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From Briefing.com: 4:49PM Extended Systems Q1 EPS $0.14, vs loss of $0.14 yr ago, revs up 39% to $11.57 mln, also settles Agilent suit (XTND) 4.55 -0.05:XTND also announced resolution of lawsuit vs. Agilent (A) subsidiary in Singapore; In addition to $1.5 mln in payments received by XTND in March and April 2005 toward claims asserted in the lawsuit, the agreement also provides that Samsung and Agilent (A) will pay XTND an additional $1.25 mln by May 27; $2.0 mln by Aug. 31, and a final installment of $1.0 mln by Dec. 1. XTND grants Samsung an option to purchase for a lump sum a two-year license to use XTND's Ir software and its XTNDConnect PC software in Samsung cell phones.

4:40PM United Online reports in-line, guides Q2 revs higher; initiates dividend with 9% yield (UNTD) 8.86 +0.10:Reports Q1 (Mar) earnings of $0.25 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.25; revenues rose 21.2% year/year to $130.5 mln vs the $127.9 mln consensus. Co issues upside guidance for Q2, sees Q2 revs of $130-132 mln vs. $128.75 mln consensus. Co also approves the initiation of a quarterly cash dividend of $0.20 per share (9.0% dividend yield).

4:39PM Brooks Automation beats by $0.04, ex items (BRKS) :Reports Q2 (Mar) earnings of $0.12 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of $0.08; revenues fell 6.1% year/year to $129.5 mln vs the $120.6 mln consensus. Co issues downside guidance for Q3, sees EPS of $0.05-0.09, ex items vs. $0.12 consensus; sees Q3 revs of $115-120 mln vs. $124.33 mln consensus.

4:32PM Macromedia beats by 2 cents, issues guidance, announces restatement (MACR) :Reports Q4 (Mar) earnings of $0.23 per share, $0.02 better than the Reuters Estimates consensus of $0.21; revenues rose 13.8% year/year to $116.1 mln vs the $111.6 mln consensus. Co reiterates its FY06 (March) guidance for net revs to exceed $500 mln, with gross margin between 91-92%, and operating profit margin trending towards 20% over the course of the year. For Q1, co expects net revs to be flat to slightly down from its March qtr, with gross margins in the 92-93% range, and an operating profit margin between 15-17%. Co also announces that it will restate previously issued financial statements for fiscal years ended March 31, 2004, 2003, 2002, 2001, 2000, and 1999.

4:31PM Electronic Arts reports in-line; guides below consensus (ERTS) :Reports Q4 (Mar) earnings of $0.09 per share, excluding non-recurring items, in-line with the Reuters Estimates consensus of $0.09; revenues fell 7.5% year/year to $553 mln vs the $538 mln consensus. Co issues downside guidance for Q1, sees loss of $0.22-0.28 vs. $0.05 consensus; sees Q1 revs of $300-340 mln vs. $448.18 mln consensus. Co issues downside guidance for FY06, sees EPS of $1.55-1.70 vs. $1.75 consensus; sees FY06 revs of $3.4-3.5 bln vs. 3.39 bln consensus.

4:25PM Terayon Comm beats by a penny; guides in-line (TERN) :Reports Q1 (Mar) loss of $0.03 per share, $0.01 better than the Reuters Estimates consensus of ($0.04); revenues fell 35.9% year/year to $26.4 mln vs the $27.9 mln consensus. Co issues in-line guidance for Q2, sees loss of 0.04-0.00 vs. loss of $0.02 consensus; sees Q2 revs of $28-32 mln vs. $29.45 mln consensus.

4:14PM Maxim Integrated reports $0.01 below consensus (MXIM) :Reports Q3 (Mar) earnings of $0.37 per share, $0.01 worse than the Reuters Estimates consensus of $0.38; revenues rose 8.2% year/year to $400.2 mln vs the $400.6 mln consensus. MXIM reports gross margin 72%, compared to 72.6% from prior year period.

