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Stocks bounced between gains and losses as investors weighed better-than-expected reports on housing starts and industrial production against concerns over terrorism and rising interest rates. The S&P 500 Index advanced 1 point (+0.1%) to 1,133, led by energy shares, as terrorist attacks on Iraqi pipelines and a smaller-than-expected increase in oil inventories pointed toward higher profits for the industry. The DJIA was unchanged at to 10,379. The Nasdaq Composite gained 2 points (+0.1%) to 1,998. About the same number of stocks rose and fell on the New York Stock Exchange. Big Board volume neared 1.2 billion shares, while Nasdaq volume topped 1.3 billion. In the bond market, Treasurys fell. The 10-year note was down 11/32 at 100 4/32, lifting its yield back up to 4.73 percent vs. 4.68 percent at the previous close. In foreign exchange, the dollar remained higher against both the euro and the Japanese yen. The U.S. currency rose 1.2 percent at $1.2006 per euro and 0.7 percent at 110.09 Japanese yen per dollar. In the commodities market, crude futures climbed on the New York Mercantile Exchange after the Energy Department and the American Petroleum Institute reported increases in U.S. oil inventories that fell short of market expectations. Crude for July delivery closed up 13 cents at $37.32 a barrel, after trading as high as $37.67. Gold for August delivery closed up 10 cents at $385.30 an ounce on the New York Mercantile Exchange.

Strong Sectors: casino & gaming, oil & gas, biotechnology, homebuilding, internet software
Weak Sectors: computer & electronic retail, semiconductors, agricultural products

Top Stories . . . U.S. industrial production increased 1.1 percent in May, the most in almost six years, as utility output surged and companies made more electronics and business equipment, a report from the Federal Reserve showed.

Bear Stearns., the seventh- largest securities firm, said its fiscal second-quarter profit rose 24 percent, boosted by trading revenue and investment banking fees.

The dollar climbed against the euro and yen on speculation a decline yesterday went further than justified by prospects for Federal Reserve interest-rate increases.

Sprint, the third-largest U.S. long-distance telephone carrier, will cut as many as 1,100 jobs in its unit that sells phone service to businesses.

Quotes of Note . . . ``It's important that you look at what's driving this recovery in the semiconductor industry today and it's consumption of consumer products,'' said Brian Halla, chief executive of National Semiconductor, which makes chips used in cell phones and laptops.

Gurus . . . Columnist John Dorfman resurrects Edson Gould and his three steps and stumble. This entails wariness when the Fed tightens three times. Meanwhile, Prudential’s Ralph Acampora tells Bloomberg that action in an election year is often back-end loaded with the fireworks coming in the second half of the year. Ralph says the Standard & Poor’s 500 is boxed in by formidable resistance between 1150 and 1160 (currently 1132). John Murphy, another noted technical type, feels strongly that we are going to take out those highs and get a summer rally once the Fed does its thing on June 30. And economist Ed Hyman remains constructive on the economy, but sees some signs of a slowing pace out of the latest manpower survey.

Barron's Online interviews Anton Schutz, a manager of Burnham Financial Services Fund and the Burnham Financial Industries Fund, for his stock picks. Mr Schutz says that "It doesn't really matter that you are right, it matters when you are right." Luckily for investors, his timing has been better than most. That's why his main portfolio, Burnham Financial Services, delivered a 40.7% return in 2003, ahead of the S&P's 500 by 12 percentage points and ahead of its financial services fund peers by almost 8 percentage points, according to Morningstar. And during the difficult markets in 2001 and 2002, Mr Schutz managed to rank near the top of the financial services fund category. Mr Schutz stock picks include AmeriTrade Holding, North Fork Bancorp and Providian Financial

Market Comments . . . Treasury data released June 15 showed that the funding of the U.S. current account deficit became even more long-term in April, sometimes called “overfunded”. Separately, Commerce data released June 14 showed a record April U.S. trade deficit. The two results are consistent with a durable expansion and are likely to continue.

• The April trade deficit on goods and services rose to a record $48.3 billion, bringing the 12-month total for the trade deficit to $514 billion.

• The four-quarter current account deficit through March was an estimated $540 billion. In the 12 months to April, foreigners increased their net holdings of long-term U.S. securities by $840 billion, underscoring the ease with which the U.S. has been funding its current account deficit.

