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From Briefing.com: Close Dow -0.32 at 10216.59, S&P -0.85 at -1176.84, Nasdaq +9.75 at 2047.22: Despite staging a late-day rebound that a rising Tech sector (+0.6%) spurred, the equity market was not altogether successful in ending the losing streak that has characterized quarter four. The emergence of Technology's leadership, did, however, send the Dow and S&P to the flat line and well off of their lows while pushing the Nasdaq to a gain that halted its 4.5% quarter-to-date decline. Already caught within a thick air of pessimism, traders found little to challenge the prevailing sentiment today. The economic front brought a widened trade deficit, which, although wasn't as bad as economists had forecasted ($59.0 bln vs. the $59.5 bln consensus), checked in as the third-worst ever. Perhaps more significantly, import prices rose the most in 15 years, up 2.3% overall (consensus +1.0%) and reflecting surging energy costs; excluding oil, import prices increased 1.2%. A less-than-expected build in crude inventories, accompanied by drawdowns that were sharper than expected in both gasoline and crude, helped compound the bearish bias today. With regard to the ten economic sectors, they finished in split fashion. The aforementioned gain in Technology served as the sturdiest support, and came on the back of surging semiconductors - which worked to erase yesterday's plunge- and an Apple-driven jump in hardware. The computer giant (AAPL 53.74 +4.49), for its part, attracted buyers after disappointing the Street with its earnings report yesterday. On the other side of the Tech coin, though, was Comcast (CMCSK 26.85 -0.57), shoved lower upon reports that it may team with Google (GOOG 297.44 -3.53) to acquire a $5bln chunk of America Online. Healthcare also stood as a standout today, offering a 0.6% gain for which Johnson & Johnson (JNJ 64.06 +2.26) can be largely credited. A double-dose of news helped J&J jump 3.7%: The company filed an antitrust suit accusing rival Amgen (AMGN 75.82 +1.05) of illegally bundling to effectively push its drug Procrit out of the market, and Barron's positive feature on JNJ stock added to its bounce. Despite the suit against AMGN, biotechs soared today and further helped the sector retain its gain. Rising late in the afternoon, the Consumer Discretionary sector (+0.4%) managed a modest gain mostly on account of post-earnings report buying interest in Harley Davidson (HDI 48.66 +1.76), and McDonald's (MCD 32.04 +0.37), which upped Q3 guidance and reported strong Sept. same store sales data delivered yesterday evening. A 1.9% pullback in the price of crude ($62.90/bbl) further helped discretionary issues, but sent the Energy sector (-2.4%) back to the red. The Utilities sector (-2.2%) similarly suffered extended profit-taking, as traders continue to target the market's two best year-to-date performers. Materials (-0.2%) recovered somewhat mid-day, but spent the session on negative turf after the International Copper Study Group reported that global demand for copper fell 1.2% from Jan to July. Aside from today's economic data, traders had little news with which to contend, and await the torrent of earnings reports that will begin rolling in Monday. In addition, anticipation of tomorrow's CPI data may have helped keep buyers at the sidelines.DJTA -1.03, DJUA -2.78, DOT -0.05, Nasdaq 100 +0.83, Russell 2000 +0.28, SOX +2.14, S&P Midcap 400 -0.43, XOI -2.32, NYSE Adv/Dec 1167/2140, Nasdaq Adv/Dec 1499/1490

12:26PM O2Micro granted cardBus controller patent in Japan (OIIM) 13.50 -0.07:Co announced it was granted 22 claims under Japan patent number 3,667,199 for its SmartCardSensing Card Detection Circuit. This patented invention offers notebook PC OEM's the option to use low cost PC Card passive adapters to enable Smart Cards on platforms with a SmartCardBus controller.

8:55AM Gapping Up :LRCX +5.2% (beats by $0.05, Morgan Stanley upgrade; up in sympathy: AMAT +1.4%, ASML +1.2%, NVLS +1.4% -- NVLS also gets ThinkEquity upgrade),

7:36AM C-COR.net guides Q1 EPS in-line, revs below consensus (CCBL) 6.09 :Co issues guidance for Q1 (Sep), sees loss of $0.10 to $0.14, excluding $0.19 in items vs. -$0.12 Reuters Estimates consensus; sees Q1 (Sep) revs of $63-64 mln vs. $66.99 mln consensus.

