially for tablets, and Moto had an early lead in announcing its “Xoom” tablet at last month’s Consumer Electronics Show as the first Honeycomb tablet, so there’s been concern Samsung will steal Moto’s thunder. The Xoom was used by Google in a demo of Honeycomb earlier this month at its headquarters.

“Jha still feels he has a 3-month lead over Samsung and [LG Electronics's (LGEJY)] tablets based on his understanding of their ramp plans,” writes McKechnie. “He also pointed to other technical advantages of being the “GED” or Google Experience Device” as Android 3.0 was tuned specifically for MMI’s XOOM so it should perform better.”

CSCO, AAPL Plan Cash Repatriation Lobbying Blitz, Says Fortune

While ordinary citizens take to the streets in the Middle East, Cisco Systems (CSCO) and other major tech firms are planning to protest in the Valley against tax laws making repatriation of overseas cash unpleasant, writes Fortune’s Tory Newmyer today, citing anonymous sources close to the companies.

Cisco, Apple (AAPL), Duke Energy (DUK), Pfizer (PFE), are “among the major players looking to bankroll a coordinated, sustained pitch to sell policymakers on the idea” of a tax “holiday,” writes Newmyer, adding that the campaign is still in the planning stages. Such a reprieve would tax repatriated cash at 5% rather than the 35% rate companies face currently.

Cisco and Apple are two firms with billions overseas. Cisco’s CEO John Chambers has been a strong and vocal advocate for many years now for the view that allowing cash to be repatriated at lower tax rates would aid investment in the U.S. and allow for a greater return of cash to shareholders through dividends

Mobile World Congress: Tidbits On Intel, Motorola, Marvell

Estimates are some 75,000 people are in Barcelona for the Mobile World Congress this year, kicking the tires on phones and base stations. (Sadly, I’m not there, though I love ceviche.)

Herewith, some tidbits from daily notes sent by various folks on the Street:

Jeff Kvaal, Barclays Capital: Motorola Mobility’s (MMI) “presence was strong” at the conference. Business at Verizon Communications (VZ) has not been as bad as feared given the arrival of Apple’s (AAPL) iPhone. A slew of announcements by Juniper Networks (JNPR) regarding its next networking infrastructure push, “MobileNext” provides insights into the company’s target to grow revenue 20% this year.

Doug Reid, Stifel Nicolaus: It’s all about the ecosystem, he finds, rather than device features, writing, “As device feature sets and performance factor less into consumer buying decisions, we expect the ongoing commoditization of handsets (and ultimately tablets) to further pressure mobile device pricing and gross margins. We expect leaders among.” Apple and Samsung (SSNLF) should benefit from cost advantages, Motorola from “leading edge devices and approved operating systems,” but also Microsoft (MSFT), which is rated Buy, can capture a growing share of the “smartphone value chain.” Windows Phone 7 is “positioned to emerge as a viable third mobile OS.” His observations at the congress suggest smartphone growth in Asia and Europe is set to rise faster than most people seem to be expecting. The death of Nokia’s symbian is going to spur first-time smartphone buyers, he thinks. He sees 48% smartphone unit growth this year, more than the 45% IDC has been modeling, with 55% growth in Asia.

Tom Roderick, Reid’s colleague covering infrastructure, wonders why the dramatic leap in data usage hasn’t led to an expected investment in back-end infrastructure. “we have seen very little pull-through
for our vendors in the billing, customer care, gateway/mediation, video optimization and even messaging segments. Generally speaking, the answer a year later seems to be that carriers have focused on network build-outs first, and infrastructure second.” He predicts there could still be a payoff for some back-office vendors, such as Amdocs (DOX).

Glen Yeung, Citigroup: Chipmakers in general have had a “strong presence” at the show, he writes. Intel (INTC) told folks that its “Medfield” processor applications processor for mobile devices is “expected to be in one Android phone by the second half of this year,” he notes. “Benchmarks won’t be available until closer to launch,” adds Yeung, “but Intel believes Medfield’s performance in active states will be stronger and more power efficient than ARM designs, and competitive in idle states.” Yeung thinks Marvell Technology Group (MRVL) isn’t getting enough credit for its wireless chip intentions. The company showed off a semiconductor that combines app processor with a 3G baseband processor, and that’s intended for the China cellular market. Writes Yeung, “we note investors continue to discount Marvell’s wireless growth potential, and also focus on the effect of decelerating PC growth & the rise of SSD on Marvell’s hard drive business. We believe these concerns are ameliorated by Marvell’s share gains at Hitachi and Seagate as well as strong design wins (60%) of SATA
SSD controllers. Further, we note Marvell is likely to return value to shareholders by increasing its buyback,” with $2.7 billion in cash, or $3.96 per share, observes Yeung.

