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From Briefing.com: 5:51PM Swing Trader: FINL, CAT, NKE, AGP, NTES : -Technical- Monday morning opened lower and chopped sideways throughout the day to close at its session lows. Market Breadth was mixed as Decliners outpaced Advancers (1.60 to 1) on 1.96 Down to Up Volume while New Highs exceeded New Lows (6 to 1)....(continued)

4:13PM IBM rallies to $84.00 in after hours trading 81.81 -0.57:

4:13PM IBM beats by 8 cents (IBM) :Reports Q2 (Jun) earnings of $1.12 per share, excluding non-recurring items, $0.08 better than the Reuters Estimates consensus of $1.04; revenues fell 3.6% year/year to $22.27 bln vs the $22.39 bln Reuters consensus and $21.9 bln First Call consensus. IBM reports gross margin 39.4% vs 38.7% street expectation. "IBM returned to form in this quarter. In particular, strategic, high-growth businesses -- in Business Performance Transformation Services, software and in key industry sectors and emerging markets -- were among our best-performing operations, achieving double-digit revenue growth. In addition, IBM Business Consulting Services posted an outstanding quarter, with strong revenue growth and a 30 percent increase in signings... IBM expects to gain market share for the second quarter in the collaborative software, systems management and security software, Web services and data management categories..."

4:12PM Staktek Holdings renews license agreement with Samsung Electronics (STAK) 3.35 -0.09:Co announces the renewal and expansion of the license agreement with Samsung Electronics that was entered into in July 2000 for stacking packaged DRAMs using Staktek's stacking technology. Samsung will be able to use Staktek's leaded package stacking technology for any Samsung leaded device, such as DRAMs, SRAMs and Flash memory, until 2010.

Close: With earnings season now in full swing, and the first of 17 quarterly reports - Citigroup - from Dow components scheduled this week missing analysts' expectations, investors were prompted to consolidate recent market gains... Before the bell, Citigroup (C 45.10 -1.32) - the most influential component within the most highly weighted economic sector (financial) - reported Q2 earnings of $0.97 per share, which were $0.06 shy of analysts' forecasts due primarily to sluggish fixed-income revenues...
With the markets having already factored in a lot of positive earnings news, as evidenced in a two-week rally that lifted the S&P (+2.8%) back into positive territory for the year and to its best levels since July 2001, Citigroup's disappointment became the catalyst that left participants little choice but to lock in some hefty profits... A lack of notable economic data today to further validate the plethora of very bullish economic reports over the last two weeks (i.e. inflation, job growth and retail sales) placed even more emphasis on today's mixed batch of earnings, as all ten economic sectors closed in negative territory...

Providing the bulk of leadership to the downside was Financial, as Citigroup's discouraging report damaged the perception of financial stocks across the board, in particular, Bank of America (BAC 45.23 -0.75) and MBNA's (KRB 25.83 -0.39) - both of which posted better than expected results... The lone exception was Brokerage, which benefited from a 65% increase in Q2 profits from Charles Schwab (SCH 13.40 +0.66), but gains were also minimized by a late-day surge in benchmark yields... The 10-year note finished off 14 ticks to yield 4.21% as traders squared positions ahead of upcoming Greenspan testimony...

3:32PM Monolithic Power Announces Jury Verdict in O2Micro Trial (MPWR) 10.41 +0.26:-Update- MPWR announces that the jury has returned a verdict in the trial between MPWR and O2Micro (OIIM) that was completed on July 14, 2005 in Oakland, California. The jury found that MPWR willfully infringed certain trade secrets belonging to O2Micro and awarded O2Micro damages in the amount of $12 mln; that O2Micro does not infringe claim numbers 3 and 10 of MPWR's patent number 6,114,814, and does not infringe claim numbers 1, 2, 8, 9, 14, 21 and 25 of MPS's patent number 6,316,881; and that those claims of the '814 patent and the '881 patent were anticipated by certain prior art and are invalid. The judge will be determining certain other issues before entering judgment in the case. (Both MPWR and OIIM are halted.)

9:08AM UTStarcom signs contracts to deploy approximately 500k IP DSLAM lines with China Telecom, China Netcom (UTSI) 8.55 :Co announces that it recently signed contracts with China Telecom and China Netcom to deploy approx 500k lines of its AN-2000 IP-based Digital Subscriber Line Access Multiplexer product in 18 provinces throughout Mainland China.

