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From Briefing.com: 6:30PM Swing Trader : -- Technical -- Markets opened lower and and sellers remained in control throughout the session thwarting any intraday attempt for a rally. Market Breadth was negative as Decliners outpaced Advancers 2.6 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. Volume was notably higher on the indices, especially the QQQQ, which traded its highest volume since May 2004...(continued)

Close Dow -112.03 at 10633.07, S&P -9.68 at 1188.07, Nasdaq -19.23 at 2015.75: Historic highs in oil, downside guidance from GM and mixed economic data fueled broad-based weakness that closed the indices substantially lower and nearly every sector in negative territory... Crude oil was the focal point well before the market even opened, as prices fell below $55/bbl after OPEC raised output quotas by 500K barrels a day... But the release of disappointing oil inventories data at 10:30 ET was all traders needed to erase early weakness, as the king of commodities began its climb and quickly crowned a new all-time high of $56.46/bbl (+$1.41)...
The Energy Dept. reported a 2.6 mln barrel increase in crude oil inventories (consensus +2.0 mln), but sharper than expected declines in weekly gasoline inventories and distillates, which fell 2.9 mln barrels (consensus -1.0 mln) and decreased 1.9 mln barrels (consensus -1.5 mln), respectively, reversed previously muted inflation concerns following mixed economic data... But before investors could sift through the week's largest batch of economic reports, the market was rattled by a warning from General Motors (GM 29.03 -4.69)...

The world's largest automaker slashed Q1 forecasts to a loss of $1.50, versus prior forecasts of breakeven or better, due to sluggish sales in North America... More notably, while the larger than expected downward revision amounted to GM's largest quarterly loss since 1992, a sense of nervousness regarding further deterioration of GM's already poor credit rating (a notch above junk status) swept through the minds of both equity and bond traders, underpinning a firmly bearish bias for stocks... That said, corporate bond investors flocked to safer, more stable debt instruments like Treasurys, sending the 10-year note up 15 ticks to yield a more tolerable 4.48%...

But unlike most other days, when falling bond yields provided a level of buying support for stocks, the damage had already been done as buyers remained on the sidelines throughout the rest of the session... The benchmark 10-year note finished up 8 ticks, pulling back slightly on technical trade into the close, to yield 4.51%...

Meanwhile, the current account deficit in Q4 widened to a record $187.9 bln (consensus -$183.0 bln), from an upwardly revised $165.9 bln in Q3, news that only added to the overall negative tone, as the dollar weakened against every major currency, in particular, the euro (1.3417) and the yen (104.18)... Also, Feb. industrial production reached record levels with a rise of 0.3%, which were slightly below forecasts of 0.4% but above an upwardly revised Jan gain of 0.1%... Feb. capacity utilization checked in at a respectable 79.4%, a bit above expectations of 79.2%, but held below the 80% inflection point typically linked to bottlenecks and rising price pressures...

The other two pieces of economic data were Feb. housing starts, which hit a 21-year high with a stronger than expected 2.195 mln annual rate (consensus 2.030 mln), and Feb. building permits, which declined to a 2.074 mln annual rate and down from 2.132 mln a month earlier, but were relatively in line with forecasts of 2.070 mln... With regards to sector strength and weakness, the latter won outright as decliners outpaced advancers by a 2 to 1 margin... Pacing the way lower was Materials (-1.9%), dragged lower by weakness in Steel (-3.2%), Diversified Chemicals (-2.9%) and Paper (-2.3%)...

Auto Manufacturers (-7.8%) and Auto Parts & Equipment (-2.5%) were also very weak following GM's disappointment while weakness in Brokerage (-1.1%), despite strong Q1 earnings from Bear Stearns (BSC 102.18 -3.85), weighed heavily on Financial (-0.8%)... Bear Stearns handily beat analysts' Q1 (Feb) forecasts with earnings of $2.64 per share but the results failed to meet increased expectations following a much larger upside in earnings from Lehman Brothers (LEH 93.73 -2.46) yesterday... Biotech was also weak after FDA officials and Biogen Idec (BIIB 37.22 -0.85) warned that Biogen's MS drug Avonex can cause severe liver injury, including liver failure...