Chip Inventories Manageable? Wait To Buy, Says JP Morgan

Tidbits from the semiconductor world — Analog Devices’s (ADI) Q1 conference call last night, for example — have brought encouraging signs that an inventory correction in chips late last year is resolving itself in short order.

But watch out, say the folks at research firm iSuppli. Chip analyst Sharon Stiefel notes this afternoon that semiconductor inventory held by the chip makers themselves surged to a two-and-a-half-year high in Q4 of last year, at 83.6 days of inventory, up 7% from Q3’s level of 78.1 days. The last time inventory was this high was in Q2 of 2008, right before the downturn, Stiefel notes.

Inventory levels arguably now are high by any standard, illustrating the difficulty of controlling chip stockpiles even with semiconductor suppliers’ arduous efforts to keep them in check. The sharp increase of semiconductor inventory during the fourth quarter defied expectations of a decline for the period. This inflated level of inventory could become a concern if semiconductor industry growth falls short of expectations in 2011.

For the moment, at least, the forecast for this year for 5.6% semiconductor revenue growth should make the surge in inventory “manageable,” Stiefel believes.

But manageable, for an investor, may mean waiting a bit, says JP Morgan chip analyst Christopher Danely.

Danely today writes that total semiconductor industry factory utilization rate in Q4 was 93.1%, down from 95% in Q3, but still above his expectation for 89%, as capacity rose 4% in the quarter, which was higher than the normal seasonal increase of 1% that’s typical in Q4, and demand rose 2%.

He thinks utilization’s probably about the same this quarter, but will rise to 95% in Q2, as capacity rises 3% and wafer demand rises 5%.

What does all that mean? “We expect many semiconductor companies to capitulate and lower utilization rates over the next few months as it becomes obvious that production rates and inventory are too high,” given that bookings growth in Q4 declined generally. “As a result, we expect reductions in gross and operating margins which lead to a reduction in Consensus estimates.”

That means, he writes, that, “The best time to buy semiconductor stocks is [...] after semiconductor companies lower utilization rates, which generally sets in motion a fundamental bottom as it usually means most of the negative earnings revisions have occurred. We expect this to happen some time during the first half of 2011.”

Monday, February 14, 2011

Touting Smaller iPhone

Funny, Mobile World Congress is going on in Barcelona, yet speculation is rampant about Apple (AAPL) despite the company’s lack of a direct presence at the show.

The U.K.’s Daily Mail this morning offers the most emphatic version yet of the story making the rounds about a smaller model of the iPhone being in the works, something that’s been a rumor at various times in past years, but that was revived last Thursday by Bloomberg. WSJ picked up on the story over the weekend.

Today, the Mail writes that “Apple is working on a new version of the iPhone which will be smaller and cheaper than current models,” citing an anonymous source close to the company. The new iPhone can cost just $200 without a contract, the source tells the Mail. As noted by Bloomberg, the prototype, which was seen last year, was a third smaller than the iPhone 4. (Exact dimensions are not specified.) And it had no “home” button, according to the Mail’s source.

Apple is aiming to introduce the device this summer, the source says, as a separate introduction from the next version of the regular iPhone.

Sounds to me like the same source in each of these stories, and I wonder if at this point the rumor is simply feeding upon itself.

Tablets: Much Bigger Than You Think, Says Morgan Stanley

This is a new one on me, folks — a “blue paper” is what Morgan Stanley calls its 96-page report today on the prospects for tablet computing, authored by numerous analysts, including Kathryn Huberty, Mark Lipacis, Adam Holt and Ehud Gelblum.

The big picture: people don’t appreciate how big tablet computing can get, write the authors. They project shipments of more than 100 million by 2012. (To put that in perspective, analysts have been projecting Apple (AAPL) may ship between 30 and 40 million units of its iPad this year, and the entire industry may ship 50 million, according to several published estimates I’ve seen.)

The team did multiple surveys that they say canvased 8,000 consumers and 50 corporate CIOs. The findings show, they write, that tablets are set to be taken up by two thirds of corporations in 2011, either through direct purchase or allowing employees to take up the machines personally within the firewall. And the writers were “surprised,” they note, by what the data said about International demand: “While consensus views the tablet market as largely a U.S. consumer phenomenon, the international consumer survey data surprised us.”

Demand in major developed economies, phrased in the survey as “extreme interest in purchasing a tablet in the next 12 months, was higher than in the U.S., with only 11% of U.S. respondents surveyed saying yes, but 15% in France, 16% in Japan, 18% in Germany, 20% in the U.K., and a whopping 41% in China. And the overall international demand was 21%.

