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From Briefing.com: Close Dow +71.50 at 10628.89, S&P +3.21 at 1226.50, Nasdaq +8.71 at 2152.82: The major averages finished on a strong note, reaching milestones in the process, as an array of data confirmed the economy is in good shape and that inflation remains contained... For the second straight session, the Dow led the charge higher, as most of the day's buying interest again rested with larger-cap names, as evidenced by another decline on the Russell 2000 small-cap index... Such favoritism was also evident on the S&P, which closed at its best level in four years, while the Nasdaq recorded its best finish in 2005...

Despite issuing downside Q4 guidance, the best quarter in Apple Computer's (AAPL 40.75 +2.40) history was enough to wet investors' appetites before the market even opened... Shares of Apple soared 6.3% after beating analysts' Q3 forecasts by $0.08 last night on strong iPod sales, increasing optimism that corporate profits will continue to come in better than expected... Another large-cap name providing a boost to stocks was Advanced Micro Devices (AMD 19.88 +0.63), which beat estimates by $0.09 after yesterday's close, while seven of the eight S&P constituents out with results this morning also beat expectations...

Aside from a strong start to earnings season raising fears of missing out on a rally in stocks, encouraging economic data also improved sentiment across the board and helped 8 out of 10 economic sectors close to the upside... Total CPI in June came in unchanged (consensus +0.3%) while core CPI rose just 0.1% (consensus +0.2%), as energy prices in June fell 0.5%...

To that end, the largest drop (-3.7%) in crude oil prices ($57.80/bbl -$2.21) in over two weeks, as the threat of Hurricane Emily disrupting oil supplies dissipated, further placated inflation fears and stalled recent forecasts that two weeks ago had oil prices rebounding sharply in July following June's "temporary" decline... Providing additional support for stocks was a report that showed strength in consumer spending... June retail sales surged 1.7%, due in part to aggressive discounting by automakers like GM's "employee discount" pricing program, while sales excluding autos posted a very healthy 0.7% increase (consensus +0.5%), echoing strong momentum in the economy... With regard to sector leadership, Industrials paced the way to the upside...

The sector was led by a 5.0% surge in airline stocks after Southwest Airlines (LUV 14.42 +0.44) posted its 57th straight quarterly profit, beating Q2 forecasts by $0.02... Technology was also an influential leader to finish higher, as AAPL and AMD's strong reports helped tech bellwether Intel (INTC 27.88 +0.29), which will become AAPL's new supplier of microprocessors, hit a new 52-week high... Despite another rise in bond yields and analyst downgrades on Prudential (PRU 66.13 -1.89) and Fifth Third Bancorp (FITB 42.30 -1.14), Financial also posted a respectable gain...

Bonds closed near session lows, at the expense of broad-based buying efforts in equities and the sell-off in oil, as benchmark yields on the 10-year note (-5/32) rose to 4.17% - their highest level since mid May... Health Care also provided some leadership, as gains in biotech and drug overshadowed weakness in HMOs... Genzyme (GENZ 65.30 +3.97) - one of the day's best performing S&P components - beat analysts' Q2 forecasts and guided FY05 earnings above consensus, helping the AMEX Biotech Index hit a new 52-week high...

UnitedHealth Group (UNH 50.35 -1.05) also reported better than expected Q2 results, issuing in-line Q3 and FY05 guidance, but the stock faltered, as investors pared some of the 27% advance already enjoyed by HMOs this year... Consumer Discretionary also traded higher, getting a boost from General Motors (GM 37.00 +1.13), which surged in response to strong retail sales figures and an upgrade from Lehman Brothers... Energy, however, plummeted in sympathy with the drubbing in oil prices, as investors used the commodity's weakness as a catalyst to consolidate huge gains that have helped the Energy sector outpace nearly every other sector combined with a 2005 gain of 24.5%...

Profit-taking also weighed on the Utilities sector, which had surged almost 16% so far this year, as participants looked far and wide for bargains... Separately, initial claims rose 16K to a seasonally adjusted 336K (consensus 322K), but since the 4-week average remained consistent with an improving labor market, investors paid little attention to the report...DJTA +1.5, DJUA -1.1, DOT +0.1, Nasdaq 100 +1.0, Russell 2000 -0.7, SOX +1.3, S&P Midcap 400 -0.3, XOI -1.8, NYSE Adv/Dec 1543/1735, Nasdaq Adv/Dec 1397/1616

12:12PM August Tech Technology files lawsuit against Camtek in U.S. Federal Court (AUGT) 12.61 +0.01:August Technology (AUGT) announced that it has filed a patent infringement lawsuit against Camtek (CAMT) of Migdal Haemek, Israel. The patent infringement lawsuit, filed in U.S. federal court in Minneapolis, alleges that CAMT's line of inspection equipment sold under the "Falcon" trademark infringes on August Technology's U.S. patent no. 6,826,298.

