Replies to post #2808 on Sector Investing

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U.S. stocks ended sharply higher as a stronger-than-expected March employment report reassured investors the U.S economic recovery was now well in place. The growth in jobs, which beat expectations for the first time in five months, was strong enough that investors ignored warnings from numerous economists that the data may prompt the Federal Reserve to rethink its accommodative interest rate policy. The DJIA ended up 97 points (+0.9%) to 10,470, with 25 of 30 components gaining ground. The blue chip barometer reached a one-month high of 10,496 earlier in the session. The technology-friendly Nasdaq Composite jumped 42 points (+2.1%) to 2,057, and the S&P 500 added 9 points (+0.9%) to 1,141. Better-than-expected jobs growth sent bonds reeling. The yield on the benchmark 10-year Treasury note charged up to 4.14 percent, and reached a 2-month high of 4.171 percent vs. 3.89 percent at the previous U.S. close. This is the biggest rise in yields since last July. Currency traders bid up the dollar across the board on the data, as higher interest rates would make the U.S. currency more attractive to foreign investors. The dollar rose 2.1 percent vs. the euro to $1.2108, rallied 2.4 percent against the Swiss franc to $1.2927 and climbed 0.6 percent vs. the Japanese yen to 104.30. Within commodities, June gold futures fell more than $6 an ounce to end the week narrowly lower, dragged down by the resurgent dollar. May crude futures reversed course in the last few minutes of trading on the New York Mercantile Exchange to log a gain of 12 cents for the session. It closed at $34.39 per barrel, but down 3.8 percent from the week-ago close.

Strong Sectors: employment service, tech, airline, basic material, biotech, casino, aerospace, lodging, retail, drug, insurance

Weak Sectors: gold, homebuilding

Top Stories . . . The U.S. economy added 308,000 jobs in March, almost three times economists' expectations and the biggest gain since April 2000. Stocks rose on the report, which is likely to boost President George W. Bush's re-election bid.

The U.S. dollar surged against the euro and yen after a government report showed the economy added 308,000 jobs last month, the most in four years and almost three times the amount economists had forecast.

U.S. Treasury notes had their biggest drop since July after the economy last month created the most jobs in about four years, raising speculation the Federal Reserve may boost its target interest rate in the second half the year.

Sun Microsystems, whose losses in the past six quarters totaled $3.84 billion, said it will cut 3,300 jobs and named Jonathan Schwartz president after analysts criticized Chief Executive Officer Scott McNealy's leadership.

The six-month criminal trial of former Tyco Chief Executive Officer L. Dennis Kozlowski and his top lieutenant Mark Swartz ended after the judge declared a mistrial because of outside pressure on a juror.

Gurus . . . Investors who track the Dow Jones Industrial Average have reason to hope that next week's three changes to its membership will do more to boost its value than the previous four. Companies that were added the last time the average was overhauled, -- Home Depot, Intel, Microsoft, and SBC Communications -- all dropped more than the U.S. market benchmark after their inclusion in 1999. Fund manager Phil Orlando says Dow Jones focuses on companies that have become industry icons because of their past growth rate. So, by definition, they have seen the lion's share of growth. Hence, the underperformance.

Election Economy . . . President Bush may be hoping for a bear market in Treasury notes, as a sign he will win in November. A drop in price would signal the economy has gained enough momentum to boost employment. Since Bush took office in January 2000, the economy has lost 2.3 million jobs, and the yield on the 10-year Treasury note has fallen 1.29% to 3.88%. Strategist Larry Kanter says if you are in the White House, what you really care about is jobs. If you get job growth, and the cost is higher yields, they will take that trade any time.

Financials . . . Raymond James upgrades Automatic Data to Strong Buy from Market Perform given the stronger than expected employment numbers released this morning coupled with improving key indicators for the business. Target is $49.

Metals . . . The market remains bullish on copper fundamentals. The most important big-picture drivers include a combination of (a) well-managed supply – with few new major copper resources seen threatening the favorable market tightness for the foreseeable future; (b) the ongoing industrialization of China and growing demand recovery in the Western world; (c) low inventory levels; (d) supply interruptions. Data remain supportive of strong prices. Copper inventories held on the LME continue to fall at a surprisingly swift pace. Total inventories (LME, COMEX, Shanghai, refineries, merchants, etc.) reside at 6.8 weeks of supply. Global supply-demand analysis continues to suggest that the copper market, in deficit by 400,000 metric tons in

2003. Copper price forecast for 2004 now US$1.25/lb. In light of the strong fundamentals and acknowledging the strong copper price year to date, Bear Sterns recently raised its 2004 copper price expectation to $1.25/lb. The forecast is lower than the current spot price of US$1.39/lb, as BS is conservatively assuming that near-term inventory work-down in Asia, the greater supply growth expected in 2nd half 2004. You need to factor in higher copper price assumption, EBITDA and EPS estimates for 2004 estimates rise by 24% and 48%, respectively, to US$1.49 billion and US$0.62/share. EPS estimate for 2005 rises by roughly 2% to US$0.67/share given the additional reduction in interest expenses from lower debt. Now forecast that debt levels can decline by US$950 million (was US$750 million) by the end of 2005.

Transports . . . Last week, Raymond James surveyed 30 Harley-Davidson dealers to gauge demand levels at retail. The results of the survey were somewhat mixed. Despite dealers indicating higher sales, inventory levels are also indicated to be higher. For dealers selling at MSRP, wait times have been shrinking and premiums have been falling for above MSRP dealers. Used bike prices are also lower. The firm found no evidence of financing incentives offered by HDI, but did find certain dealers that had arranged special financing offers through local financial institutions. Demand for the redesigned Sportster was consistently mentioned as strong. Demand for the new VROD model was more mixed. One dealer chose to not take his full allocation of VRODs for 2004. Based on recent industry sales, the firm believes that March could show another decline in HDI retail sales.

Consumer Products . . . Clorox upped to Overweight from Neutral at Prudential. The firm's price target goes to $60 from $53 on the assumption that the stock moves to a 13% premium to the market, near its premium from the mid-1990's when it produced consistent double-digit EPS growth.

Retail . . . UBS initiates Kmart with a Buy to reflect asset values which provide support for the stock at this level. The assets include $21 in cash per share and a $38 a share NOL (which present values to about $11). This leaves an underlying stock trading at 1.9x estimated 2004 cash flow. The firm says this is not a turnaround retail story, but a slower burn of existing operations. The firm has a $54 target, reflecting 4.5x '04E EBITDA after taking out cash and NOL.

Prudential downgrades American Eagle to Neutral from Overweight based on valuation, as the stock has reached their $28 target. Also, firm is concerned that expectations for the group and for March sales are very high, and they wonder whether there may have been a slowdown in the fourth week of March.

Gap Stores CEO Paul Pressler and CFO Byron Pollitt are carefully developing and executing strategies to return this large organization to a position of financial strength that allow it to generate consistent top line and earnings growth. A first step was tackling the product issues and creating attractive assortments at each division that compel customers to purchase at full price. With the merchandising firmly on track and the product development process significantly improved, the subsequent steps involve optimizing various elements of GPS’s infrastructure, supply chain, inventory investment, real estate fleet and store sizes, and labor from both a service

and productivity standpoint. Gap’s compelling growth prospects, stemming from its turnaround and its ability to capitalize on growth opportunities, warrant a richer valuation. A target price of $25-$28 implies a P/E multiple of 19x-21x 2005 EPS estimate of $1.35. However, appreciation is likely to stem from upside to EPS projections, and more modest multiple expansion.

Healthcare . . . First Albany upgrades VISX to Buy from Neutral for the following reasons: 1) consensus expectations have come down markedly in the last few months and are achievable, if not beatable, 2) favorable risk/reward profile based on PEG and DCF metrics, and 3) firm's survey of LASIK surgeons suggests procedure volume and conversion to custom are tracking favorably relative to our Q1 and 2004 ests. Target is $26.

Medical Devices . . . Zimmer Holdings expects reported sales for 1st quarter of approximately $740 million, exceeding the consensus estimate of $704 million. The company states every geographic segment and product category overachieved constant currency, internal expectations. The company also said that it expects to significantly exceed the First Call consensus EPS estimate for 1st quarter of $0.49 (excluding acquisition and integration costsand inventory step-up).

Drugs . . . Barron's Online highlights Abbott Labs, which has seen its shares drop 12% this year, sharply underperforming the S&Ps 500. Wall St is getting antsy about the company's fate given the potential of Senator John Kerry possibly defeating President Bush in Nov. According to the article, Abbott's diversity gives it some protection, plus other growth opportunities, especially from medical products, which generated more than $8 bln in sales 2003. Meanwhile, it's rolling out 50 new diagnostic products and returning 60 others to the market four years after the FDA halted manufacturing at one of its plants because of quality concerns. That cost it many customers in the U.S. But in Dec, the FDA lifted its consent decree, and since Jan Abbott has launched or reintroduced 19 diagnostic products. Abbott has as many as ten drugs in late-stage development, including the experimental cancer treatment Atrasentan, that could be launched soon, CEO Miles White tells Barron's. Several other Abbott drugs also generate significant sales growth, including the AIDS drug Kaletra, the depression medication Depakote and Biaxin, an antibiotic that generates annual sales of over $1 billion. Glenn Reicin, an analyst with Morgan Stanley, says Abbott should trade at a 10% premium to the S&P and expects the stock to reach 55 over the next 12 months.

Biotech . . . Brean Murray initiates coverage of Dendreon with a Buy rating and $21 target. The firm believes that company will have several major catalysts in 2004, as: 1) the company is in active discussions with potential partners for the commercialization of Provenge, and they believe that the co will finalize the terms by early 3rd quarter; 2) patient enrollment for both the pivotal Phase III for AIPC and the mkt expansion study Phase III for ADPC indications are expected to be completed by 2nd quarter and 3rd quarter, respectively; and 3) firm estimates that the co will initiate a Phase II trial of APC8024 for the treatment of Her-2/neu metastatic breast cancer in 3rd quarter.

Media . . . Stifel Nicolaus downgrades XM Satellite to Market Perform from Outperform. While the company handily beat Street estimates for 1st quarter subscribers. The firm believes the stock could pull back amidst a lack of new news as well as their expectations of market share improvements by Sirius. Firm believes that SIRI now offers the best risk/reward, as they think upside in the qtr is coming from the retail distribution channel; firm maintains their $4.25 target on SIRI, but sees realistic scenarios where SIRI could reach $5-$7 within 2 years.

XM Radio reported over 320K net adds for 1st quarter 2004, outperforming estimates of 250K and Street consensus estimates of 270K, ending the quarter with more than 1.68M subscribers. This strong performance most likely means that revenues also came in higher than expected for

the quarter. The company also reiterated its guidance of more than 2.8 million ending subs for 2004. While the results may at first blush indicate a very strong second half from the 1.5 million ending subscriber number given out in mid-February, we caution investors not to extrapolate a net adds run rate given that we do not know the exact date the company crossed that threshold. However, continue to believe that there is upside to 2.9 million 2004 ending subscriber estimate. Sometimes the stock has pulled back after the pre-announcement as investors worry about the lack of near-term catalysts. This time we do not believe that this will be the case as we expect further positive catalysts emanating from the NY Autoshow commencing April 7, including possible announcements on new hardware, new programming, and car production figures.

Hotel & Leisure . . . Roth Capital reiterates their Buy rating on Scientific Games and raises their target to $25 from $20. The firm says the company's analyst day confirmed their view that instant ticket and online lotteries serve as key growth catalysts for the next several years, and they believe that int'l instant ticket contracts present upside to their estimates.

Thomas Weisel upgrades Boyd Gaming and Caesar’s to Outperform from Peer Perform. The firm is saying gaming stocks should benefit from improved industry fundamentals, co-specific growth initiatives, and low relative valuations. Regarding BYD, firm says the co has turned a corner, as same-store comps are near a Q2 inflection, Borgata is ramping, projects add visibility, deals add heft and EPS, and the stock trades at a discount. Regarding CZR, firm says the reemergence of Caesars Palace should yield outsized gains on the Strip, Atlantic City resorts are holding up well, new hotel/ tribal deals/ $400+ mln free cash provide longer-term visibility, and the stock trades at a discount.