The shift toward long-term funding of the U.S. current account deficit has accelerated in recent months, contradicting one of the key bearish concerns about the dollar and the trade deficit.

• The biggest net buyer in April was the UK, followed by Japan and China. The shift toward long-term funding also reflected a slowdown in net foreign central bank purchases of U.S. Treasuries and an increase in net purchases by the foreign private sector.

• While foreigners have continued to expand their position in U.S. equities, they still tend to be much more heavily weighted in U.S. bonds. This is consistent with the older demographic profile for Japan and Europe. It supports the view of a durable U.S. expansion somewhat insensitive to interest rate hikes, in that part of the bond losses from higher interest rates will be borne by foreigners.

• Despite continued foreign net purchases of U.S. equities, foreign equity investment is still only 10% of the combined market capitalization of the NYSE and Nasdaq, and less than that if the value of unlisted equities is considered.

• In 2002 (the latest year for which data is available), the U.S. net international debtor position grew to $2.4 trillion, a record 23% of GDP. However, it remains a small portion of the U.S.’s rapidly growing assets (estimated at $80 trillion). Also, the net debtor position is difficult to mark to market and probably understates the value of U.S. investments abroad.

The U.S. current account deficit is sustainable.

• The return on investment in the U.S. is higher than the cost of foreign capital, so the capital inflow associated with the current deficit is additive to U.S. growth. In addition, the return to foreign capital invested in the U.S. is, on average, higher than the foreign return on investment, meaning capital flows to the U.S. add to global growth as well. For example, Japanese investment in the U.S. returned more than investments in Japan, so it added to both U.S. and global growth when Japan increased its capital flow to the U.S.

• In 2003, investment abroad was $560 billion less than foreign savings, while investment in the U.S. was $590 billion more than U.S. savings (roughly equal to the current account deficit). In effect, the extra foreign savings funded extra U.S. investment, adding to U.S. and global growth.

• While the imbalance is sustainable, it is not preferable. A healthy change would be a higher rate of return on investment in foreign economies, making them more attractive to capital flows. This would probably increase savings in the U.S. and abroad at the expense of consumption. Japan’s economic recovery will help, as would an IMF shift from austerity to growth policies in the developing world. For now, expect the U.S. to continue running large trade and current account deficits, with stable funding from abroad.

One consideration in running a current account deficit is the impact on currency perceptions.

• Floating exchange rates as a momentum-driven popularity contest in which the judges change their preferences among growth, investment climate, interest rates, trade accounts, and fiscal accounts.

• In the end, the central bank controls the exchange rate by choosing the amount of money to create, sometimes accommodating currency weakness or strength. If locals or foreigners lose confidence in a currency, capital flight becomes a big negative. So far, we see no signs of this in the dollar’s movements.

• Maintain a forecasts for a December 2004 euro of $1.20 ($1.15 for December 2005) and December 2004 yen of 100 per dollar (95 for December 2005.) This takes into account expectation of strong U.S. second half growth, higher U.S. rates, and Japan’s constructive exit from deflation.

Eco Speak . . . Output of the nation's factories, mines and utilities rose at a faster-than-expected rate of 1.1 percent in May.. Capacity utilization rose to 77.8 percent from a revised 77.1 percent, the highest level in three years. Economists had been expecting industrial production to rise 0.8 percent and capacity utilization to increase to 77.4 percent. Manufacturing output rose 0.9 percent in May after rising 0.7 percent rise in April. Output at the nation's utilities jumped 3.3 percent in May after rising 1.5 percent in April.

ABC/Money survey says consumer confidence is near its worst level of the year as inflation picks up. The ABC/Money magazine Consumer Comfort Index stands at -20 on its scale of +100 to -100. Although the index is little changed from -19 the previous week, the index has dropped nine points in a month and is now only two points off its -22 low for the year, set in mid-March. The recent decline in confidence came as food prices climbed and gasoline topped $2 a gallon. Although gas prices dropped by 4 cents a gallon this week, the government said Tuesday that the consumer price index posted its biggest gain last month in nearly 3-1/2 years.

Financials . . . E*TRADE reports monthly Retail Daily Average Revenue Trades of 71,599 and Professional Daily Average Revenue Trades of 43,112 for total "DARTs" of 114,711, which represents a 27.7% sequential decrease from April results. "May represented a challenging environment for retail trading across the entire industry".