2:54PM MEMC Elec (WFR) Friedman Billings downgrades Mkt Perform to UNDERPERFORM . Firm says although they expect the co to exceed their Q3 ests, they believe that upside to '06 EPS ests will be limited because: 1) increased 300mm raw wafer capacity; and 2) their view that the polysilicon pricing impact is negligible to the co's overall revs. They continue to encourage investors to swap from the co into ATMI, given ATMI's earning power.

2:54PM General Maritime (GMR) JP Morgan downgrades Overweight to NEUTRAL. Firm believes the co has downside EPS risk in light of its high spot mkt leverage, lack of product tanker exposure, and older fleet. They think this will be a negative catalyst to the shares during the weakening spot rate environment they forecast over the next 9-12 months.

2:53PM Veritas DGC (VTS) Deutsche Securities upgrades Hold to BUY. Firm says with several years of sustained strength for commodity prices and increased pressure on upstream players to grow reserves and production, they are seeing signs of increased tolerance for risk which they believe will lead to an increase in exploration spending over the next year. They expect seismic cos to be the primary beneficiaries of a pickup in exploration.

2:53PM CollaGenex Pharm (CGPI) RBC Capital Mkts initiates OUTPERFORM. Target $16. Firm thinks the co is poised to utilize its proprietary technology to develop differentiated new products for the dermatology mkt and they expect the CGPI to emerge as the exciting new co in dermatology. They believe the co's Oracea is a first generation IMPACs compound that they expect will be the first FDA-approved orally administered drug for the treatment of rosacea.

2:52PM Dean Foods (DF) Wachovia downgrades Outperform to MKT PERFORM. While the co's branded businesses enjoy significant momentum, sequential declines in raw milk costs have stabilized, firm notes its HDPE packaging & total energy cost outlook has jumped 20-30% in the past month, and the stock is trading well above its 5 year average. While they believe the future looks bright for the co, they think a more neutral stance is warranted on a potentially less bubbly Q4 and 2006 outlook. Valuation range is $39-$41.

2:52PM IMS Health (RX) Banc of America Sec upgrades Sell to NEUTRAL. Target $21 to $24. Based on valuation and NDC's stronger-than-expected quarter in its information management business (the info is used by pharma companies to refine their marketing efforts).

2:51PM LTX Corp (LTXX) Merriman Curhan Ford downgrades Buy to NEUTRAL. Co's largest customer (TXN) is is transitioning to a lower-cost tester, the EX, from the HFi. Firm believes this product transition presents a new risk for investors and will prove difficult for LTXX to grow almost half of its overall revenue base in the near-term until the ASPs are annualized.

2:51PM Blackboard (BBBB) Robert W. Baird upgrades Neutral to OUTPERFORM. After the co announced it will acquire rival WebCT, and notes the recent pullback in the stock. Firm is extremely enthusiastic about the likely effects of the combination. In addition to providing the co with effective dominance in its core market and clear cost synergies, firm believes it provides a clear opportunity for accelerated growth.

2:50PM Arris (ARRS) Brean Murray downgrades Accumulate to HOLD. Firm says that while ARRS' very strong 3Q05 performance that was pre-announced last night is quite laudable, they do not believe this strength will continue, as evidenced by the lackluster 4Q05 guidance.

2:50PM Genesis Microchip (GNSS) Wedbush Morgan upgrades Hold to BUY. Firm believes the co's risk/reward dynamics now more positive as earnings upside may occur, and they think the recent selloff presents better entry point. Firm's checks point to robust seasonal demand for GNSS, possibly driving EPS upside in September

3:03PM Sonic Corp. (SONC)
28.13 +0.07: In spite of higher prices at the gasoline pump and increased competition for the consumer's dollar, drive-thru restaurant chain Sonic Corp. said fourth quarter profits rose 13% from the year-ago period, driven by increased national media spending and successful sales initiatives. For the most recent quarter, the Oklahoma City-based company earned $24 million, or $0.39 per share, compared with $21.3 million, or $0.34 per share, last year - in line with the consensus estimate. Revenue increased 13% year/year to $180.6 million - slightly below analyst estimates of $181.8 million - as system-wide same store sales rose 4.4%. Partner drive-ins continued to outpace franchise drive-ins, with comparable sales rising 4.5% for the fourth quarter. In addition, developing markets maintained their torrid pace, eclipsing core market growth with an increase of 6.9% for the period.

