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From Briefing.com: 4:17PM Infineon to provide key components for Xbox 360 (IFX) 9.53 +0.01:Co announces that it will supply three key components for the Microsoft Xbox 360 video game and entertainment system. Infineon will provide a removable solid-state memory unit product, a single-chip ASIC wireless game-pad controller that makes cables unnecessary for game play, and an advanced security chip. Xbox 360 consoles with Infineon-produced chips and components are expected to be on the shelves in Q4. Financial details not disclosed.

4:05PM QLogic to sell unit to MRVL for $225 mln; approves $350 mln buyback program (QLGC) : -Update- Co announces a definitive agreement to sell its hard disk drive controller and tape drive controller business to Marvell Tech (MRVL). Pursuant to the terms of the agreement, the co will receive $225 mln, comprised of $180 mln in cash and $45 mln in MRVL common stock. In addition, QLGC's board of directors has authorized a new program to repurchase up to $350 mln of the co's outstanding common stock over the next two years.

Close Dow +65.76 at 10463.05, S&P +7.18 at 1212.28, Nasdaq +16.88 at 2137.65: With Hurricane Katrina bearing down on the Gulf Coast near New Orleans, it was shaping up to be a damaging day in more ways than one for a lot of people... For stock market participants, it seemed all but certain that investment portfolios would decline in value as a spike in energy futures prompted a decline in equity futures before the open...
Taking its cue from the futures lead, the cash market slipped at the open, but the losses it suffered were just a drop in the bucket compared to what might have been expected when crude futures, propelled by supply disruption concerns, hit a record high $70.80/bbl in electronic trading... As it so happens, Asian markets suffered the brunt of that troubling sight, whereas, stock indices in Europe and the U.S. weathered that futures storm in resilient fashion.... Trading in the regular session saw the gain in crude futures nearly wiped out in the face of reports detailing Katrina's waning strength and an indication from the Dept. of Energy that oil would be released from the Strategic Petroleum Reserve if necessary following damage assessments...

To wit, shortly before the futures market closed in the afternoon, crude futures were up just $0.17 at $66.30/bbl... Late-session buying interest, though, left the October contract up $1.07 at $67.20/bbl... Nonetheless, the sharp pullback from earlier highs put a bid in the stock market that was accented by broad-based buying interest - albeit on low volume... Leading the stock market's afternoon charge was the health care sector (+1.00%) whose defensive attributes appealed to today's participants.... It was the best-performing of the economic sectors Monday and was followed by energy (+0.68%) and information technology (+0.68%)...

Leadership from the energy sector stemmed from the gains seen in the futures market, but like energy futures, the energy sector closed well off the 1.9% gain logged in its first hour of trading... As that sector's sponsorship faded, though, new sponsorship arose from most other sectors, particularly information technology... The latter was aided by merger innuendo surrounding the software industry and some bullish analyst backing for the likes of KLA-Tencor (KLAC 49.92, +1.02) and Intel (INTC 25.73, +0.32) that propped up the semiconductor group...

Not surprisingly, the consumer discretionary sector (+0.33%) underperformed as the sight of rising energy prices and an indication from Wal-Mart (WMT 45.65, -0.05) that it expects August same-store sales growth at the low end of its guidance range of 3-5% acted as an overhang... The home improvement retailers, however, were a bright spot as both Home Depot (HD 40.54, +0.73) and Lowe's (LOW 64.60, +1.42) got a boost on the notion rebuilding efforts following Katrina's passing should lead to increased sales...

On Tuesday, the consumer discretionary sector promises to be back in the spotlight as the Conference Board is set to release its Consumer Confidence report for the month of August... Added attention will also be paid to the minutes form the Aug. 9 FOMC meeting as participants will be hoping to glean some insight on how long the Fed's current tightening cycle is apt to last...Russell 2000 +1.03, SOX +1.34, S&P Midcap 400 +0.67, NYSE Adv/Dec 2040/1200, Nasdaq Adv/Dec 1765/1235

Semiconductor (AMIS) renews partnership with MOSIS (MOSY) to participate in in the MOSIS multi-project wafer program and MOSIS education program...

8:19AM More On the Wires :Vitesse Semi (VTSS) announces that its Gigabit Ethernet Switch ICs and ultra-low power copper PHYs are integrated into SMC Networks' newest Gigabit Ethernet switches...

SMSC (SMSC) says its M.O.S.T. multimedia networking tech has been chosen for the new BMW 3-Series infotainment system, which was introduced in early 2005...