Merrill Lynch adds Viacom to their Focus 1 List based on valuation, as the stock is trading near 12-month lows. The firm says the company has a significantly lower level of financial risk and higher degree of flexibility than virtually all peers based on its balance sheet strength and free cash flow generation, and they expect 1st quarter results to mark an important inflection point for the company's businesses and investor sentiment. Target is $53.

Storage . . . Sun Microsystems and Microsoft announce they have entered into a broad technology collaboration arrangement to enable their products to work better together and to settle all pending litigation between the two companies. The companies have also entered into agreements on patents and other issues. The agreements involve payments of $700 million to Sun by Microsoft to resolve pending antitrust issues and $900 million to resolve patent issues. In addition, Sun and Microsoft have agreed to pay royalties for use of each other's technology, with Microsoft making an up-front payment of $350 million and Sun making payments when this technology is incorporated into its server products.

Sun Microsystems guides below consensus for 3rd quarter, now sees a loss of $0.06-0.08, ex items, versus consensus of ($0.03) on revenues of $2.65 billion versus consensus of $2.8 million. Company will also reduce workforce by 3300, take related charge of $475 mln spread over next several quarters. SUNW also announces it has appointed current Exec V.P. Jonathan Schwartz as C.O.O. and Pres, effective immediately. McNealy will remain Chairman and C.E.O. Sun Microsystems and Microsoft enter into a broad cooperation agreement and settle all outstanding litigation.

Network Equipment . . . Merrill Lynch raised Qualcomm’s 2004-2005 EPS estimates and target on Qualcomm, based on introduction of WCDMA estimates and strong demand for CDMA handsets. The firm is raising 2004 EPS estimate from $1.76 to $1.78 and for 2005 from $1.85 to $1.96 as they now assume a 7% WDCMA penetration in 2005 representing 36 million handsets in Japan and W. Europe based on statements from the leading operator, Vodafone, and capex guidance of other operators suggest that the technology is rapidly becoming a certainty. Price target goes to $75 from $65.

JP Morgan upgrades Lucent to Neutral from Underweight. According to the firm, while topline growth still appears less than stellar, the co has re-aligned its cost structure with the current revenue opportunity. In addition, the CDMA wireless infrastructure market looks strong over the next 2 yrs and the overall wireline spending environment appears stable. The firm forecasts 7% growth in 2004 for CDMA infrastructure, rebounding from an 11% decline in 2003 and believes Lucent has an opportunity to win WCDMA business outside of Western Europe, specifically in the US and China as those geographies move closer to deploying WCDMA. Analyst raises EPS in 2nd quarter 2004 to $0.02 from $0.01; in 2004 to $0.10 from $0.06; and in 2005 to $0.19 from $0.10.

Merrill Lynch downgrades F5 Networks to Neutral from Buy based on valuation (stock is near their $38 target), their belief that their 2004-05 revenue estimates leave little room to deliver upside surprise, and they are already assuming $12 million and $24 million in 2004 and 2005 revs for the new SSL VPN FirePass product, a nascent product line that generated $1.5 million in revenues last quarter.

Ericsson pre-announced that 1st quarter 200 4 gross margin would improve over the 41.6% achieved in 4th quarter 2003, significantly better than estimates of 39%. The cost cutting story remains strong, and have raised our gross margin estimates for 2004 and 2005. However, 1st quarter 2004 rev's appear in line with previous guidance of moderate Year/Year growth. Revenue estimate down 22% Quarter/Quarter and up 9% Year/Year remains unchanged. GM’s expected to be very strong, showing 5 straight quarters of improvement. Analysts raised 1st quarter 2004 GM to 43.6% from 39%, and for 2004 to 43.9% from 41.1%. ERICY has done a good job transitioning from 2G to 3G, with the margin gap closing between the two. EDGE shipments to TIM and Cingular were meaningful in 1st quarter - EDGE is a software upgrade which typically carries higher margins. With the GM improvement, analysts significantly raised EPS estimates for 2004 from SEK 0.58 to SEK 0.74, or $0.71 to $0.91, and for 2005, from SEK 0.80 to SEK 0.89, or $0.98 to $1.09. More bullish assumptions of slightly better revenue growth and 17% op. margin (about as good as its gets) would yield $1.25 in 2005, implying a 24x EPS multiple. With Euro operators raising CAPEX recently, the secular spending rebound remains intact. However, with the cost-cutting story largely priced in, investors may be looking for top line growth exceeding our 9% estimate for 2004. Thus far the market is not seeing major upside to revenue estimates – we think the U.S., specifically AWE cutbacks, may pressure spending sooner than expected.

Semiconductor Equipment . . . JP Morgan is positive on select semi equipment stocks. In line with their bullish thesis on the sector, they recommend the following basket of stocks, some of which are currently exhibiting leadership within the group with 50-day MA breakouts to the upside: Brooks Automation, Cymer, MKSI, Mattson, and Photronics. According to the firm, these represent a broad and regional spread with Brooks being the largest player in the above-average growth automation segment, Cymer the dominant supplier in lasers for lithography, MKS the leading sub-system supplier and proxy to large OEMs, Mattson gaining share in Strip and RTP, and Photronics a proxy for accelerating chip design activity with strong leverage. All five of these companies are executing well this cycle and the firm expects them all to deliver in line or better results with upbeat forward guidance as they report the first calendar quarter.

Semiconductors . . . Wedbush Morgan removes NVIDIA from their Focus List based on valuation, as the stock is near their $28 target, and with the stock trading at 1.6x their 2005 EV/Sales estimate, has closed the valuation gap with ATYT. Maintains Buy rating.

Next Generation Equity Research is initiating coverage of Pixelworks with a Buy rating and price target of $20. The firm notes PXLW has a dominant share in system on chip solutions for projectors at 85% and its increasing market share in digital TVs with the Photopia roll out while exiting low margin monitor business. The firm notes the co trades at valuations that are a slight premium to its peers in the digital media/semiconductor industry, but believes the co merits higher valuations because of better margins and less exposure to pricing pressures in the desktop monitor business. The 12-month price target of $20 is based on 5-6x price to sales and price to book and 50x 2004 EPS of $0.40.

Digitimes reports that Infineon will reduce its DDR supply by around 50% in April from 50 million 256Mbit-equivalent units in March, according to sources in the industry. If true, supply in the global DRAM market is set to tighten even further. According to the article, Infineon explained that its DRAM output would drop due to production reallocation, but declined to comment on the actual amount. The co gave three main reasons why DRAM output would drop in April: 1. Output in Feb and March has been 10-20% more than normal. 2. Infineon plans to allocate some of its DRAM capacity to logic IC production in the company's 3rd quarter. 3. Infineon also plans to maintain low DRAM inventory levels in the same quarter.

Global sales of chips rose by a record 31% year-on-year in February as consumers and businesses snapped up computers and mobile phones and prices rose on the back of tighter supply according to numbers from the World Semiconductor Trade Statistics. Bank of America out noting that although chip momentum in January showed the first sign of deceleration, it looks as if it was a minor hiccup as momentum continues to increase across all segments. According to the firm, there were periods in the 1990's where momentum stalled for a short period and then reaccelerated. At present chipmakers continue to telegraph an acceleration in fundamentals. ThinkEquity says the breadth and magnitude of the revenue increase surprised even firm's own optimism. However, at the same time firm would avoid being too exuberant as these sales growth numbers benefited from favorable compares, and strong pricing, which masked less than robust unit growth. Nevertheless, the overall picture does support firm's comments since February, that the over-reaction to Jan weakness should not be viewed as a portent of further weakness, but a buy-on-weakness opportunity. Among the stocks ThinkEquity believes were "thrown out with the bath-water": Intel (down 15% YTD), Minespeed (-4%), Maxim Integrated (-3%), and even Texas Instruments (up just 2%, despite broad strength).

NVIDIA held its annual Analyst Day today. There were no real surprises at the meeting. Discussion was focused on its strategies for its various businesses and the company did not comment on business conditions or outlook. Regarding its first-generation PCI Express products, NVIDIA admitted that their products have a cost disadvantage due to the extra translator chip, confirming recent talk. NVIDIA reiterated that its gross margins should improve more significantly when it ramps up its new NV4x family of GPUs, as it expects the production costs to be lower compared to its current architecture, due to a better product design. NV40, the first product based on the new architecture and targeted to the enthusiast segment will launch this month, while mainstream and value segment products are likely to be launched around mid-2004. This means the ramp should start to positively impact margins meaningfully in late 2nd quarter 2004 (ending Jul-04) and more significantly in subsequent quarters as shipments are ramped.

Analysts are raising gross margin assumption for fiscal 2006 from 32.3% to 33.3%, which leads to an increase in EPS estimate from $0.81 to $0.90. Analysts are also raising 4th quarter 2005 EPS from $0.23 to $0.24 based on a slight increase in gross margin. Analysts are not changing revenue estimates. Note that we had previously modeled for a more modest margin improvement. Based on today’s reiteration of gross margin improvement, analysts are raising margin assumptions. NVIDIA’s comments were not new. Expect the gross margin story to play out in 2nd half 2004 as the NV4x ramps, from a top-line perspective, NVIDIA continues to see continued competitive pressure from ATI, and concerns about its overall product portfolio have not dissipated. From a valuation perspective, the stock’s current P/E at 29x 2006 EPS is unattractive. Revenue growth concerns stem from the following factors: 1) though inventory build led to a weak notebook market in 1st quarter 2004, expect a higher growth trend for notebooks compared to desktops to resume in 2nd quarter 2004 and continue through the rest of 2004, a trend which disfavors NVIDIA due to its lower market share in notebook graphics (11% vs. 28% for desktops), 2) its lack of an Intel chipset license, and 3) peaking Xbox shipments.

Boxmakers . . . Needham downgrades Gateway to Underperform from Hold after the company announced it plans to close its retail stores on April 9. While the move will result in a significant reduction in operating expenses, it effectively ends the company's "branded integrator" strategy, which appeared to be Gateway's only hope to restore profitability. Moreover, it leaves the company in the precarious position of being almost completely dependent on the fortunes of eMachines, a company it recently acquired. The risks now significantly exceed the possible rewards.

Bear Stearns upgrades Gateway to Peer Perform as GTW's decision to shut its retail ops addresses a major drag on its profitability. While it's hard to assess an appropriate valuation given a lack of info on GTW's financial profile, the stock may be more event-driven in the near future. As far as collateral impact, the firm views the news as mixed for Hewlett-Packard as it eliminates the competition of GTW stores but leaves a better-capitalized eMachines in retail with the prospect for increasing shelf space over time. For Dell, the announcement is more a non-event, as it does not compete aggressively in low-end consumer. The firm says fair value looks to be around $3.80-$5.70.

Digitimes reports that Intel is likely to give up its current practice of launching processors for desktops and notebooks respectively. Instead, the company is expected to launch a brand new processor, dubbed Merom, for all PCs starting 2007, according to sources at Taiwanese motherboard makers. The Merom will be made using a 0.65nm process and will run under the current architecture used by Intel's Pentium M processors, said the sources to paper. Intel's Netburst architecture that supports the Pentium 4 processors is likely to be phased out from the PC market when the Merom comes online, according to the sources.

Software . . . Sybase guides below consensus for 1st quarter (Mar), sees pro forma EPS of $0.18-0.20 versus consensus of $0.24. "We were impacted by several large telecom transactions that did not close this quarter as anticipated, but which we expect to close future quarters." Company reaffirms 2004 EPS view of pro forma EPS of $1.08-1.10, consensus is $1.09.

Netegrity believes the risk/reward has moved from neutral to positive on name. Price target goes to $11 from $10.

RBC upgrades Magma Design to Outperform from Sector Perform based on valuation and their confidence in the company's long-term growth; firm says the stock has been volatile in anticipation of a number of large deals, and while they don't know if any of these large deals closed in 4th quarter, they believe that several large deals remain in the pipeline, and that any orders that did not close in 4th quarter are not lost, but delayed. Target is $30.