Anadigics (ANAD) has commenced production volume shipments of 3 mm by 3 mm cellular band CDMA power amplifiers to Samsung Electronics for several wireless handsets...

Microchip Tech (MCHP) doubles the performance of the world's smallest microcontroller...

Atmel (ATML) introduces a ready-to-use ultra-low-power MP3 decoder for mobile phones...

9:53AM Neurocrine Biosci (NBIX) Thomas Weisel upgrades Peer Perform to OUTPERFORM. Firm believes that regulatory risk associated with the co's potential insomnia drug, indiplon, has decreased with the recent FDA acceptance of one of its NDA filings. They also expect increased visibility on the co's pipeline ahead of the launch of indiplon in 2Q06 to help broaden investors focus. In addition, firm believes the success of Sepracor's Lunesta out of the gate provides strong evidence of the multibillion-dollar opportunity for the treatment of insomnia.
9:51AM Bankunited Fin (BKUNA) Bear Stearns downgrades Outperform to PEER PERFORM. Bear Stearns downgrades BKUNA based on limited near-term earnings visibility, as evidenced by the co's disappointing F3Q05 operating EPS, which missed their est and consensus by 30%. Firm says they do not expect earnings visibility at the co to return until the Fed stops raising rates and/or the yield curve steepens

9:50AM CheckFree (CKFR) Sun Trust Rbsn Humphrey downgrades Buy to NEUTRAL. SunTrust downgrades CKFR based on their view that the stock does not adequately reflect the likelihood of roughly flat FY06 EPS, compared with 2005. Firm believes competition for EBPP services is intensifying in the middle mkt. They think that the co's lack of a direct community financial institution sales force leaves it vulnerable to more aggressive competition based largely on price from its chief rival, Metavante.

9:47AM Magellan Midstream (MMP) Raymond James upgrades Outperform to STRONG BUY. Target $36 to $42. They think the co has demonstrated a solid track record of distribution growth, and the outlook remains bright with the recent acquisition of the Shell refined products assets. In addition, they believce the co continues to benefit from higher utilization and rates in the terminal segment. They believe both of these factors will continue to drive higher cash flows, as evidenced by management's most recent distribution increase last qtr.

9:46AM Internet Security (ISSX) Jefferies & Co upgrades Hold to BUY. Target $20 to $24. Based on recent conversations with the channel and with software industry contacts, they think the co can meet or beat the midpoint of Q2 guidance. Firm says they are also increasingly encouraged about the co's growing pipeline of deals, which they believe bodes very well for 2H relative to current Street expectations.

9:44AM National City (NCC) CIBC Wrld Mkts upgrades Sector Underperform to SECTOR PERFORM. CIBC upgrades NCC based on a marked decline in long-term rates and subsequent revival in mortgage volumes. Firm continues to believe that they are in an increasingly flattening yield curve environment for the next 6-12 months. They believe pure-play lenders will be the most hurt by this trend and that the mortgage players will be the biggest beneficiaries.

9:44AM Signature Bank (SBNY) Lehman Brothers initiates OVERWEIGHT. Target $35. Lehman initiates SBNY saying the co has demonstrated a number of superlatives since it started in 2001, including 121% CAGR loan growth, 84.7% CAGR deposit growth, and strong credit quality. Firm expects the co to grow deposit share and earnings amidst industry consolidation.

9:42AM InterVoice (INTV) Morgan Keegan downgrades Outperform to MKT PERFORM. Morgan Keegan downgrades INTV saying near-term results remain reliant on securing a few large deals. Firm notes that Nuance/Scansoft merger delays could continue to marginally impact the co's results, while deals in network pipeline remain difficult to predict. They do expect the network business to be a driver for growth in 2006, but would feel substantially more confident if the co were able to sign 2-3 more sizable deals over the coming qtrs.

3:58PM 3M Co (MMM) 74.93 -0.52: Shares of this Dow component have been dead in the water over the last few months after plummeting five percent back in April. The sell-off was ignited by concerns over slowing growth trends following its first quarter result. Today, these concerns were realized after 3M posted its smallest quarterly profit in three years. Sales rose 3.5% below its targeted range of 4-7% growth. The shortfall continues to come from its growth businesses, Health Care and Display and Graphics.

