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From Briefing.com: 4:30PM Cree beats by a penny; guides in-line (CREE) 22.30 -0.67:Reports Q3 (Mar) earnings of $0.27 per share, $0.01 better than the Reuters Estimates consensus of $0.26; revenues rose 25.2% year/year to $96.7 mln vs the $95.6 mln consensus. Co issues in-line guidance for Q4, sees EPS of $0.25-0.28 vs. $0.27 consensus; sees Q4 revs of $98-102 mln vs. $99.30 mln consensus.

4:10PM Rambus reports $0.01 below consensus (RMBS) :Reports Q1 (Mar) earnings of $0.04 per share, $0.01 worse than the Reuters Estimates consensus of $0.05; revenues rose 2.6% year/year to $39.6 mln vs the $38.3 mln consensus.

4:05PM Sun Microsystems reports $0.02 below consensus, ex-items (SUNW) :Reports Q3 (Mar) loss of $0.02 per share, ex-itmes, $0.02 worse than the Reuters Estimates consensus of ($0.00); revenues fell 1.0% year/year to $2.63 bln vs the $2.72 bln consensus. SUNW reports gross margin 41.3% vs 41.8% Briefing.com consensus.

Close Dow -125.18 at 10278.75, S&P -11.74 at 1162.05, Nasdaq -27.66 at 1946.71: The major indices added to yesterday's thrashing, as concerns about slowing economic growth and corporate earnings kept buyers on the sidelines and closed every economic sector in negative territory... The Dow hit a five-month low while the Nasdaq, which raised a "correction" red flag now that it's off more than 10% in 2005, and the S&P also touched new lows for the year... Just a couple of weeks ago, investors were concerned about inflationary pressures stemming from a growing economy...
Now, the market appears to be unnerved by exactly the opposite - a slowing economy, as demand for commodities like steel and oil has continued to deteriorate... The latter even managed to fall through the $50/bbl mark for the first time since Feb 22, albeit temporarily, before short-covering helped lift the commodity 1.8% to close at $51.13/bbl (+$0.91)... But just as falling oil prices over the last two weeks weren't a source of strength for stocks, it would be a contradiction in the current environment to suggest that rising oil prices were a source of weakness behind today's broad-based move to the downside...

The lack of sector leadership, however, was a huge factor behind today's disappointing performance, as the indices again failed to find support near key technical levels... All ten economic sectors closed lower, with Materials (-2.8%) pacing the way for the second consecutive session due to slowing demand for Steel (-5.1%) and strength in the dollar... The greenback hit a two-year high against the euro (1.2818) and a monthly high against the yen (108.13) after the ECB said there are "no clear signs" of accelerated growth in the euro region... Technology (-1.3%) was weak across the board, with losses in excess of 1.0% witnessed in every sub-sector...

Pacing the way lower was Computer Hardware (-2.5%) amid profit taking in Apple Computer (AAPL 37.26 -3.78), due to its cautious Q3 sales outlook, and selling pressure in Sun Microsystems (SUNW 3.96 -0.06) ahead of its Q3 earnings report... Financials, Industrials, Consumer Discretionary and Utility also posted losses of more than 1.0% while not even a late-day rebound in Energy (-0.5%) was sustainable, despite a 1.8% surge in oil...

Transportation was also weak, as downgrades on a few railroad stocks offset better than expected earnings from Southwest Airlines (LUV 14.94 +0.22) while Consumer Staples (-0.2%), despite finding modest buying interest late in the day, failed to benefit from better than expected Q1 earnings and raised FY05 guidance from PepsiCo (PEP 54.99 +1.36)... Buyers became defensive about Drug stocks (+0.5%), however, as evidenced by gains in Johnson & Johnson (JNJ 69.25 +0.66), Merck (MRK 34.78 +0.26) and Pfizer (PFE 27.46 +0.18) - the only Dow components to finish to the upside...