Hot Items - Check out the "Hot Items" page (updated daily)


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Nanotech Index:

http://www.cwes01.com/9093/24013/ds/4351_747.pdf

Nanotech Stocks:

ACCL ACO ACUS ADTK.OB AFCO AGRa ALTI AMAT APPA AVX.V DD BDSI BIPH.OB BPA CALP CBMX CCMP CRIS CTKH.PK CTT DOR ELN EMFP.OB EMKR ENDP EXFO FEIC FLML IBM IFX INTC HDWR HIT HPQ JMAR LU MFIC.OB MTSC MVIS NANO NANX NGEN NNPP.OB NNOS.OB NPCT.OB NVEC NVMI PANL PFCE.OB SKYE SMMX SOTK.OB SPDV.OB STM TFS TGAL TINY USGA.OB USGA.OB UTEK VECO

http://www.bullsector.com/nanotechnology.html

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From Briefing.com: 5:33PM Monday After Hours prices levels vs. 4 pm ET: The market's late-day rally has come to an end in the after hours trade, where the S&P futures, at 1147, are 2 points below fair value and the Nasdaq 100 futures, at 1508, are 3 points below fair value. A handful of earnings warnings ahead of the March quarter reporting season have spooked investors.

The below table lists tonight's most notable news items, and the stocks' reactions:

After Hours Mover % Change Move Reason for Move
Bank of America (BAC) +1% Financial giant announces it plans to cut 12,500 jobs as a result of its $48 bln purchase of FleetBoston which closed last Thursday; The cuts will take place over the next 2 years, and about 30% of them will come through attrition; Bank of America has said it is targeting $1.6 bln in cost savings from the merger
Boston Scientific (BSX) +1% Medical device company says that sales of its drug-eluting stent, Taxus, were ~ $98 mln for Mar 8-31 versus expectations of $54-75 mln for Mar 1-31; Adds that worldwide revenues of all coronary stent systems were ~ $283 mln in Q1 (Mar) (guidance was $210-240 mln); Briefing.com has been positive on BSX in Story Stocks since the FDA advisory panel unanimously approved BSX on Nov 20
Brooktrout Tech (00C0) -20% Small-cap communications equipment company warns for Q1 (Mar), putting revenues at $18.1-18.3 mln versus its earlier range of $21-22.5 mln; Notes that it should achieve breakeven or a small profit as compared to previous guidance of net income of $500K-1.0 mln; Stock has more than quadrupled in the past year
E.piphany (EPNY) -18% Developer of customer relationship management products guides lower for Q1's (Mar) top and bottom-lines; Management attributed the shortfall to 'a number of large transactions delayed this quarter;' Related companies CHRD, ORCL, PSFT, and SAP are all down in sympathy tonight
Kellogg (K) unch Food manufacturer raises its Q1 (Mar) and FY04 (Dec) EPS forecasts citing 'far stronger than expected sales growth' and better than expected foreign currency translation; Briefing.com has recommended K as a conservative play in Story Stocks since April 24, and the stock has appreciated 24%; Note the annual dividend yield of 2.6%

Tomorrow looks to be the 'calm before the storm' with Alcoa (AA) ready to kick things off after the close. There are very few companies on the earnings calendar and no reports on the economic calendar. There are, however, several analyst/shareholder meetings on the events calendar with Brocade (BRCD), DaimlerChrysler (DCX), Dell (DELL), and Federal Express (FDX) hosting meetings.

For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap.Heather Smith, Briefing.com

9:41AM ZL upped to Overweight from Equal Weight at Pacific Growth 4.05 +0.11: Pacific Growth upgrades Zarlink Semiconductor (ZL) to Overweight from Equal Weight to reflect the positive momentum in all three of the co's business segments enjoyed during the MarQ. The firm believes that bookings were solid throughout the qrtr and expects ZL to enter the June qrtr with a level of backlog soundly above the $32 mln level it had entering the MarQ. The firm raises MarQ rev est to $51.0 mln from $50.5mln or to the high-end of the targeted range to reflect seasonal strength and continued strong demand in the communications end markets and also raising FY04 and FY05 to $198.3 and $221.5 mln from $197.8 and $220 mln, respectively. Analyst believes that valuation is attractive at these levels from both a relative as well as an absolute basis with favorable risk/reward ratio for the near term.

4:23PM Tech Relative Value Ideas--New focus List Relative value is one way of identifying companies with potential for above average returns. It is based on the idea that company price multiples revert to the mean over time; i.e., companies trading at a discount to industry peers will move higher towards the average and companies trading at a premium will move lower.

The table below shows companies with improving operating performance that are attractively priced vs. industry comparables on a price multiples-to-growth basis. We would also continue to focus on previously highlighted names that continue to trade at a discount to peers (refer to Relative Value Ideas Performance Update, Story Stocks, April 01, 2004).Company Ticker Sector *P/SG Ratio Ind Avg P/SG Ratio **P/OIG Ratio Ind Avg P/OIG Ratio Sales Growth Ind Avg Sales Growth
Adobe Systems ADBE Software & Programming 3.0 3.0 13.4 34.8 19.0 5.9
AML Communications AMLJ Communications Equipment 1.2 2.0 25.6 41.1 15.1 (4.8)
California Microdevices CAMD Semiconductors 2.7 3.0 n/a 55.0 37.5 14.7
Computer Services CSVI Computer Services 0.8 1.3 7.7 19.6 6.5 5.8
Danaher Corp DHR Scientific & Technical Instr 1.7 1.0 12.8 17.0 15.7 2.6
Electronic Arts ERTS Software & Programming 3.1 3.0 16.6 34.8 13.4 5.9
iPass IPAS Software & Programming 2.1 3.0 18.2 34.8 46.7 5.9
Lifeline Systems LIFE Communications Equipment 1.4 2.0 12.2 41.1 10.7 (4.8)
Plantronics PLT Communications Equipment 2.5 2.0 16.7 41.1 17.1 (4.8)
Sonic Solutions SNIC Computer Services 2.8 1.3 26.4 19.6 62.8 5.8
Taiwan Semiconductor TSM Semiconductors 4.1 3.0 17.6 55.0 25.1 14.7
Tektronix TEK Electronic Instr & Controls 1.9 0.9 20.3 (108.0) 10.3 3.9
Texas Instruments TXN Semiconductors 3.2 3.0 43.4 55.0 17.3 14.7
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

Adobe Systems (ADBE 41.35 +0.45): Trading at 6.4x F04 revenue of $1.513B (+16.9% Y/Y) and 5.9 F05 of $1.648B (+8.9% Y/Y); 27.9x F04 EPS of $1.48 and 25.5x F05 of $1.62.

AML Communications (AMLJ 1.60): No estimates available.

California Microdevices (CAMD 13.69 -0.03): Trading at 4.5x F04 revenue of $58.98MM (+39.8% Y/Y) and 3.7x F05 of $71.47MM (+21.2% Y/Y); 85.4x F04 EPS of $0.16 and 32.5x F05 of $0.42.

Computer Services (CSVI 33.00 +0.45): No estimates available.

Danaher (DHR 95.18 +0.70): Trading at 2.4x C04 revenue of $6.088B (+15.0% Y/Y) and 2.3x C05 of $6.462B (+6.1% Y/Y); 23.2x C04 EPS of $4.10 and 20.8x C05 of $4.58.

Electronic Arts (ERTS 55.36 +1.18): Trading at 5.6x F04 revenue of $2.972B (+19.7% Y/Y) and 5.0x F05 of $3.269B (+10.0% Y/Y); 31.0x F04 EPS of $1.78 and 27.5x F05 of $2.01.

iPass (IPAS 12.06 +0.26): Trading at 4.1x C04 revenue of $182.56MM (+34.2% Y/Y) and 3.1x C05 of $238.23MM (+30.5% Y/Y); 2.7x C04 EPS of $0.37 and 22.1x C05 of $0.55.

Lifeline Systems (LIFE 19.81 +0.09): No estimates available.

Plantronics (PLT 37.89 +0.68): Trading at 4.3x F04 revenue of $402.04MM (+19.1% Y/Y) and 3.9x F05 of $440.66MM (+9.6% Y/Y); 30.9x F04 EPS of $1.22 and 27.9x F05 of $1.35.

Sonic Solutions (SNIC 19.70 +0.28): Trading at 7.5x F04 revenue of $56.36MM (+195.0% Y/Y) and 5.2x F05 of $81.30MM (+44.3% Y/Y); 42.6x F04 EPS of $0.46 and 26.5x F05 of $0.74.

Taiwan Semiconductor (TSM 10.82 +0.29): Trading at 5.4x C04 revenue of $8.063B (+33.7% Y/Y) and 4.6x C05 of $9.581B (+18.8% Y/Y); 18.9x C04 EPS of $0.57 and 15.4x C05 of $0.70.

Tektronix (TEK 34.13 +0.19): Trading at 3.2x F04 revenue of $894.20MM (+13.0% Y/Y) and 3.0x F05 of $950.48MM (+6.3% Y/Y); 33.3x F04 EPS of $1.02 and 26.6x F05 of $1.28.

Texas Instruments (TXN 30.94 +0.53): Trading at 4.2x C04 revenue of $12.559B (+27.7% Y/Y) and 3.7x C05 of $14.400B (+14.7% Y/Y); 30.8x C04 EPS of $1.00 and 23.3x C05 of $1.32.
Buying companies that trade at a discount to peers on a multiples basis, factoring in growth and margin rates, can help reduce portfolio volatility while offering the potential for above average returns when judiciously applied as part of a comprehensive research and analysis framework for assessing company competitiveness, operating performance and investment potential. But keep in mind that a company trading at a discount to peers is not necessarily undervalued and may trade lower.

As an example, given our assessment of industry dynamics, we advised investors to hold off buying SI International (SINT 27.96 +1.70) until a 10-15% pull-back or the company achieves 10% operating margin (Story Stocks, February 17, 2004) even though SINT shares are attractively priced vs. industry peers on a relative value basis (March 2004 Relative Value Ideas Focus List).

We revised our investment posture on SINT from cautious to positive after SINT shares declined over 19% in an overall difficult market for tech shares (Story Stocks, March 16, 2004). SINT shares have since rebounded over 50% on improving revenue momentum (Story Stocks, March 26, 2004).

We'll track returns for this group over the next 12 months and post monthly performance updates on both the Story Stocks and the Tech Stocks pages.

Look for an updated list of names that we think are attractively priced on a relative value basis at the beginning of each month. We will also continue to highlight relative value ideas on the Story Stocks and Tech Stocks pages on a regular basis.

E-mail if you wish to receive notification when we post an updated list.--Ping Yu, Briefing.com

Close Dow +87.78 at 10,558.37, S&P +8.73 at 1,150.54, Nasdaq +21.95 at 2,079.12: After spending much of the session vacillating in positive territory with only slight gains, buyers stepped out of the woodwork driving the market to another rally with the major averages closing up 0.8-1.1%... Although the rally in the last hour of trading was rooted in a buy program, the tone of today's trade was favorable even before that, with the major averages trading in positive territory through the entirety of the session despite last week's sweeping gains...
The positive sentiment resulted from the market's anticipation ahead of the upcoming Q1 earnings season, which gets kicked off tomorrow after the close with AA's report... Analysts are expecting year/year growth of 17% in the S&P 500, but Briefing.com thinks the number could be as high as 20% given the favorable preannouncement season and the analysts' tendency to keep near-term estimates on the conservative side of things... Supporting the market's advance was the better than expected ISM Services report, which checked in at 65.8 (consensus 61.0)...

While laggards of note were limited, interest-rate-sensitive groups including homebuilding, S&L/savings banks, money center banks, and real estate operators pulled back due to participants' view that interest rates have bottomed on the heels of Friday's strong Employment report... To that effect, the 10-year note was down 17/32, bringing its yield up to 4.21%... Other lagging groups included the computer storage and gold sectors... Among the leaders to the upside were the internet, semiconductor, software, telecom, biotech, coal, airline, iron & steel, and metal mining groups...NYSE Adv/Dec 1538/1832, Nasdaq Adv/Dec 2001/1226

3:38PM WellChoice/Oxford Deal? : The Wall Street Journal has spilled the beans on two Northeast-based managed care companies that are in talks to join hands. WellChoice (WC 37.03 -0.42) is apparently considering buying Oxford Health (OHP 58.01 +7.69) in an all-stock deal and the two companies are in intense negotiations now. Neither company has commented on the story, but this has not prevented Oxford Health's stock from running up 24% since the rumor began floating last week. As it stands now, OHP is almost on par with the 25% premium WellChoice is reportedly considering paying.