9:02AM Sirenza Micro and Sirius Satellite to introduce new antenna for Sirius Satellite Radio (SMDI) 3.87 :SIRI and SMDI announce they are introducing a small, ultra-low profile, high-performance antenna for Sirius that is the thinnest ever produced for satellite radio.

National Semi (NSM) to close assembly and test plant in Toa Payoh, Singapore, will take $27-30 mln charge, hopes to achieve $4-6 mln in savings...

2:47PM UnitedHealth Group (UNH) 50.30 -1.10: Consistent with its continued strong performance, UnitedHealth Group delivered a healthy report for the fiscal second quarter. The nation's second largest health insurer beat Wall Street estimates with earnings of $0.61 per share on revenues of $11.11 billion, a 28% and 30% increase over the same quarter last year, respectively. Analysts had projected EPS of $0.60 on $11.08 billion as the company has shown solid growth and margin expansion.

UNH said that customer growth continued to strengthen across its businesses, with services reaching 580,000 new consumers in the second quarter and 2 million in the past year. Gains include approximately 70,000 people at Uniprise and 100,000 at UnitedHealthcare; 555,000 new individuals served through Specialized Care Services; 35,000 purchasing active Medicare supplement products from Ovations and 10,000 seniors in its Medicare Advantage programs; and 5,000 people at Americhoice.

Overall operating margin largely benefited from the broad customer growth, improving to 11.8% from 10.9% in the year ago period. However, margins in the specialized care services contracted as related costs rose during the period. The company's medical cost ratio, a key measure in cost effectiveness, worsened from the first quarter, but improved on a year/year basis. Despite the sequential decline in the ratio, average medical costs are easing throughout the industry and are expected to remain around 8 percent in the near term. The company also recorded a $120 million benefit in the quarter for overestimate medical costs in 2004.

The company anticipates growth to continue into the third quarter through fiscal 2006. EPS is expected at $0.63 in the following quarter, with results for the full year coming in the range of $2.45-2.47, a 25% increase over fiscal 2004. Gains of 15% are projected for 2006, excluding the recently announced merger with PacificCare Health Systems (PHS). The deal, which is expected to close in early 2006, should increase earnings by $0.05-0.06 in the first year.

Despite the positive results from UNH, shares have languished during intraday trading. Investors have become accustomed to the company's positive news and viewed the current report as anti-climactic. However, the fundamental outlook remains bright for UNH, as it continues to outperform its peer group and posts consistent numbers. The company's continued strong financial performance and competitive positioning justify growth prospects and a premium multiple. Currently, shares trade at 24.1x trailing earnings, relative to 21.6x Wellpoint (00C) and 10.8x for Aetna (AET). ---Richard Jahnke, Briefing.com
1:37PM Apple Computer (AAPL) 41.40 +3.05: Betting against Apple has been a loosing proposition as it has beaten expectations consecutively over the last ten quarters. As always, the market was awash with speculation over possible slowing growth trends and excess inventory levels, but alas results hit the wires late Wednesday which could only be proclaimed as iPodolicious! Apple took an eight cent bite out of consensus with net income quadrupling year over year with sales skyrocketing 75%. CEO Steve Jobs called the results, its best quarterly performance.

Apple earned $320 mln or 38 cents per share, excluding items. Revenues soared 75% y/y to $3.52 bln - 6% above expectations. Q3 iPod shipments blew away expectations coming in at 6.155 mln versus the 5.45 mln Briefing.com consensus. Apple shows no signs of relinquishing its hold of the digital music player market as iPod shipments posted a 6 fold increase. Sales of music and other related products rose 230% y/y to $241 mln, with cumulative downloads of iTunes close to crossing the 500 mln level. The halo-effect was in full force as Apple shipped 1.182 mln Mac units - 2% above the Briefing.com consensus. This represents a 35% rise in sales (3x the industry average) reaching a 5-year high. The newest release of the Mac OS 10 operating system, named Tiger, generated an impressive $100 mln in sales.