Some other bright spots on the day were Kerr-McGee (KMG 78.90 +4.93), which surged after announcing a $4.0 bln buyback to head off a takeover attempt by Carl Icahn; Mentor Corp (MNT 37.97 +2.64), which soared after an FDA panel surprisingly voted in favor of bringing its silicone breast implants back to market; and Sherwin-Williams (SHW 45.44 +1.93), which climbed after raising FY05 guidance above consensus estimates... Meanwhile, Treasurys - largely responsible behind yesterday' sell off - had much less of an impact on equities today, as the only pieces of economic data checked in exactly as economists expected...

Initial claims fell 10K to 330K (consensus 330K), which was also consistent with monthly gains of 175K in non-farm payrolls, while Feb business inventories rose 0.5% (consensus +0.5%), following a 0.9% gain in January... The 10-year note finished up 3 ticks to yield 4.34%... DJTA -3.0, DJUA -1.1, DOT -1.3, Nasdaq 100 -1.4, Russell 2000 -1.8, SOX -1.6, S&P Midcap 400 -1.4, XOI -0.1, NYSE Adv/Dec 728/2580, Nasdaq Adv/Dec 744/2304

10:48AM Human Genome reports positive results of Phase 2 clinical trial of Albuferon (HGSI) 11.11 -0.15:Co announced the results of a Phase 2 clinical trial of Albuferon in patients with chronic hepatitis C who are naive to interferon-alpha treatments. The results demonstrate that Albuferon is well tolerated, has a prolonged half-life and shows robust antiviral activity, with durable dose-dependent reductions in hepatitis C viral load.

10:17AM Dexcom IPO prices at low end; makes glucose monitoring systems for diabetes patients (DXCM) 12.00 :DexCom prices its IPO at $12, at the low end of the expected range of $12-$14. The co is a medical device company focused on continuous glucose monitoring systems for people with diabetes. It has developed proprietary technology for two systems: a short-term system with a sensor that can be inserted by a patient and used continuously for three days, and a long-term system with a sensor that can be implanted by a physician in a short outpatient procedure requiring only local anesthesia. Both sensors wirelessly transmit the patient's blood glucose levels to receiver, which allows the patient to view real-time and trended blood glucose information. The co filed an application for premarket approval for its short-term system in March 2005. The co is conducting an 80-patient clinical trial for its long-term system, with the goal of filing a PMA next year. Dexcom is a development stage co, and has not generated any revenue to date.... Development stage medical device cos are always difficult to predict. We are a bit surprised there was not more interest here given the small size of the deal at 4.7 mln shares (Piper Jaffray, SC Cowen co-leads) and that there have been few IPOs lately to whet traders' appetites.

9:16AM Gapping Down :AAPL -6% (reports MarQ; fails to meet investors' lofty expectations; beats by $0.10, beats iPod expectations, beats on revs; AmTech downgrade; down in sympathy: PLAY -5.3%, SYNA -3.7%), JDAS -7.2% (guides lower), IMDC -6.2% (downgrades from Soleil and OpCo), INFY -5.5% (reports MarQ, guides FY06 below consensus; down in sympathy: CTSH -4.7%), DRL -4.8% (downgraded to Sell at Merrill Lynch), ORCT -4.1% (profit taking after 21% move in 2 days), IFIN -3.4% (reports Q1), MRX -3.4% (in sympathy with IMDC), CHIR -2.5% (product to be used in S Africa), STK -2.4% (guides revs lower)... Under $3: EGHT -8% (cuts price of video phone and monthly service).

8:56AM Gapping Up :MNT +14% (FDA approval of its silicone PMA), KMG +13% (to buy back up to $4 bln in stock in modified Dutch Auction; announced settlement with Icahn group), LAVA +12% (announces 2 mln share repurchase program), ZILA +11.4% (cites study linking its Ester-E to cholesterol reduction of up to 40%), WGAT +8% (announces first satellite videophone call), BWNG +6% (announces completion of Focal Network integration), RMBS +5% (Signs Patent License Agreement), BIVN +4.6% (started with an Outperform at CIBC; tgt $12), LUV +4.1% (reports Q1), PII +3.3% (reports Q1), LSTR +2% (reports Q1)..... Under $3: EASY +32% (becomes MSFT certified partner, introduces fax plug-in for MSFT Outlook), GLOW +13% (unveils product with Sony), ENMD +8% (granted FDA orphan drug status).

