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Alan and Isabel ... an interesting pair! The Fed and the hurricane look to remain in the headlines today as the Street hunkers down, trying to keep that bullish bias. Pushing into the seventh month of this advance, trading is decidedly more two-sided, with great expectations making for some big shoes to fill. In Tuesday's session, U.S. stocks rose as the Federal Reserve's decision to keep benchmark interest rates at 45-year lows bolstered confidence that economic and profit growth will accelerate. The S&P 500 added 14 points (+1.4%) to 1,029, with computer-related companies accounting for more than a third of the gain. The DJIA climbed 118 points (+1.3%) to 9,567. The Nasdaq Composite rose 41 points (+2.3%) to 1,887. Fed policy makers left the overnight lending rate between banks at 1 percent. The central bank is faced with an economy that shows signs of expanding while the number of people out of work is increasing. Policy makers again split the statement's outlook for growth from its inflation forecast. They cited weak pricing power as a factor tilting policy toward the possibility of additional interest rate cuts. Spending is firming and the labor market is weakening, the central bank said in a statement. Companies are firing workers even as economic growth picks up. The number of people applying for unemployment insurance rose to a two-month high last week. The U.S. economy has lost 2.8 million jobs since the latest recession began in March 2001. The jobless rate is now 6.1 percent. Treasurys squeaked higher after an afternoon of extremely choppy trading following the Fed's promise to keep interest rates low for the foreseeable future. The 10-year Treasury note was up 2/32 to yield 4.265 percent while the 30-year government bond added 1/32 to yield 5.185 percent. In the currency market, the U.S. dollar declined 1.1 percent to 116.11 yen while the euro fell 0.9 percent to reach $1.1176.

Strong Sectors: electronic manufacturing, semiconductor, broadcasting & cable TV, communications equipment, application software, paper, casino, wireless, advertising

Weak Sectors: food retail, aluminum

Top Stories . . . The FOMC left policy rates unchanged with the federal funds rate targeted at 1.00%. The vote was unanimous and again included a dual risk assessment which focused on disinflation as growth risks are seen as balanced.

U.S. consumer prices rose for a third straight month in August, reflecting higher costs for gasoline, college tuition and prescription drugs, government figures showed. Airfares and computers were cheaper.

Former Bank of America broker Theodore Sihpol was charged with larceny and securities fraud for allegedly giving a hedge fund an illegal edge over other investors in trading mutual fund shares.

The Republican-controlled U.S. Senate approved a rollback of all the Federal Communications Commission's new media-ownership rules, defying a White House veto threat.

The New York Stock Exchange, seeking to rebuild credibility amid criticism of the $140 million pay package awarded to Chairman Richard Grasso, may name new directors to better represent floor traders and public investors.

Morgan Stanley was fined $2 million by the National Association of Securities Dealers, which claimed the securities firm used forbidden incentives to encourage the sale of its mutual funds.

Lockheed Martin, the biggest U.S. military contractor, agreed late yesterday to buy communications-equipment maker Titan Corp. for $1.8 billion, and said the acquisition may be its biggest for some time.

DaimlerChrysler, the world's fifth-largest carmaker, may close or sell as many as seven factories that make parts for Chrysler cars as the U.S. unit tries to narrow losses, people familiar with the plans said.

Quotes of Note . . . ``We are quite optimistic that the economy is getting better. Fed policy has been working together with the big tax cuts that we have had and corporate profits will continue to do well as they have all year.'' Stuart Schweitzer, global investment strategist at J.P. Morgan Fleming Asset Management and J.P. Morgan Private Bank. The two firms oversee $511 billion.

``I am not even going to think about the Fed'' raising rates ``until unemployment is heading south of 5.5 percent,'' said James Glassman, senior economist at J.P. Morgan Securities.

``This is the first recovery on record where we actually have fewer jobs 21 months out than when the expansion began,'' said Jared Bernstein, senior economist at the Economic Policy Institute, a Washington research group.