"Solid sales momentum continued during September and early October, as estimated system-wide same store sales were within our long-term target range of a 2% to 4% increase," said Clifford Hudson, Sonic's Chairman and CEO. The results reflect the nineteenth consecutive year of same store sales growth and also helped drive an increase in average unit volumes above the $1 million level on a system-wide basis. "This fundamental strength is very gratifying, especially when you take into account the disruptions we experienced in some of our markets due to Hurricanes Katrina and Rita," added Mr. Hudson.

During the quarter, Sonic opened 69 new drive-ins, comprised of 55 franchise stores and 14 company stores. This brings the total for the year to 175. However, considering the impact of recent hurricane activity, as well as the indirect effects on the cost and availability of construction materials, the company reduced its development plans for the near-future. Accordingly, it is projecting store openings for fiscal 2006 to be between 180 and 190 until it is better able to assess the complete impact of the storms on development costs. Meanwhile, looking to the first quarter, the company expects earnings to be in the range of $0.28 to $0.30 per share, with sales growth between 12% and 14%. Same store sales were estimated to be in the range of 2% to 4%. On average, analysts had forecast EPS of $0.24 on revenue of $149.98 million for the current quarter.

Sonic's continued sales progress is largely due to its differentiated brand, as compared to more traditional casual dining restaurants, and successful sales initiatives. Underlying its strategy to drive sales are "three key elements": (1) increase media spending, (2) maintain focus on new product news, which helps the company remain compelling to consumers, and (3) expand business in non-traditional day-parts, particularly the evening period. The company believes these initiatives are an important catalyst and expects them to drive same store sales growth. In addition, Sonic continues to benefit from the roll-out of the PAYS (Pat at Your Stall) program, which is helping to increase average check amounts and expedite service for credit card orders. The program has been fully implemented at partner stores and is about 40% complete at franchise units, but remains on track to achieve system-wide roll-out by the end of the year 2006.

Sonic is trading at 16.8x the FY06 EPS estimate of $1.67, a slight premium compared to its peers. However, given its differentiated business model and aggressive sales initiatives, as well as proven financial record, the current valuation is appropriate. The outlook for continued growth remains promising considering the impact, both direct and indirect, from Hurricanes Katrina and Rita, and the slowdown in consumer spending.

For a more extensive overview of the restaurant industry, including historical trends, expectations and price reaction data, check out Briefing.com's new Restaurant Benchmark product.--Richard Jahnke, Briefing.com

2:53PM The Tribune Co. (TRB)

32.60 +0.79: Media stocks are on the move Thursday, including one of the worst performers in the group, The Tribune Co, which is bouncing off lows not seen since 2001 following the release of its third quarter results. Considering profits tumbled 80%, onlookers may be dumbfounded by the reaction. Today's price appreciation, however, is based on a moderately improved performance in newspaper and television sales, coupled with a value-driven opportunity given the stock is down 23% this year.

The publisher of the Los Angeles Times and Newsday reported net income declined to $24 mln, or $0.07 per share, from $121.7 mln, or $0.37 per share last year, after the company set aside $150 mln to pay a tax claim. At the time the company acquired the The Times Mirror, it inherited a pre-existing tax dispute for which the additional funds are related. Excluding the tax costs and a gain, earnings per share equaled $0.50 - two cents above the Reuters Estimate consensus. Third quarter operating revenues declined 1% to $1.40 bln.

Given the challenging environment, the market was relieved to see advertising revenue growth of 2%. Stripping out Newsday, which implemented lower ad rates due to failing circulation, ad revenues grew 3%. Home improvement ads helped to offset weakness in department stores, food, and drug categories within the retail segment, which was up 1%. As expected, a poor box office season, along with weakness in transportation, wireless, and technology segments weighed on ad revenue (-3.0%) nationally. Consumers looking for jobs (+17%) and real estate (+16%) drove classifieds up 7%, offsetting weakness in the auto segment (-4%). Online revenues soared 46%, helping to support the upside in several categories. At the quarter's end, circulation had fallen 7%. Total net paid circulation for its 11 metro-newspapers averaged 3.0 mln copies daily and 4.3 mln copies on Sunday. Home delivery, plus single copy, averaged 2l8 mln copies daily and 4.1 mln copies on Sunday. All metrics declined in the low single digits.

The upside in the quarter was the modest gain in advertising, share repurchases, and cost containment. Considering the soft advertising market, TRB has remained focused on the cost side of the equation. What it can't control is the rise in newsprint and ink costs, which escalated 5% in the quarter. Ironically, lower circulation partially accounted for raw material price inflation. The downside for The Tribune rests mainly on the lackluster trends in print and television advertising. Its Broadcasting unit showed a 2% drop in sales to $422 mln, as a weak fall line-up for its WB network failed to draw in the advertisers. Also, looking further into the numbers, the upside in earnings was achieved below the operating line through equity investments and a reduced share count.