Bear Stearns reported second-quarter earnings of $347.8 million, or $2.49 per share, up from its year-ago profit of $280.4 million, or $2.05 per share. Revenue rose 17.8 percent in the latest three months to $1.7 billion from $1.5 billion in the same period a year earlier. The average estimate was for a profit of $2.23 per share on revenue of $1.59 billion in the May quarter. "This success highlights the diversity of our business mix and the sustainability of the underlying earnings power of this franchise," said James CEO Cayne,. "We saw robust activity across the fixed income businesses and steady improvement in clearing, wealth management and many of the equity areas." Revenue from fixed income rose 10.4 percent in the quarter to $844.4 million from $765.2 million in the same period a year earlier. The New York-based financial services provider added that it's received a notice from the SEC that the commission is mulling recommendation of a civil injunctive action and/or an administrative cease and desist order against the company related to its ongoing probe of the firm's mutual fund practices. Bear Stearns said it's cooperating fully with the SEC on the investigation, and that the possible action could result in "disgorgement, civil monetary penalties, and/or other remedial sanctions."

Merrill Lynch downgrades Knight Trading to Neutral from Buy and cuts their 2004 EPS below consensus after the co indicated yesterday that recent volumes in May and June were "dismal" and "discouraging". The firm says earnings are under pressure from a combination of factors, including the sharp decline in equity volume, but also less options trading and weak performance at NITE Deephaven hedge fund unit.

Diversified . . . Merrill Lynch increases Tyco 2005 EPS estimate to $2.00 from $1.85 (consensus $1.88), principally driven by higher profit expectations across Tyco's business, with the exception of Healthcare. According to the firm, Tyco Electronics should benefit from improving global demand and a lower cost base as the co increasingly migrates production to lower-cost locales like China. Tyco's other businesses should continue to realize profit expansion due to restructuring benefits and operational excellence initiatives, coupled with an improving industrial economy. Price target moves to $42 from $35 reflecting both firms upward earnings adjustment and updated "sum-of-the-parts" analysis.

Oil & Gas . . . Schlumberger described its business outlook as better today than at anytime since the 1970’s. The level of customer activity and demand for Schlumberger’s services is driven by the growth in demand for oil globally and the dramatic shrinkage in surplus oil production capacity since the early 1980’s. We are entering an era in which, Schlumberger believes, global oil production capacity will be barely adequate to meet demand. In this environment a major priority for Schlumberger’s customers will be to apply new technologies that identify and extract oil from untapped portions of large reservoirs that have been producing for many years. These so-called brown fields will account for more of Schlumberger’s revenues going forward than newly discovered green fields that are being brought into production. The amount of oil to be recovered (through new technologies) from brown fields is greater than will

be discovered through new exploration efforts.

Deutsche Bank upgrades BJ Services, Cooper Cameron, Ensco, Maverick, Nabors, Rowan, Schlumberger, and WH Energy Buy from Hold, and upgrades Veritas to Hold from Sell. The firm also raises their 2005 estimates for service company's and shallow water drillers, citing the higher rig count and more broad-based pricing improvement.

Defense & Aerospace . . . The WSJ reports Pentagon auditors told a House committee that contractor Kellogg Brown & Root billed the government for as many as 36% more meals than it has provided to troops in Iraq and Kuwait, adding to the dispute over how the Halliburton unit previously billed for dining-hall services. KBR, however, said its contract at times required it to prepare additional meals and estimates it charged for just 19% more meals than it actually provided. The discrepancy could lead Pentagon auditors to recommend suspending additional payments to KBR and Halliburton. Last month, Defense Department auditors suspended $186 million in payments for dining-hall services because of the disagreement. Auditors are expected to issue a final recommendation soon, at which point the Army Materiel Command will decide whether to permanently disallow the payments.

Transports . . . UBS raises their target on Harley-Davidson to $72 from $64, as they believe that the retail sales were up significantly in April (perhaps +30%) and up modestly in May (perhaps +6%), outperforming the industry for the qtr-to-date period. Based on their checks, firm believes that qtr-to-date HDI dealer sales could be up nearly 19%, above industry-wide growth of nearly 9%.

Retail . . . BB&T Capital initiates coverage of Longs Drug with a Buy rating and $30 target. While the company has very low profitability (despite industry-leading sales productivity), firm believes that with its new mgmt team in place, the company's intrinsic earnings power can be realized over time. Firm's EPS estimates are $1.05 for 2004 (versus $1.03 consensus and guidance of $1.05–$1.10) and $1.25 for 2005 (versus $1.16 consensus).