Close Dow +5.25 at 10256.95, S&P -0.99 at 1161.17, Nasdaq +4.42 at 1933.07: The market opened lower, amid mixed earnings reports and uncertainty ahead of the FOMC meeting, and spiked higher after the Fed kept its policy statement unchanged... But upon further analysis of the statement, which initially omitted a key line with regards to the containment of inflation, the indices sold off... That is, until the Fed said the omission of the line - "longer-term inflation expectations remain well contained"- was "inadvertent, a "human error," spurring last-minute buying interest that improved the major averages just enough to close them in split fashion...
Treasurys also got a late-day pop, as the benchmark 10-year note climbed 4 ticks to yield 4.17%... As widely expected, the Federal Reserve raised the fed funds rate by 25 basis points to 3.0% for the eighth consecutive time and maintained a balanced risk assessment... By saying "policy accommodation can be removed at a pace that is likely to be measured," the Fed eased fears of more aggressive Fed tightening... But with all the confusion late in the day surrounding key FOMC verbiage, investors failed to take full advantage of a 2.8% sell-off in oil that arguably alleviated some of the inflationary pressures...

Crude oil futures ($49.50/bbl -$1.42), which were under pressure all day ahead of an EIA report that is expected to show inventory builds across the board, closed at lows not seen since mid February... Meanwhile, 9 of 13 S&P companies (i.e. EMR, MMC, STA, RIG) reporting results this morning beat analysts' expectations, but upside earnings surprises were somewhat offset by downside FY05 guidance from the likes of TYC, MAS and SWY, as seven out of ten economic sectors closed higher...

Materials was the best performing sector, benefiting from a cyclical upturn in the Chemical industry, while Financial, Health Care and Consumer Discretionary posted modest gains... Technology also showed relative strength, as gains in Software and Hardware countered losses in Networking and Disk Drive... Energy, however, paced the way lower as oil prices plummeted while Industrials were also under pressure following Tyco's (TYC 28.65 -2.07) disappointing Q3 and FY05 guidance... Utility was also weak in the wake of a Merrill Lynch downgrade on TXU Corp (TXU 81.65 -4.70)... Auto makers were also in focus following April auto sales figures...

Despite posting a larger than expected decline of 7.4% in US sales (consensus -5.2%), shares of General Motors (GM 27.77 +0.61) held onto strong gains after not cutting Q2 production any further... Ford Motor (F 9.47 +0.25) posted a US sales decline of 2.0% (consensus -3.5%) while DaimlerChrysler (DCX 39.30 -0.05) posted April sales growth of 9.3% (consensus +0.9%)... Separately, March factory orders unexpectedly rose 0.1% (consensus -1.2%), but the predictable data took a backseat to the FOMC policy statement, which when released, finally set a more definitive tone for the market...DJTA -0.6, DJUA -1.1, DOT +0.8, Nasdaq 100 +0.3, Russell 2000 -0.2, SOX -0.1, S&P Midcap 400 -0.3, XOI -1.8, NYSE Adv/Dec 1509/1761, Nasdaq Adv/Dec 1478/1590

9:55AM Morningstar IPO prices towards high end of range (MORN) 18.50 :Morningstar prices its IPO at $18.50, towards the high end of the expected $16-$19 range. The co offers an extensive line of products with data on more than 125,000 investment offerings, including more than 55,000 mutual funds and similar vehicles. Morningstar serves more than 4 mln individual investors, 140,000 financial advisors, and 500 institutional clients and has operations in 16 countries. The co is profitable and posted sales last year of about $180 mln, up 29% yoy. Under the auction-style IPO, investors bid on shares, rather than the more common route of having the price set by the underwriters. This is similar to what Google did last August. In theory, the auction process helps to maximize the amount of money and can reduce a first-day jump in the stock price, but Google was an exception. The IPO market has been weak lately, but this is a high profile deal and the co has a strong brand position. Today's performance will be a guide for what to expect with the large number of other IPOs set to debut later this week. All of the shares are being sold by affiliates of Japan's Softbank Finance Corp. This is a 7.6 mln share deal led by WR Hambrecht.