Gurus . . . UBS chief investment strategist Gary Gordon expects the current equity rally to continue amid strong corporate earnings momentum and investor optimism, and introduced a 12-month target of the S&P 500 Index at 1,150. That represents a 13 percent increase from current levels. Gordon said the market may flatten by the second half of 2004, with risk weighted toward the downside, due to risks to earnings of slowing debt growth and the potential for only "modest" labor force growth. The S&P 500 was last up 5 points at 1,020, and has gained 14 percent over the past 12 months.

Merrill Lynch technology sector strategist Steve Milunovich raised his rating on the semiconductor sector to "overweight" from "equal weight," and downgraded the Internet sector to "equal weight" from "overweight." Milunovich said while valuation was a concern for chip stocks, the sector scored well in the firm's TechStrat Sector Model on earnings revisions and price momentum. For Internets, he said price momentum and valuation were "problematic," offsetting good scores on earnings growth and revisions.

Jobs . . . US employers expect to strengthen their hiring activity in 4th quarter, according to the latest Manpower Employment Outlook Survey, conducted quarterly by Manpower. Of the 16,000 employers that were surveyed, 22% said they plan to increase hiring activity for 4th quarter while 11% expect a decrease in employment opportunities. Another 62% of employers foresee no change in hiring. When the seasonal variations are removed from the data, it marks the first increase in job prospects since 1st quarter.

Eco Speak . . . Prices for consumer goods rose a slightly less than expected 0.3 percent in August from the prior month. Excluding volatile food and energy prices, the so-called core rate measuring inflation at the retail level was up 0.1 percent on the month after a 0.2 gain in July. Economists had predicted a 0.4 percent overall gain and a 0.2 percent increase in the core rate. The rise in prices was widespread, with gains in all major categories. Energy prices rose a sharp 2.7 percent, while food prices were higher by 0.3 percent. For the 12 months through August, consumer prices rose by 2.2 percent.

Financials . . . Hugh Warns of J.P. Morgan said the sell-off in property and casualty (PC) insurance stocks on concerns over the impact of Hurricane Isabel was a "overreaction," and has created a "buying opportunity." Warns said that unless damage from the storm exceeds $10 billion, which would rank Isabel as the second-largest U.S. loss hurricane ever, pricing trends are unlikely to be affected. "As long as the storm does not directly strike Long Island, NY or Manhattan, we do not anticipate a loss that will significantly alter our outlook of the P&C industry and its underwriters," Warns said. Among stocks he rates "overweight," Travelers, Everest Re and Axis Capital.

Fannie Mae’s retained portfolio growth in August was very strong (39% annualized rate or 47% annualized with compounding), and given outstanding commitments, seems likely to remain well above the 10%-12% rate we consider normal for the next several months. MBS portfolio shrunk in August, reflecting record liquidations and some recovery of market share by Freddie Mac. Fannie Mae's interest rate risk disclosures indicate that the company rebalanced its portfolio aggressively during the month, which as expected should result in some margin contraction. Overall delinquencies remain very low and stable. Below 'A' credits still show some weakness, but Fannie Mae bears minimal risk on most of these loans. 3rd quarter retained portfolio growth should be very strong, and although the net interest margin will begin to compress, expect lower debt repurchases will provide some offset. Still expect 3rd quarter and 4th quarter EPS to be down slightly from 1st quarter and 2nd quarter, with the variance largely dependent on debt repurchase expense and the magnitude of the margin compression.

Friedman Billings Ramsey reiterates their Underperform rating and $18 target on CheckFree based on greater detail on previously disclosed customer contracts in its 10-K filing. The firm believes the new details in this contract focus attention on the sustainability of any meaningful long-term growth for the co, and with the stock trading at 23x their 2004 estimate versus the group at 20x, they continue to believe that investors will not be willing pay such a high multiple due to the company's muted growth prospects.