The results were somewhat dampened by Apple's conservative guidance for Q4. Apple predicts earnings of $0.32 per share on revenues of $3.52 bln below consensus of $0.33 and sales of $3.6 bln. While the company is typically conservative, this is the first time it has guidance down. Considering Q4 is seasonally strong due to Back-to-School demand, guidance is sure to ignite concerns over slowing growth, once again. We would argue Apple is being prudent ahead of the Intel transition and its conservatism will more than likely result in another upside surprise.

Apple announced last month it was dropping IBM's microprocessors from its Mac for Intel's chips increasing concerns about consumers' reaction. With the migration occurring next year, there are concerns consumers will delay upgrading computers until the Intel-based machines are launched for fears Apple would cease writing software for the IBM-based. Apple has confirmed it would write software supporting these systems well into the future. Mac users are hard-liners and quite dedicated to the brand, so for now we will have to adopt a wait-and-see approach until sales trends become clearer. Apple had stated to date it has yet to see any impact from the transition on sales.

The analyst community swooned Apple's executives on the conference call trying to determine if the sequential inventory rise was an indication the hot iPod market was cooling. Apple rebutted saying the rise was the result of seven retail stores being opened during the quarter. As is the case with all hot products, their life cycle is hard to anticipate as consumers' taste can change on a dime. Yet these record numbers during what is typically a weak quarter demonstrates this cycle remains in the early stages. Apple is the standard in the MP3 market and through its strategy of constant innovation will continue to drive growth. Further, it has increased the outlets that carry its iPods with Hewlett-Packard (HPQ) set to begin its rollout of an iPod family of products.

The market certainly shrugged off guidance sending shares up over three dollars in early trading. It's hard to argue against Apple considering its history of generating innovative, unique, seamless product lines for consumers and businesses alike. Apple is also uniquely positioned. Consider it is the only company within the PC industry that controls the entire food chain from the design and development of hardware and operating system to the applications. Further, as the iPod customer base continues to grow so does Apple's prospects of converting Windows users to its Mac product line.

The question for investors centers around valuation. The stock is trading at 31.1x forward earnings, while below its historical average, still a premium to its peers. Shares also trade at a price to book of 6.3x nearing its historical highs of 7.01x. We suggest investors focus on the earnings portion of the multiple. Apple has grown 10% over the last three years and is now entering its strongest quarter. We expect to see further upside ahead during the educational season driven by iPod sales, new product launches, and continuing strength on the Mac side. Management's conservative guidance is just that conservative. We expect to see the company keep up its long-standing tradition of transcending expectations. ----Kimberly DuBord, Briefing.com

11:46AM Adv. Micro Devices (AMD) 19.73 +0.48: Following two consecutive quarters of reported losses, a 38% increase in sales of microprocessors, year/year, helped Advanced Micro Devices return to profitability. The Silicon Valley-based chipmaker beat revenue and earnings expectations for the fiscal second quarter with sales of $1.26 billion and net income of $11 million, or $0.03 per share. Analysts had projected a loss of $0.06 per share on revenues of $1.21 billion as the company has struggled with its flash memory unit and persistent pricing pressures.

For the second quarter, AMD posted gross margin of 39%, with increased demand for microprocessors helping to offset falling prices in memory chips. Microprocessor revenue growth largely benefited from record sales for server and mobile processors, a 6% higher average selling price, and greater demand by OEM customers. Geographically, strong sales of chips in high-growth markets such as China, Malaysia, and Indonesia further accounted for record sales of $767 million in the business unit.

AMD's flash memory business, however, remained languid, losing $90 million in the quarter. Sales in the group decreased 31% to $462 million from the year ago period and increased 3% from $450 million in the first quarter. Lingering problems continue to undermine sharper sales in microprocessors and have provided the impetus for the IPO of the company's flash memory subsidiary, Spansion, which currently makes up approximately 40% of total revenues.

Given the company's tight cash flow position, relative to the cash needs of both the processor and flash memory businesses, the spin-off should help reduce the impact of money-losing results on the consolidated financial statements. However, with the current market environment for the flash memory appearing less than favorable, AMD's intention for a quick IPO may be tempered. As the current valuation in the stock has most likely accounted for a successful spin-off of the business unit, any delay or postponement could have negative implications on the stock price.