Best Buy reported earnings of $0.34 per share, $0.01 better than the consensus of $0.33. Revenues rose 17.3% year/year to $5.47 billion versus the $5.44 billion consensus. The company also guides, sees 2nd quarter EPS of $0.47-0.52, versus the consensus of $0.50, and 2005 EPS of $2.80-2.93, versus the consensus of $2.88.

Healthcare . . . The WSJ reports that 2 years ago, independent pharmacists, worried that Medicare prescription drug-discount cards would cut into their profits, sued the government and blocked the cards in court. But now that the program is under way, the independent pharmacists are offering a card of their own. In the process, they are taking aim at their sworn enemies, big pharmacy-benefit managers, which run drug benefits for employers and insurance co's and are offering rival Medicare cards. The Medicare program is the latest battleground in the long and bitter struggle between the independents and PBMs, two groups whose differing business models almost inevitably put them at odds. Pharmacists complain that PBMs squeeze the fees they charge for filling prescriptions and steer customers away from drugstores and into mail-order programs. PBMs argue that pharmacists jack up the costs of medications and that PBMs, not the druggists, are best equipped to bargain with the drug co's for lower prices. The pharmacists are making it a point to operate their new card program, called Community CareRx, differently from how most PBMs handle their cards. For example, their program is a nonprofit venture run by their trade group, the National Community Pharmacists Association. In addition, the pharmacists hired a computer-services firm, Computer Sciences, rather than a PBM, to manage the card, enroll beneficiaries and interact with the federal government. And, although the druggists are using a PBM, MemberHealth, to handle negotiations with drug makers, MemberHealth is making full disclosure to Computer Sciences about the rates it is getting. That isn't typical of a PBM, which often keeps a chunk of the discount it wins, pharmacists say. "Usually you have no idea what [PBMs] are keeping," MemberHealth vice president Scott Hughes says. With the exception of administrative fees in some cases, his co is passing almost all savings to customers, he adds

Drugs . . . Soundview initiates the U.S pharma sector with a cautious stance, as firm believes that the group is in the latter stages of a cyclical downturn in R&D productivity, with limited visibility into the next wave of innovative new products; firm also says the sector faces a number of secular challenges, such as increasing government involvement and heightened competition from generic manufacturers. Favorite name in the sector is Forest Labs, which they initiate with an Outperform and $78 target, saying the co should benefit from the recent launches of Lexapro, Namenda, and Benicar. Firm also initiated WYE with an Outperform and $45 target, saying the current price overly discounts the co's fundamentals, and initiates Pizer, Eli Lilly, Allergan, Bristol-Meyers, Merck, and Schering Plough with Neutral ratings.

Schering-Plough’s held an analyst meeting recently.

Schering’s key announcements in terms of business portfolio strategy:

- Dermatology will be spun out into a separate legal entity, with a view to partnering

- Oncology, formerly part of Specialized Therapeutics, will become the new fourth business unit, alongside Gynaecology & Andrology (G&A), Diagnostics/Imaging and Specialized Therapeutics.

- The allocation of the development budget has been reprioritized, with Oncology and G&A receiving the largest share of funds going forward.

Schering’s key announcements in terms of restructuring:

- Total cost saving in excess of €200 million.

- Headcount reductions of 2,000 worldwide, of which over 900 are in Germany.

- Restructuring costs were largely taken in 2003.

- Target operating profit of €1.05 billion in 2006 on sales of €5.8 billion is net of restructuring charges.

Biotech . . . OSI Pharma and Genentech entered into two agreements detailing the roles of the two parties with respect to promotion, marketing and manufacturing responsibilities for the investigational drug Tarceva. The agreements include an amendment of the 2001 contract. As stated in the original agreement, DNA will continue to be responsible for the marketing, launch and promotion of Tarceva. OSIP will assist with the promotion of Tarceva by providing at least 25% of the combined U.S. sales force. The second agreement is a manufacturing agreement. OSIP is responsible for commercial manufacturing and supply of Tarceva in the U.S. market.