Other influential leaders to the downside were Telecom Services, despite Qwest's (Q 3.82 -0.04) sweetened $8.45 bln offer for MCI (MCIP 23.85 -0.18), Utility, Transportation, and Consumer Discretionary... The only notable sector gaining ground was Energy (+0.2%) due to historic highs in oil...DJTA -1.5, DJUA -0.7, DOT -0.4, Nasdaq 100 -1.1, Russell 2000 -0.6, SOX -1.0, S&P Midcap 400 -0.9, XOI +0.2, NYSE Adv/Dec 916/2423, Nasdaq Adv/Dec 1056/2028

9:17AM Gapping Down : GM -11% (guides lower; F -3.9% and DCX -2% down in sympathy), MSTR -13% (downgraded to Sell from Hold at Wedbush; tgt cut to $60; First Albany also downgrades), ABTLE -12.3% (asks for filing extension; in danger of delisting), TPC -12% (reports Q4), TIVO -6% (profit taking after 75% move yesterday), CMGI -5% (profit taking after 25% move yesterday), TELK -3.7% (Lehman downgrade), CPHD -3.7% (profit taking after 9% move yesterday on anthrax scare), IFOX -3.3% (reports Q4), AVCT -3.2% (profit taking after 14% move yesterday), UCL -3% (profit taking after 17% move in 2 weeks), BOOM -2.8% (profit taking after 50% move in 8 sessions), VECO -2.7% (misses by $0.04, guides Q1 EPS below consensus), SYMC -2% (EU approves VRTS acquisition), GOOG -1.1%.

8:59AM Gapping Up : RIMM +18% (co and NTP agree to resolve litigation; RBC upgrade), OPNT +21% (announces sistribution agreement with Cisco), KERX +20% (finalizes special protocol assessment agreement with FDA), SIGM +13% (reports JanQ; Needham upgrade), VISG +11% (resumed with a Mkt Perform and $6 tgt at Piper), IOTN +7.6% (entends yesterday's 11% move following Q4 report), NGAS +7.6% (reports DecQ), SHOP +4.2% (Piper upgrade), ELX +3.9% (JP Morgan upgrade), TOY +3.4% (Two suitors bid for all of Toys 'R' Us - WSJ), CPB +3% (upgrades from CSFB and Deutsche), FRO +2.9%, SONS +2.3% (positive Goldman comments).... Under $3: ANLT +15%, PRCS +10% (Medicare to cover prostate cancer drug - Reuters).

7:31AM General Motors lowers guidance (GM) 33.72: Co said it now expects to report a loss of approximately $1.50 (consensus $0.05) in the first quarter of 2005, excluding special items, compared to a previous target of breakeven or better. Co sees Y05 EPS of $1.00-2.00 down from prior guidance of $4.00-5.00, consensus $3.47. Co cites lower North American sales and production volumes, a tougher pricing environment, and a more car-based sales mix. At the same time, GM's other automotive regions and GMAC are all on track to meet or beat their 2005 net income targets. GM's previous first-quarter earnings guidance was based on North American vehicle-production volume of 1.25 million vehicles. Since then, production schedules have been reduced by approximately 70,000 vehicles. In addition, the pricing environment has been more competitive than expected in North America.

7:10AM Mortgage apps rise, avg 30-year rate highest since July : Mortgage applications rose for the first time in five weeks; the popular mortgage gauge rose 3.2%, moving to 727.6 from 704.8, according to the Mortgage Bankers Association. Average 30-year rates increased to 5.91% from 5.69%, 5.91% is the highest since July. The purchases index rose 2.5% to 462.8 last week, the highest since Dec 24. The refinancing index rose 4.2% 2267.5.

2:24PM General Motors (GM) 29.41 -4.31: General Motors is in a downward spiral and no one is willing to call the bottom any time soon. The automaker is suffering from lackluster sales and worse than expected pricing, both weighing on profitability resulting in continued market share losses within its North American operations. Rick Wagoner, the company's CEO called this market "our 800 pound gorilla," which clearly continues to beat its chest after the company slashed its earnings and cash flow guidance for the Q1 and the full year, taking its stock and the rest of the market down with it.