9:19AM Micromuse (MUSE) Deutsche Securities upgrades Hold to BUY. Target $6 to $9. Firm's checks indicate that the pipeline is building up with both carrier and enterprise deals, which they expect will be reflected across sales and deferred revenue due to the co's transition towards term deals. They believe that the co's newest products (NetCool Precision and Active Dashboards) are now entering product maturity which means more successful deployments and greater demand generation. Firm also believes the co is benefiting from its expanded product portfolio thanks to a couple of recent key acquisitions, which makes its product suite a more compelling purchase to customers.
9:19AM MapInfo (MAPS) JP Morgan upgrades Neutral to OVERWEIGHT. Firm believes the co emerged from a prolonged down-turn in demand with a lean operating model, a new and expanded product portfolio, a more diversified customer base, and early traction in some new and promising mkts (e.g. insurance, homeland security). In the near-term they see growth opportunities in retail made possible by the acquisition of Thompson Associates, as well as in finance (MarkeTech) and public services (Southbank). Medium-term, they believe the co is poised to exploit a gradual recovery in telecommunications capital expenditure activity, finance and retail.

9:18AM EFJ (EFJI) AG Edwards initiates BUY. Target $10.5. Firm says the two-way radio market used by law enforcement, firefighters, EMS, and the military is at the start of a major transition from proprietary manufacturer-specific protocols to a new standard known as Project 25 or P25. They believe the multi-year transition will require the rebuilding of the majority of the installed base of old standard systems, giving EFJI the opportunity to materially expand its market share and sustain rapid growth through the end of the decade.

9:18AM Washington Post (WPO) Prudential upgrades Underweight to NEUTRAL. Prudential upgrades WPO on valuation as they believe the stock should trade at least in line with the group, if not at a slight premium, given the diversity of its assets and the strong level of growth being produced by its Education division.

9:17AM Pixar Animation (PIXR) Harris Nesbitt upgrades Underperform to OUTPERFORM. Target $38 to $58. Although firm realizes that there might not be an earnings catalyst for another 3 qtrs, they believe the co's current price represents the opportunity to achieve above-average returns, as the co should be able to demonstrate more superior earnings power and cash generating capability beginning in 2007 and beyond.

9:17AM Rowan Cos (RDC) Friedman Billings upgrades Mkt Perform to OUTPERFORM. Target $39 to $43. Friedman Billings upgrades RDC based on the co's leverage to rising jackup day rates and their expectation of further day rate growth driven by the undersupplied Gulf of Mexico jackup mkt. Now that the co is moving five rigs out of the Gulf of Mexico, taking advantage of strong international demand and diversifying its rev stream, they believe the Gulf of Mexico market should be net short by 5% or more.

9:15AM Wachovia (WB) Banc of America Sec upgrades Neutral to BUY. Target $54 to $56. Banc of America upgrades WB based on the stock's discounted valuation relative to its peers, their expectations of improving earnings quality for 2H05, their continued favorable view of the co's commercially oriented business mix and visible expense levers that should provide P&L flexibility if the business environment proves more difficult than expected.

9:15AM Parke Bancorp (PKBK) Advest initiates BUY. Target $22. Firm believes the co is an attractive investment given its strong fundamentals and prospects for above-average growth. Additionally, they say the co trades at a discount to peers on a P/E and price-to-book basis

3:09PM Wal-Mart (WMT)
45.71 +0.01: Wal-Mart on Saturday estimated that August comparable sales increased 3.3% - near the low end of its guidance of 3% to 5% - as fuel costs continue to hamper consumer spending, particularly among lower-income consumers who are more sensitive to price increases.

For Wal-Mart specifically, it gets hit on two fronts. First, high gasoline prices and utility costs consume a bigger chunk of the discretionary spending of its main customer base. Second, the price of diesel used to power its trucks is also soaring. The key to Wal-Mart's low price strategy is its efficient supply chain management, which it achieves through an impressive distribution network. This system is likely to become strained as diesel prices continue to rise. With refineries cranking out as much gasoline as possible, diesel fuel has actually become more expensive. While gas prices have topped $2.50 per gallon, diesel has jumped well above $3.00 per gallon. As a result, truckers' wages have eroded which has led to their unions putting more pressure on Wal-Mart to adjust freight contract rates for the fuel inflation.