9:20AM Gapping Down :Gapping Down on disappointing earnings/guidance: TYC -9.2% (also Pru downgrade), PDII -31% (also Wm Blair downgrade), TTMI -12.5% (also CSFB downgrade), GIVN -8.4%, LVS -6%, MVSN -5%, TEVA -3.2%, PDLI -2.6%.... Other News: FWHT -13% (auditor resigns; Pac Growth downgrade), TXU -3%, ISSX -3% (started with a Neutral at First Albany), NAL -7.7%, PWAV -2.5%.

8:53AM Gapping Up :Gapping up on strong earnings/guidance: CECO +6.5%, IVAC +8% (also Needham upgrade), OSK +2.9%, KOSP +2.8%.... Other News: IMGN +8.7% (announces renewal of Genentech deal), ITMN +6.8% (announces publication of positive phase 2 data), SHPGY +3%, RYAAY +2.8%.... Under $3: GNBT +27% (receives approval to sell oral insulin in Ecuador), NURM +25%, PRTL +16% (bounces after 49% drop yesterday), PARS +11% (receives grant from Israeli Govt), IDEV +9%.

8:18AM Vishay beats by $0.02, ex items; guides in-line (VSH) 10.63 :Reports Q1 (Mar) earnings of $0.06 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.04; revenues fell 13.6% year/year to $553.7 mln vs the $548.9 mln consensus. Co issues in-line guidance for Q2, sees Q2 revs of $570-590 mln vs. $567.66 mln consensus.

8:02AM Cypress Semi USB controllers selected by TXN for portable digital music player design (CY) 12.00 :Co announces that Texas Instruments (TXN) has selected its EZ-USB FX2LP and EZ-OTG USB peripheral/host controllers for inclusion in the TXN TMS320DA255 DSP-based reference design for portable digital music players.

12:54PM Tyco International Ltd. (TYC) 27.95 -2.77: The industrial conglomerate surpassed expectations with its second quarter earnings, but its lower earnings guidance sent shock waves through shares. The quarter was quite a messy one with several charges totaling 37 cents per share. These included $0.26 for early retirement of debt, $0.09 in asset impairment charges in its Plastics units, and two cents for a reserve to resolve regulatory investigations with the SEC that began back in June of 2002. Excluding non-recurring items, earnings were $0.48 per share up 17% year/year and a penny better than consensus, although results were assisted by a lower share count. On the top line, revenues rose 6.5% year/year to $10.46 bln with organic growth slowing a point sequentially to 3.5%.

Let's get right to the heart of what the market is focusing on, Tyco's guidance. For the third quarter, it sees EPS, excluding items, of $0.47-0.49 well below consensus of $0.53. Despite improved profitability in many of its businesses, it anticipates higher commodity costs will remain a strong headwind. Additionally, high single-digits declines in the European auto market impacting its Electronics business will weigh on earnings throughout the year. Tyco also continues to increase sales and marketing spending within its Fire & Security business. For the full year, it forecasts EPS of $1.88-1.93 from $1.88-1.97 well below the current consensus of $1.90. On the conference call, management stated that it felt guidance was a balanced view, highlighting the fact that taking the mid-point, earnings will grow 15% from last year.

On a segment basis, Fire & Security generated 2% organic revenue growth and 43% in operating income, as margins expanded 100 basis points to 10.8%. Electronics, which makes up 30% of total revenues, gained 2% in organic growth led by the consumer and computer markets, offsetting continued weakness in power systems and printed circuit boards. Operating profits rose 31% to $496 mln with margins widening by 90 basis points to 15.8% despite a 60 bps in raw materials headwind. Asia and North America were strong offsetting a modest decline in Europe. It expects this unit to generate positive organic growth in Q3, but raw material costs will remain a challenge.