Media . . . CIBC World Markets upgraded Cox Communications cable to sector outperform from sector performer. The broker told clients it sees Cox "as a key beneficiary of two positive fundamental trends that likely will impact cable stocks over next 12-18 months -- broadband adoption is likely to be much better than expected, and RBOC-MSO rivalry should remain rational and tempered through 2005."

ThinkEquity initiates coverage of Gemstar-TV Guide with a Strong Buy rating and $8 target. The firm believes that the company is ideally placed as a leader in the interactive TV programming guide biz, as the co already has distribution deals with the leading operators to carry its interactive programming guide (I.P.G.). The firm says that in a TiVo world with 500+ channels, they believe that the I.P.G. should become a critical tool for viewers to navigate their TVs. Also, firm says the continued SEC probe overhang as well as the company's recent lowering of guidance partly due to legacy legal issues masks what they believe is a very solid platform, with EBITDA growing strongly and an asset value which they estimate at $8.10/share.

Netflix reaffirms 2006 goal of 5 million members and $1 billion in sales.

Wachovia initiates coverage of XM Satellite with a Market Perform rating and Sirius with an Underperform rating; firm prefers XMSR over SIRI given its: 1) solid mgmt with a focus on economic returns, 2) existing OEM relationships and the potential for new relationships, 3) a leadership position in consumer premises equipment, 4) XMSR appears fully funded, while they believe SIRI will likely have to access the capital markets in 2006, 5) relative valuation (XMSR trades at $2,500 per 2004 sub, while SIRI trades at $4,500 per 2004 sub), and 6) a lower risk profile given the still early stage of the business.

CIBC upgrades Cox Comms to Sector Outperform from Sector Perform with a $36 target. Cox will be a key beneficiary of two positive fundamental trends that likely will impact cable stocks over next 12-18 months -- broadband adoption is likely to be much better than expected, and RBOC-MSO rivalry should remain rational and tempered through 2005.

Media General now sees EPS below $0.85 per share versus consensus is $0.89, previous company guidance called for $0.85-0.90. "Having the greatest impact on these lowered expectations is a reduction in anticipated equity earnings from SP Newsprint because newsprint price increases have not materialized to the degree previously anticipated. In addition, while Media General has seen solid year-over-year gains in advertising revenues, growth has not been as strong as anticipated in certain categories."

Google's initial investment in China's biggest search engine firm sets the stage for a face-off with archrival Yahoo in the world's second-biggest Internet market. Google, which has no physical presence in China, has dipped its toe into the market by buying a minority stake in Baidu.com, which calls itself China's top search engine and has plans to make an IPO in the US. Sources said at least eight Chinese and overseas investors, including Google, sank about $100 million into Baidu for a combined minority share. China's Internet market is expected to grow to 111 million subscribers by the end of this year from 81 million a year ago.

Hotel & Leisure . . . International Game Technology said it's in the process of terminating its existing $260 million credit line and arranging a new $1 billion facility. The gaming equipment company is also redeeming all $569.6 million of its outstanding 8.375 percent senior notes due May 2009. It expects these transactions to reduce pre-tax net interest costs by between $5 million and $7 million in the fourth quarter, and $24 million to $28 million in fiscal 2005. IGT also declared a quarterly cash dividend of 10 cents per share, and said it remains comfortable with Wall Street's current mean estimate for a profit of $1.32 per share in fiscal 2004 excluding items, and with its target for earnings per share growth of 15 percent in fiscal 2005.

Several firms out in defense of International Game Tech this morning after an aggressive sell-off yesterday. Smith Barney out saying shares were weak again, without any apparent incremental info. That said, 2 issues have been the focus of investor attention: PA and the UK. The outcome of legislation that would legalize slots in PA is still uncertain and will remain volatile as the June 30 end of the current legislative session approaches. Firm spoke with key PA contacts again and believes that negotiations are ongoing and that progress has been made over the last few days. They believe passage by the week of 6/28 is more likely than not, though the final outcome is difficult to predict. 2) Monday's version of draft legislation on UK gaming deregulation fell short of previous investor expectations, though they view this as a modest negative. Weakness also potentially related to IGT breaking 200 day moving average. All said, these developments would not explain the recent weakness in IGT shares.

MGM Mirage and Mandalay Bay reach agreement on $71.00/share merger, a premium of approximately 30% to Mandalay's closing share price on the day before MGM MIRAGE made its initial offer. The total value of the acquisition is approximately $7.9 billion, including equity value of approximately $4.8 billion, $600 million of convertible debentures and the assumption of approximately $2.5 billion in outstanding Mandalay debt. MGG anticipates the transaction will be completed by the first quarter of 2005.