And while only 20% of tablet owners use the machines for content creation (as opposed to viewing, listening, etc.), below 56% on laptops, the authors “believe the rate of introduction of new mobile applications and faster processors could increase these figures over time.”

The best-positioned companies in this are the dominant tablet companies or the arms merchants: Apple, ARM Holdings (ARMH), Broadcom (BRCM), Samsung (SSNLF), and SanDisk (SNDK).

The worst-positioned, in the view of Morgan Stanley’s team, are Advanced Micro Devices (AMD), Dell (DELL), Lexmark (LXK), and Ricoh. And that bears a little explaining: Leaving aside AMD and Dell, Morgan Stanley believes tablets will actually help push users more toward the “paperless office,” and so they write that cannibalization of printing supplies is a much-understated potential area for cannibalization, and that that could hurt Ricoh and Lexmark.

Previously: AAPL: iPad Leading In IT ‘Consumerization,’ Says Barclays, February 11th, 2011.

Update: Since there seemed to be interest in the various parameters of the team’s report, I’m adding below two of the key charts from today’s report, which lay out some of the assumptions.

Sunday, February 13, 2011


Barclays is estimating 47 million tablets will be sold this year, including 33.7 million iPads.

Friday, February 11, 2011


Intel points out the growing role of consumers in PC buying: consumer purchases were 66% of PC sales in 2010, up from 41% in 2005,
Gartner forecasts annual smartphone shipments to grow more than 50% year-over-year in 2011 to reach approximately 440 million units.According to Wireless Intelligence, 3G connections are expected to grow more than 25% in 2011 to 1.6 billion.

Nokia: Street Views Mixed On MSFT Deal; Boon Or Bane For RIM?

Following news this morning that Nokia (NOK) is, in fact, striking the much-rumored partnership with Microsoft (MSFT), moving to Windows Phone 7 for its handsets and ditching Nokia’s own software, there is a range of opinion on the matter: some are hopeful, some seem to think this is a disaster. Question seems to be time frame for the new handsets.

And will all of this help or hurt Research in Motion (RIMM), which has been gaining steadily in areas where Nokia has long dominated, such as Asia-Pacific? It certainly seems to leave Apple (AAPL) and Google (GOOG) only stronger.

Mark McKechnie, Gleacher & Co.: Reiterates a Neutral rating on Nokia shares, while arguing it’s all a “good move” for Nokia. The Microsoft “ecosystem” is “a step above Symbian/MeeGo as it includes Zune Media, Xbox 360 Games, and a massive base of exchange and Office users.” This is a big step for Microsoft in third place, but it is a ways behind Apple and Google. But with carriers and developers and shoppers moving away from Symbian, Nokia will have to move fast or else see its handset division descend into negative cash flow.

Abey Lamba, ISI Group: Thinks Apple “will remain the leader,” with Nokia’s move unlikely to slow Apple’s momentum. “Although the news is positive for the entire Windows eco-system, the key issues are timing of the launch and the number of applications available at launch time. The more time it takes for them to launch their product, the tougher it will be for them to compete against iOS and Android based devices.” Research in Motion may experience greater competition in emerging markets from a Nokia-Microsoft team, he writes, while HTC, which also makes Windows-based phones, will benefit from a larger Windows ecosystem.

Tero Kuittinen, MKM Partners: Reiterates a Neutral rating. “CEO Elop failed to meet high expectations for an effective new strategy, as we had expected, ending up with a clumsy mix of long-term Windows plans and fading support for Symbian and MeeGo,” he writes. That could be an opportunity for Research in Motion. Kuittinen expects that carriers may switch support (marketing and subsidies) from existing Nokia devices to RIM phones, as Elop’s remarks about Symbian were “disparaging.” Kuittinen recommends using any uptick in Nokia shares to sell. If Nokia doesn’t have Windows models by the fourth quarter of this year, “would cause profound problems for that quarter’s profitability.”

Nokia: Canaccord Reports From The Scene; QCOM The Big Winner

Sprinting from today’s Nokia (NOK) analyst meeting in London, where Nokia tossed its emergent operating system, MeeGo, to the weeds, and got into bed with Microsoft (MSFT), Canaccord Genuity analyst Mike Walkley was kind enough to spend a couple minutes by phone to give me his impression of the meeting.

Nokia shares are down $1.46, or 13%, at $9.42, while Microsoft shares are down 16 cents, or half a point, at $27.34.

Two big takeaways: The deal with Microsoft is not actually finalized, and the fruits of the deal are not clear.