Charles Schwab said client daily average trades totaled 181,600 in August, up 8 percent from the same period a year earlier but down 12 percent from its July performance. "While trading activity reflected a seasonal slowdown during August, we continue to see signs of heightened investor engagement, including ongoing inflows to actively managed equity mutual funds, increased margin loan usage, and a rebound in daily average revenue trades in September to 164,000 for the first nine trading days of the month," said CEO David Pottruck. Net new assets brought to the company in August totaled $3.7 billion. Total client assets stood at $875.9 billion at month's end, up 14 percent from a year earlier.

MBNA released its August 2003 summary portfolio data this morning which showed a decrease in the chargeoff rate (by 14 bp from July), very slight sequential increases (+2bp) in the delinquency rate, and very modest growth in total loans. Estimates are that charge offs in dollars declined. Loan growth (+$357 million in August) was hurt again by a strengthening of the dollar against the UK pound late in August. As a result, for the first time in recent memory, average loans ($110.96 billion) were slightly higher than period end total loans ($11o.955). Estimate that the roughly 2% decline in the pound reduced reported UK balances by about $300 million. Lower chargeoffs and relatively stable delinquencies are consistent with management's forecast of a declining loss rate over the course of the year. MBNA continues to show better than market growth in its US card portfolio, we believe. While the decline in the UK pound reduced total reported balances slightly for August, we estimate US card balances grew organically at roughly an 8% annualized rate. This is still well above 2.5% industry growth. While a weaker UK pound has reduced reported loan balances by about $800 million over the past two months, expect MBNA's solid US loan performance to continue and are maintaining estimates.

Oil & Gas . . . Blue Rhino reported earnings of $13.9 million, or 70 cents per share, 2 cents below Wall Street's consensus estimate. The latest results are pre-tax and before certain non-cash charges. Revenue jumped 20 percent in the latest three months to $85.5 million, but the company said this performance was "slightly below plan" due to a 1 percent decrease in same-store cylinder exchange units. Blue Rhino attributed the same-store unit decline to adverse weather conditions in much of the U.S. Looking ahead, the provider of propane and other outdoor products raised its long-term earnings growth target to 25 percent per year. For fiscal 2004, the company sees fully-taxed earnings of 73 to 81 cents per share on revenue of between $290 million and $300 million.

Energy . . . Noble Energy upgraded to Neutral at JP Morgan from Underweight based on improving asset intensity and profitability. Also, as capital commitments to its int'l projects trail off and the cash flow generated by them picks up, the company should be able to generate significant free cash flow and show solid profitable growth through 2007.

Paper . . . Merrill Lynch added International Paper to its "Focus 1" list, on the belief the company is well positioned to benefit from an expected recovery in the paper industry. "In addition, a dramatic profit improvement plan is underway, which should serve to both cushion earnings while we wait for the paper cycle turn as well as provide additional leverage once the rebound begins," analyst Karen Gilsenan said. She continues to rate the stock a "buy," and has a $47 price objective.

Defense & Aerospace . . . Titan agreed to be acquired by Lockheed Martin for $2.4 billion in cash, stock and assumed debt, or the equivalent of $22 a share. That's the highest price seen in the stock since late-May 2002.

Lockheed Martin's plans to raise its dividend and intention to acquire Federal IT Services provider Titan Corp. in a $2.4 billion cash-stock deal "seem good uses of LMT cash," said analysts at CIBC World Markets. Lockheed is raising its dividend 22 cents a quarter from 12 cents a quarter. "We believe TTN has the best services mix of the large independent IT players," the analysts said. The $2.4 billion price tag "is a full one, in our opinion (about $14X TTN's 2004 estimated EBITDA or 25 times 2004 estimated earnings per share)." CICB expects that the deal would add 14 cents a share to its 2004 per share estimate for LMT of $2.40.

Transports . . . Merrill Lynch upgraded United Parcel Service to "buy" from "neutral," citing attractive valuation and on the belief the package delivery service will benefit from a potential rebound in the manufacturing sector. Ken Hoexter does not believe a manufacturing rebound has begun yet, but sees evidence that the sector has been "bouncing along a bottom," and therefore is preparing to be a "bit early." He set a $70 price objective on the stock, which he feels is just above the mid-point of the company's historical trading range.