8:01AM Rambus Signs Patent License Agreement With NEC Electronics (RMBS) 13.75 :Co announces it has signed a patent license agreement with NEC Electronics that allows the development and manufacture of memory controllers based on various Rambus innovations. The agreement is for a 5-year term, with the possibility of renewal or extension. The license's scope covers memory controllers compatible with SDR, DDR, and DDR2 SDRAM, as well as future memory controller innovations. RMBS will receive royalties on sales of licensed products.

9:58AM Advanced Micro (AMD) Prudential upgrades Neutral to OVERWEIGHT. Target $19 to $25. Prudential upgrades AMD following Q1 results, based on superior execution in the M.P.U. business, and their belief that the co will take 300 bps of MPU mkt share by the end of 2006. In the M.P.U. business, firm believes that the co gained 50 bps of rev share in the qtr, due primarily to a richer mix of higher ASP products. Also, they believe the co's intentions to carve out its flash memory business through an IPO will make the M.P.U. business more transparent to investors.

1:51PM PepsiCo Inc. (PEP) 54.99 +1.36: PepsiCo, which generates more than $1 bln in worldwide retail sales, topped forecasts for the third consecutive quarter propelled by strong revenue and volume trends across all of its businesses. Its Quaker Foods unit stood out generating 18% operating profit growth adding to the upside in earnings. While, PepsiCo International maintained strong sales momentum and positive operating leverage.

The world's number two soft-drink maker, reported Q1 net income of $912 mln, or $0.53 per share up 13% from last year and $0.03 ahead of the consensus estimates. Revenues rose 7.4% year/year to $6.59 bln vs. the $6.48 bln consensus with volume growth of 4%.

Frito-Lay North America, which accounts for the bulk of revenues (34%) and operating profits (38%), generated broad-based growth across its leading brands Lay's, Doritos, Tostitos, and Cheetos with revenues and operating profits up almost 6%. As expected, fuel cost inflationary pressures flowed through its operations impacting freight, plant ops, and route truck fuel costs.

PepsiCo Beverage NA (27% of total sales) volumes grew 1.5% with non-carbonated beverage portfolio far outpacing soft drinks up 8%, vs. a decline of 1%. PEP noted tough comparisons on the CSD side last year, which were up 6%. Pepsi trademark volumes declined in the low single-digits, with diet trends remaining solid up in the mid-single digits, while Mountain Dew volumes were flat. Gatorade, Aquafina, and Propel fitness water produced the upside gains offsetting a 2% volume drop in higher-priced Tropicana chilled juice. Through sales trends and the resolution of marketing accruals, Pepsi was able to offset energy and raw material inflation, resulting in operating profit growth of 8%.

Strong growth trends in emerging markets and the Middle East advanced overseas volumes by 4% within the PepsiCo International division. Egypt, Turkey, India, China, Russia, and Brazil all posted strong double-digit growth. There was some weakness in Walker's in the UK. Beverage growth outpaced snacks on average. Net revenues grew by 12% (currency added 2%) on volume growth and favorable pricing and product mix, while operating profits jumped 20%. Quaker Foods posted double-digit volume growth, through strong sales of Cap'n Crunch and Quaker oatmeal, and stalwart operating profits up 18% y/y.

Gross margins were 54.2% roughly flat y/y as cost pressures restrained revenue growth. SG&A expenses rose 7.3%. Pepsi issued in-line guidance for FY05, sees EPS of $2.56, excluding the impact of 53rd week, vs. $2.57 consensus. During its conference call, management acknowledged conservatism in guidance as oil prices are substantially higher than it previously forecasted giving them some breathing room. High prices strike its Frito-Lay business the most through transportation, freight, and packaging costs.