“They have a framework of their intentions,” Walkley points out, but it’s disappointing that nothing has actually been signed, he said.

And CEO Stephen Elop gave no timeframe as to when we’ll see the first Windows-based smartphone from Nokia. He did say that the company expects “to ship in volume” phones running Windows Phone 7 next year, but he wouldn’t commit when asked if there’ll be devices as early as the fourth quarter of this year.

Nor did Elop give any indication of what cost savings may come from the deal, says Walkley. Nokia has perhaps the highest cost structure of any manufacturer. Investors today were interested in hearing about possible cuts of half a billion to a billion euros per year, but all that Elop would commit to is that the company expects it can make some cuts in R&D.

And what about the rest of the Nokia portfolio? Nokia is winding down its Symbian effort, with 150 million phones expected to be shipped from here on out, and it sees bringing Windows down the price chain to mid-tier devices, Walkley tells me.

“One of the reasons for their going with Microsoft is that they felt they could quickly move Windows to lower price points quickly,” says Walkley.

And for the lowest-priced phones in the portfolio, the Series 30 and Series 40 phones, they’re not going away right away, maybe not ever. Walkley says the company pointed out that “they sell a million Series 30 and 40 devices per day,” so there’s still a lot of volume there to try and hang onto. Elop’s plan is to invest a little more to differentiate those low-end phones, to try and distinguish them from what the company refers to as the “Shenzhen crowd” — a reference to China’s bustling manufacturing sector that produces tons of cheap phones.

Walkley says Elop expects strong carrier support for Windows because it’s something different, as opposed to offering still more phones based on Google’s (GOOG) Android platform.

But Walkley also observes that Nokia was at this point just too far behind to go with Android. “They wouldn’t really have achieved anything other than to further lower the price of Android phones,” he remarks.

Walkley’s positive, overall, with a Buy rating on Nokia shares. He really thinks they can make a go of it in smartphones with Windows. He does acknowledge that with much if not all of the portfolio now a lame duck, “there’s certainly a risk in the intermediate term they will lose market share.”

Walkley advises the stock is “one to start doing some work on” if you’re a long-term investor, but he expects the shares “may trade sideways” in the “intermediate term,” by which he means the next six months, or so.

A better investment, perhaps, is Qualcomm (QCOM), which has almost the entire Windows Phone 7 market to itself, and which now stands a very good chance of getting back into the Nokia account, where it has had almost no business since the two settled their patent dispute some years ago.

Walkley has a Buy rating on Qualcomm and a $67 price target, and he argues that they are really “the biggest winner” from today’s announcement.

Indeed: Qualcomm shares are up 33 cents, or half a point, at $57.33.

Intel: ‘Medfield’ Can Prevail Without MeeGo, Says UBS

UBS Securities analyst Uche Orji today reiterates a Buy recommendation on Intel (INTC) and a $27 price target following the news this morning that Nokia (NOK) is effectively ditching the “MeeGo” operating system/platform that the two companies were working on together.

The overseer of that software at Nokia, Alberto Torres, is being let go to pursue other interests, and the company referred to MeeGo as being an “open source project,” nothing less, nothing more.

“Whither MeeGo?” asks Orji. He notes that “Intel believes [MeeGo] will continue as an open platform, supported by the Linux Foundation,” noting that the Linux folks of late have been doing more of the support for MeeGo than either Intel or Nokia. Orji notes that MeeGo is already shipping in some set-top boxes and other products, and he opines that large cellular operators — Orange, for example — may still want to put MeeGo on some handsets in order to have more control in the market.

Orji writes that the move by Nokia to Microsoft’s (MSFT) Windows Phone 7 is “a negative” for Intel’s chip ambitions, given that Win Phone 7 is optimized for Qualcomm’s (QCOM) processors. At the same time, the forthcoming “Medfield” chip from Intel was in part intended for MeeGo, but it is not bound to MeeGo as its only hope.

Medfield, which is being developed in a faster 32-nanometer semiconductor process, will also run Google’s (GOOG) Android. Also, Intel’s Wind River embedded operating system group has been tweaking its code to optimize it for Intel’s x86 architecture. That means, he thinks, we’ll see a heightened focus at Intel on “disrupting” the status quo in Android devices.

Orji sees Medfield making only a small financial contribution, but perhaps shifting the stock discussion in a positive direction: “As intel closes the gap on architecture, O/S optimization, and ecosystem development, and it delivers design wins, the debate will shift to which vendor excels in manufacturing, execution, road map, and ease of software reuse.”

Intel shares today closed down 4 cents at $21.76.