Poised to sign new deals with five Indian tribes that cut the state a slice of their casino revenues, Gov. Arnold Schwarzenegger said he will actively oppose two November ballot measures that seek to dramatically expand casino gambling in California. The tribes would pay annual license fees for new slot machines over the current maximum limit of 2,000 in the existing compacts. The fees would be on a sliding scale, from $12,000 to $25,000, depending on the number of machines. Sources estimated that could eventually amount to about $275 million annually.

Telecom . . . Sprint disclosed plans to reduce its workforce by 1,100 employees as part of a restructuring to "further align company resources with customer segments and to maintain a cost structure that reflects highly competitive long-distance market conditions." The layoffs will include up to 850 employees in its Sprint Business Solutions unit, and 250 employees that support the unit. "While we are seeing growing customer acceptance of our integrated portfolio and experiencing strong wireless growth in particular, we continue to see market pressures in our traditional long-distance business," said Howard Janzen, the president of the Sprint Business Solutions unit. The company added that it continues to expect adjusted earnings of 70 to 75 cents per share for the year with free cash flow of about $1.8 billion. Sprint said the stronger performance of its PCS wireless division and a steady performance by its local division offset lower contributions from its global markets division.

JP Morgan adds Qwest to their Focus List based on valuation, as the stock has declined meaningfully since they removed it from the List on April 28, despite positive regulatory news; firm believes the stock's discount to other RBOCs is unwarranted, given that Q has the most to gain from higher UNE rates in terms of incremental free cash flow.

Storage . . . Brocade highlighted that it sees multiple growth drivers for the company -- with the SilkWorm 24000 now competing in the Director-class, FICON enabled market; emerging low-end market where it pointed to having nearly all of the OEM design wins; and with the new

multiprotocol router offering. There was no financial update from Brocade today with the company having reaffirmed its 1st quarter 2005 guidance at 06/09 analyst meeting. When asked about how it is competing with Cisco, Brocade cited its broader set of products, being

more partner focused, and its large installed base. At a seperate presentation, HP's Storage executive noted that it is seeing strong customer interest in Cisco SAN switches. In response to a question on Cisco's storage efforts at his keynote address today, Cisco CEO John Chambers noted

that while it takes time to break in to an installed base, Cisco is very comfortable with how its storage efforts have gone so far and that Cisco views its efforts here not just as targeting the SAN market, but as a much broader data center infrastructure and architecture effort.

Network Equipment . . . Nortel Networks, North America's largest maker of telephone equipment, said it is the lowest bidder for part of an order to supply India's Bharat Sanchar Nigam with equipment to run mobile-phone networks. In an earlier story, Bloomberg.com reported that Nortel Networks and Nokia may get an order worth 40 billion rupees ($881 million) from Bharat Sanchar Nigam Ltd., citing Business Line.

Smith Barney reits a Buy on Juniper Networks and would be buyers ahead of the company's 2nd quarter report on July 13 based on strong demand for service provider core and edge routers and enterprise firewalls, VPNs, and Intrusion Detection.

Baird notes that Westell stated in its 10-K that revenues and earnings for June Quarter and September Quarter are expected to be below March Quarter results. The September Quarter was new information. The main issues are price concessions on longer-term contracts, reduction of inventory held by RBOCs, and typical seasonality. However, this was in line with the firm's estimates. Stock likely to remain weak. Maintain Neutral rating and $5 price target.

Semiconductor Equipment . . . WR Hambrecht initiates coverage of Semitool with a Buy rating and $15 target. While the company faces formidable competition from larger equipment producers, it remains a technology leader in the high-growth electrochemical deposition and single-wafer clean markets.

Semiconductors . . . Sonic Solutions announces introduction of the Sonic Dolby Digital AC-3 Encoder for MIPS Technologies' (MIPS) new Consumer Audio Platform. Encoder is first software component designed specifically for microprocessors based on the industry-standard MIPS32 architecture. Sonic's says its "AC-3 Encoder dramatically cuts chip design cycles by providing MIPS licensees with a high-quality Dolby Digital stereo encoder that can be quickly and easily integrated into microprocessors for consumer electronics products".