The managed care sector has been awash in M&A deals recently, with Anthem's (ATH) takeover of WellPoint Health (WLP) and UnitedHealth Group's (UNH) acquisition of Mid-Atlantic Medical (MME). Medical costs have been on a steady rise, and industry players have needed more leverage to demand better terms from health-care providers. The top-line has also been a source of angst for some companies as slow hiring and reduced employee benefits have cut into enrollment trends. Strategic acquisitions have been a natural answer to both problems.

In WellChoice-Oxford Health's case, the acquisition makes sense from a financial and logistics standpoint. Both companies dominate the metropolitan New York City area, with NY-based WellChoice operating Empire Blue Cross Blue Shield health plans for 4.8 mln members throughout New York and New Jersey, and Connecticut-based Oxford boasting about 1.5 mln members scattered through these two states plus Connecticut (according to the Wall Street Journal). The close proximity of both company's operations would make combining the entities - and achieving greater operating efficiencies via cost cutting efforts - fairly simple.

The other attractive aspect of the WellChoice-Oxford deal is the immediate impact to the bottom-line. According to UBS, the deal could be accretive to Wellchoice as early as FY04 (Dec). From Briefing.com's own calculations, Wellchoice's operating and net margins should both expand greatly due in part to Oxford Health's more streamlined business model. Both companies sport about the same revenue base ($5.38 bln for WC and $5.45 bln for OHP), but Oxford's SG&A costs are a much smaller percentage of total revenues. This should translate into much stronger profitability for the newly-joined company without even taking into account the benefit of consolidating operations.

It remains to be seen if regulators will even approve such a transaction in light of both companies' large presence in New York. Additionally, OHP's huge spike in share price might put the brakes on a deal right now. Still, WellChoice's pursuit of Oxford is a smart move as it would result in a more competitive company on stronger financial footing. WellChoice would see its cash position greatly enhanced by Oxford's $1.9 bln nest egg, and the former's roughly 6% operating margin would noticeably improve upon completion. Market participants will want to follow this development closely, and consider buying shares of the combined company (if it does happen) considering the inherent synergies. Heather Smith, Briefing.com

12:01PM Siebel Systems (SEBL) 12.50 +0.21: Siebel Systems narrowed Q1 forecast to the high end of initial guidance. EPS is expected to come in at $0.05-0.06 on revenue of $329MM (-1.1% Y/Y) vs. guidance for $0.04-0.05 on $315-335MM and Reuters Research consensus at $0.05 on $330.08MM. Operating margin is expected to be in the 9-10% range.

License revenue is expected to come in at $127MM (+13% Y/Y) vs. guidance for $110-125MM. The U.S. accounts for 55% of license revenue, and International 45%. Maintenance revenue is expected to come in at $115MM (+6% Y/Y) vs. guidance for $110-115MM. Service revenue is expected to come in at $87MM (-22.5% Y/Y), below guidance.

The following table shows sales, gross margin and Y/Y change in gross margin by revenue segment for Q4.Segment Revenue
($ in MM) % Sales Y/Y Growth Gross Margin Y/Y bps change in GM
License 150.285 41% (4.5%) 97.8% 94
Maintenance & Services 216.457 59% (8.8%) 46.5% 569
Total 366.742 100% (7.1%) 67.4% 420
SEBL shares are, based on our inverted EVA / DCF model, priced for sustained lower to mid 20% revenue growth from C06 assuming steady Y/Y improvement to 20% operating margin.

Revised Q1 forecast shows enterprise spending continues to firm but expectations priced into shares leave little room for upside. Revenue growth expectations are significantly above consensus estimates while operating margin expectations are at high end of historical range. Q4 operating margin, excluding extraordinary items, was 7.2%.

The following table shows price multiples and Y/Y growth rates for SEBL compared against peers in the software & programming group.Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Siebel Systems (SEBL) 3.3 (171.6) 4.5 4.4 4.1 (17.2%) 5.5% 10.4%E
Oracle (ORCL) 3.6 12.2 6.6 6.5 6.1 5.2% 7.1% 7.2%
PeopleSoft (PSFT) 1.6 48.5 3.1 2.5 3.0 16.3% 25.3% 9.5%
Amdocs (DOX) 2.8 21.9 3.9 3.5 3.2 2.7% 18.7% 9.1%
Chordiant (CHRD) 3.2 (28.2) 5.5 4.5 3.9 (7.6%) 22.6% 16.2%
Dendrite Int'l (DRTE) 1.0 12.6 2.2 1.8 1.6 42.3% 21.4% 11.4%
E.piphany (EPNY) 3.1 (24.3) 5.9 5.3 4.7 12.5% 12.5% 12.5%
Kana Software (KANA) 1.3 (9.9) 1.9 1.6 1.3 (22.8%) 16.7% 24.5%
Software & Programming 3.0 34.8 5.2 5.9%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

We would wait for sustained sales growth to accelerate into the upper teens and continued improvement in operating margin to the 20% level reflected in our model or for at least a 20-30% pullback before buying SEBL.

We would consider DRTE on a relative value basis for investors seeking a CRM / enterprise applications play.--Ping Yu, Briefing.com

11:43AM CVS Corp (CVS) 37.02 +2.04: You can safely gauge the sentiment on a deal by watching the price action in the stock. Using that criteria, CVS Corp's (CVS) purchase of 1,260 Eckerd stores from JC Penney (JCP) must be universally embraced by Wall Street.

In all fairness, CVS's acquisition of a portion of Eckerd (45% of the total store base) was not a surprise to most observers. Management had said in the past it was 'open to buying the right geographies at the right price,' and JC Penney's announced plan to divest the drugstore chain on December 5 seemed to fit that bill. CVS submitted a bid in early February, and for mostly anti-trust reasons, JC Penney decided to split up the sale into two halves - the Northeastern part of the US to Jean Coutu (a Canadian drug store chain) for $2.375 bln and the Southern part of the US - as well as the pharmacy benefits management and mail order businesses - to CVS for $2.15 bln.

CVS won a new presence in states - primarily Florida (622 stores) and Texas (437 stores) - that possess a favorable growth profile. Florida, the retirement destination of many, should benefit from the aging baby boom generation, and Texas, a large and fast growing state, should gain from the migration from Rust Belt states. The acquisition also makes CVS the nation's largest drug store chain in terms of number of stores (more than 5,000), leaping over Walgreen (WAG).

With respect to the latter, CVS will be effectively going head-to-head with the juggernaut in its strongest territories. Walgreen boasts a wider selection of front-end pharmacy items and a larger number of 24-hour stores, and CVS's planned renovation of Eckerd's stores must address such discrepancies. Nonetheless, Briefing.com believes CVS's move into Walgreen's stronghold is a smart one as the sheer size and market potential of the area should support two major competitors.

As for the immediate financial effect, the transaction should be dilutive to CVS's FY04 (Dec) EPS by $0.12-0.15 (company recent raised its year-end target to $2.18-2.22), and should by accretive to both FY05 and FY06 EPS by $0.15-0.20 and $0.25-0.30, respectively. The Reuters Research consensus estimate for FY05 stood at $2.43 prior to the announcement.

The stock has popped 6% on the news and come within 2% of its 52-week highs. Briefing.com would continue to advise investors to hold CVS as its defensive attributes should enable it to outperform in this choppy trading environment. CVS is taking advantage of growth opportunities like Eckerd, and decisions such as that should keep CVS's solid earnings track record in track. Heather Smith, Briefing.com

9:14AM Ratings Briefing - ORCL : CIBC upgrades Oracle (ORCL 12.58) to Sector Outperformer from Sector Perform, citing the company's leveragable maintenance model, margin expansion, and the database upgrade cycle. As a result of its maintenance model and the sheer inertia of the installed base, firm thinks ORCL should be able to grow its maintenance revenue in the high single digits and post meaningful margin expansion, even if the company cannot expand license revenue. Firm also expects the company's new RAC product to reinvigorate the database business as customers embrace the "grid" concept of computing due to its superior operating performance and potentially lower costs. Target is $15.

What It Means:

At CIBC a Sector Outperformer rating means stock is expected to outperform the sector over the next 12-18 months... price target of $15 implies potential upside of 19.0% from current levels
Relatively light day in terms of ratings changes, so the CIBC upgrade to ORCL is apt to stand out in the small crowd since the stock is (A) widely-held and (B) valuation is a driving factor behind the upgrade
Good timing should give ratings change added impact, as the upgrade follows on the heels of industry peer Siebel Systems (SEBL 12.29) raising its EPS and license revenue guidance for Q1 after Friday's close
CIBC getting in a long line of analysts who are bullish on ORCL's prospects... to wit, since the start of the year ORCL has been upgraded four times, has seen multiple reiterations of Buy ratings or better, and has had a few firms initiate coverage with Outperform and Overweight ratings, respectively
Ratings distribution denotes bullish bias in analyst community: 16 Buy; 10 Outperform; 9 Hold; and 1 Sell [source: Reuters Research]
Sidenote: after reporting fiscal Q3 (Feb) results in March, ORCL guided for a 5-15% increase y/y in license revenues and EPS of $0.17-0.18 for Q4 (May) -- Patrick J. O'Hare, Briefing.com


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EGLS sold 2000 shares@5.01 - Gain of $960.00

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MIDDAY ACTION, Apr. 6
By Jody Osborne, Optionetics.com
4/6/2004 12:45:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10189

Profit taking develops on Wall Street, with an earnings warning from Nokia (NOK) providing a reason to sell. Today’s selling is not particularly heavy given the recent strength the major market indices have shown. The tech sector is seeing the largest declines, but after rising in seven of the last nine sessions, the selling is rather light.

Economic news was on the positive side Tuesday, with job cut announcements falling to a nine month low and retail sales rising slightly last week. On Thursday, traders will get more information about retail sales when data is released for March. Economists are expecting strong results for the month, possible exceeding February’s gain of 6.7 percent. The Challenger Report showed that job cut announcements fell to 68,034 in March, from 77K in February. This news coincides with other jobs data showing that this laggard in the economy is coming around.

Nokia has created much of the selling Tuesday after warning that sales would fall short of expectations. Previously, Nokia expected sales growth of 3 to 7 percent, but now the maker of handsets expects a decline in sales of 2 percent. As a result of this negative news, the stock has fallen 17 percent. The news has also had an impact on other tech companies in the sector and has put a damper on the chip sector as well. The Philly Semiconductor Index ($SOX) is down nearly three percent in midday trading.

Earnings season will officially kick off after the bell Tuesday when Dow ($INDU) component Alcoa (AA) announces. Later this week, General Electric (GE) and Yahoo (YHOO) will also report earnings. Yahoo was downgraded by Schwab SoundView today to “Neutral” from “Outperform.” Schwab is worried that Yahoo Japan is overvalued and this creates risk for Yahoo shares.

Overall, it is not surprising to see some profit taking after such a strong move higher the past few weeks. Expectations have become rather high for the economy and first quarter earnings and sometimes this can be overdone to the upside. Nonetheless, things are starting to turn for the better in the economy and traders want to be on the right side when stocks make their move. Even so, it might be difficult for the major market indices to break to new highs in the near term unless earnings are extremely strong and future employment data shows similar results as March’s report.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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From Briefing.com: 4:51PM TranSwitch announces $60 mln mixed shelf registration (TXCC) 2.55 -0.15:

4:28PM TranSwitch guides Q1 revs above consensus (TXCC) 2.55 -0.15: Company now sees Q1 revenues of approx $7.5-8.0 mln, vs the Reuters Research consensus of $6.5 mln and prior guidance of approx $6.5 mln, due to stronger demand across product lines.

4:12PM Seagate Tech guides Q3 below consensus (STX) 15.60 -0.06: Company now sees Q3 EPS of $0.06-0.08, vs the Reuters Research consensus of $0.21 and prior guidance at the low end of $0.20-0.30. Co's revised guidance excludes $125 mln income tax credit previously disclosed in its 8-K filing of March 16, 2004, which will provide a benefit of approx $0.25. Co says overall demand for Q3 was "modestly weaker than normal seasonal patterns and each major market exhibited characteristics since March 2," which adversely impacted co's ability to meet its previously stated earnings estimates.