GM now expects to report a loss of approximately $1.50 (consensus $0.05) in the first quarter of 2005, excluding special items, compared to a previous target of breakeven or better. This will be the biggest quarterly loss since 1992. For the full year, it sees FY05 EPS of $1.00-2.00 down from prior guidance of $4.00-5.00 - not even in the same ball park with an already reduced consensus of $3.47. The automaker cited lower North American sales, high inventory, production cuts, a tougher pricing environment, and a more car-based sales mix. It did state, however, that its other automotive regions and GMAC are all on track to meet or beat 2005 net income targets.

To say first quarter sales were disappointing would be a drastic understatement. Feb car sales declined for the fifth consecutive month. Its previous earnings guidance was based NA vehicle-production volume of 1.25 million vehicles. Since then, production schedules have been reduced by approximately 70,000 vehicles. Profitability has always been an issue, but in Q1 co noted the pricing environment was even more competitive than expected. There are many factors impacting auto sales right now including high oil and gasoline prices. Yet, its competitors, particularly the Japanese automakers, have been able to generate stronger sales and profits. The main difference is that GM has an imbedded cost structure including pension and healthcare costs, growing in the high single-digits per annum.

The drastic drop in cash flow guidance sparked the most downside pressure in shares. The company went from a target of $2 bln to a deficit of $2 bln! Management stated during its conference call, that it took a big hit in the first quarter due to production cuts, but that cash flows should be positive for the rest of the year. What is important to consider here is that GM does not plan to change its strategy by driving growth through new products. Management stated it's "staying the course" on key products. As such, its capital expenditure budget will remain at $8 bln and will accelerate the rollout of several new models. Therefore, with a $2 bln deficit and capex likely to remain untouched, this Dow component may have to cut its dividend currently 6.84% at its next board meeting.

Standard & Poor's and Moody's both announced they are reviewing the company's debt rating with S&P changing its outlook to Negative today. The market is expecting a possible downgrade on GM's debt over the next few quarters. GM is the second largest borrower in the world outside the Financial sector with $43 bln in fixed-rate US dollar denominated bonds. Last year, net interest expense rose 26% to $12 bln. GM has been paying junk yields on bonds in order to attract investors.

The warning sparked several downgrades from Wall Street including a Sell from Neutral rating from Merrill Lynch. GM weighed on the entire market as the auto market makes up 3.7% of GDP. Several groups also traded lower on sympathy including auto part makers Dana Corp (DCN) and Delphi (00C), tires and rubber producers Cooper Tire (CTB) and Goodyear (GT), and auto resellers AutoNation (AN).

Considering North America accounts for 70% of total revenues, like Mr. Wagoner said, GM must "get this business right." We would recommend investors steer clear of shares because it's nearly impossible to catch a falling knife, yet alone one thrown by a giant irritated ape.---Kimberly DuBord, Briefing.com
2:16PM Bear Stearns Companies (BSC) 102.47 -3.56: Following Lehman's blowout results on Tuesday, Bear Stearns took the market by surprise reporting a strong first quarter as well. The upside for the number six securities firm, similar to Lehman, was driven by strength in the fixed income Capital Markets segment coupled with expense management. Bear reported Q1 earnings of $2.64 per share up 3% y/y - $0.30 better than the Reuters Estimates consensus of $2.34.

On the top line, revenues rose 6.5% year/year to $1.84 bln well above the consensus estimate of $1.7 bln. The company attributed the upside to the diversity of its franchise. Bear is divided into three business Capital Markets (76% of total revenues), Global Clearing (14%), and Wealth Management (9%). The Fixed Income business within the CM segment was able to maintain a slight revenue increase vs. difficult comps from last year. From last quarter, fixed income jumped 21% as its credit business produced record revenues propelled by credit derivatives, high yield, and distressed debt. Institutional Equities revenues were up 6.7% y/y and 4.6% q/q benefiting from rising international activity levels and increased sales and trading revenues. Despite upside on the top line, pre-tax income within this segment dropped 5.3% y/y and 16.5% q/q.