AAPL: iPad Leading In IT ‘Consumerization,’ Says Barclays

Barclays Capital analyst Ben Reitzes today writes that he hosted a conference call yesterday with a research analyst at Forrester Research to discuss how Apple’s (AAPL) iPad is doing in the corporate world.

His conclusions from the call are that the iPad is “running far ahead of its tablet competition and its their game to lose”; there is opportunity for others, including Google’s (GOOG) Android and for Research in Motion (RIMM); Apple hasn’t set up an enterprise salesforce, but it is “listening to enterprise customers.”

Reitzes notes that Forrester’s work supports the view more and more corporate users are “buying devices and bringing them into work.” So far, Apple is the “Winner in the consumerization of IT,” he argues.

Also, Forrester sees the tablet computer co-existing with both smartphone and laptop, though “it does delay laptop replacements.”

Barclays is estimating 47 million tablets will be sold this year, including 33.7 million iPads.

Reitzes has an Overweight rating on Apple shares and a $450 price target.

Thursday, February 10, 2011


"Starting with 0.5 billion wireless devices today that are connected to the internet, we see a 20-fold increase to more than 10 billion
wireless devices over the next decade. That's both people to people and machine to machine"
Over the last three years, our customers' mobile data traffic has grown 10 to 40 times. Over the next few years, we see 40-times growth in that mobile data. Third, this opportunity is still in it's very early stages. There's less than 10% smartphone penetration worldwide. And each smartphone generates six to 10 times more data traffic than a regular mobile phone.

Apple: Smaller iPhone, Soft SIM Coming, Says Bloomberg

Bloomberg’s Peter Burrows and Greg Bensinger this afternoon report Apple (AAPL) is developing a cheaper and smaller version of the iPhone – about a third smaller than the iPhone 4 — that may help stem the advances of Google’s (GOOG) Android, citing an anonymous sources who claims to have seen a prototype, apparently sometime last year.

(Story appears not to be linked yet on Bloomberg’s Web site; I’ll post a link as soon as I see it.)

Apple may also be developing a dual-mode model for GSM and CDMA network capabilities from the same handset, the authors write, citing two anonymous sources briefed on Apple’s plans. One source tells the writers that Apple had planned a mid-year release of the new, smaller iPhone, but “The introduction may be delayed or scrapped.”

Apple is also developing a “universal SIM” card, Burrows and Bensinger write, to allow GSM users to “toggle” between different carriers’ networks — something that has been rumored previously as a “soft SIM.” The idea is that a cheaper iPhone could hop from network to network because it would not be constricted by the carrier subsidy, the authors write.

I would note that rumors of a smaller iPhone, sometimes dubbed an iPhone Nano, have also been circulating for at least a year or more, with many analysts predicting such a thing around this time last year.

eBay Sees $13B to $15B Revenue In 2013

eBay (EBAY) this afternoon disclosed, at the conclusion of its analyst day meeting, that it intends to increase annual revenue 63% by 2013, from $9.2 billion last year to a range of $13 billion to $15 billion by 2013, consisting of $6 billion to $7 billion in PayPal revenue and $7 billion to $8 billion in Marketplace revenue that year.

That is above the roughly $13.14 billion in revenue the Street has been projecting for 2013. eBay also said it is targeting compounded annual growth in earnings per share of 10% to 14%.

The company said growth in its core PayPal and Marketplace businesses would be complimented by an acceleration of its “innovation in emerging mobile, local, social and digital commerce trends.” eBay said its mobile gross merchandise volume will double this year to $4 billion.

eBay also said growth would be aided by the creation of “an open commerce platform” around the world for merchants.

The company projects $7.5 billion to $8.5 billion in free cash flow in the period 2011 to 2013, or roughly $2.5 billion to $2.8 billion per year, on average. To put that in context, the company made $2 billion in free cash flow in 2010, down from $2.3 billion in 2009.

eBay shares were up $2.54, or 8%, at $34.49 during the regular session, and are unchanged in late trading.

Wednesday, February 9, 2011

RIMM: Buy Calls On Playbook, Says Goldman

Goldman Sachs’s options trading team this morning suggests buying April $65 call options on Research in Motion (RIMM) stock in advance of the introduction of the company’s Playbook tablet computer, which is expected to debut this quarter.

Initial indications of how the device is being received will be a stock-moving event, the analysts write, as will RIM’s earnings report on March 24th.

The options could play off of “attractive volatility,” the Goldman folks write:

With vol not pricing in the tablet launch in our view, 3-mth implied in its 5%-ile over a 1 year period, term structure upward sloping with April trading 1 vol below July, we recommend that holders of stock rotate into options for more levered exposure to the name. For investors that would like to position positively, the April $65 calls are $3.25 (5%) and provide investors with more levered exposure to the name with limited risks. Call buyers risk losing premium paid if shares close below $68.25 on April expiration.