3M, which makes a vast array of products from Scotch-brand tape to optical film used in handsets and LCDs, earned $851 mln or $1.09 per share excluding non-recurring items. The result met expectations driven by cost containment and margin improvement somewhat masking disappointing top line growth. In local currency, sales rose 3.5% world-wide including a 4.5% gain in the US and 2.9% internationally. Pricing attributed 80 basis points, an improvement from last quarter.

Productivity gains and pricing helped to offset higher raw material costs boosting operating margins by 50 basis points to 24.2% - a record for 3M. Six of seven of its businesses generated improved profitability. Health Care, 3M's largest business, generated sales growth of 3.8% tempered by slower sales for Aldara its skin-cancer cream due to competitive pressures. Its Display & Graphics business continues to disappoint with local currency sales and operating profits down 2.5% and 11%, respectively. Management commented during the conference call that other manufacturers have increased LCD capacity putting pressure on pricing, with some trading performance for cost in order to drive end-market volumes. Yet, 3M expects this business to accelerate in the second half of the year due to easier y/y comparisons and a build rate, particularly for TVs.

The rest of its businesses produced solid growth with Industrial, Safety, Security and Protection Services, and Consumer and Office generating high single-digit revenue growth. Looking ahead, 3M expects the third quarter to look similar to Q2 with earnings in the range of $1.06-1.08 per share, including $0.03 dilution from the CUNO acquisition, vs. $1.09 consensus. For the full year, 3M raised the bottom end of its range to $4.20-4.25, including four cent dilution, vs. $4.23 consensus. Using the mid-range, this equates to earnings growth of 12.7% for the year.

3M's profitability remains the envy of its competitors, but organic growth remains elusive. This St. Paul-based company has a superior balance sheet and is well positioned financially to pursue growth prospects and enhance shareholder value. Yet the market has clearly has adopted a wait-and-see position as shares remain under selling pressure. The next catalyst is sure to be the announcement of a new CEO replacing James McNerney. This former head recently left for Boeing (BA) after much speculation and an announcement by 3M that he was not interested in the position. Shares are likely to consolidate further until a new CEO is found, who the market hopes will be able to leverage 3M's long-standing history of product innovation, global manufacturing capabilities, and wide-ranging product base to drive organic growth for the longer-term. ----Kimberly DuBord, Briefing.com
3:29PM Citigroup (C) 45.19, -1.23: Rising short-term interest rates, a flattening yield curve, and narrowing credit spreads continue to speak to the challenges facing Citigroup and the overall financial sector. As the world's largest financial services company, Citigroup's earnings are greatly influenced by the state of the economy and activity in the capital markets. The current flattening of the yield curve, which has historically raised concerns about an impending recession, has clouded the outlook for banks that derive a majority of their earnings from lending.

To this point, Citigroup earned $5.07 billion, or $0.97 per share, in the second quarter compared with $1.14 billion, or $0.22 per share, from last year. Including a $4.95 billion charge related to the WorldCom litigation, earnings fell 7% from the year ago period. Revenues from continuing operations declined 3% year/year to $20.17 billion, as challenging capital market conditions and interest rate shifts led to lower fixed income trading results. Rising short-term interest rates and a flattening yield curve resulted in a narrower spread across several business groups and a subsequent decline of 28% in fixed income market revenue. In addition, new bankruptcy legislation caused an increase in the number of bankruptcies filed and added approximately $175 million to North American credit card costs.

In Citigroup's capital markets and investment banking group, revenues decreased 12% year/year to $3.97 billion. Within the capital markets group, revenues climbed 40% on improved trading performance in stocks and derivatives. Investment banking revenues were hurt by lower bond underwriting fees, falling 1% from a year ago. Revenues for consumer finance fell 1% year/year, despite a 6% increase in average loans. Increased revenues from foreign exchange and commodities helped to partially offset the decline in fixed income revenues.

With the overall trends in the domestic consumer industry reflecting a sluggish operating environment, the company's international efforts continue to be a positive differentiator. The international consumer business generated 10% revenue growth with strong growth in customer balances. Internationally, retail banking deposits and loans increased 9% and 19%, respectively. On a year/year basis, while North American (00) card revenues fell 3%, international cards rose 13%, NA consumer finance revenues fell 1%, international up 5%, and NA retail banking up 6%, with international up 11%.