Education . . . eCollege.com to acquire Datamark for $72 million. Datamark is an outsource provider of integrated enrollment marketing services to the proprietary post- secondary school market. Consideration will be approx. $72 million, consisting of $58 million in cash, $12 mln in subordinated notes payable to the sellers, and 150,000 shares of eCollege common stock. ECLG expects the deal to be mildly accretive to earnings and to more than double revenue and EBITDA in 2004.

Food & Beverage . . . General Mills reported earnings of $227 million, or 59 cents a share, up from 47 cents a share in the year-earlier period, amid gains in productivity and an increase in joint venture earnings. Excluding non-recurring items, earnings for the quarter ending August were 62 cents a share, matching the average analyst forecast. Nets sales rose 7 percent to $2.52 billion, just ahead of the $2.48 billion expected by analysts, and worldwide unit volume increased 3 percent. Looking ahead, the packaged food company said it was "on track" to reach full fiscal year financial targets.

Coca-Cola cut to Peer Perform from Outperform at Thomas Weisel. The downgrade is based on view that headwinds remain too prevalent to overlook. The firm cites issues such as persisting weak global volume trends and concerns that earnings beyond the current third quarter will need to be revised lower, even in the face of favorable foreign currency trends.

Skip Carpenter at Thomas Weisel downgraded Coca-Cola to "peer perform" from "outperform," citing persisting weak volume trends and the lack of clarity on the timing of a near-term improvement core beverage markets. Carpenter is also concerned that earnings beyond the third quarter will need to be lowered despite favorable currency exchange trends. "With the exception of benefiting from a severe heat wave that ripped through European territories, we believe Coke's third quarter overall volume trends will be disappointing," Carpenter said. "Geographic markets that will post substandard trends will include Japan, India, Brazil, Mexico, the Middle East and the U.S."

Restaurants . . . Darden Restaurants upgraded at Bear Stearns to Peer Perform from Underperform. The firm is saying the worst is likely over; stronger casual dining sales in August suggest that DRI is likely to meet 1st quarter expectations rather than the miss that they had been anticipating.

Retail . . . The latest weekly count of U.S. chain-store sales compiled by Bank of Tokyo-Mitsubishi and UBS shows a drop of 0.3 percent from the week ended Sept. 6. On a year-over-year basis, the BTM-UBS weekly sales index is up by 4.1 percent. Back-to-school sales remained strong in the week ended Sept. 13, but the observance of the Sept. 11 anniversary may have had a modest impact on retail activity, the BTM-UBS report said. For all of August, chain-store sales were the strongest they've been since June 2002, BTM-UBS said, adding that it expects the pace of September's sales "to slow a tad after some hefty clearance activity." Still, September comp-store sales could clock in with growth pegged at 3.5 percent to 4.0 percent, BTM-UBS said.

Pier 1 reported net income of $18.4 million, or 20 cents a share, down from $22.1 million, or 23 cents a share in the same period a year ago, as a decline in traffic and the number of transactions offset growth in the value of the average ticket. The results matched the average analyst estimate, with merchandise margins improving due to less clearance activity. Total sales rose 4.1 percent to $427.8 million, just shy of the $432.01 million expected by analysts, and comparable-store sales fell 4.2 percent. The specialty home furnishings retailer reiterated its same-store sales outlook for September and for the fiscal third quarter, provided earnings estimates for the periods that were in line with current expectations.