Its Health Care business generated 2.4% organic growth to $2.4 bln on strong demand within its international and surgical businesses. Operating profits rose 19% to $689 mln - a record quarter for the company. A more profitable sales mix and lower costs helped drive margin expansion by 370 bps to 29.1%. The retail market remains weak after it raised prices. TYC expects improved top line growth ahead due to new products. Organic growth within its Engineered Products & Services unit jumped 11% to $1.60 bln with operating income up 12.3% to $165 mln. Tyco delivered improved profitability in three of four of this segment's units, lifting margins by 70 bps to 10.3%. Its Plastics & Adhesives business, which management is exploring divestment, generated 2% organic growth to $463 mln, however, operating income was negatively impacted by a lack of pricing power and higher commodity costs.

On the positive side, Tyco continues to improve it financial position deploying cash flows to reduced debt. Over the last few quarters, Tyco has bought back $1.7 bln in convertible debt securities reducing its total shares outstanding by 3.4%. Tyco feels the convertible method kills two birds with one stone buying back shares and reducing debt. If by the end of the year, it feels the economic benefit alters, it's likely to continue share buybacks directly from the market place. Tyco lowered its free cash flow estimates to $4.6 bln before dividends and voluntary pension contribution - a half a million short of its prior guidance due to higher working capital requirements.

This quarter definitely took the market by surprise causing severe selling pressure in shares back to levels not seen since mid 2004. Lowered guidance will cause the Street to cut estimates for the rest of the year. Tyco has been a turnaround story after Ed Breen took over the company in July of 2002 from ousted Dennis Kozlowski. A strong management team has taken this former debt laden mismanaged company repositioning it by selling off non-core assets, improving profitability, and generating positive revenue and earnings momentum. Tyco has dramatically increased its financial position and continues to return value to its shareholders through share buybacks and dividends. This quarter, margins improved in four of five of its businesses.

Today's result clearly puts a fly in the ointment so to speak, as this positive momentum it had been enjoying has diminished. Management stated it plans on further portfolio repositioning impacting roughly 10% of total revenues. By streamlining its business, Tyco's thinks it can better deploy cash into higher growth areas. A near-term lack of earnings and cash flow visibility will limit any rebound in shares, tossing the baton to asset sales and further share repurchase programs as the only potential catalysts. Over the longer-term, Tyco still offers a solid growth profile due to its global brands, market-leading position, and competitive advantage. Asset sales will continue to reduce costs and its invested capital base. Revenue drivers will remain its promising Health care and Electronics businesses, while investments in Fire & Safety start to pay off. Shares are now trading at 14x forward earnings. ---Kimberly DuBord, Briefing.com
11:26AM Qwest Communications (Q) $3.44 -0.03 (-0.9%) (+1.0%) It is fairly clear why Qwest gave up on the battle for MCI, after viewing this morning's earnings report. Qwest missed earnings estimates by a penny, at -$0.11 versus the Reuters consensus of -$0.10. Revenue, at $3,449 million was exactly at the consensus estimate of $3,449. You rarely see "meeting estimates" occur this exactly, but the coincidence doesn't help Qwest's image as struggling financially. The "weakness" in Qwest's bid for MCI (MCIP) has always been the future value of Q stock, as compared to the future value of Verizon (00) stock, and this report makes it clear why that is a legitimate concern for MCI shareholders.

Quarterly revenue has been on a fairly straight downward line for two years, although not always sequentially. The 2005 Q1 revenue of $3.449 billion is lower than the year ago 04Q1's revenue of $3.481 b, lower than the 03Q1's $3.624, lower than 02Q1's $3.983, and much, much lower than the four year ago glory days when the 01Q1 revenue was $5.048 billion. It is just hard to put together a strong case for arguing that Qwest is a telecom growth stock. At best, it is treading water.