While the flash business continues to be an overhang, investors have focused on the belief that demand in the semiconductor business is gaining traction, as supported by AMD's strong second quarter. The results have pushed AMD shares up nearly 4% during intraday trading and have contributed to an over 40% gain in the past twelve months. With high expectations for the stock, as well as the industry as a whole, investors have continued to find reasons to buy into the company. ---Richard Jahnke, Briefing.com

10:00AM General Motors (GM) Lehman Brothers upgrades Underweight to EQUAL-WEIGHT. Target $20 to $40. With strong liquidity, defiantly strong results at GMAC, and Kerkorian as a backstop, firm thinks the market is primed to buy into a multi-year automotive turnaround story. This may culminate in GM announcing a new long-term profit objective by Jan 2006.
9:59AM Visteon (VC) Lehman Brothers upgrades Underweight to OVERWEIGHT. Target $3 to $10. Lehman upgrades VC saying downside is limited due to the co`s monetizable stake in Halla Climate Control, which accounts for all but $270 mln in market cap. Yet firm believes that the stock`s upside potential is significant, as the co has completely eliminated the otherwise fatal legacy business issues, and mgmt now has plenty of time and funds to restructure the businesses and turn them profitable.

9:57AM Strayer Education (STRA) Lehman Brothers downgrades Overweight to EQUAL-WEIGHT. Lehman downgrades STRA due to their belief that the risk-reward outlook ahead of Q2 results is unfavorable. Firm says they lack confidence that STRA`s enrollments will bounce back strongly following disappointing results last qtr, and they believe that the probability of continued modest weakness (and likely negative estimate revisions) outweighs the probability of very strong enrollment results (and positive earnings revisions).

9:54AM KeyCorp (KEY) Oppenheimer upgrades Sell to NEUTRAL. Oppenheimer upgrades KEY saying initial Q2 earnings results for the regional banks have been favorable with the stock prices reacting positively, and they see no reason why the co will not report similar industry trends. They feel selling the stock before earnings would not be the right investment decision. Firm notes there is no denying that the mkt views the co as a potential acquisition tgt and the co could begin to see a larger take-out premium in the stock should the industry experiences more M&A activity.

9:53AM Pain Therapeutics (PTIE) Rodman & Renshaw downgrades Mkt Outperform to MKT PERFORM. Rodman & Renshaw downgrades PTIE following the FDA asking Purdue Pharma to withdraw its once-daily formulation of painkiller, Palladone, from the market. They note that the FDA decided to more closely examine drugs, especially painkillers, for similar issues, and say PTIE's Remoxy falls into this category. They note that the co has shown in two ten-patient studies that alcohol does not have a meaningful impact on the release mechanism, when certain parameters are measured, but firm believes the FDA could ask for more evidence to assure safety, which could raise the risk profile of Remoxy.

9:52AM Macrovision (MVSN) Avondale Partners downgrades Mkt Outperform to MKT PERFORM. Avondale downgrades MVSN based on sluggishness in one of its core mkts that could affect near-term expectations. Firm notes that In the last three weeks, studios such as Pixar (PIXR) and DreamWorks (DWA) have lowered guidance due to sluggish DVD movie revenue. Also, they say retailers such as Best Buy (BBY) and Trans-World Entertainment (TWMC) have indicated flat or declining annual growth in DVD sales.

9:51AM Fifth Third (FITB) Morgan Stanley downgrades Equal-weight to UNDERWEIGHT . Target $42 to $40. Morgan Stanley downgrades FITB following Q2 results, saying low quality earnings coupled with the prospect of a flatter curve weighing on their relatively large securities portfolio makes them more negative on the outlook for earnings growth. They believe another securities restructuring by year-end 2005 is likely and they don't expect that incremental investments in infrastructure and branch network will be producing positive.

9:49AM Zonagen (ZONA) Punk, Ziegel & Co initiates BUY. Target $14. Firm anticipates several important catalysts driving ZONA's valuation during the next 12 months, including: 1) the initiation of Progenta Phase II trials for the treatment of uterine fibroids and endometriosis; 2) the initiation of a Phase III trial of Androxal as a treatment for testosterone deficiency; and 3) the presentation of initial Progenta Phase II and Androxal Phase III trial results. In addition, they expect the co to begin to initiate partnering discussions for the two products during the next 12-months.

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