Global Clearing showed the strongest growth with revenues up 20%, as customers' balances increased significantly boosting net interest revenues. Margin debt and short balances also rose. Profit margins within this division improved significantly. Income from fee-based accounts, and higher performance from alternative asset funds, generated an 11% hike in revenues within its Wealth Management segment. Return on common stockholders' equity was 17.8% well below LEH at 24.5%. Bear was able to hold expenses in-line as compensation as a percentage of net revenues increased just slightly to 49.3% from 49.2% last year. Pre-tax margins widened to 31.5% up 220 basis points q/q and 70 basis points y/y.

After suffering declining revenues for three consecutive years back in 2001-2003, the brokerage industry turned around last year. Subsequent stock performance has been based on the positive growth picture with revenues likely to match last year up 7-8% in 2005, according to the Securities Industry Association. The positive momentum is being driven by prime brokerage in hedge funds, strong equity and debt issuance, along with an upswing in M&A activity. The SIA expects a 30% increase this year with deals reaching a trillion dollars.

The outlook remains quite good for the industry as the economy maintains its strength. The equity, currency, and commodity markets have all been quite volatile, in addition to big swings in the bond market, all of which are driving trading profits. People are interested in the markets again, boosting retail and mutual fund activity. The risk for the brokers is to keep up the strong pace set in the Q1. Further, stock returns have been quite impressive, as such shares are at risk for near-term profit taking. Despite upside results, BSC's shares are trading lower, which may be due to its business mix on expectations of slower fixed income growth ahead. ---Kimberly DuBord, Briefing.com

12:25PM Veeco Instruments (VECO) $14.52 +0.55 (+4.0%) How is it that a company that misses earnings by four cents and then guides earnings for the coming quarter significantly lower than current estimates is able to have the stock price rise by 4% on what would usually be viewed as extremely bad news?

The answer is relatively simple. The uncertainty surrounding Veeco's restatement of their prior three quarters is now lifted. Ironically, although the revenue restatement for those three prior quarters amounts to a change of only 2.3 million less over the nine month period, the picture of revenue growth is much, much different. The prior revenue picture, including the consensus estimate for Q4 looked like this: 94.5, 102.9, 92.4, 94.0. The restated revenue picture, with the Q4 actual looks like this: 90.9, 99.2, 97.4, 103.0.

The first revenue curve, that of the restatements and the expectations, looks like a growth company that has peaked and is more likely to show a flattening revenue trend going forward, rather than a growth trend. That demands a low multiple on earnings going forward.

The second revenue curve, however, that shows the restated results and the Q4 actuals, looks like a strong growth company that is just beginning to fulfill its potential. That type of scenario can demand a much higher multiple of future earnings, even when those earnings expectations have just been lowered.

In addition, the company's lowered guidance for Q1 2005 earnings is offset by their guidance of revenue of $85-90 million, whose upper range is higher than the current consensus Q1 revenue estimate of $87m. While such a revenue level for 05Q1 would be lower than the restated 04Q1, there is another added good piece of news.

Veeco's stated that orders taken were up, in Q4, by 24% over the prior quarter, indicating a pickup in demand. In addition, the rise in products in the high-brightness-LED wireless segment, to a level of 25% of Q4 revenue, makes it almost as strong a revenue component as data storage products, which were 29% of revenue.

When you put all of these pieces together, and combine it with the excellent way in which the restatements were handled (essentially blamed on a single employee in an acquired company who aggressively booked both revenue and shipments), you get a "reversal" of the impression of the company. Before this quarter and the restatement, the picture was of an "untrustworthy company without much of a growth curve in the "trying-to-rebound" data storage market. With the restatement and the revived demand picture going forward, including a larger component from the very healthy HB-LED wireless market, the picture is of a very reputable company with excellent potential.