4:01PM ON Semiconductor announces commencement of a cash tender offer for outstanding $260 mln of 12% Sr Subordinated Notes (ONNN) 7.54 -0.35:

12:08PM Nokia (NOK) 17.33 -3.82: Nokia lowered Q1 revenue guidance on weaker than expected Mobile Phone and Multimedia sales. The handset and telecom equipment leader expects revenue to come in at €6.6B, -2% Y/Y vs. guidance of +3-7% Y/Y; EPS to come in at €0.17 vs. guidance of €0.17-0.19. Reuters Research pegs consensus EPS at $0.24 on $8.764B.

Mobile Phones sales declined in Asia and Europe due to lower than expected volumes and product mix as a result of gaps in the mid range segment of the company's product portfolio. The company estimates that global mobile phone shipments increased in excess of 25% in Q1 while the company grew by 19%, suggesting the company lost unit market share.

Network revenue expected to be above expectations at €1.4B (+16% Y/Y). Enterprise Solutions is expected to come in slightly better than expectation.

Overall profitability and operating margin looks to be within expectations as higher than expected contribution from the Multimedia, Networks and Enterprise Solutions businesses offset weaker than expected contribution from Mobile Phones.

NOK shares are, based on our inverted EVA / DCF model, priced for sustained upper single digits revenue growth assuming stable operating margin.

Shares trade at a discount to comps. The following table shows price multiples and Y/Y growth rates for NOK compared against peers in the communications equipment and computer systems & peripherals groups.Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Nokia (NOK) 2.0 14.2 2.3 2.1 2.0 (1.9%) 7.0% 7.7%
LM Ericsson (ERICY) 2.9 (44.7) 3.1 2.9 2.7 (19.2%) 4.9% 7.1%
Lucent (LU) 1.9 70.8 2.2 2.1 2.0 (20.0%) 4.4% 6.2%
Motorola (MOT) 1.2 39.1 1.6 1.5 1.4 (0.8%) 7.9% 6.3%
Nortel Networks (NT) 2.1 70.1 2.5 2.3 2.1 (7.2%) 10.1% 10.5%
palmOne (PLMO) 0.8 (6.4) 1.1 1.1 0.9 (10.8%) 7.5% 15.8%
Research in Motion (RIMM) 7.6 (174.2) 18.1 14.5 8.1 65.3% 92.2% 78.8%
Communications Equipment 2.0 41.1 2.6 (4.8%)
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

NOK shares are attractively valued on both a discounted cash flow and relative value basis. We would also continue to focus on PLMO. RIMM shares trade at a significant premium to peers, leaving little margin for error in execution.

Texas Instrument (TXN 29.00 -1.94) shares lower by 6% on what we think is overdue profit taking in tech (see Tech Stocks) and as a result of concerns the company's exposure to NOK will negatively impact results. Reality is, TXN has broad exposure to communications equipment group, which is coming out of a three year recession. As NOK indicated, industry handset demand is firm; issues are specific to NOK and represent a change in customer preference between handsets rather than a shrinkage of overall market demand. TXN shares trade at a discount to peers on a multiples basis and are close to fair value on a discounted cash flow basis. TXN is highlighted in the April 5, 2004 Relative Value Ideas Focus List on Story Stocks.

We would take advantage of weakness in both NOK and TXN.--Ping Yu, Briefing.com

9:26AM Advanced Power Technology (APTI) 11.40: Advanced Power Technology raised Q1 guidance on Monday. The designer of power semiconductors and modules for switching and RF (radio frequency) applications projects Q1 revenue at $14.8MM (+32.6% Y/Y) vs. prior guidance of $13.2-13.8MM and Reuters Research consensus at $0.02 on $13.50MM.

APTI shares are, based on our inverted EVA / DCF model, priced for sustained lower 20% revenue growth from C06 assuming steady Y/Y improvement to upper teen operating margin.

Revenue growth expectations modest compared against the faster growing power management segment (compound annual growth of over 30%), APTI's design win momentum and the company's small revenue base.

APTI garnered over 20 design wins in Q4 across diverse markets including industrial, medical, and military & aerospace. The company exited Q1 with a book-to-bill of 1.75, up from 1.23 in Q4, and expects to bill revenue of $15.6-16.4MM (+24.9-31.3% Y/Y) in Q2.

Operating margin expectations are above historical high of 14-15% with upside possible as company gains economies of scale.

Shares trade at a discount to direct comps and to the semiconductor group. The following table shows price multiples and Y/Y growth rates for APTI compared against peers in the semiconductor group.Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Advanced Power Technology (APTI) 1.1 (26.3) 2.4 2.0 1.6 27.6% 23.3% 25.6%
Fairchild Semiconductor (FCS) 1.8 (72.8) 2.2 1.8 1.6 (1.1%) 17.9% 12.0%
International Rectifier (IRF) 2.2 35.9 3.5 3.1 2.7 16.0% 19.5% 17.8%
IXYS (SYXI) 1.0 (56.4) 1.9 1.7 1.4 44.6% 34.5% 22.0%
On Semiconductor (ONNN) 1.2 130.2 1.9 1.6 1.4 (2.2%) 16.5% 10.6%
Power Integrations (POWI) 4.2 27.7 7.4 6.1 5.0 16.2% 22.0% 21.3%
STMicroelectronics (STM) 2.1 66.1 3.0 2.5 2.2 14.6% 21.9% 12.3%
Semiconductor Components 3.0 55.0 4.7 14.7%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

Company is achieving scale efficiencies and approaching inflection point on profitability. Shares are attractively valued on both a discounted cash flow and relative value basis.--Ping Yu, Briefing.com

http://biz.yahoo.com/mu/story.html

<<07:18 ET National Semiconductor highlighted positively in Barron's Online (NSM) 47.24: Barron's Online highlights National Semi that, despite a 160% run in the past 12 months, may have room to run as demand remains strong for National's power-saving chips and other chips found in popular cellular phones, notebook computers and flat panel screens. "We're in an unbelievable industrial boom and analog chips are in short supply," says Rick Whittington, an analyst at Caris & Co. who rates the stock Above Average. "[National Semi] is going to earn a lot more than people think." Analog chip production accounts for more than three-quarters of National's revenues; other semiconductors, like mixed-signal chips that combine analog and digital processing, comprise the rest. National has $793 mln, or more than $4.00 a share, in cash and little debt. And last month, it announced it would buy back up to $400 mln worth of its shares. National Semi fetches about 21x projected earnings for the fiscal year that ends next May, well below peers like Linear Technology, which trades at 32x projected June 2005 earnings. And the co's shares look comparatively cheap on a P/S basis, selling at only 4.5x trailing-12-months sales. Linear sells at 18x sales, and Analog Devices at 9x sales. Mr. Whittington sees National Semi earning $2.70 a share in fiscal 2005, 44 cents above Wall Street's consensus. He puts the stock's value at about 55.>>

<<08:45 ET Micron upped to Hold from Reduce at Dresdner (MU) 17.70: Dresdner upgrades Micron to Hold from Reduce. According to firm, capacity tightness continues in the DRAM market, leading spot prices dramatically higher in the last month. As a result of contract prices starting to move up (which follow spot prices), firm expects MU to be more profitable. Thus, firm sees little chance of sizable downside from the current valuation.>>

<<08:48 ET Nokia guides Q1 below consensus (NOK) 21.15: -- Update -- Company now sees Q1 EPS at low end of previous guidance of 0.17-0.19 Euros, or approx $0.21, using current exchange rate, the Reuters Research consensus is $0.24, NOK sees Q1 sales below previous guidance, declining by 2% year-on-year due to sales of cheaper handsets. NOK says "lower than expected volumes and the product mix negatively impacted Mobile Phones' sales and operating profit.">>

<<09:16 ET INTC estimates cut at JMP Securities 28.55: JMP Securities lowers estimates on Intel (INTC) and its target price to $35 from $38. The estimate cuts are based on several factors: 1) delays in the high-volume 90nm technology production ramp of Intel's new desktop Prescott (Pentium 4) processor, mobile Dothan (new Centrino) processor until late in 2Q04; 2) a more aggressive forecasted processor pricing environment in PCs and server chips due to vigorous competition from a rejuvenated AMD; 3) continuing pricing pressure in the flash memory market; and 4) a somewhat sluggish, seasonally weak first-half PC industry. FY04 rev and GAAP EPS estimates goto $34.5 bln and $1.15 from $35.3 bln and $1.20.>>

<<09:44 ET Nokia issues appear to be market share related : Hearing that SG Cowen comments that Nokia shortfall appears to be market share related implying impact on broadline semi suppliers could be less than impact on NOK. Notes that Texas Instruments (TXN 29.70 -1.24) is roughly an 8% customer; firm estimates that TXN has 70% share of all GSM basebands so a shift to other GSM suppliers would have minimal impact. A shift to CDMA phones would have a more significant negative impact on TXN.>>

<<10:31 ET Texas Instruments cut to Underweight at JP Morgan following Nokia warning (TXN) 29.36 -1.58: --Update-- JP Morgan downgrades to Underweight from Neutral due to risk to firm's estimates, high valuation, lead times coming in and the co's high (roughly 30%) commodity exposure; notes that Nokia is the largest customer for TXN and RFMD. Firm is also reiterating Underweight ratings on TQNT (-1.9%) and RFMD (-5.4%) as the Nokia pre-announcement creates risk to Q2 estimates in firm's opinion.>>

<<11:38 ET Wireless handset industry remains intact -- ThinkEquity : Commenting on Nokia's preannouncement, ThinkEquity says that Nokia's statements this morning indicate that the weakness in handset shipments is a result of market share loss, and is not a macro-statement on the overall industry. Firm believes that NOK is losing share in the mid-end market to competitors such as Samsung, LG and even MOT. Comments from NOK also indicate that CDMA appears to be on track in the quarter. ThinkEquity believes that the wireless handset industry remains intact for 1Q04 and 2004 and reminds investors that this is a NOK-specific issue, not an industry-wide call. Firm would look to weakness in other wireless names such as QCOM (-1.7%), TQNT (5.1%), ANAD (-5.6%) and SWKS (-1%) as buying opportunities.>>

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Amateur Investor Mid Week Market Analysis (4/6/04)

The market has made a nice run since making a bottom 9 trading days ago but has become rather overbought so it wasn't to surprising to see some minor selling pressure develop today. Also remember earnings season will be picking up as some of the heavyweights start reporting which could increase the volatility in the market over the next several days.

As far as the major averages if the Dow pulls back some I would look for initial support at its 23.6% Retracement Level near 10440 (calculated from the late March low to its recent high) or at its 50 Day EMA (blue line) near 10375. To the upside the Dow will likely encounter resistance at its previous high made in February near 10750.



The Nasdaq came under some selling pressure today and if it continues to pull back I would look for initial support at its 23.6% Retracement Level near 2040 (calculated from the late March low to its recent high). To the upside the Nasdaq will likely encounter resistance at its previous high made in January near 2155



The S&P 500 also cam under some minor selling pressure today and if it pulls back should find initial support at its 23.6% Retracement Level near 1135 (calculated from the late March low to its recent high). To the upside look for resistance at the S&P 500's early March high near 1163.



Meanwhile continue to watch the Semiconductor Holders (SMH) closely over the next few days. The SMH's really need to hold support in the 40.25 to 40.50 area which coincides with their 50 Day and 100 Day EMA's and 38.2% Retracement Level calculated from the January high to the late March low. If the SMH's drop below 40.25 this could spell potential trouble for the market so keep a close eye on them the rest of this week.



Finally when scanning for stocks to put on your watch list make sure to notice what type of chart pattern they are exhibiting. Although I talk about the "Cup and Handle" pattern a lot another pattern to look for is the "Flat Base". A "Flat Base" develops as a stock gets stuck in a trading range for a significant period of time before breaking out. An example is AMED which had developed an 8 week "Flat Base" pattern before breaking out in early February. Notice that AMED traded between $14 and $17 as it formed its "Flat Base" pattern.