The Wall Street Journal's "Heard on the Street" column suggests there are signs that the Krispy Kreme's sales are less than stellar. According to the WSJ's review of internal figures for roughly 40 store outlets that opened between Sep 2002 and Apr 2003, the average weekly retail sales were about $35k which is below what the co says is its norm for its newer outlets. The article points to average-store sales slowing and new stores aren't performing strongly. In addition, the company's biggest franchisee, Great Circle Family Foods LLC has seen same-store sales, which includes wholesale shipments from KKD stores, fall 10% in its latest quarter. Great Circle decided to put itself up for sale earlier this year with no deal yet to be announced. The stock does not have much room for error trading 62 times trailing 12 months' earnings, which is significantly higher than the S&P 500's average multiple of 28 and SBUX p/e of 44, comments WSJ. However, the company's chief operating officer suggests the report of its newer stores does not provide an accurate picture given the "limited set of data points" and lack of inclusion of its wholesales sales.

Kroger indicated that 2003 earnings are likely to be at the low end, and could be as much as 5 cents a share below, its previous projection of $1.55 to $1.63 a share, due to an increase in an expected inventory charge, an more competitive environment and a "tough" economy. For the fiscal second quarter, the grocery store chain reported net earnings of $190.4 million, or 25 cents a share, down from 33 cents a share in the year-earlier period. The results include a 5 cents a share charge related to an energy supply dispute with Dinegy, and expenses of a penny a share for the Northeast power black out. Total sales for the quarter ending July rose 3.6 percent to $12.4 billion, with same-store sales increasing 0.5 percent. Analysts had been expecting earnings, excluding charges, of 32 cents a share and sales of $12.3 billion, on average.

Healthcare . . . Odyssey Healthcare reaffirmed its expectations for fiscal 2003 net income growth of 40 to 43 percent from its 2002 profit of 57 cents per share. The company specifically confirmed its comfort with the consensus estimate of five analysts for a profit of 83 cents per share for the year. Odyssey, a Dallas-based provider of hospice care services, added that it expects to care for about 6,500 patients per day in September, up from an average of 5,867 patients in June.

Medical Devices . . . Boston Scientific said a Food and Drug Administration advisory panel on Nov. 20 will review the company's drug-coated stent. The panel is expected to make a recommendation on whether the device should be approved. The FDA typically follows the recommendations of its advisory panels, which are made up of outside medical experts. Boston Scientific jumped 8 percent on Monday after Boston Scientific said its Taxus stent reduced vessel blockage in heart disease patients.

David Lothson at UBS on Tuesday raised his 2003 profit expectations for Boston Scientific after the medical device maker said its highly anticipated drug-coated stent produced promising results in clinical testing. Lothson boosted his estimate for this year to $1.20 per share from $1.12 per share.

Interpore downgraded at Piper Jaffray to Underperform from Market Perform based on valuation, but raises their target to $15 from $13. In addition, firm believes that investors may under appreciate that the significant bulk of BONZ's 2003 operating income growth may come from drivers other than the core business, and they continue to believe that some investors may be overvaluing the JNJ royalty stream.

Yesterday's strong clinical data from Boston Scientific's Taxus IV trial suggests to us that Johnson & Johnson will face a more formidable competitor in the US than reflected in our prior projections. Expect Boston's Taxus Express hit the US market sometime in March, 2004, garnering approximately 25% in 1st quarter and exiting 2004 with a 60% share. Going into TCT, analysts had estimated a 50/50 BSX/J&J share for 2004. Today's J&J analyst meeting at TCT will likely see JNJ make an strong case for the Cypher stent and the clinical data supporting the product. Analysts also anticipate encouraging comments on manufacturing and greater Cypher availability. Nonetheless, BSX's Taxus data and its performance in Europe, analysts are reducing our 2003 EPS estimates to $2.62 (down from $2.64) and for 2004 to $2.95 (down from $3.00). Analysts continue to recommend shares of J&J, and would use any stent related weakness to accumulate the stock since much of the stent news is well known. Current price target of $60 - derived by applying a 20 times PE multiple to our 2004 EPS estimate of $2.95- represents a 17% potential appreciation of the stock in 2004.

Biotech . . . ISIS Pharma diabetes antisense drug improves glucose tolerance in Phase 1 study.