Investors should look past today's escalating share price and focus on the fact that TRB lacks the earnings levers to merit the rise. We do acknowledge that the worst is behind them most likely, along with the virtues of a 2.2% dividend yield and further buybacks. Still, with the media landscape evolving into a digital world where consumers can control content, shaping the where, when, how, and what, TRB's future appears less newsworthy. ---Kimberly DuBord, Briefing.com

11:21AM Lam Research (LRCX)

32.64 +2.44: Amid months of lackluster growth for semiconductor equipment companies, LAM Research posted a sharp decline in first quarter profits, but still managed to beat Wall Street expectations. After the close Wednesday, the No. 3 U.S. maker of chip equipment reported earnings of $49.5 million, or $0.35 per share, on revenue of $320.9 million. During the same quarter last year, the company earned $89.8 million, or $0.64 per share, on $419.5 million in sales. However, analysts had expected earnings of $0.30 per share on sales of $324.9 million, according to Reuters Estimates.

For the first quarter, LAM said gross margin was 48.6% and operating expenses were $96.4 million, compared to gross margin of 51.2% and operating expenses of $93.5 million in the same quarter last year. New orders recorded in backlog rose 3% sequentially with shipments of $326 million - above its guidance of flat to down 5%. The geographic distribution of order growth was heavily concentrated in Asia, with Korea, Japan, and Asia Pacific accounting for approximately 68% of new orders and 72% of revenue. North America and Europe, meanwhile, claimed 17% and 15% of new orders, respectively. On account of the better-than-expected order growth, the company noted that it is encouraged by the signs of improving demand in equipment and the overall strength in business.

As such, the company forecast new orders up 5% to 10% for the second quarter. At the same time, it projected EPS in the range of $0.34 to $0.39 on revenue of $330 to $350 million. This compares with the consensus estimate for earnings of $0.32 and sales of $329.61 million. The company also forecast gross margin to be flat and operating expenses to be slightly higher.

Following the first quarter results, Morgan Stanley upgraded LRCX to Equal Weight from Underweight, based on the more benign operating environment that they now expect. The firm noted that the absence of competitive pressures from Applied Materials (AMAT) and Teradyne (TER) has eased structural concerns over revenue and earnings.

Furthermore, JP Morgan indicated that LAM was the third major equipment maker to report or signal a positive bookings surprise for 3Q05, potentially marking a cyclical upturn for the industry. The firm said now that there is tangible evidence that orders are turning up, and that it believes large/mid-cap front-end equipment stocks can push through tough resistance at the March/July highs and are likely to outperform chip stocks through year end. Although the firm added the upside sustainability and magnitude are unknown, utilization rates are high, there is a need for advanced capacity, and one/two-quarter cycles are rare. As a result, the firm reiterated its overweight opinion on the stock.

Despite the host of macro economic issues (e.g. rising interest rates, high energy costs, etc.) weighing on the semiconductor industry, as well as the general consumer market, investors have reacted in seemingly positive fashion to the improvement in order levels and anticipation of positive capital spending trends in the coming year. Consequently, shares of LAM have climbed higher in early trading, gaining 8%. However, while current sentiment appears to be bullish, investors should keep in mind that chipmakers have held back on expanding given the consumer slowdown, and as a result have slowed growth for semiconductor equipment. Although the trend is likely to reverse in the coming months, the current cloud of uncertainty pertaining to consumer and capital spending detracts from a more telling outlook. --Richard Jahnke, Briefing.com

11:02AM Time Warner (TWX)

17.68 +0.19: The Time Warner/AOL merger was supposed to be the next frontier in merging content with Internet distribution. Here we are five years later and TWX shareholders billions of dollars poorer, yet the idea endures. Sparked by a WSJ article today, there are rumors circulating that Google (GOOG) and Comcast (CMCSA) are in talks with Time Warner over taking a possible minority stake worth as much as $5 bln in AOL .

Google and Comcast are not looking for AOL's subscribers, but specifically for access to the AOL portal. Google is the most popular search engine on the web, and together with Comcast, which is the largest cable provider, would create a web portal leveraging content and consumer reach. The new entity would bring movies and other content to the web. These alleged talks follow on the heels of other discussions TWX had with Microsoft over a possible link up between MSN and AOL.