Although August has historically been a strong month for back-to-school shopping, soaring energy prices have stretched lower-income consumers and effectively dampened sales for many discount retailers. Wal-Mart's meager second quarter results, and subsequent profit warning for the third quarter, exacerbates the impact of rising oil prices and the potential for weaker consumer spending. The company, which topped Wall Street's Q2 earnings estimates by two cents on softer than expected revenue, said that it expects earnings in the range of $0.55 to $0.59 per share for the third quarter - below the consensus estimate of $0.60. Separately, according to its Chief Financial Officer, the cost of transporting freight impacted Wal-Mart's Q2 earnings by at least $30 mln.

Oil prices have nearly doubled over the past year, rising from $35 a barrel last June to roughly $68 a barrel today. However, the economy has proven its ability to weather the surge quite well, as was discussed in Briefing.com's Big Picture column this morning. Over the past four quarters, the economy has grown above its long-term trend, with real GDP up 3.5% and industrial production up 3.0%. Moreover, improving employment trends, which continue to support consumer spending, suggest that the broader implications of higher oil prices are less than supposed.

Although rising energy prices are an important factor in the economy, and undoubtedly a deterrent on Wal-Mart and the stock market, the overall impact has been largely exaggerated. The economy continues to show signs of strength, with record level corporate earnings and historically low interest rates, and should support positive consumer spending trends.

Nonetheless, oil prices represent a heavy psychological weight and are responsible for investors' increasing pessimism. As such, Wal-Mart will likely be impacted in the near-term until energy has stabilized and visibility into consumer spending and business operations becomes more clear. A decline in oil prices should be a positive catalyst for the market and help to calm jitters surrounding the current environment. --Richard Jahnke, Briefing.com

11:08AM Wet Seal (WTSLA)

5.34 +0.03: In the midst of restructuring, apparel retailer Wet Seal said that its loss for the second quarter was significantly narrower on account of growth in comparable store sales and improved margins. The Foothill Ranch, California-based company reported a loss of $11.7 million, compared to a loss of $106.3 million in the second quarter last year. Included in the loss was a $16.1 million charge related to a previously announced consulting agreement with turnaround specialist Michael Gold - representing $2.1 million in cash compensation and $14.0 million in non-cash stock compensation - and $23.3 million in deemed preferred stock dividends associated with a $24.6 million equity financing deal in May. As a result, the loss attributable to shareholders was $0.87 per share versus $3.31 per share last year.

Wet Seal, which has substantially completed its previously announced closure of 153 underperforming stores during the fourth quarter last year, said sales for the most recent period increased 19.5% year/year to $126.3 million. The sales increase was largely attributable to a comparable store sales increase of 55.9% - on top of 50.9% for July and 59.3% for June. For the same period last year, same store sales decreased 10.9%.

Gross margin for the quarter, as a percentage of sales, increased to 32.9%, up from 10.2% in the prior year. The company said that a number of factors contributed to the margin improvement, including lower markdowns, a reduction in low-volume stores, and leverage benefits on rent expenses. Inextricably, SG&A expenses totaled $52.1 million, or 41.3% of sales, and included the charges related to the agreement with Michael Gold. Excluding these charges, SG&A was $36.0 million, or 28.5% of sales, a 7.1% decrease from the year ago quarter. Overall operating expenses declined to 21.1% of sales, compared to 28.0% last year, as a result of discontinued operations, lower advertising spending, and changes in its employment structure.

The company said that it was not providing guidance for the third and fourth quarters. However, it estimates a non-cash charge of about $12.0 million, related to stock grants for the remainder of the fiscal year and net interest expense of $1.5 million in both the third and fourth quarters if its stock remains at or near current price levels.

The company, which has struggled with a slew of management shortcomings and operational inefficiencies in recent years, has lost money since FY03 and has yet to return to profitability. However, in light of aggressive structural changes focused on reducing costs and eliminating underperforming stores, Wet Seal has substantially improved overall operations and reignited positive sales trends. As the company moves forward in an extremely challenging retail environment, its success will be determined by its renewed merchandising strategy and ongoing efforts to mitigate losses. Although the company has made tremendous strides in staving off bankruptcy and reviving its business, a tough business climate and weak fundamentals continue to emanate uncertainty in the current investment proposition. Investors should remain on the sidelines and look for a greater visibility before committing to the turnaround story just yet. --Richard Jahnke, Briefing.com

10:11AM The Katrina Impact

Oil prices broke above $70 per barrel as Hurricane Katrina made landfall early Monday morning. This enormous category four hurricane is moving inland at 50 miles per hour, striking with the force of 150 mile per hour winds. It's expected to have made a direct hit on offshore natural gas and oil rigs in the Gulf of Mexico. This area is critical to the US in terms of production as it accounts for 30% of our oil and 24% of our natural gas production. The actual damage will not been known for some time. Katrina's impact will be felt across the entire energy sector, along with the rest of the market. A surge in oil prices may spark concerns of higher inflation and slower economic growth.

