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From Briefing.com: 6:40PM OmniVision Secures Key Design Win From Leading Handset Maker (OVTI) 25.98 +0.30: Co announced that it has secured a major design win to supply its OV9650 1.3 megapixel CMOS image sensors for use in upcoming, high volume camera phones of one of the world's largest handset makers. This follows a series of design wins for this sensor with other handset makers and marks a milestone for this product. "Last year, VGA cameras clearly led the camera phone market, but this year, 1.3 megapixel cameras are quickly gaining popularity," said Jess Lee, OmniVision's Director of Product Marketing. "These successive design wins of our OV9650 underscore our belief that 1.3 megapixel cameras will join VGA in dominating the camera phone market in 2005."

4:06PM Electronic Arts lowers FY05 rev and EPS guidance (ERTS) : Co now expects FY05 net rev to be $3.100-$3.125 bln, vs previous guidance of $3.275-$3.325 bln. Co expects non-GAAP EPS of $1.70-$1.72, vs previous guidance of $1.90-$1.95. Co expects GAAP EPS of $1.62-$1.64, vs previous guidance of $1.82-$1.87. "These results are clearly disappointing... While our new releases are performing reasonably well, they have not been able to offset a significant falloff in catalog sales."

3:00PM Treasuries Look to Fedaral Reserve : The market slumped lower, with no data in the hopper and a bevy of event risk waiting in the wings. The trade is all about tomorrow's FOMC and inflation reports. The market hung in one of the tightest ranges seen in some time (and previously in pre-jobs data trade or pre-Chairman Greenspan testimony trade). Light trade comes on the heels of Friday's low volume where "futures saw a very light volume [price]dip on Friday, which takes the edge off the move; still, the charts are bearish, but momentum readings are oversold and the ownership picture is tilted toward a long bias," according to one chart-master. The economic calendar tomorrow will be offering up this week's first round of inflation data with PPI (0.3% est) and core PPI (0.1% est). In addition to the inflation data, the FOMC will be announcing its decision on short-term rates at 14:15ET (for how rates may steer bank earnings, please see 12:50 ET comment). The market has a quarter point priced in and will be watching for any language changes in the statement. Given current economic fundamentals, JP Morgan believes the rise in core inflation is the key risk to the medium-term outlook. The firm notes, at present it is a positive as it reflects firming pricing power, but rising inflation risks could push interest rates higher. This week's key February reports are expected to confirm that core inflation continues to drift higher. The firm saying, the steady 25bp pace of tightening will be maintained at Tuesday's meeting. But the Fed may remove the measured language from the statement signaling the path ahead is less certain. The 10-yrs are currently -04/32nds yielding 4.523%.

9:09AM Gapping Up : ASKJ +16% (to be acquired by IACI; up in sympathy: LOOK +15%, MAMA +13%, GRU +11.3%, FWHT +7.5%, INCX +5.7%, INSP +3.9%), SDS +19% (Buyout firm in talks to buy Sungard for $10 bln - NY Post), ONXX +12.5% (positive clinical development), DNA +11% (possible beneficiary of SHR's cancer drug setback), TSRA +11.3% (guides higher), PCLE +20% (to be acquired by AVID), PDLI +8.1% (possible beneficiary of SHR's cancer drug setback), SYNC +7.6% (JP Morgan upgrade), OATS +7.1% (upgraded to Aggressive Buy at Keybanc), VION +6.7% (Cloretazine clinical data), DRL +5.8% (Wachovia upgrade), ABB +5.4% (to settle asbestos issue), TIVO +4.8% (to enter Japan market as early as 2006 -- Reuters), ELOS +4.8% (CIBC upgrade).... Small cap energy names moving higher: ABLE +7.6%, USEG +6.4%, GEOI +6.3%.... Under $3: VNWI +24%, RNAI +20%, NENG +15% (signs deal with MSFT), AVNX +10% (Alcatel contract).

7:10AM Entegris and Mykrolis announce merger (MYK) 13.15: Chip-industry suppliers ENTG and MYK to combine in what they call a merger-of-equals transaction that creates combined co valued at about $1.3 bln, w/ trailing annual revs of more than $650 mln. MYK holders to receive 1.39 ENTG shares for each MYK share, deal expected to close in calendar Q3. ENTG holders to own about 56% of combined company, MYK holders to own about 44%. Deal expected to be earnings-neutral in 2H of '05 ex items, and add $0.08 to EPS ex-items in calendar '06. New co, to be called Entegris, will be headed by CEO Gideon Argov, currently CEO of MYK; ENTG CEO James E. Dauwalter to serve as non-executive chairman.