RIM shares today are up 12 cents at $63.71.

HP Unveils ‘Veer’ Smartphone, TouchPad Tablet; Pre Reborn

HP unveiled a smaller phone, based on the WebOS software from Palm, called the “Veer”

As anticipated, executives of Hewlett-Packard (HPQ), discussing what they consider the $160 billion annual market for “connected devices” today unveiled at an event in San Francisco two such gizmos, a tablet computer called the TouchPad, and a phone, called the “Veer,” both based on the “WebOS” operating system that HP acquired when it bought smartphone marker Palm last year.

HP did not announce pricing for the new devices, and they will not be available for at least a couple of months, with no specific date(s) offered.

At the event, Palm’s former CEO, Jon Rubinstein, now an HP exec, walked through the features of the TouchPad. Weighing in slightly heavier than Apple’s (AAPL) iPad at 1.6 lbs, and with the same 9.7-inch screen dimensions, features at 1.3 megapixel camera, video calling, the “Beats” audio technology that HP developed with Dr. Dre, Wifi 802.11n, 16 or 32 gigabytes of storage, a dual-core 1.2 gigahertz processor (probably from Qualcomm (QCOM), though not specified), runs Adobe’s (ADBE) Flash, and offers book and magazine reading, via a partnership with (AMZN) for its Kindle e-reader program.

Jimmy Iovine, who founded the Beats venture with Dre, actually appeared on stage later in the event.

The Veer, said Rubinstein, using the HSPA+ cellular network standard, features a Qualcomm “Snapdragon” processor running at 800 MHz, a 3.6-inch WVGA display, a 5 megapixel camera, with flash, a forward-facing camera for video calls, and what the company billed as the “largest QWERTY keyboard,” which slides out of the body of the device, similar to Palm’s previous “Pre” smartphones. The phone is smaller than the Pres were, roughly the width and height of a credit card, when its keyboard and screen are slide into the closed position. Rubinstein showed off a picture with the Veer placed next to an Amex card to make the point.

The TouchPad tablet looks quite a bit like Apple’s iPad in some respects. HP talked up the ability to share info with the Veer merely by placing one device on top of the other.

Speaking of which, the company also announced an update of the Pre, the Pre3, which runs on both the HSPA+ network standard and the CDMA standard used by Verizon Communications (VZ), making it a “world phone,” the company said. The Pre3 will use one of Qualcomm’s “Snapdragon” 8×55 series of chips, running at 1.4 gigahertz, the company said.

Rubinstein said the Palm “Touchstone” technology would allow the phones and the tablet to easily share information, such as picking up Web browsing on one device where you left off on another, by placing the phone on top of the tablet. (Touchstone was the name for charging stations that Palm offered with the original Pre, which were able to juice the phone’s battery just by sitting the device on the charger.)

HP said it intended to bring WebOS software to other devices, including printers and personal computers, later this year.

The TouchPad and Pre3 are expected to be available “this summer,” said HP, while Veer is expected “this spring.”

Qualcomm’s CEO Paul Jacobs took the stage at the event to say a few words.

Time, Inc.’s “chief digital officer” Randall Rothenberg came onstage to talk about how much the publisher “loves WebOs,” and to show off some magazine titles, including Time, running on the TouchPad.

Here’s HP’s official TouchPad page; here’s the Veer description; and here’s HP’s page for the Pre3.

During the event, Rubinstein announced some content deals, and brought up Dreamworks Animation CEO Jeffery Katzenberg to put in a good word about the TouchPad.

Eric Savitz over at has a live blog of the event, which is still underway.

HP shares this afternoon are up 34 cents, or 0.7%, at $48.48. Qualcomm shares are down 8 cents at $56.02.

How are the other smartphone and tablet folks doing? Well, their shares appear largely unaffected, so far:

Apple shares are up $2.70, or 0.8%, at $357.90;
Nokia (NOK) shares are up 28 cents, or 2.5%, at $11.56;
Motorola Mobility (MMI) shares are up 19 cents, or 0.7%, at $30.35;
And Research in Motion (RIMM) shares are up 8 cents at $63.68.


Infonetics forecast that the compounded annual growth rate of mobile broadband subscribers will be greater than 38% over five years to 1.8 billion by 2014, with the steepest projected growth coming from emerging markets.

We estimate the revenue from all non-cellular smartphone processors in 2010 was less than $1 billion. Including smartphone processors that integrate the cellular function, the total processor revenue was about $1.7 billion, a figure that could double by 2014.