Although the company is in a transition phase with its recently completed sale of Travelers Life & Annuity to Met Life (MET) and the swap of its asset management business for Legg Mason's (LM) brokerage business, the company continues to develop its already strong international platform even further. Given the prevailing headwinds currently facing the company and the less than stellar second quarter results, shares in the company have traded down over 2.5%. In turn, Citigroup's performance has weighed on investor sentiment, as the admission that the capital markets environment was one of the worst it has seen in years has raised concerns about the financial sector's ability to provide sustained leadership for the broader market. To be sure, the market would have a hard time sustaining a bullish bias without the support of the financial sector, which comprises roughly 20.0% of the S&P's market cap.---Richard Jahnke, Briefing.com

2:52PM Bank of America (BAC) 45.98 +0.17: The nation's two largest banks kicked off a full week of earnings from the financial sector. While Citigroup disappointed due to several one-off items from last year, Bank of America surpassed expectations. This was a high quality result with second quarter earnings cresting consensus by seven cents despite headwinds produced by a further flattening of the yield curve.

In the second quarter, net income rose $4.3 bln or $1.08 per share excluding merger and restructuring costs up from $3.85 bln, or $0.93 per share last year. Revenues rose 7.4% year/year to $14.02 bln, the bulk of which was driven by strong noninterest income up 16% y/y to $6.35 bln due to growth in credit card income, whole loan sales, service charges, and investment gains. Gains helped atone for weaker trading profits, along with investment and mortgage banking income. Earnings quality was high as realized securities gains dropped to $325 mln from $795 mln last year. The flattening of the yield curve continued to squeeze net interest margins by 30 basis points to 2.81% from 3.11% last quarter. As a result, on a fully taxable-equivalent basis, net interest income rose only 1% to $7.84 bln.

Global Consumer and Small Business Banking, which makes up half of total revenues, suffered an 8% decline in earnings to $1.60 bln due to higher provisions for credit card charge-offs. Revenues grew 5% driven by card income and service charges. BAC stated consumer credit quality remains stable with charge-offs up only slightly. Earnings rose 43% within its Global Business and Financial Services on revenue growth of 11% driven by strong loan (+11%) and deposit growth. Commercial loans finally started to kick in this quarter as the economy continues to grow at a healthy pace.

The absence of a litigation expense incurred last year helped offset lower trading related revenues (40% q/q) within the Global Capital Markets and Investment Banking unit. A weak market environment impacted fixed income and equity trading-related profits, yet commodity-related trading posted strong results due to higher energy prices. Management stated the turbulence during Q2 now appears to have stabilized. Strong loan growth and higher assets under management propelled gains within the Global Wealth and Investment Banking unit.

The Charlotte-based bank has been aggressive in expanding its consumer unit, while also strengthening its investment banking business. On the consumer side, it recently announced the acquisition of the largest independent credit card company, MBNA (KRB) for $35 bln. KRB also reported earnings today, beating estimates by two cents. The Fleet acquisition is nearing full integration, which BAC projects total savings of $1.85 bln for 2005. Bank of America's expansion plans are not just limited to the US, it recently agreed to buy a 9% stake in China's third largest bank, China Construction Bank for $3 bln.

Even though the yield curve continues to compress, lower long-term rates have helped generate loan growth and improve overall credit quality. The yield curve phenomenon will remain for the short-term, but due to BAC's diverse business it will be able to navigate the challenging environment. BAC remains one of the most profitable large cap banks offering investors value (4.39% dividend yield) and growth opportunities alike. BAC is expected to cultivate earnings of 14% on revenue growth between 7-9% for the year. The stock is currently trading at an 10.9x price to earnings multiple - below its historical average and its industry group. ----Kimberly DuBord, Briefing.com

12:25PM Hasbro (HAS) 21.85 +0.37: The "force" was with Hasbro as sales of Star Wars merchandise helped scour disappointing results for the first quarter. The no. 2 U.S. toy maker beat revenue and earnings expectations for the fiscal second quarter with sales of $572.4 million and net income of $29.5 million, or $0.13 per share. For the same quarter last year, revenues were $516.4 million with net income of $18.8 million, or $0.06 per share. Analysts had projected a profit of $0.08 per share on revenues of $559.8 million as weakness in the game segment remained an overhang.