6:53AM Ingram Micro reaffirms (IM) 16.50: Company issues in-line guidance for Q1 (Mar), reaffirms $0.28-0.30 vs. Reuters Estimates consensus of $0.29 on revs of $7-7.2 bln, consensus $7.13 bln. "We're pleased to reaffirm our first-quarter guidance, especially in light of recent market dynamics...Despite pockets of increased competition and economic softness in specific markets, our sales guidance reflects historical seasonal norms, even when excluding the additional revenues from the acquisition of Tech Pacific."

2:33PM Phelps Dodge Corp (PD) 105.80 -1.21: Copper eased off recent historical highs Monday, as the dollar made a significant move against the euro. Copper futures have been trading in-line with fluctuations in the currency markets along with rising demand expectations. Futures rose 1.6% last week to $3,292 per ton - the highest level since the contract began trading back in 1985.

It has been a volatile ride in terms of price activity for the commodity and copper producers as the market tries to anticipate demand, particularly from the world's largest consumer...China. Futures soared to a new high last week after China said spending on factories, roads, and other infrastructure increased during the first two months of the year. Fixed asset investment grew 25% to $51 bln, according to the National Bureau of Statistics, surpassing Beijing's forecasts of 16%. Prices are also being supported on expectations of an economic recovery in Japan and Germany.

Global consumption is forecasted to grow 5.3% in 2005 and 4.6% in 2006. Demand this year is believed to exceed supply for the third straight year resulting in a deficit of 259,000 tons, according to the International Copper Study Group. Several producers including the world's largest, Codelco, along with Freeport-McMoRan (00C) are boosting production, but most likely the additional output will not reach the market until 2006.

One of our suggested holdings in the Briefing.com Active Portfolio is Phelps Dodge (PD), which has returned over 30% during the last year. We remain committed to the name due to its low valuation, strong balance sheet, earnings momentum, and shareholder value. As the second largest producer, PD is highly leveraged to prices, as such analysts have been trying to keep up with the recent elevation. Just last week, Lehman raised its FY05 EPS estimate by 16% to $12.75 and by 27% for FY06 to $14.00. Back in Jan, Phelps beat consensus estimates by $0.23 for the Q4 with revenues up 70% year/year.

Share price volatility is likely to remain demonstrating the continued skepticism over the sustainability of prices. Shares reached a low around $60 back in May of 2004, on concerns that Beijing's attempts to slow growth would result in a significant drop-off in demand. This did not come to pass and almost a year later demand trends remains strong. Looking ahead, we feel with low inventory levels, continued demand trends particularly from China, constraints from scheduled mine depletions, tougher environmental standards, and restrained mine production will result in supply deficits sustaining prices. There has not been a major discovery of copper since the 1980's and with demand rates mentioned above, the market will more than absorb increasing supply and planned restarts of inactive mines. Therefore the risk remains to the upside for PD's shares, which are trading at a 9.5x price to earnings multiple. ----Kimberly DuBord, Briefing.com
12:26PM Time Warner Inc (TWX) $18.21 -0.49 -(2.6%) What to do with the AOL unit? That has to be the biggest headache at Time Warner executive offices. It probably feels a lot like having an obnoxious troublemaking young nephew come stay at your house for a weekend - and then stays all summer without getting a job, demanding meals and clean laundry, and throwing parties where all his friends come over and then wreck things and leave trash all over the front lawn. In fact, using this analogy, the police chief stopped by this morning and asked Uncle TWX to pay the kid's traffic tickets.

The settlement with the SEC announced this morning will cause a restatement of all of Time Warner's revenue from 00Q4 through 02Q2. That's nine quarters. A total of $500 million in revenue will be cut, all of which comes from incorrectly booked online advertising revenue at AOL division. For scale, the total TWX revenue during those nine quarters was about $88 billion, with the AOL segment contributing about $20 billion.

This settlement includes a payment of $300 million to the SEC, which is intended to go into a fund to compensate holders of TWX during the 00Q4 to 04Q2 period (then with the AOL ticker). Details of how to claim compensation are not yet known.

Although the details of what or how the revenue was incorrectly booked, have not yet come out, it is most likely that the problem is "more of the same," meaning incorrect booking of barter ads. Back in late 2002, more than $190 million of revenue at the AOL unit was restated. AOL had booked revenue based on the value of advertising space on AOL that was swapped for services, content, or other ad space from such internet firms as Monster.com and the infamous DrKoop.com. When the $190 million restatement occurred, AOL had said that the SEC investigation was still going continuing, but most investors have long forgotten about it.