There is also speculation that GOOG could make a bid for AOL on its own. One of AOL's greatest assets is its dominant market share in the instant message space with 51.5 mln users. GOOG may be eyeing this business as a means to extend the own instant message service it began in August. Just yesterday, Microsoft's MSN and Yahoo! (YHOO) announced they will now let their users exchange instant messages for the first time. With a combined user base of 49.2 mln, according to Bloomberg, it would rival AOL.

Google derives the vast majority of its revenues from fees it receives from advertisers. Therefore, it's under extreme pressure, given its lofty valuation, to grow its content faster than its competitors. Google's main adversaries are Microsoft and Yahoo!. Microsoft's recent move to develop features to make web search a more integral part of its Window operating system will increase its competitive edge. Within Google's most recent quarterly filing, the company acknowledges that both companies have a tremendous ability to "attract and retain users than we do because they operate Internet portals with a broad range of content products and services." Reading this statement, it's clear that Google would feel compelled to go after AOL as a means to acquire the connectively and content it lacks. The race is between who can offer the best web search results, with the easiest access, to garner the greatest percentage of user traffic.

Industry analysts believe the tie up between Google and AOL makes more sense than an MSN deal, as AOL already makes up 11% of Google's $2.6 bln in revenues. Time Warner, which owns businesses reaching across a vast array of industries, including HBO, Warner Bros, New Line Cinema, TW Cable, and Time Magazine has been under public pressure to make a significant move with regard to its flailing AOL unit. AOL has been suffering from subscriber defections from its slow dial up service to high speed DSL.

The deal would certainly be a good move for Time Warner, whose stock has languished mainly due to the deadweight of AOL. Activist shareholder, Carl Icahn, has publicly been pressuring the board for what he calls, "a dismal record of mistakes and inaction" since the AOL merger. His campaign calls for the company to make a "bold move" to revive its share price. His wish list includes initiating a $20 bln share buyback and spinning off Time Warner Cable. CEO Richard Parsons has come under pressure to consider a full or partial sale of the AOL unit. While we think a break-up would still create the best value proposition, a deal would certainly be a move in the right direction for the media giant.

In an interesting turn of events, AOL has suddenly changed from dead weight status to strategic partner. AOL's assets are its global brand and traffic. It has been widely successful in drawing in customers through its video offerings on its sites, an area where Google is lacking. The tie-in with Comcast would bring a library of movies and television shows to AOL's 21 mln Internet customers. Considering what is at stake, an eventual bidding war is a possibility. This would certainly be good news for Parsons and Time Warner. (Disclosure: Briefing.com has a business relationship with Microsoft and Yahoo!) ---Kimberly DuBord, Briefing.com

8:57AM Page One - The Funk Continues

Market sentiment remains poor. There continues to be little data to substantiate the negative tone. The fears persist.

Over the past two months, the S&P 500 index has lost about 5%. During that time, Katrina and Rita have hit. Yet, none of the worst fears have materialized. Oil prices have stabilized. The economy has remained on track. Consumer spending trends have changed little and business investment remains strong. Third and fourth quarter real GDP will be at or above the trend in the first half of the year.

Earnings growth has remained very good. Third quarter profit growth will be higher than in the first half of the year and forecasts for the fourth quarter are around 15%. There are heightened inflation concerns, but there is as yet no evidence that underlying inflation has picked up.

The only real change over the past two months has been a recognition that the Fed will have to raise rates more than just once more. The market now expects the Fed to raise rates three more times, to a 4 1/2% fed funds rate in early 2006. Bond yields have risen accordingly and the 10-year note yield has risen from about 4 1/4% to close to 4 1/2%.

Higher interest rate assumptions are a legitimate negative for the stock market, but the fears about the economy and inflation are overdone. It may take some time for this negative tone to be wrung out of the market, but as noted yesterday, valuation metrics are noticeably improved. The value will come through.

For now, it remains time to keep the powder dry, but to remain alert for a classic earnings season rally. The current pessimism is excessive.

New claims for unemployment for the week ended October 10 fell 2,000 to 389,000. Katrina and Rita accounted for 75,000 of those, leaving a low level of 314,000 otherwise. That reflects a strong job market. Tomorrow, CPI and retail sales data will be out.

There are only a few earnings reports. Lam Research and Tribune Company posted good numbers. Tomorrow, General Electric and UnitedHealth report, then the numbers start up in earnest on Monday. -- Dick Green, Briefing.com