Broadcom to signs a definitive agreement to acquire WCDMA (Wideband Code Division Multiple Access) mobile device maker Zyray Wireless Inc. Co will issue or reserve for issuance approximately 2.23 million shares of its Class A common stock (with total value of approx $96 million) in exchange for all outstanding shares of Zyray capital stock and upon exercise of outstanding employee stock options and other rights of Zyray. The boards of directors of both companies have approved the merger; transaction is expected to close during BRCM's 3rd quarter, which ends September 30.

Although semiconductor demand remains strong, there is not an order frenzy or a panic buying activity. This is not surprising given that we are in 2nd quarter which is probably the slowest quarter in the year. This is a longer term positive as customers are not double ordering and triple ordering. There are increasing indications that PC demand should improve heading into 2nd half 2004 which might lead to rush orders and serve as a catalyst for stocks to move higher. Note that ICST indicated its PC clock revenues rebounded quickly in June after a weaker than expected May. Analysts have considerable conviction that PC oriented semiconductor stocks will be the first ones to outperform in 2nd half 2004.

In graphics, an area of focus in the presentations was the new product cycle in that segment. While NVIDIA believes the PCI Express transition will not lead to any meaningful share shifts within the graphics market, ATI continues to express its optimism for market share gain. We believe ATI is well positioned ahead of the transition, based on the strong design win momentum it has seen with PC OEMs for Grantsdale-based PCs. ATI indicated that it could announce design wins in its handset business (Imageon product line) during 2nd half 2004 both for new handset customers as well as for new models at Motorola. Continued growth in the consumer businesses, where ATI is clearly well positioned, will be accretive to margins and ATI believes it is moving from a 32-35% gross margin model to a 34-38% model. ATI continues to announce positive press.

Software . . . The WSJ reports Hyperion Solutions last month said its board has earmarked $75 million for stock repurchases. Hyperion, which has about $340 million in cash, had just completed another buyback program, spending $125 million buying its stock from July through March. At the same time, however, several of the company's top executives were selling some of their holdings through prearranged trading programs. For example, Hyperion's chairman and CEO, Jeffrey Rodek, has realized more than $6 million from exercising options since July, including $1.6 million last week. Hyperion officials said the executive sales are for diversification reasons and not related to the buybacks. Mr. Rodek, who has run the co since 1999, said Hyperion executives set up their trading plans nearly two years ago, and Hyperion shares have risen sharply in the past 5 years. "When I joined the co, Nasdaq was above 2800 and our stock was at $19. Today, Nasdaq is under 2000 and [Hyperion shares are] at $38," he said recently. "So I'm not going to apologize to anyone on that."

Barron's Online highlights WebEx, suggesting the company should benefit from web conferencing growth. "Web conferencing is a young and growing industry and WebEx is the leader," says Steven Ashley, an analyst at Robert W. Baird. Worldwide Web conferencing revenue is expected to reach $1.5 billion in 2008 up from $584 million last year, says market research firm IDC. Since WebEx launched its service in 1999, the co has captured roughly 2/3 of the web conferencing market, according to market research firm Frost and Sullivan. In the past 6 trading sessions, shares of WebEx have fallen by 17% after ThinkEquity downgraded the stock to Sell based on concerns that Microsoft, with its marketing might, might poach WebEx customers by lowering prices. But the sell-off is overdone, say some analysts. "We're not seeing customers switching [to Microsoft]," says Andrey Glukhov, an analyst at Southwest Securities who rates shares of WebEx at Strong Buy. David Alexander, an analyst at Frost and Sullivan, expects WebEx to continue growing market share thanks its market dominance and expected growth for the industry. On the surface, WebEx's service may seem more expensive than Microsoft's Live Meeting. Microsoft typically charges about $22 per user for its Live Meeting service promotion, while WebEx charges about $75 per user with a 90-day contract after which the agreement goes month to month. But the two are comparable at about 30 cents a minute, says Mr Ashley. And WebEx's service can be shared among many employees whereas Microsoft's offering only allows the person assigned to that account to use Live Meeting. According to the article, WebEx shares look attractive, trading at a moderate discount to their expected long-term annual earnings growth rate. In addition, WebEx's P/S ratio of 4.5x is at a discount to its median ratio of 6.6x. The co seems to have plenty of cash to develop new services with $143 million, or $3.26 a share, in cash and little debt.