Even if this settlement brings the barter-revenue issue to a close, AOL is still a problem child at Time Warner. As we stated on the InPlay page, there were some reports this morning that IAC/ InterActiveCorp would have liked to buy AOL instead of AskJeeves, but the $20 billion price tag was too much. The real problem Time Warner faces is that a real buyer for the entire AOL unit just doesn't appear to exist. Its a long way from the exalted position that AOL was in just five years ago, as the undisputed heir-apparent to the future of entertainment and media.

It is even hard for the Time Warner parent to find a good job for the troublesome unit. The press release detailing AOL's exploration of the internet travel market is not a "too-little, too-late" idea, it is a bad battleground to choose. The pricing power is entirely on the airline and hotel side, not the aggregator side. Furthermore, travelers are finally beginning to realize that air fares at Expedia and other sites are about $5 higher than what's available directly from the airline sites. We think the most likely scenario for this pilot business is one where AOL gives up after making little real progress. Kind of like when the unemployed nephew comes home and says "I quit my job today. What's for dinner?" - Robert V. Green

11:26AM IAC/ InterActiveCorp (IACI) $21.17 -1.12 (-5%) Barry Diller is known for his Internet acumen, and today, he made a move that will only serve to increase his already lofty status. IAC/InterActiveCorp (IACI) announced that it would purchase Ask Jeeves in a tax-free stock swap whereby Ask Jeeves shareholders receive 1.2668 shares of IACI for every ASKJ share. At current stock prices, it values Ask Jeeves at $1.85 billion net of cash.

IACI management noted in the release that they intend to repurchase on the open market at least 60% of the shares that will be issued in order to decrease the dilutive effect of the transaction. The increased number of shares that would be issued would serve to shrink EPS, a critical measure of stock ownership. The repurchase of the shares and subsequent retirement of the shares should lessen this effect. It can only be assumed that IACI isn't doing a 60%-stock and 40%-stock deal (which would have the same net result) is to provide ASKJ shareholders with a fully tax-free deal, if they want it. But it also allows Barry to change his mind later, if he wants, because the is no lasting obligation built into the currently existing repurchase plan.

Strategically, this move could help both companies. Ask Jeeves will now be just a division of IACI and will, if beneficial, be able to limit the amount of detailed information they have been reporting as part of earnings. Those details have not always been helpful, as a substantial portion of revenues come from Google relationship. Those worries may be lessened as Ask Jeeves can now push traffic to IACI brands, with less reliance on Google. IACI acquires a major search property that should help promote all its businesses, Internet and otherwise, as those sites will become the first answer that Jeeves provides.

Ask Jeeves is a technology company, not a media company, as their technology is used to power searches all over the web. Ask Jeeves benefits from the local search content that is part of IACI's CitySearch division. There has been a big push as of late to bring the advertising down to the local market, an effort that CitySearch is completely focused on.

Barry Diller has had a good history of see strategic value in Internet companies, but his real achievement is his track record of increasing their ability to execute. By adding Ask Jeeves to the IACI platform, Ask Jeeves' growth potential is certainly better than it would have been by itself. In addition, the ability to drive traffic to other IACI companies should help turbo-charge the results of the rest of the revenue mix as well.

8:59AM Page One - Early Fed Watch in a Torpid Market : Oil is still hovering near $57 a barrel and stock futures indicate a near unchanged open. There are no reported mergers, but one rumored one. That pretty much sums up the news to start the day. The market faces a difficult battle to generate any upward momentum, and may go in to Fed watch a day early.

The continued overhand of high oil prices is significant, not only for the economic impact, but also from a psychological standpoint. It is a hurdle for the stock market.

Merger activity is helping to offset that negative. The S&P 500 companies in aggregate have tremendous cash flow and are already sitting on a large amounts of cash. The urge to buy is irresistible to many CEOs. There are no major deals this morning, but there are published reports that IAC will buy Ask Jeeves for $2 billion dollars. Some of those Internet companies left for dead five years ago are roaring back. Many of the survivors have done just fine. There are also reports that Oracle is on the prowl again.

There are no economic releases today. The PPI data tomorrow will be watched very closely for any signs of inflationary pressures. Tuesday also brings the Fed's policy announcement. Another 1/4% hike in the fed funds rate is virtually certain, but there are concerns that the Fed will signal it might start raising rates even faster. The stock market has gone up on most of the recent days of the hikes, but the higher rates are starting to become a drag on the stock market. The 10-year note yield is up slightly today to 4.52%.

The stock market may very well drift today ahead of the Fed meeting tomorrow. Usually, it waits until the day of the meeting to go into Fed watch mode, but there is enough concern about the announcement tomorrow to overcome any pull from news today. It is hard to get excited about the upside potential for the market at this time. Dick Green, Briefing.com

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