We have been an advocate for owning Pepsi's shares for some time due to the positive sales and earnings momentum the company continues to deliver. Ten percent operating growth is impressive, and considering sales trends in its salty snacks business and non-carbonated beverages, the outlook remains optimistic. One standout this quarter was its international business, which accounts for 32% of the topline compared to Coke (KO) where overseas sales make up over two-thirds. This segment continues to generate strong returns and offers considerable upside potential, particularly for its Frito-Lay business. Pepsi remains one of the best consumer product companies. Shares are trading at 21.4x forward earnings below its 5-year historical average of 26.5x. ----Kimberly DuBord, Briefing.com
12:02PM Apple Computer Inc. (AAPL) 39.66: Walking down a busy street in any metropolitan city, it's inevitable to run into someone bobbing their head or singing along with their iPod. This consumer phenomenon has even reached 16 Pennsylvania Avenue as the Commander-in-Chief has one loaded up with songs like Brown Eyed Girl, which he listens to while working out (frightening image). Apple holds 90% market share of the world-wide hard-drive based MP3 players. The widespread adoption has driven Apple's shares up over 200% within the last year - 30% of which just since Jan. After two blowout quarters, all eyes were focused on its Q2 results released after the close on Wed. Once again, Apple took a bite out of the market.

Second quarter earnings were $290 mln, or $0.34 per share well above consensus estimates of $0.24 and not in the same ballpark as last year of $46 mln, or $0.06 per share. On the top line, revenues soared 70% to $3.2 bln just slightly above consensus. The number everyone was watching was total iPod units sold, which came in at 5.3 mln up from 807k last year. iPod sales accounted for over 30% of total sales. The upside in earnings was due to higher gross margins and operating leverage. The result is sure to prompt Wall Street analysts to raise expectations for the quarters ahead, yet again.

Gross margins jumped to 29.8% ahead of Apple's previous guidance of 27.25%. Margin expansion was derived from component costs, revenue gains, product mix, and higher direct sales (48%). The Cupertino, California based company guided gross margins of 28.6% for the third quarter with its long-term target of 27-28%. Next quarter's profitability may be negatively impacted by lower margin education products. Stock option exercises expanded Apple's share count by 13% for the quarter diluting earnings.

Another key part to this story is on the CPU side, through what is called the halo effect, put simply, iPod adoption lures consumers into buying Apple PCs over Windows-based machines. This evolution was evident, as it was the second straight quarter Apple sold more than 1 mln Macs. Another indicator of this sell-through was the number of CPUs sold to non-Apple users that remained around the 40% range. On a percentage basis, desktops were up 56% y/y and notebooks gained 29% y/y. Retail sales grew 115% as Apple continued to open new stores, now reaching a total of 103. Store traffic was up 69% y/y to 13 mln total visitors. Average sales per store jumped to 60% y/y from 40% in prior periods.

The outlook for Apple remains quite good due to the strength of its brand, dominant market share, success of new products, adoption rates, and additional Apple conversion through the halo effect. On the bottom line, earnings momentum will continue through further gross margin expansion and operating leverage. Upcoming product cycles and new product launches, including the new OS Tiger (June qtr) will provide catalysts for shares.

With success come increased expectations, which is exactly why Apple's shares traded down in the after-market following its blowout quarter. The market keeps demanding more and more. Some will quibble with the fact Apple's revenue guidance of $3.25 bln (vs. $3.21 bln consensus) indicates flat sequential growth for Q3. Apple estimates Q3 earnings per share of $0.28 vs. $0.24 consensus. Also, even through earnings surpassed consensus, revenues and iPod sales were below the always present whisper number. We would suggest taking advantage of any near-term shortsightedness by the market to establish a position. The stock is trading at a forward multiple of 37.1x, below its three-year average of 49x and five year average of 40x.----Kimberly DuBord, Briefing.com

11:32AM SAP AG (SAP) $38.04 -0.41 (-1.1%) The story this morning that SAP CEO Henning Kagermann would consider a merger with Oracle, if the deal provided value to SAP shareholders, comes from an interview that appeared in Wirtschaftswoche, a German business magazine, whose latest issue was published today. In many respects, the statement is meaningless, because every CEO of every company has an obligation to "consider" any merger offer. Making the statement even more meaningless is the fact that the decision whether to merge with or be acquired by another company is not one that a CEO is authorized to make. Only the board of directors can make a decision on a merger or acquisition offer.