Merrill Lynch points out that Oracle has now seen three consecutive quarters of growth in the database business. Firm sees this as particularly important, as we have not yet hit the real 10G upgrade cycle at this time. They feel this growth is a clear sign of stability, and puts the company on solid footing going into the new year. Total apps revenue was a bit disappointing at $231 million, declining 6% annually but firm believes that the new 11i release later this year should also have a positive impact on the business. Firm believes that their F05 estimates could prove to be conservative, with an 8% (constant currency) growth rate.

JP Morgan says Oracle may trade lower on hand wringing about the applications, the firm's thesis has not changed and they continue to like the risk reward profile. Upcoming catalysts from here include 1) ending of DoJ trial (any resolution should remove shroud of uncertainty and headline risk) 2) the naming of a CFO and 3) the analyst day in Mid July. Firm notes that for the year, co guided to 10-20% operating income growth and a 40+ % operating margin. By their calculations, this implies a 5-14% revenue growth and roughly $0.55-$0.60 per share (up 10-20% Year over Year) putting consensus of $0.56 at the low end of guidance.

JMP Securities is reducing their target on Oracle to $15 from $17, to reflect the overall decrease in software trading multiples that has occurred over the past six months. Also calling Oracle's applications performance terrible, down 6% year-over-year and down 9% in constant currency. Maintains their Strong Buy rating.

RBC Capital initiates Chordiant Software with an Outperform and $6 target. More and more, financial services companies are looking for more advanced packaged solutions, and Chordiant is well positioned to capitalize on this market opportunity. Chordiant has established a strong presence in Europe with 5 of the top 6 most profitable banks in the UK. Today, Chordiant is focused on expanding its North American presence, as exhibited by two large wins in 1st quarter. The stock trades at 22x 2005 EPS estimate of $0.20 compared to the enterprise software group average of 29x. The $6 target assumes a slight premium.

Oracle said yesterday it was building up its cash reserves in the hopes of making "several large acquisitions" worth more than $1 billion each over the next two years. CFO Jeff Henley said that Oracle was studying a number of potential acquisitions, and that a successful takeover of PeopleSoft would not hold it back from pursuing other deals. "We're looking at several different things, all of them multi-billion dollars." The software maker has added more than $2bn to its cash and short-term investments over the past year, taking the total to $8.6bn, "in anticipation of doing some large acquisitions, including PeopleSoft," said Mr Henly. Target companies that had been studied include applications software companies such as PeopleSoft and rival makers of the "middleware" or platform software that Oracle already makes itself, he said, as well as acquisitions "in other industries".

CSFB downgrades Adobe to Neutral from Outperform based on the following: 1) tough Year over Year compares in the 2nd half 2004, 2) the normal tapering off of an already longer than expected product cycle, especially since the Creative Suite revs have already peaked, and 3) firm does not expect meaningful upside to rev and earnings estimates in 2nd half 2004, as expectations are already set too high. Firm notes that 3rd quarter is typically a challenging qtr, and they expect the co to guide conservatively owing to seasonal weakness in Japan and Europe and uncertainty over the current product cycle and education mkt. For 3rd quarter, firm's revenue forecast is $337 million versus consensus of $362 million, and EPS of $0.29 versus consensus of $0.32. Target is $51.

Wedbush Morgan comments that Oracle's results were mixed, with strong performance on the database side and somewhat disappointing on the application side. Earnings beat by a penny but due to a lower tax rate and share buybacks resulting in a decline in fully-diluted shares. In firm's view, neither the results nor the guidance were strong enough to generate incremental upside to the shares. At this point, believes that other Focus-List names (i.e., E.piphany, Hyperion Solutions, and MicroStrategy) offer more exciting near-term upside potential. Price tgt goes to $16 from $18.

Piper Jaffray says NPD sales of Symantec products totaled $61.0 mln in the first ten weeks of the JunQ, down 15.1% from the first ten weeks of the March Quarter. The firm believes the Street is looking for a 0%-5% sequential decline in consumer offline sales from March to June. Piper expect Symantec to meet Street estimates for the June Quarter. Firms analysis of NPD and Symantec domestic offline sales suggests that upside related to company's domestic offline business may be less than it has been in the previous two quarters. However, Piper believes the implications of the weekly NPD data are already reflected in SYMC shares. For the balance of the June Quarter, firm looks for SYMC share price to be dependent on virus activity.

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