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U.S. stocks declined after Alcoa and Seagate reported quarterly results that missed forecasts, raising concern that corporate profits won't increase enough to extend the market's rally. Earnings from Alcoa and companies such as Yahoo! and General Electric, which both report this week, may signal to investors whether stocks have further to rise. Analysts predict members of the S&P 500 Index will boost profits by an average of 17.1 percent in the first quarter, up from their Jan. 1 estimate of 13.4 percent, Thomson Financial said. The S&P 500 declined 7 points (-0.6%) to 1141. The DJIA had its first loss in five days, shedding 90 points (-0.86%) to 10,480. The Nasdaq fell 9 points (-0.47%) to 2050. About the same number of stocks advanced and declined on the New York Stock Exchange. Some 1.24 billion shares changed hands on the Big Board, in line with the same time a week ago.

Strong Sectors: oil & gas services, real estate operators

Weak Sectors: retail, chemical, aluminum, casino & gaming, computer storage

Top Stories . . . Prices of goods imported to the U.S. rose 0.9 percent in March, reflecting the drop in the value of the dollar and an increase in costs of oil and other raw materials. Excluding petroleum, prices edged up 0.2 percent.

Wal-Mart Stores, the world's largest retailer, lost a ballot initiative in Los Angeles County to build a retail complex amid criticism from local officials that the development would hurt small businesses.

Kerr-McGee agreed to buy Westport Resources for $2.49 billion in stock, the biggest acquisition in its 75-year history, to boost natural-gas output in Texas and the Rocky Mountains as prices and demand increase.

The wife of former Enron Chief Financial Officer Andrew Fastow withdrew her guilty plea and will stand trial June 2, following a judge's refusal to be bound by a plea bargain that would have limited her prison term to as little as 10 months.

Yahoo!, owner of the world's most-used group of Internet sites, said its first-quarter profit more than doubled to $101.2 million as it sold more advertising linked to the results of Web searches.

Genentech, the world's second- biggest biotechnology company, said first-quarter net income rose 17 percent on higher sales of its Rituxan and Herceptin cancer medicines.

Crude oil futures surged after the Energy Department said U.S. inventories unexpectedly fell for the first week in eight.

Quotes of Note . . . Earnings ``are going to be one of the more positive catalysts for the market in the near term. On a sporadic basis, you could have some disappointment.'' Liz Ann Sonders, chief investment strategist at Charles Schwab.

Gurus . . . A Bloomberg survey of 74 economists finds that inflation will accelerate this year, and the unemployment rate will fall, as the U.S. economy expands the fastest since 1984. The Consumer Price Index may rise 2.0% this year, while the unemployment rate may fall by year-end to 5.4%, the lowest since October of 2001. GDP is expected to rise by 4.5% in the first-quarter, 4.3% in the second-quarter, and then slow to 4.0% in the third-quarter, and 3.9% in the fourth.

Allen Meltzer, political economy professor at Carnegie Mellon, says the U.S. dollar is not tumbling. The currency has just returned to about its value of the mid 1990s. Meltzer suggests that the euro's 46.0% gain against the dollar since October 25, 2000 is simply a reversion to a time before the U.S. currency surged in value as a safe haven in the late 1990s in the wake of the Asian financial crisis.

Barron's Online highlights Amy LaGuardia, a Legg Mason Financial Services Fund manager, for her picks. LaGuardia looks for banks that can gain share in their markets when competitors consolidate. The fund, which has $70 million in assets, has gained 37.6% over the past 12 months, slightly trailing the Lipper Financial Services Fund index. But its annualized return over the past three years is 13.23%, handily beating that index. Mrs LaGuardia recommends Sovereign Bancorp as a pure valuation play and Hilb, Rogal & Hamilton as a takeover candidate by Brown & Brown, which she also owns; and MBNA that should do well when interest rates go up.

Eco Speak . . . The nation's prices for imported goods rose 0.9 percent in March, the sixth consecutive monthly increase. Excluding petroleum, import prices rose by 0.2 percent, marking the fifth monthly rise in a row. In February, import prices rose an unrevised 0.4 percent. Oil import prices jumped 6.1 percent in March after the prior month's tiny increase of 0.1 percent. Export prices rose 0.9 percent in March.

Market Comments . . . Market participants love a good rebound, and the recovery of the major indices in recent weeks has definitely lifted their spirits. While Friday’s employment report was the likely catalyst for the market’s advance, the record showing in the ISM Nonmanufacturing Index may be even more important. Extreme readings in economic benchmarks such as the ISM typically lead transition phases in financial markets. Since many leading indicators of the economy are currently at or near decade highs, this would suggest that the best environment for equities has likely passed. Indeed, equities often post their best returns when the economy is recovering, not when it has achieved maximum momentum. As such, market returns going forward are likely to be much more measured.

One of the better indicators for portfolio positioning is the ISM Manufacturing Index. Historically, a rising ISM has typically coincided with an upward-trending equity market characterized by significant gains in the cyclical segments. While the ISM Index may be a leading indicator of the economy, it is a coincident indicator of equity trends since stocks are a leading economic indicator as well. Since the ISM oscillates between bullish and bearish economic extremes, it is best used as a contrarian indicator, with bullish readings demanding a more cautious equity market stance and bearish readings a less cautious one. Accordingly, the wary tone in recent months has been partly influenced by the fact that the ISM is hovering near 20-year highs. While the rise in the Index in March may have been of comfort to many, it does not change the fact that the ISM remains at extremely elevated levels. Over the course of the year, expect to see the ISM drift lower from its currently high level.

One series that has proven to lead the ISM in the past is the momentum of global short-term interest rates. This series confirms belief that the ISM should soon begin drifting lower, which, would have implications for cyclical segments. Besides the ISM, there are other factors that would suggest that we are in the home stretch of cyclical leadership. First, Presidential cycle theory analysis has shown that noncyclicals have fared better than cyclicals in an election year. Second, the price-to-sales ratio of cyclicals relative to noncyclicals is near a historical high. And, lastly, our quantitative valuation model currently exhibits a preference for noncyclicals. In short, all signs seem to be pointing to one conclusion: a major shift in market sector leadership is likely in the coming months.

The economic cycle is the most important element for sector positioning. As a general rule of thumb, cyclical sectors have leadership of the market when economic momentum is accelerating, while noncyclicals typically outperform when momentum eases. One of the best measures of cyclical pressures is the ISM Manufacturing Index. While there are many other useful leading economic indicators, the ISM offers both a long and successful track record. The past year has seen the ISM rise to near 20-year highs from what is considered a low reading (46 in March 2003). Coincidentally, of course, cyclical sectors have outperformed during this rise in the ISM Index. In our opinion, it would be highly unusual for the Index to rise significantly from here. As such, it is difficult to make a case for a continuation of cyclical sector leadership.

Besides the macro backdrop, there are three other factors that lead us to believe that cyclical leadership is in its final stage. First, Presidential cycle theory argues that noncyclicals have historically fared much better than their cyclical brethren during an election year. Second, the relative price-to-sales ratio of cyclicals to noncyclicals is near a 20-year high, suggesting that cyclicals offer unattractive value at this juncture. And last, but not least, a quantitative model places two noncyclical bellwethers (i.e., health care and consumer staples) at the head of the pack. In conclusion, a host of indicators that we follow suggest that a change in stock market leadership from cyclical sectors to noncyclical sectors is upon us.

Investors want to know how the election will affect financial markets. One way is through seasonality. Indeed, there are clear market patterns at the sector level in election years. Historically, noncyclicals have fared much better than cyclicals over the course of a presidential year. Typically, cyclicals in aggregate perform very strongly out of the gates and have leadership of the market for roughly the first three months of the year before relinquishing leadership to the more stable noncyclical groups. This would suggest that a transition toward noncyclical sectors such as health care, consumer staples, and, perhaps, utilities is imminent.

One indicator that suggests that an overweight in cyclicals is unwarranted at this juncture is valuation. Indeed, on a price-to-sales basis, the ratio of cyclically-sensitive stocks to recession-resistant industries is sitting near a 20-year high. Therefore, like the ISM, it is at a historical extreme. Though one could argue that an even higher ISM would be favorable for cyclicals, they would still have to deal with relative valuation, which suggests that the risk/reward profile of overweighting cyclicals is poor at this time. In short, an aggressive position in cyclical sectors has not been this risky in almost 20 years.

The final step in an evaluation process for sector recommendations is to employ quantitative methods. Our quantitative model, which looks at the trade-off between relative earnings estimate momentum and relative valuation, is simple but effective. Analysts do not believe that a quantitative model will ever incorporate all the variables affecting the stock market. For instance, quantitative models cannot effectively capture political uncertainty or exogenous shocks such as terrorism. That said, it is a good discipline and should be used as a complementary tool. At this juncture, our model exhibits a strong preference for noncyclical bellwethers, such as staples and health care, and an aversion to the highly cyclical technology sector. Accordingly, our model is offering a confirming signal on sector positioning — overweight noncyclicals relative to cyclicals at this juncture.

A number of factors argue against the likelihood of cyclical stocks maintaining market leadership at this stage. As mentioned, the equity cycle, valuation, and quantitative screens are all suggesting that the cyclical rally has grown long in the tooth. Nonetheless, the economic cycle is probably the most important factor for gauging the risk/reward of owning cyclicals at this point. The ISM Manufacturing Index offers a good proxy for measuring economic momentum. With this indicator hovering near historical highs, encourage investors to consider ways to hedge a further decline in cyclical pressures.

Financials . . . St. Paul Travelers upgraded at Bernstein to Outperform from Market Perform and raises their target to $49 from $42. While they think that the merger integration could cause greater uncertainty than many investors expect, they can no longer justify such a punitive valuation stance towards the combination. Also, if mgmt executes as it has stated, firm says there is likely upside to their estimates.

Lehman Brothers is considering making acquisitions outside the U.S. as part of its plan to get non-U.S. revenue to represent half of the firm's total, according to a spokesman in London. But there are no specific targets in mind and there is no timeframe for making a deal. The company, which employs 3,100 at its new European headquarters in London, is also looking to add staff to help boost non-U.S. revenues.

REITs . . . BofA Sec does not think there's a buying opportunity in real estate stocks b/c valuations are high even though the stocks have plunged 8.9% over the past three trading days. Real estate stocks were expensive at the start of the year, and even with the recent decline, the stocks are up 3.0% y-t-d. In addition, the average real estate stock is still trading at 13.0x estimated 2004 FFO (funds from operations), a 27% premium to the historical average (1993-2003) of 10.3x, and above the prior peak (1997) of 12.9x. Slowing fund flows present downside risk: Funds flows have been at record-breaking levels over the past 15 months, which is important because firm's proprietary trading desk estimates that a significant portion of the strong performance in 2003 and 1Q/04 was driven by a high level of funds flows making their way into a relatively illiquid group of stocks. If this trend were to reverse, which is likely given the size of the recent decline in stock prices, it could accentuate the downward move.

Industrial Equipment . . . CS First Boston upgraded Cummins Engine to "outperform" from "neutral." Analyst John McGinty said the company's raised earnings outlook on Tuesday was the first clear evidence that the company was taking advantage of stronger overall industry demand. In addition, he noted that recent industry checks suggest the difference between Cummins' product and rival Caterpillar's "was not great enough to create a meaningful distinction."

Defense & Aerospace . . . Lockheed Martin amends Titan merger agreement. Titan stockholders will now receive $20 in cash (down from $22) in exchange for each Titan share owned. Revised merger agreement provides that if merger is not completed on or before June 25, 2004, either LMT or TTN may terminate the merger agreement. TTN has also scheduled a new special meeting to be held on or after June 7, 2004.

Education . . . Career Education target raised to $68 at Lehman. Lehman raises 2004 and 2005 by 4.5% and 9% to a above-consensus $1.65 and $2.18 (vs previous $1.58 and $2.00) to incorporate higher online profitability assumptions into firm's model. Firm also increasing its price target by $8 to $68, or 31x new 2005 EPS estimate. Lehman expects CECO to exceed firm's revenue and EPS estimates of $384 million and $0.33 when it reports 1Q'04 results after the close on April 20.