Many of the media reports are listed the Qwest quarter as "profitable," but the $0.03 per share earnings only occurred because of the sale of PCS wireless licenses for $418 million. The sale represents essentially unused excess capacity in the Qwest wireless network.

There is a deep irony in Qwest being "profitable" as a result of this one-time asset sale, because the buyer was Verizon Wireless. Not only does the sale underscore the extreme difference in financial strength between the two MCIP bidders, it also shows a sharp contrast in execution. Verizon Wireless needs more capacity. Qwest can't sell enough to "fill up" their licensed capacity for more customers.

In that irony lies the key to Qwest's future, however. Now that joining another large company is virtually impossible, the best way to become "profitable" is for Qwest to sell itself to one of the larger telecoms. It still has a large internet backbone network, which has value. One of the driving reasons behind SBC's acquisition of ATT and also Verizon's acquisition of MCI was the internet backbone network that each owned. Assuming both of the RBOC deals close, Qwest will have the largest independent backbone network in the US.

In addition, Qwest appears to making reasonable progress towards the "single-source" telecom product that we believe is the key to the future of telecommunications. Although their deal with DirecTV is purely marketing, with no real use of the Qwest network, they seem to be making progress selling it in conjunction with wireless, DSL, or long distance service. The percentage of customers buying a bundled service like this increased to 47% of retail customers from the year ago 35%.

The lose of MCI yesterday followed by today's meager earnings report paints Qwest as an eventual acquisition by a larger telecom. But with SBC and Verizon both gloated with their recent acquisitions, and likely to take a full year to digest them, who would be the buyer? Sprint/Nextel or BellSouth would be logical choices, but it is hard to imagine either paying a premium price. Perhaps a global telecom company seeking better US presence, such as Deutsche Telekom,. might pay more. Although "selling itself" seems like the best move for Qwest, without clearly seeing the value to a potential buyer, it is hard to recommend buying Q stock now, even though current levels can only be described as "rock-bottom." Of course, that's the appropriate price when you are on the rocks. - Robert V. Green

9:41AM Page One: Futures indicate a slightly lower open. The market is likely to remain in a narrow trading range ahead of the Fed policy announcement at 2:15 ET. After that, just about anything could happen.

Market action yesterday was encouraging. The S&P 500 index managed a 5 point gain even as the news turned mixed. The market was up a bit in the morning, and that was largely ascribed to a slight decline in oil prices. In the afternoon, oil prices turned higher, but the S&P managed to improve even more. There is less nervousness in the market than there was two weeks ago.

That could change quickly. At 2:15 ET, the Fed's policy committee (FOMC) is highly likely to announce another 1/4% hike in the fed funds rate. This will put the rate at 3% and will be the eighth straight meeting at which such an increases occurred. The market fully expects a rate hike.

Market reaction will be more keyed to the wording of the policy statement. There are some expectations that the statement will reflect a more aggressive approach to fighting inflation and that the statement "underlying inflation (is) expected to be contained" will be removed. Yet, at the same time, economic growth has slowed to close to long-term trends. That suggests that the long-sought "neutral" stance is within sight. Some FOMC members may feel that forces are already in place to lead to a slowdown in inflation. There is an argument for a less aggressive Fed approach as well.

We aren't sure what the statement will say, or reflect. However, we are sure that Fed Chairman Greenspan has a long history of a cautious, steady approach to policy. He is not prone to overreacting to one piece of data, or even one quarter of data, as is the stock market. For comparison, here is the previous policy statement:

"The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."

The stock market often gyrates wildly shortly after the release before settling on an interpretation. That could well occur again today. Yet, when the dust settles, we suspect that the conclusion will be that several more rate hikes are likely by the end of the year, but that the Fed will not overreact so much as to unnecessarily dampen economic growth. We are optimistic the the Fed can still control inflation while maintaining moderate economic growth. We believe Dr. Greenspan is confident of that as well.