Tuesday, February 8, 2011

Possible Electric Vehicle Credit Driving Battery Stocks (GM, AONE, TSLA, HEV, XIDE, JCI, CBAK)

Word emerged on Tuesday that President Obama may back a $7,500 tax credit at the point of sale for buyers of electric vehicles such the Chevy Volt made by General Motors (GM). Previously, Senator Debbie Stabenow (D-Mich.) had introduced legislation to this effect. The move is seen as more favorable for the industry than schemes that require the buyer wait until filing taxes before receiving the rebate. That news may be behind the pop in the Energy Strorage and Battery Technology Stocks Index, which is up 2.1% today.

Among the possible winners on the rebate news is A123 Systems (AONE), the Massachusetts-based maker of lithium-ion batteries, which is up 3%. Tesla Motors, Inc. (TSLA), the maker of sporty and expensive electric vehicles, is also surging today with a jump of 7%. Ener1 (HEV), a New York-based lithium-ion battery maker, is also getting a lift on the news, soaring 4%.

Georgia-based Exide Technologies (XIDE) is up after the battery maker reported fiscal third-quarter profit results that topped Wall Street estimates. On an adjusted basis, the company earned 33 cents a share on revenue of $800.3 million. Analysts were expecting a profit of 27 cents a share on revenue of $752.4 million. Shares of Exide Technologies are up 15%.

Johnson Controls (JCI), the second-largest Index member by market value, is up 2% while China player China BAK Battery (CBAK) is up 4%.

Investors can track the Energy Strorage and Battery Technology Stocks Index for performance trends and a suite of other metrics at



Mobile PC market, (defined as notebooks, mini-notes & tablets) to reach 503.8 million units by 2014. Tablets expected to be nearly 35%(172mn) of the same.

With the proliferation of tablets and smartphones as well as Internet TV and HDTV, the outlook is robust. An industry leader reports that video will be over 90% of global consumer traffic by 2014.

SanDisk: Sterne Agee Says Buy, $65 Target

Shares of SanDisk (SNDK) are up $1.20, or 2.5%, at $49 after Sterne Agee analyst Vijay Rakesh joined a growing chorus of positive views on the stock, raising his rating on the stock to Buy from Hold with a $65 price target. Rakesh writes that SanDisk is making progress on moving production of its NAND flash memory chips to 24 nanometer dimensions, and that the overall fundamentals for the flash industry appear stronger than previously was the case.

On the broad industry outlook, demand for NAND flash should continue to be strong thanks to the ever-increasing use of the chips in smartphones and tablet computers, while supply appears to be “at a measured pace,” writes Rakesh. NAND prices should be about flat in the second quarter versus the first quarter, which is better than his prior expectation for a 5% drop in prices.

As for SanDisk’s technology progress, the company is starting its 24 nanometer transition for both MLC and TLC flavors of flash memory, which should help it “get caught up” with the rest of the industry. At the same time, SanDisk will ofer a “3-bit (TLC) lead with 50% of output at TLC” that may become a material technology advantage for the ocmpany. ”

Rakesh raised his estimates for SanDisk to $1.4 billion in revenue and $1.22 in EPS for Q2, from $1.3 billion and $1.03, and raised his year estimate to $5.9 billion and $4.66 per share from a prior $5.6 billion and $4.03 per share.

But it’s still crucial to keep an eye on what happens to NAND capacity this year, he writes:

We believe NAND fab capacity and supply will be key metrics to watch, especially as Micron ramps its Singapore fab in March 2010. But we believe both the Samsung Line16 and Toshiba Fab5 are coming on only in 2H11 and will be key supply channels to monitor. While SNDK has become more prudent in watching its supply, key will be how Samsung behaves with its fab coming on line. We believe Hynix (000660.KS, 29700, Not Rated) still remains under pressure in bringing on NAND supply given a big debt load.

Mind you, Rakesh still prefers Advanced Micro Devices (AMD) and Micron Technology (MU) to SanDisk, noting they have “solid upside, [attractive] valuations, and potential share gains.”

MU, SNDK: Gleacher Says Buy On Improving Memory Market, February 3rd, 2011;
SanDisk Recovers, Cheered By Q1, Year View, January 27th, 2011.

PCs: Goldman Chops Outlook, Tablet Numbers Going Up

Goldman Sachs computer analyst Bill Shope today cut his outlook for personal computer unit shipment growth this year to 6.4% from a prior 8%, after reviewing the disappointing Q4 PC reports from Gartner and IDC.