Back in April, Hasbro reported a loss of $0.02 per share with revenues of $454.9 million. A 22% drop in its game segment, due primarily to a decline in trading card game sales (Magic: The Gathering, Duel Masters), offset gains in higher margin toy sales. In addition, increased seasonality in board games impeded sales growth as retailers remained focused on keeping inventory levels down. Concurrently, game segment revenues for the second quarter fell 12% to $142.9 million from $161.6 million a year ago. The segment, which includes games from Milton Bradley and Parker Brothers, also saw operating profit drop more than 50% to $13.4 million.

The strong sales of Star Wars toys following the theatrical release of Episode III - Revenge of the Sith more than helped to offset the waning games business. With continued momentum for Star Wars products since launching on April 2, revenues in the U.S. toys segment expanded to $209.3 million from $167.2 million in the year ago period. Operating profits climbed to $13.4 million from to a loss of ($7.0) million, benefiting from an increase in volume and lower expenses. In addition to Star Wars, a number of other brands including Nerf, My Little Pony, Transformers, and Littlest Pet Shop contributed to the strong results.

Fiscal 2005 should be a better year with Star Wars, as evidenced by the company's fiscal second quarter performance. However, as consumer preferences are continuously changing, Hasbro needs to constantly enhance its existing product line and develop and introduce new products in order to maintain market share. If the company is not able to meet these challenges in a timely fashion, demand for its products will decline and result in lower sales. The rapidly changing preferences of consumers usually leads to short product cycles and aptly reflects the hit-driven industry. Further, toy sales are extremely seasonal, with the majority of sales occurring around the holidays in the last two quarters of the year. As such Hasbro, as well as other toy companies, must strive to generate more consistent sales throughout the year. With strong product momentum and successful product marketing, Hasbro has responded to the volatile conditions of the toy industry and should continue to perform well into the future, even as the Star Wars loses favor to new products. ---Richard Jahnke, Briefing.com

9:20AM Page One - The Market Catches Its Breath : After being up every day last week and now on a seven day streak of up days, the most likely course for today is for the market to lose a little momentum and catch its breath. The cash futures indicate a slightly down open for the S&P500, but there are no economic reports that might push the market in either direction. Instead the focus is likely to be on individual stocks, particularly larger cap stocks that could be viewed as bellwethers for the overall market and economy. From that viewpoint, the scale tips more towards a slightly down day.

No economic releases today means no more signs of the steadily improving economy that might help convince those remaining doubters still on the sidelines. Last week's string of very positive economic indicators showed that the economy is strong enough to withstand a continued environment of rising interest rates. Those who viewed the interest rate scenario as a forbearer of worsening economic conditions have little data from other releases to support their case. But since today will not continue last week's non-stop string of daily positive news on inflation, job growth, and retail sales, the case for a more bullish outlook loses its bully pulpit argument today.

Instead, those focusing on signs to support a bullish view will concentrate on the disappointing earnings from Citigroup (C). A rising interest rate environment is always difficult for money center banks, but Citigroup's large percentage of revenue from fixed income markets gives their situation an individual flavor that may not extend so easily to other banks. In addition, Citigroup stated they saw a strong rebound in both May and June for fixed income activity, but not enough to offset April's 60% decline. Consumer activity was very strong however, which may explain why MBNA's earnings exceeded estimates. Bank of America also beat earnings estimates substantially, although revenues were only slightly above estimate. Although C, as a Dow stock, gets more attention as an overall market indicator, the results from MBNA and BofA tend to weaken the argument that Citigroup's disappointment is a sign of worsening conditions ahead.

The other major report today that might help serve as a sign for the overall market is IBM, after the close. Although IBM was once a primary indicator for the technology sector, which itself was once the single most important driver of the market, IBM no longer holds that role. Technology isn't the leading factor it once was either, so IBM's results won't have the ripple effect impact that it might have had three to six years ago. Instead, any surprise or disappointment will likely be confined to the price of IBM stock alone.

When you then add in the likelihood that many traders will simply take profits from the seven-day up streak in the S&P500, it seems reasonable to expect a mildly down day today. However, that downward pressure will be driven more by the lack of any significant new data or reports than it will by new evidence supporting a bear case. Nothing goes straight up forever, so while we view the start of this earnings season as still very positive and maintain our slightly bullish view for the coming six months, it doesn't mean that there won't be pullbacks along the way. There will, and today is likely to be one of them. Robert V. Green, Briefing.com

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