Needham upgraded Dendreon to "strong buy," following a period of being "under review." Analyst Mark Monane said "the numbers support the Dendreon story," as the company's four product lines - which now include therapeutic vaccines, monoclonal antibodies, small molecules and prodrugs - represent "a diversified platform with multiple strategies yet one focus on oncology." He added that the clinical and financial resources associated with the Corvas acquisition bolstered the platform.

Celgene started with an Outperform at FBR and $59 target. The firm is saying CELG is emerging as one of biotech's most important product stories; co is leveraged on its highly successful cancer drug Thalomid, and it has a late-stage cancer drug candidate, Revimid, that should have 5x Thalomid's peak sales potential; firm estimates that CELG's revs will triple to $772 million in 2007, and notes that sales of Thalomid alone have been enough to drive the company's transition to profitability.

Gilead Sciences downgraded at JP Morgan to Neutral from Overweight. The firm believes that it will be tougher for GILD to materially beat consensus rev forecasts in the future, and considering the stock's premium valuation. The firm thinks that further share price outperformance will be difficult in the absence of material upside to consensus forecasts.

Media . . . Paul Ginocchio at Raymond James upgraded Dow Jones to "hold" from "sell," citing evidence of strong advertising counts for the first half September. He also raised his price target on the newspaper publisher to $45 from $32. Ginocchio estimates that total advertising space increased 16 percent through Sept. 15, amid a "strong ad surge" at The Wall Street Journal.

Vivendi Universal upped to Outperform from Peer Perform at Bear Stearns. The upgrade comes ahead of a series of potential positive catalysts, including i) 1st half 2003 full results expected to beat consensus expectations (Sept 24); ii) BC Universal deal terms agreed (next two to three weeks); (iii) further clarity on VU's strategy/restructuring leading to a lower holding company discount (4th quarter 2003); and (iv) credit rating upgrade (2nd quarter 2004).

The Wall Street Journal reports the AOL Time Warner has sealed the deal to sell its Atlanta Hawks basketball team and Atlanta Thrashers hockey team to an investment group. Terms of the deal are not yet known.

Netflix target raised to $42 from $30 at TWP. The firm is also increasing 2003 estimate to $0.32 from $0.30 and 2004 view to $0.85 from $0.60 to reflect higher gross margins and somewhat lower subscriber acquisition costs.

Hotel & Leisure . . . Carnival Corp estimates raised at Bear Stearns ahead of the company's report on Thursday. Its 3rd quarter estimate goes to $0.92 from $0.88 on the expectation of stronger than expected yield trends. Pricing has been improving but still below year ago levels. Firm believes "easy money" has been made and would wait for a pullback before putting new money to work. One of the more important trends to watch, will be the return of European travel demand, which for the cruise lines represents a higher yielding passenger. Capacity in Europe is expected to increase for both Carnival and Royal Caribbean next year and even if actual prices are not raised across the board, a higher mix of European itineraries should provide at least some lift to the overall yield. At this point, it is still too early, as most of the contacts spoken with have some business on the books, but not enough to provide any reasonable visibility into what to expect next summer (which is the primary European sailing season). This past summer, though induced by very low prices, European demand came in much better than expected. Using this as a proxy for 2004, demand could prove fairly strong. From the standpoint of expenses, the company expects to realize in the 4th quarter of this year roughly a quarter of its advertised $100 million in synergies from the Princess acquisition. It seems clear us that these numbers are conservative and that the savings from the merger are likely to far exceed the publicly projected figure. One area of increases may be in the plan is advertising spending, which is likely to pick up for Carnival and Royal Caribbean over the next several months as consumers appear to be more receptive and capacity increases may dictate a slightly higher than proportionate increase in spending.