Consumer Products . . . Thomas Weisel believes its 3rd quarter (Mar) EPS estimate for Coach, which is $0.01 above guidance and in line with consensus, is probably slightly too conservative. Recent channel checks reveal: (a) Positive reaction to spring product overall. Strong color trends that are benefiting apparel retailers also benefit Coach. Recent product introductions that will be important for June Quarter have received a particularly strong early response. (b) The higher price point products have been particularly strong sellers. The firm believes the average price point will increase greater than the targeted 5% in March Quarter and this will continue in June Quarter.

Retail . . . Abercrombie upped to Strong Buy from Accumulate at Buckingham. Price target goes up to $44 from $38.

CIBC raises its target on Linens 'n Things to $43 from $38 ahead of the company's 1st quarter report on Apr 20. The firm expects 1st quarter comps of 6% versus management's 3%-5% plan. The firm cites easy comparisons, industry sales trends and increased traction of turnaround initiatives as factors. With over 200 stores currently operating with increased inventory controls and benign sales comparisons on tap for both 2nd quarter (up 0.1%) and 3rd quarter (up 1.8%), the firm believes positive news flow in terms of improving top-line productivity is likely to continue in the months ahead. The stock offers investors exposure to a meaningful operating turnaround story at an attractive valuation.

Raymond James upgrades Lowe’s to Strong Buy from Market Perform, citing a series of positive preannounements from the company's suppliers (Masco, Fortune Brands, Stanley Works, Black & Decker), relatively easier 1st quarter comps, continuing "crisp" execution, and their positive view on the company's CEO succession plan. Target is $69.

Smith Barney upgrades Wild Oats to Buy from Hold. The firm raises their 2004-05 EPS estimates above consensus, and raises their target to $17 from $15. Despite the negative sentiment on the stock (short interest is 14%, investors and analysts think 2004 guidance is unrealistic), firm believes that the co will likely achieve 2004 guidance due to: 1) strong industry fundamentals, 2) greater than expected benefits from the supermarket strike, 3) a relatively smooth and strategic distributor switch, and 4) improving store base quality.

CVS Corp cut to Sell from Hold at AG Edwards. The firm essentially sees CVS as a good source of funds as it begins its rather risky asset integration journey into the southern assets of the Eckerd drugstore chain.

Short Interests . . .

Luxury Goods. Short interest in Coach Inc. decreased 17.3% in March, to 3.8 million shares, which is still below its 51-month average short interest of 5.4 million shares. Coach’s decrease in short interest during March followed an increase in February, which was the first rise in eight consecutive months. Coach’s stock price increased 3.4% in March, following an 11.9% rise in February. Coach’s stock is up 8.6% year to date, outperforming the AMEX, Nasdaq, NYSE, and the Bear Stearns Retail Composite (which are up 7.1%, down 0.5%, up 2.5%, and up 5.9%, respectively). Coach’s days-to-cover ratio decreased to 2.8 days from 3.1 days in February, and is below its 51-month average of 5.6 days. At Tiffany & Co., short interest decreased by 3.8%, to 2.2 million shares from 2.3 million shares in February. Tiffany’s short interest is below its 51-month average of 5.5 million shares. Tiffany’s days-to-cover ratio increased to 2.2 days from 1.9 days in February, which is below the 51-month average of 5.4 days. Tiffany & Co.’s share price decreased 9.2% on a month-over-month basis in March (following a 6.1% increase in February).

Consumer Electronics. Short interest in Best Buy shares rose 5.5% during March, to 7.6 million shares, which is below its 51-month average of 13.6 million shares. Best Buy’s days-to-cover ratio decreased to 1.7 days from 2.2 days in February, and remained below its 51-month average of 3.3 days. Short interest in the shares of Circuit City Stores decreased 13.5%, to 9.3 million shares from 10.7 million shares in February. The days-to-cover ratio at Circuit City decreased to 2.5 days from 3.8 days in February, which is still above its 51-month average of 2.2 days. In March, short interest in RadioShack’s stock fell 13.0%, to 5.2 million shares from 5.9 million shares in February, and moved in line with its 51-month average short interest of 5.2 million shares. RadioShack’s days-to-cover ratio rose to 6.8 days from 5.3 days in February, approaching its 51-month high of 7.6 days. In terms of monthly price performance, the share price of RadioShack (down 4.1%) underperformed both Best Buy (down 2.9%) and Circuit City (up 1.1%) during March. Year over year, shares of Best Buy and Circuit City outperformed RadioShack, increasing 91.8% and 117.3%, respectively, versus RadioShack’s 48.8% gain.

Home Furnishings. Short interest trends varied across our home furnishings universe during March, while stock price performance was positive for all the companies. At Linens ‘n Things, short interest rose 12.8%, to 3.2 million shares, and moved further above its 51-month average of 2.7 million shares. Linens ‘n Things’ days-to-cover ratio rose to 6.7 days in March from 3.7 days last month. Linens ‘n Things’ share price increased 4.5% in March. Short interest at Bed Bath & Beyond fell 1.3%, to 6.0 million shares from 6.1 million shares in February, and remained below its 51-month average of 8.1 million shares. Bed Bath & Beyond’s days-to-cover ratio decreased to 1.9 days from 2.2 days in February. Bed Bath & Beyond’s share price ended March up 2.4% on a month-over-month basis. Rent-A-Center’s short interest rose 33.5%, to 1.4 million shares from 1.1 million shares in February. Rent-A-Center’s days-to-cover ratio expanded to 3.7 days from 1.9 days in February, but remains significantly below the 51-month average of 11.2 days. On

top of a 4.4% gain in February, Rent-A-Center’s stock price increased by 1.3% in March. Short interest in Tuesday Morning rose 42.4%, to 0.8 million shares, which is above its 51-month average of 0.4 million shares. Tuesday Morning’s days-to-cover ratio increased to 4.2 days from 2.1 days last month, and is above its 51-month average of 2.2 days. Tuesday Morning’s share price rose 4.4% in March, and the shares increased 75.1% year over year. At Williams-Sonoma, short interest decreased by 1.4%, to 3.1 million shares, and remained below its 51-month average of 7.4 million shares. Williams-Sonoma’s days-to-cover ratio fell to 3.4 days from 4.4 days in February. William-Sonoma’s share price increased 6.9% in March, and is up 56.9% year over year.

Home Improvement. During March, short interest in Home Depot fell 9.0%, to 21.0 million shares from 23.1 million shares, but remained above its 51-month average of 20.6 million shares. The company’s days-to-cover ratio decreased to 3.0 days from 3.1 days in February, but is above its 51-month average of 2.5 days. Following last month’s 9.9% increase, short interest in the shares of Lowe’s rose 1.8% in March, to 12.5 million shares, but remained below its 51-month average of 13.7 million shares. Lowe’s days-to-

cover ratio increased to 3.4 days in March from 3.2 days in February. During March, Lowe’s stock price increased 0.2%, compared to Home Depot’s 2.9% gain. Year over year, Lowe’s shares appreciated 37.5% versus Home Depot’s 53.4% rise.

Office Superstores. During March, short interest decreased for Office Depot and increased at Staples. Short interest in Office Depot’s shares fell 1.0%, to 5.4 million shares, which is below its 51-month average of 6.1 million shares. Office Depot’s days-to-cover ratio increased to 3.4 days from 2.7 days in February. On top of a 9.3% increase in February, Office Depot’s share price rose 8.0% in March. Year over year, Office Depot’s share price appreciated 59.1%. At Staples, short interest increased 17.9%, to 4.6 million shares, but continues to be below its 51-month average level of 7.7 million shares. The increase in short interest comes after four consecutive monthly declines. Staples’ days-to-cover ratio decreased to 1.0 days from 1.1 days in February, and is below its 51-month average of 1.6 days. In terms of stock price performance, Staples’ shares decreased 3.2% on a month-over-month basis. Year over year, Staples’ shares underperformed Office Depot’s shares, increasing 38.1% versus Office Depot’s 59.1% gain.

Healthcare . . . Lehman upgrades Cigna to Equal Weight from Underweight and raises its target to $72 from $53 based on its recent pre-announcement. While lower visibility remains, and potential short term risks, the firm does not expect the stock to underperform HMOs again this year. The firm increases its 2004 EPS estimate to $5.40 from $4.80 and 2005 EPS estimate to $6.00 from $5.25.

Cigna raised first-quarter EPS guidance from range of $1.20 to $1.40 to a range of $1.75 to $1.95per share with the increase a result of stronger-than-anticipated performance in the company’s health care business. Specifically, the company noted better-than-expected medical costs driven by lower inpatient utilization trends. In addition, the company cited benefits from expense reduction efforts and a significant favorable prior period reserve development. Raised guidance for first quarter compares to estimates of $1.25 and to consensus estimate of $1.33 per share. CIGNA also raised 2004 operating earnings guidance to a range of $720 million to $780 million (including $45 million in earnings from sold retirement operations to be booked in the first quarter) from prior guidance range of $600 million to $660 million (excluding $45 million in operating earnings from retirement operations in the first quarter) or $645 million to $705 million including the first-quarter earnings from the sold retirement services business. Here note that the company has not given full-year 2004 EPS guidance with the issue in question being the share repurchase activity the company will demonstrate this year. Also, note that given the company’s comments, the $75 million earnings increase is likely heavily impacted by favorable prior-period reserve development as the company did not increase guidance for the out quarters in 2004. Health care segment now anticipated to generate income from continuing operations before realized investment results and special items of $170 million to $185 million for the first quarter of 2004 and $525 million to $575 million for full-year 2004. Updated health care segment earnings guidance compares to prior guidance of $95 million to $110 million for first quarter 2004 and $450 million to $500 million for full-year 2004.

Biotech . . . Merrill Lynch out negative on Biogen IDEC saying that based on NDC data, lyophilized Avonex as a percent of new scripts has increased vs. the pre-filled syringe, which has manufacturing issues with lower product yields. According to the firm that may indicate that Biogen IDEC is attempting to conserve inventories of the pre-filled syringe and suggests that the production issue has not been resolved. Although it is unlikely to be a long-term problem, it is likely to have a negative impact on gross margins until the issue is resolved. The firm is reducing their 2004 gross margin assumption to 87% from 89%. Thus, 2004 EPS est. declines to $1.40 from $1.49 (Reuters consensus $1.48) while 2005 remains unchanged at $1.80 (consensus $1.79). Price target remains at $69.

Hotel & Leisure . . . CIBC upgrades Mandalay Resort to Sector Perform from Sector Underperform as management has demonstrated that it can create and leverage unique assets on the Strip. The firm is assuming a more positive outlook and forecasting stronger growth through 2005 and 2006, driven primarily by further increases in convention traffic at Mandalay and Luxor. Its target goes to $64 from $53. The firm has historically been cautious on older assets, but mgmt has succeeded in creating a unique high-end offering on the Strip, which has more than offset these concerns.

Media . . . S.G. Cowen comments that with its Daimler Chrysler announcement yesterday, Sirius showed the first sign that it is moving to the more successful OEM Push model that XMSR has employed. The deal actually exceeded firms expectations as companies agreed that 550K vehicles would be installed in a 2-year period, firms expected 408K subs from the Chrysler deal. Firm's DCF valuation shows SIRI fully valued, but outperformance could push up estimates and stock price further.

Bank of America upgrades The New York Times to Buy from Neutral based on 1) industry channel checks indicating accelerating (and ahead of budget) national ad growth, 2) significant sequential improvement in help wanted, 3) a near-term turn in the entertainment category and 4) the anticipation of a turn in the lagging real estate category later this year. The firm recommends buying the stock ahead of the Q1 release on 4/12. Target price is $50.

Sirius announced after the close yesterday, a long awaited OEM deal with DaimlerChrysler (Chrysler) which calls for ~ 550K factory installed SIRI radios across 11 Chrysler models beginning with the 2005 model year. Chrysler expects production of these vehicles to be completed by the end of June 2006. SIRI will receive its standard one year subscription from Chrysler for each unit sold, although it is not clear how much if any will be prepaid. Also SIRI will reimburse Chrysler for the costs of factory-installed Sirius radios and will make additional payments upon reaching certain production levels, similar in principal to XM's OEM agreement with GM. This news is a positive for the company, providing a more direct distribution channel for the SIRI product with a firm factory install commitment vs. a factory install option (typically initiated by the car dealers). Expect additional news flow from the New York Auto Show later this week which could include programming, new product and additional auto announcements. However, the recent run up of SIRI shares this week indicates that the market anticipates much of this news flow.