9:40AM Ballard Power (BLDP) Merriman Curhan Ford initiates NEUTRAL. While firm anticipates that BLDP should garner significant market share of the multi-billion dollar automotive fuel market over the next decade, given the long time to market and the co's need for significant additional capital for manufacturing capacity, they see no urgency to own the stock at this early time.
9:39AM Genesis HealthCare (GHCI) Friedman Billings downgrades Outperform to MKT PERFORM. Target $44 to $40. Firm thinks the nursing home industry faces little upside, but ample headline and actual reimbursement risk, in the next 6 months. They believe, the biggest overhang remains the unannounced RUG refinement proposal from the Centers for Medicare and Medicaid Services.

9:39AM Engineered Support (EASI) Ryan, Beck & Co initiates OUTPERFORM. Target $43. Firm thinks the recent price decline due to general market concerns and troop withdrawals is overdone, and that recent contract awards have substantial upside potential through extension and option exercise. They also expect EASI to continue to be an aggressive acquirer and believes the co's mgmt is solid.

9:38AM Occidental Petro (OXY) Smith Barney Citigroup upgrades Hold to BUY. Target $67 to $80. Firm says while high oil price exposure presents the obvious risks, this is offset by growing confidence that mgmt can again scale up the business model that has repositioned it as one of the most profitable of the US oil majors.

9:37AM Intevac, Inc. (IVAC) Needham & Co upgrades Hold to BUY. Target $13. Firm believes there are signs that gross margins could improve, that an increasing number of Lean orders are being placed, and that the combination is leading to improved profitability such that a rational valuation argument could be made.

9:37AM Overland Storage (OVRL) Needham & Co downgrades Buy to HOLD. Needham downgrades OVRL following Q3 results, as they say it appears that prospects in the tape library arena continue to become more challenging as growth (if any) has been slowing and pricing pressures increasing. They say its library relationships with IBM and HP appear to be steady or slowly declining. They believe OVRL is accelerating its investment in R&D and S&M to offer a complete tiered storage architecture. As a result, they say the co appears to be going through a period of transition.

9:36AM Brush Engineered Mat (BW) KeyBanc Capital Mkts / McDonald downgrades Buy to HOLD. Firm thinks rev growth momentum below 10% significantly decreases earnings predictability on the co's shares. In addition, they think that mix issues and copper pass-through could remain an issue for at least several more qtrs.

9:36AM Nautilus Grp (NLS) Wedbush Morgan initiates BUY. Target $33. Firm thinks the aging baby boomer demographic, increasingly concerned with health and fitness, should be a key driver for continued high growth in the fitness equipment industry. Also, they believe increased focus on healthy lifestyles is spurning rapid expansion of the fitness market in certain European and Asian countries. They say near term catalysts could include upcoming major new Bowflex product launch as well as possible Board approval of a share buyback program.

9:35AM FindWhat.com (FWHT) Pacific Growth Equities downgrades Equal Weight to UNDER WEIGHT . Pacific Growth downgrades FWHT following yesterday's disclosure of a material weakness in its internal controls and the disclosure that Ernst and Young would be resigning as auditors. They note that although the exact reason for the resignation is unclear, FWHT's 8-K filing states that on 4/26/05, "E&Y reported to the Company and its Audit Committee chairman that the Company and E&Y had a disagreement with respect to the need to recognize an impairment of goodwill in connection with the Company's 2004 consolidated financial statements." Also, firm notes that as of 3/31/05, the co had not taken measures sufficient to address and eliminate the material weaknesses cited. The firm has ongoing concerns about FWHT's ability to maintain/grow market share in the face of stiffening competition, as well as new concerns related to these material disclosures.

9:33AM Gol Intelligent Airlines (GOL) Smith Barney Citigroup initiates BUY. Target $37. Firm thinks the co is an effective way to participate in the growth of the Brazilian consumer. They believe the co's next-generation fleet and its cheap ticket prices should allow the carrier to continue stealing share from airlines and domestic bus companies.