Energy traders are expecting to see some sort of price spike today on speculation the storm could take out 1.5 mln barrels per day of production off the market - equating to roughly the spare capacity. Hurricane Ivan took off a third of the oil and gas production and Katrina is significantly worse. Crude futures are currently trading at $69.26, up $3.14 per barrel with natural gas up $11.58 up $1.790 per bcf. The market is bracing for one of the biggest moves in crude and natural gas prices in well over two years. Traders are saying oil could hit $75 per barrel while natural gas could move to the $13 range.

Katrina is a worst-case scenario, as it hit right at the heart of the energy producers at a time when there is no excess capacity in the world's energy markets.

The trajectory and duration of prices will depend on the damage sustained on the infrastructure in the Gulf. The true nature and extent of the damages will not be known for several days. For some perspective, it took six months to restore full refinery production after Hurricane Ivan hit last year. With gasoline inventories at 5-year lows, any damage to the refinery infrastructure could send gasoline prices much higher. The market was extremely hypersensitive to supply disruptions, even before the storm due to the tightness in the oil markets. As such, commodity and stock volatility is likely to continue.

OPEC's President is urging the cartel to hike the daily production quota by 500,000 barrels per day. OPEC, which meets next month, has little impact on oil prices since the problem lies more in terms of the limited refining capacity. What would have an impact on prices is if the government would release supply from the Strategic Petroleum Reserve.

All of the offshore rigs and platforms were evacuated and/or moved out of the region. RoyalDutchShell (RD) estimates Katrina has shut-in 420,000 of daily oil production. The world's largest energy company, ExxonMobil (XOM), has evacuated its workforce in the region and estimates 50,000 of daily oil production and 300,000 million cubic feet of natural gas shut-in. The Louisiana Offshore Oil Port, which accounts for 11% of US imports, closed on the 27th, halting all oil movements to shore.

We suggest investors should sit on the sidelines today, as price action is likely to be quite volatile. We believe Energy has evolved into a long-term secular story as demand continues to outstrip supply. Accordingly, it would serve investors well to be Overweight the group. Despite the considerable outperformance the sector has enjoyed to date, we feel these names still hold considerable value and offer growth opportunities over the short and long term. We suggest investors take advantage of exaggerated selling to add to positions. The Energy sector trades at 13x P/E, compared to the S&P 500 at 18.7x. ---Kimberly DuBord, Briefing.com

8:34AM Page One - Oil Price Spikes.. oh, and Oil Is Up

It is all about the price of oil this morning. Hurricane Katrina has hit the Gulf and oil is up over $3 to about $69.35. Stock futures indicate a down open, but less than might have been expected.

The stock market has been obsessed with the global price of oil for years. This month, every $0.25 twitch in the price could yank stocks around during the slow news days of August. This obsession is overdone.

As Briefing.com's Big Picture column this morning notes, the price of oil has doubled in a little more than a year. During that period, real GDP is up 3.5%. Federal Reserve Chairman Greenspan suggested last week that higher oil prices had knocked about 3/4% off GDP during that period. This sounds about right.

Energy spending accounted for only 2.4% of GDP last quarter. Higher prices at the gas pump detract from consumer spending power for other purchases, and higher energy prices raise the cost of production for manufacturing firms. It is a negative. But it is only one factor in the economic puzzle. For example, over the past year, nonfarm payrolls are up 1.7%. Wages are up. That has raised consumer spending power far more than the rise in the price of gas has detracted from it. That is why the economy has grown at a pace above long-term trends even with higher oil prices.

All this is not intended to ignore the importance of the price of oil. It is a key economic factor. It is not, however, the final determinant of the direction of the stock market. Earnings and interest rates are. The outlook for both of these remains favorable, even with higher oil prices.

The market understands this (to some extent). That is why the S&P futures suggest a down open of "only" 7 points. The spike in oil prices is a bearish factor, but it is not the final say in the outlook for the stock market. --Dick Green, Briefing.com