Telecom . . . Raymond James is upgrading Qwest to Market Perform from Underperform as they believe the stock has approached a more reasonable valuation. Qwest has declined 25% year-to-date compared to the S&P 500 up 15% and the group up 13%. As such, firm believes the risk/reward for Qwest has become more reasonable. The recent closing of the Dex sale and approval of long distance application by the Arizona Corporation Commission represent positive developments. Firm continues to view Qwest's fundamental position as weaker than the other RBOCs, with significant out-of-region long distance and broadband operations that need to be addressed.

Sprint PCS affiliate Alamosa on Friday announced a restructuring plan that included $260 million in debt reduction and a renegotiation of the Sprint PCS affiliate agreement. Alamosa estimates that the debt restructuring will save it more than $185 million in interest expense over the next five years, and that the Sprint concessions are worth $15 million per year. While analysts had expected a deal to encompass all affiliates, this agreement is specific only to Alamosa at this time.

Sprint has said that other affiliates need to clean up their balance sheets before any agreement will be reached. Note that PCS affiliate UbiquiTel de-levered its balance sheet earlier this year, and could be the next company to strike a similar agreement. Despite a share increase of up to 50%, analysts calculate the savings and concessions as being accretive to Alamosa cash flow per share going forward. Anlaysts see 2004 cash interest savings of $25 million and 2005 cash interest savings of $71 million.

Network Equipment . . . F5 Networks files $125 million mixed shelf to offer debt and equity securities.

Sprint introduces its Sprint Optical Networking Solutions, which is an end-to-end managed solution that connects multiple metro locations via private ring-based networks while providing enterprise customers with high-speed, direct connectivity to the entire Sprint network. The solution is based on Nortel's optical broadband services portfolio.

Qualcomm provided a mixed earnings and sales outlook. The stock initially rallied as the company said it now anticipated that "revenue and earnings per share for the fourth fiscal quarter and fiscal 2003 will achieve the high end of our prior guidance." But Qualcomm also said that reports from its licensees, received in the current quarter for CDMA products sold in the prior quarter, indicated sales of 23 million new subscriber units, below its estimate of 25 million units.

Qualcomm sees 4th quarter at high end of range; comments on CDMA units. Based on the current business outlook, company sees 4th quarter and full year EPS and revenues at the high end of prior guidance (issued July 23rd) when company called for EPS of $0.27-0.29 versus consensus of $0.29 and 2003 EPS of $1.40-1.42 versus consensus of $1.42. The company also states that royalty reports from its licensees, received in this September quarter for CDMA products sold in the quarter ended June 30, indicate sales of approx. 23 million new CDMA subscriber units "compared to our estimate of 25 million units for that quarter."

ThinkEquity commented on Qualcomm guidance. While chipset unit sales are slightly lower than firm's estimates, ThinkEquity believes that the overall picture with higher ASPs will benefit QCOM in the long term. Nokia's inroads at the low end, while impacting unit shipments, are having a beneficial impact on profitability in the near term. Firm continues to believe that QCOM will benefit from the entry into the GSM/GPRS market for the first time in 2004, and that this will help alleviate unit concerns from competition at the low end in CDMA.

Nortel will invest $200 million in the next three years to bolster its research and development capabilities in China. In a statement, the company said it expects to double the number of R&D employees in China by the end of 2003. Plans include the construction of a new 55,000 square meter campus in Beijing's Chao Yang district.

Semiconductors . . . Auguste Richard at First Albany upgraded Micron to "strong buy" from "buy," on the belief that current estimates for fiscal fourth-quarter earnings and revenue are "too low," and that manufacturing costs have coming in lower than anticipated. Richard is also expecting a seasonal surge in prices for dynamic random access memory (DRAM). Target is $22.50.

Banc of America says the Taiwan Semi's CEO Morris Chang spoke at a conference about how "mega trends" are leading to slower growth for the semi industry; Chang attributed the slowing growth to the saturation of semi content and increasing economic hurdles facing Moore's law. Chang also thinks that China is over-investing in capital equipment and creating a bubble that will cause an industry downturn in 2005-06. Given current prices for semi stocks, firm says that extrapolating forward 1990's industry growth rates, earnings power, and profitability is a mistake.