Those reports showed growth of just 2.6% in Q4, with notebook computers, in particular, disappointing, turning in 2.9% growth versus the nearly 10% growth he had been forecasting at the time. Tablet cannibalization was the main culprit, he notes.

Hence, Shope raised his tablet computer estimate for this year to 60.1 million units from a prior 54.7 million, and raised his 2012 estimate slightly, to 80.3 million units from a prior 79.2 million. That’s assuming a roughly 35% rate of cannibalization of PCs, he notes.

However, Shope’s not changing any estimates for Hewlett Packard (HPQ), nor for Dell (DELL), as, “the
non-US PC OEMs appeared to bear the brunt of the industry shortfall in 4Q, which also serves to limit the impact of our lower PC forecast for HP and Dell.

Shope hasn’t changed his outlook on for Apple (AAPL) as regards the iPad: he still has Apple getting 64% of the tablet market this year, with shipments of 38.4 million units in calendar 2011, up from 14.8 million last calendar year. Shope had already revised those numbers higher after Apple’s quarterly report in January.

As for Intel (INTC) and AMD (AMD), Shope’s colleague, semiconductor analyst Jim Covello sees both at risk from the weaker outlook. Adding, that “we believe that Intel’s aggressive capex in 2011 ($9 bn or +73% yoy) will exacerbate the impact of lackluster PC unit growth, driving excess supply in microprocessors in 2012, leading to weak ASPs and margins.”

AAPL: iPad 2 In Production, Say WSJ Sources

The Wall Street Journal’s Yukari Iwatani Kane and Shayndi Raice this evening write that Apple’s (AAPL) iPad 2 has entered production, citing anonymous “people familiar.”

The piece includes a familiar list of likely aspects of the new device, including it being thinner and lighter than the first iPad, at least one camera on the front of it, and a display with resolution “similar to” the first model.

Kane and Raice cite the lack of enhancement to the display resolution as a potential disappointment, and note that their sources say Apple ran into difficulties trying to improve the screen given size of the display. An enhanced display had been rumored given that the iPhone 4 last year was upgraded to a finer resolution than its predecessors, called the Retina Display.

I would note that Hewlett-Packard (HPQ) is expected tomorrow to unveil its entry into the tablet market using the Palm OS.

Apple shares today closed up $3.32, or 0.9%, at $355.20.

Monday, February 7, 2011

IBM: Capstone Says Buy, $190 Price Target

Capstone Investments analyst Shebly Seyrafi late this afternoon initiated coverage of International Business Machines (IBM) with a Buy rating and a $190 price target, writing that the company is “very shareholder-focused,” with an emphasis on profit growth above all.

Seyrafi writes that IBM has recently set a goal to increase profit per share to $20 by 2015, from $11.52 per share last year (on a non-GAAP basis), which would be 11%. That’s entirely reasonable, he argues, given IBM in 2007 had set itself a goal of $11 per share by 2010, and beat that.

Seyrafi sees revenue growth in coming years propelled by greater exposure to developing markets, and by IBM’s deriving a greater proportion of revenue from sales of middleware software, which may comprise 60% of revenue by 2015, up from 42% today and just 28% in 2003. IBM’s position in both software and services is “strong,” he notes, with a lead in middleware in particular, at 32% market share.

IBM plans to spend $20 billion on M&A between now and 2015, and most of that is expected to be for software companies.

Seyrafi is estimating $105.3 billion in revenue this year, and $13.1 in EPS, versus the Street consensus for $104.5 billion and $13.08.

IBM shares today closed up 82 cents, half a point, at $164.82.

Seyrafi’s target is based on a discounted cash flow model, using an 11% WACC and a 3.2% terminal growth rate.

Nokia Rises On Speculation

Andrew Orlowski of tech site The Register, citing a report from a German publication, WirthschaftsWoche, writes that Nokia’s (NOK) recently appointed CEO Stephen Elop is planning to purge some key executives, which Orlowski calls a “Great De-Finnification.”
The German report apparently names names in a big way, though it’s not clear from the Register’s account where the information is coming from. Orolowski writes that it seems Elop may keep Alberto Torres, head of a team developing the next-generation MeeGo development platform for Nokia phones. Other than that, it would appear that Elop may be about to eviscerate the dream team assembled by former CEO Olli-Pekka Kallasvuo.
Nokia is expected to hold an analyst day meeting in London on Friday, which event has prompted intense speculation about how the company might transform itself in the face of marketshare losses.
Joann S. Lublin and Christopher Lawton of The Wall Street Journal also penned a piece citing the WirthschaftsWoche article this morning.
Nokia shares this morning are up 23 cents, or 2%, at $11.29 in early trading.