And that's a company that misses earnings for the current quarter and guides earnings lower for the coming quarter gets the stock to rise by 4% on such news. The following table summarizes the restatement of the three prior quarters for Veeco. Item Q1
Restated Q1
Prior Q2
Restated Q2
Prior Q3
Restated Q3
Prior Q4
Revenue, $M 90.9 94.5 99.2 102.9 97.4 92.4 103.0
GAAP EPS -0.09 -0.02 -0.06 0.05 -0.07 -0.05 -1.88
EPS, X-charges 0.05 0.11 0.06 0.15 -0.02 0.05 0.03
Veeco will hold a conference call today, at 1:00 EST, to discuss the results. If you want to listen, the number for the call is 800-818-5264. The call is also available as a webcast at www.veeco.com. - Robert V. Green

10:09AM Research in Motion (RIMM) 76.61 +9.52: One of the albatrosses that have been around the neck of Research in Motion (RIM) was lifted today, as the company and NTP agreed tp settle all current litigation. There had been much concern that the lawsuit that NTP brought against RIM could have seriously damaged their business and even prevented them from using the technology in the United States.

As part of the settlement, RIM will pay NTP $450 million for a license to continue selling the popular BlackBerry. The amount relates to the settlement of past damages and includes the monies that were set aside in escrow for just such an event. The company noted that they expect to expense $313 million in the fiscal fourth quarter ended February 26, 2005.

The most important part of the settlement, the ongoing royalty rate, was not included in the release. The company stated in the release that further comments and details will be provided on the April 5, 2005 earnings conference call. This is subject to having a definitive licensing agreement signed at that time, so it is possible that we may not learn the royalty rate until some time after the earnings call.

The long and the short of it is that the deal was made almost entirely due to the fact that Good Technology, a competitor on the service front, entered into a similar agreement with NTP on Friday. This bolstered their claim to the Nth degree. Nokia had also applied to use the NTP patents last year as they moved to provide their own smart phone to the market. The settlement had to come after the Good Technology deal, and now NTP stands to receive similar royalty payments from any company that wishes to compete with RIM or Good. This, in effect, is a tax on any competitor that looks to come into the market, which also means that that they have to have better economics than RIM or Good to make the service work and to be attractive to investors and consumers alike.

One can easily argue that not only does this become a two horse race, with one horse way ahead of the other, it also limits the entrant field to a select few. Certainly service providers will get up and running in Europe, as they already are, but few will transition services to the US if they have to pay the royalty tax to NTP. It takes a cut right off the top line, and in order to maintain margins, companies would have to increase rates or fees, something that would not drive consumers to their products.

The next item of concern for RIM will be the competition in the hardware market. Several companies already are producing smartphones that have more features than any BlackBerry, including a model from Samsung that has an MP3 player and camera among its features. Once we see the complete convergence of the smartphone with other entertainment features, the question will be whether RIM can keep up with the advances in the hardware.

9:08AM Page One - Still Very Choppy : The weight of rising bond yields, high oil prices, and inflation concerns produced a steady slide in the indices yesterday. So far this week, it is one day up and one day down with still no clear direction.

This morning, futures suggest a near flat open. There is good news from OPEC, which has agreed to raise output by 500,000 barrels a day. That isn't a whole lot, but it helps, and oil prices are down about $0.35 but still hovering just below $55 a barrel.

There is bad news from General Motors. The company warned that it will post a loss of about $1.50 a share in the first quarter. Expectations had been for about a flat quarter. This is a big dollar impact on overall S&P earnings. It is a major warning.

The economic data is not all that significant. February housing starts unexpectedly rose to a 2.195 million annual rate, up from a 2.183 rate in January and above the expected 2.030 million rate. Housing starts are holding up very well given rising interest rates, but went through the 2.00 million rate level in late 2003. Overall, the trend is relatively flat and starts are likely to ease somewhat in the months ahead.

Bear Stearns reported earnings $0.30 ahead of the expected $2.34 for the quarter. That isn't really a surprise, however, as brokerage firms tend to readily beat estimates during good times. Right now, merger and acquisition activity is helping the industry. Yesterday, Lehman Brothers reported earnings $0.71 ahead of expectations. In other earnings news, Ross Stores beat by a penny, and Charming Shoppes missed by a penny.

It still looks very much like a choppy, trading range market for now. However, if warnings pick up, there is near-term downside risk. Dick Green, Briefing.com

http://biz.yahoo.com/mu/story.html