However, the statement does have meaning as an illustration of just how important the enterprise application level of the software industry has become. SAP is the leading application level vendor by far even though it is a "smaller" company than Microsoft or Oracle. But Microsoft has virtually no presence at the enterprise application level, despite their virtual monopoly on the PC operating system. Oracle still dominates the database industry, but Microsoft's market share looms as a long-term threat. Oracle's strategic direction in the past five years has been to gain presence at the application level by developing their own finance and HR products. However, this "Make" decision has clearly been rejected as a core strategy, as the acquisition of PeopleSoft marked the shift to "Buy."

Microsoft and Oracle are still the biggest software vendors, by market capitalization, with SAP third. MSFT has a $275 billion market cap, Oracle's is $62 billion, and SAP's is $47 billion. But SAP's revenue of $9.8 billion is only slightly lower than Oracle's of 11.0 billion. Furthermore, SAP's revenue growth of 14% has been twice that of Oracle's growth of just 7% (TTM year-over-year). If Larry Ellison isn't careful, SAP might soon become a larger company than Oracle.

Actually, without more acquisitions of application level enterprise products, it is almost certain that Oracle would be "passed" by SAP in the next couple of years. Standardization of database interfaces and the near-equivalent feature sets are turning databases into commodities and the trend will continue. For Oracle to maintain its status as a dominant software vendor, it must get better presence at the application level. Since SAP is the dominant enterprise application - and growing - it would be an ideal acquisition for Oracle.

Microsoft also needs to get better presence at the enterprise application level, particularly since their presence their is almost minimal, particularly in the largest enterprises. We have long thought that Microsoft should acquire SAP (see the Ahead of the Curve column of January 24, 2005 "Microsoft Should Buy SAP") even though we acknowledge cultural differences between the two firms. But they need something and they will need it within two years - or face a challenge from Oracle as the dominant software company. That's a driving goal of Larry Ellison's and he finally has his chance to do it.

In fact, even though the actual statement by the SAP CEO can only be viewed as "meaningless," in terms of judging if there are any discussions underway, it may be useful to view the comments as a prelude to what might come. If Microsoft and Oracle wind up fighting for SAP, it could very well make the Verizon/Qwest battles look pretty tame. An acquisition premise for SAP might have seemed outrageous six months ago, but it could turn out to be one of the best in the consolidation phase of the enterprise software market, when the history books are written. With SAP stock fairly low valued currently (compared to historical valuations), there is virtually no premium for an acquisition premise, and a reasonable valuation for the fundamentals. When everything is added up, it seems like a good time to start building a long term position in SAP. - Robert V. Green

8:46AM Page One - Still Risky : We don't mind saying yesterday's comment proved correct. The Tuesday rally was not sustainable, and the whipsaw action set in again. The selloff Wednesday was a more rational reaction to the prospect of higher interest rates over the long term.

Yesterday, we said we weren't buying the idea that the FOMC minutes were bullish because they indicated that a 1/2% hike in the fed funds rate by the Fed was not imminent. The minutes also said that there would be a greater amount of cumulative tightening. That means more rate hikes over time and ultimately higher rates than previously expected. The stock market has to price that in, and that isn't good news. The selloff yesterday was totally warranted in terms of erasing Tuesday's spurious rally.

That puts the market back into neutral. Stock futures indicate a flat open. Oil prices are near flat, but are just barely above $50 a barrel after a big drop yesterday. It is surprising that the decline in recent days hasn't provided more support to stocks, but a move below $50 could help if it is seen as sustainable.

Earnings reports this morning are good, but it is too early in earnings season for that to give the market a boost. Apple Computer had a very good report after the close yesterday. This morning, PepsiCo beat by 3 cents, UnitedHealth Group beat by 3 cents, Dow Jones beat by a penny, and Southwest Airlines even beat expectations while turning a rare profit in that industry. First quarter earnings reports are off to a good start, but more data on the trend is needed before conclusions can be derived.

The economic data today is not of great consequence. New claims for unemployment for the week ended April 9 were 330,000, in line with expectations and the recent trend. Business inventories were up 0.5%, also as expected. Yesterday, the market was disappointed by the soft March retail sales numbers, but the data should have been taken as only a minor red flag. Economic trends are still very strong.

This is a very difficult market to trade. Defense positioning and patience has paid off. There is still a chance of an April earnings season rally, but it may still be a while before there is a clear wave to ride, and the risks remain significant.--Dick Green, Briefing.com