MIPS Techs downgraded at B. Riley to Neutral from Buy based on valuation. The stock is trading at 28x their 2005 EPS estimate and the recent rally has pushed the shares well above their $4.75 target.

Standard Microsystems reported strong results for the second quarter, and offered a bullish outlook. The fabless semiconductor supplier reported second-quarter earnings from continuing operations of $1.5 million, or 8 cents per share, 3 cents ahead of the average estimate. Revenue came in at $48.3 million for the period, ahead of company projections and 26 percent higher than its total of $38.3 million in the same period a year earlier. The company said it saw strong demand across all of its product lines. Looking ahead, Standard Microsystems sees earnings from continuing operations of 75 to 80 cents per share in the third quarter, including the positive impact of a $20 million payment from Intel. For fiscal 2004, the company now expects earnings of 30 to 35 cents per share, excluding special payments from Intel, up from its previous outlook for a profit of 24 to 28 cents per share.

Simple Tech started with an Outperform at Thomas Weisel and $8 target. The firm believes that the company is well-positioned to benefit from the secular shift to flash memory, and the company's potential exposure to the DRAM market should provide for upside should prices continue to rise or if the PC replacement cycle gains traction, with limited risk should DRAM remain depressed; firm also sees potential upside for Xiran and telecom.

Analysts are adjusting semiconductor industry revenue and growth forecast for 2003 from 8.7% to 9.8% ($153.0 billion to $154.6 billion in dollar terms). Analysts have adjusted unit growth forecast from +6.3% to +5.8% Year over Year, and our ASP growth forecast from 2.3% to 4.3% for the year. The increase is due to higher ASP assumptions. Analysts are maintaining 2004 revenue growth forecast at 15% Year over Year. Analysts are raising revenue guidance due to strength in ASPs for the remainder of the year. Analysts believe that there are three major product groups in which we are anticipating pricing firmness - Flash Memory, MPU and Analog Discretes. The pricing increase is coming from healthy seasonal demand in notebooks, consumer electronics and handsets. Recent datapoints from end markets have been encouraging and point to a solid 4th quarter. On the PC side analysts are expecting for 4th quarter a 11% Year/Year growth based on strength in notebooks. On the communications side, we expect solid handset unit growth of 12.5% Year over Year for 4th quarter driven by customers’ new color-screen handset launches and seasonal demand for handsets. Analysts think the industry is likely to experience strong seasonal patterns in 3rd quarter and 4th quarter. The back to school season has been quite firm and we expect a healthy holiday season that should drive consumer demand. While corporate IT spending remains lackluster we are seeing signs of a PC up grade that is driven by notebooks.

Bear Stearns is recommending Intel because of 1) strength in notebooks and higher ASPs due to

favorable product mix 2) gross margins expansion through transition to 90nm and 300mm 3) a successful business model to leverage when IT spending accelerates. BS views Samsung's valuation as compelling, at 9.9x, and believe that its re-rating should continue in the mid-term.

Software . . . Red Hat reit Underperform at SoundView and $4 target ahead of Thursday's earnings release. The firm remains positive on the Linux technology but they don't believe that RHAT's growth will be directly proportional to the growth of the overall Linux market and continue to believe that the stock's current valuation reflects an optimistic view of the company's ability to capitalize on the Linux opportunity.

Computer Associates started with a Buy rating at Merrill Lynch and $33 target. The firm is citing the company's strong bookings growth, attractive valuation, predictability of model, and sustained focus on improving customer relations.

Progress Software reported 3rd quarter (Aug) earnings of $0.19 per share, $0.01 better than the consensus of $0.18. Revenues rose 12.6% year/year to $77.7 million versus the $78.0 million consensus.

Portal Software upped to Strong Buy at Raymond James. The upgrade from Market Perform is based on a strong balance sheet, increased confidence in company's pipeline, the prospect of strong 2nd half 2003 wireless data spending, and over 25% upside to firm's $4.00 price target.

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