IT Services . . . Unisys announced it has won "blanket task order" D.O.D.'s primary counterintelligence coordinating body, Counterintelligence Field Activity. Initial order is worth only approximately $11 million, however D.O.D. estimates that it may order up to a total of $345 million in products and services under this blanket task order over its 5-year term.

Electronic Data Systems said its customers signed $1.3 billion in contracts during the last week of the first quarter. Most were mid-size deals and the result of add-ons and renewals of existing contracts, the company said. "There's no particular industry that's dominating -- it's across the board," said Kevin Lightfoot, EDS spokesman.

Goldman Sachs comments that it picked up no evidence of extremes in either direction over the course of IBM's quarter, suggesting that IBM should be okay to achieve its targets for the March Quarter. Firm's inclination is once again to think that if there is a bias to top-line expectations of $21.9B (down 15.4% quarter/quarter, up 9.2% year/year) it is more likely on the upside, although any variance is likely to be slight. Applying a 1.1x multiple to the current S&P 500 P/E of 18.6x and using firm's 2005 EPS estimate for IBM (OP/A) of $5.55 yields a share price of $113-$114 per share, roughly 20% higher than yesterday's close.

The WSJ's column "Tracking the Numbers" highlights Indian company's such as Infosys Technologies, Wipro and Satyam Computer Services, which has seen its ADRs fetch heady premiums compared to where their stocks trade in India.. The ADR's of Infosys, two of which convert into one of the Bangalore, India, company's Indian shares, closed at $85.56 on the Nasdaq yesterday. Earlier, on the Bombay Stock Exchange, Infosys's stock closed at $121.78, which is a 41% premium to its Indian-share price. Wipro trades 37% above its Bombay-traded shares; Satyam's ADRs carry a 61% premium. "It comes down to a lack of liquidity," says Goldman Sachs analyst Julio Quinteros. "That's the issue with all of these stocks. Unless their market floats increase, there's no reason to think that there's going to be a big contraction in price." Furthermore, with many investors hanging on to their Infosys ADRs, just a portion are available for trading. "It's not easy for American investors to go into India and purchase shares," says Jefferies & Co. Asia-Pacific trader Wayne Yu. "Until India fully deregulates their market, this premium situation is going to continue." According to Mr. Quinteros's valuation work, Infosys's ADRs would be fairly priced at $63, right about the level Infosys India-traded shares imply. Many value-minded investors blanch at the idea of paying any premium.

The Financial Times reports that IBM has acquired India's third largest call-centre operator, Daksh eServices, for $160-170 million, according to people close to the deal. IBM's acquisition, the largest cross-border deal of its kind, came on the heels of the US company winning a 10-year outsourcing contract worth $750 million from Bharti TeleVentures, the largest telecommunications company in India. Delhi-based Daksh eServices was set up four years ago and is one of the fastest growing call-centre operators in India with 6,000 employees.

Storage . . . JP Morgan raising 1st quarter estimates for Lexar Media to $0.13 EPS on $150.25 mm revenues from $0.12 EPS on $142.25 mm, with consensus at $0.12 on $141.1 mm. According to the firm, company guided to $0.10 on revs of at least $140 mln. The revised model now assumes sequential product revenue decline of 15%, compared with prior estimate of 20% decline. Also, stronger than anticipated digital camera shipments in February could drive NAND revenue upside. The firm believes that demand is likely to outstrip supply through 2004 and into 2005 and that Infineon seems to be behind schedule on production plans. With the shares trading trades at 26.5 times 2004E EPS, a discount of 50% to their 2-year pre-tax income CAGR estimate of 53%, the firm is reiterating their Overweight rating.

S.G. Cowen states that customer concentration issues continue for Innovex, but new wins could yield upside. INVX's largest customer, Seagate, provided preliminary EPS below previous guidance on weaker-than-normal seasonal patterns. While the news raises concerns about N-T outlook, firm believe INVX shares already price in 2nd quarter weakness due to STX, noting the most substantial factor in STX warning was notebook segment, which is not presently a material rev source for INVX. Firm expects an in-line 2nd quarter for INVX, and Q/Q rev growth in 3rd quarter based on low HDD channel inventories and new non-HDD wins reaching volume. Firm states they would take advantage of weakness, given additional FSA and non-HDD wins should help broaden the base away from STX.

The analyst community is generally surprised by the magnitude of negative preannouncement issued by Seagate last night. JP Morgan downgrading the shares to Underweight from Overweight noting that with the shares trading at 17x their revised calendar 2005 EPS estimate, Seagate trades above the hard disk drive peer group average of 12.5x. They believe that the company's shares should trade at lower multiple levels in the coming months. The firm does not believe the sudden slowdown in notebook business represents a material slowdown in end demand but rather a series of supply-chain snafus by HP. The firm is lowering their March Quarter revenue and EPS estimates to $1.43 billion and $0.06 from $1.54 billion and $0.23. Firm's June Quarter revenue and EPS estimates now stand at $1.37 billion and $0.05, down from $1.51 billion and $0.22 previously.

Lehman notes that they now believe the HDD stocks are likely to trade sideways and would stay on the sidelines heading into the seasonally weakest quarter of the year. Also worth noting that Prudential is out this morning in defense of Agere and Marvell, for which STX was a 12% and 4% customer in December 2003 quarter. They do not think this announcement will have an impact on the March 2004 or April 2004 quarter for Agere and Marvell, respectively. For Agere they believe the co has already factored in weak HDD shipments into its lowered March 2004 revenue expectations given on March 17th. For Marvell, they believe as a small customer, weakness at STX will likely be offset by growth as WDC.

Network Equipment . . . Sanders Morris Harris says that their checks still indicate that Cisco's April quarter is tracking to the high end of the guidance range and the relative softness impacting the storage group does not appear to be impacting the rest of the company's business. The firm believes that the company's storage revenues will be in the mid-$30 million range, below an internal stretch goal of $40 million and in-line with last quarter's orders of $34 million. While a goal of $40 million does not appear to be a stretch given that Cisco still has the last month of the qtr remaining. The firm believes the month of April will be weak for its storage unit since it is the first month of the qtr for storage OEMs through which Cisco sells most of its storage switch products.

Next Generation comments that yesterday Nokia mentioned a 3-4% share loss in cell phone market, but also that their 6820 camera phone sales were strong adding to margins. Firm believes this is a net positive for OmniVision, because a) OVTI does not supply to NOK. Nokia's share loss is a gain to the other OEMs such as Samsung, LG, Motorola where OVTI supplies camera sensors, also b) the fact that camera phone sales are still strong in Q1 is a positive indicator on the segment for OVTI.

Boxmakers . . . Prudential says that Hewlett-Packard checks lead them to believe that the 2nd quarter EPS consensus of $0.34 is aggressive, and accordingly cuts their estimate to $0.33. While demand is tracking about as expected, firm has not seen a hint of upside 2 months into the qtr, and large enterprise is improving at a very gradual pace. Also, pricing continues to be aggressive across nearly all segments and this seasonally soft quarter for PCs makes higher unit volume from market elasticity unlikely; other sources of margin pressure come from components, notably tight pricing of flat panels and limited availability and increasing price of DRAM. Trims target to $25 from $26.

Semiconductors . . . Ramtron International signs agreement with National Semiconductor to settle their long standing (originated in 1991) patent interference dispute. As consideration for assigned patent applications and cross license provisions, RMTR will pay NSM ten annual payments of $250,000. In addition, the company's have agreed to cross license any and all future patents that may mature from the four applications at no additional cost to either company. RMTR says the settlement does not affect its FRAM product sales or the status of its key foundry supplier.

Broadcom acquired privately-held Sand Video, Inc., a leading developer of advanced video compression technology for a broad range of consumer digital video apps. BRCM will pay a total of up to approx $77.5 million - $70.1 million in form of 1.666 million shares of its Class A common stock issued or reserved for future issuance and $7.4 million in cash consideration -- in exchange for all outstanding shares of Sand Video capital stock.

Nokia's pre-announcement yesterday was led by lower than expected handset shipments. Nokia is Texas Instrument's largest wireless customer, representing ~50% of its wireless revenues or 14% of total sales. While Nokia's share loss clearly has some impact on TXN, most analysts do not think 1st quarter estimate is at risk as at the time of its mid-quarter update on 3/9, it had decent visibility into the full quarter. TXN is on a consignment inventory program with Nokia; that is, there are no long lead times associated with Nokia, and the impact on TXN's revenues is instantaneous. This leads us to believe that TXN had already built Nokia's shortfall into its guidance as they were already probably seeing it at the time of their mid-quarter update.

1st quarter 2004 estimates for TXN are revenues of $2.94 billion and pro forma EPS of $0.22. Do expect Nokia's share loss to impact TXN's 2nd quarter and 3rd quarter as a share recovery is not imminent. Expect some of the weakness from Nokia to be offset by the strong business TXN is seeing with its ODM customers. Also expect many of the trends that have led to strength in 1Q to continue their momentum through 2004. These trends include: 1) improving ASPs across commodity products: standard logic, standard linear and display-driver products; 2) A continuing increase in wireless silicon BOM per handset and additional sales of cell phone components such as GPS and bluetooth; 3) Continued strength in broadband and DLP. Additionally, gross margin should benefit from higher fab utilization rates and ASP strength. Though analysts are lowering estimates, the overall impact to 2004 EPS is $0.02. Analysts are lowering 2nd quarter 2004 pro forma EPS estimate by $0.01 to $0.23, and 3rd quarter 2004 EPS by $0.01 to $0.26. Analysts are leaving our estimates unchanged for 4th quarter 2004 and 2005.

Software . . . Following report of NPD sales released last night (Symantec products totaled $89.7 million in the Mach Quarter), Piper continues to believe that retail offline consumer sales are trending stronger than anticipated and attributes this strength to the unusually high number of virus outbreaks year-to-date. The firm expects upside to Street consumer numbers for the March Quarter. Near term, the firm believes shares of SYMC will be strong as Street estimates climb in the first part of calendar 2004. Longer term, analyst expects anticipation regarding Microsoft's entrance into the anti-virus market to weigh on shares.

Pacific Growth says Business Objects could meet the firm's 1st quarter estimates, but that there is still top line risk as the firm continues to hear from its checks that there is difficulty in integrating both the sales cultures as well as the technologies. The stock is trading at 2.7x EV/'04 sales and p/e of 32x.

Merrill Lynch downgrades Electronic Arts to Neutral from Buy based on valuation, as the stock is now trading at 28x their 2005 estimate and close to its peak multiples of 25-30x. The firm believes that much of the stock's recent advance has been related to the news of the X-box price cut as well as Microsoft's announcement that it will not release its Sports titles this year, which implies that many investors believe that ERTS estimates could go higher.

Southwest Securities says their channel checks indicate the recent $30 price cut on Microsoft's Xbox (from $179.99 to $149.99) is causing a significant pickup in Xbox hardware sales. The firm believes that hardware price cuts (firm also expects Sony to cuts its PS2 price), combined with the upcoming E3 trade show, will likely prove to be near-term catalysts for video game stocks. The firm raises their targets for ATVI to $18 from $16, ERTS to $60 from $57, THQI to $23 from $20, and TTWO to $40 from $37.

Hot Items - Check out the "Hot Items" page (updated daily)


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Disclaimer: Due to the nature of the Internet, RobBlack.com and Goodwyn, Long & Black (GLB) does not make specific trading recommendations or give individualized market advice. Information contained in this publication is provided as an information service only. RobBlack.com and (GLB) recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, readers should be aware that GLB, its employees and affiliates may own securities that are the subject of reports, reviews or analysis within this publication. We obtain the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall GLB or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. Rob Black and (GLB) carry positions in many of the names reported on. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. RobBlack.com and Goodwyn, Long & Black Investment Inc. relies on information provided by corporations, news services, in-house research, published brokerage research, Edgar filings, and also may include information from outside sources and interviews conducted by ourselves. Readers should not rely solely on the information contained in this publication, but should consult with their own independent tax, business and financial advisors with respect to any investment opportunity, including any contemplated investment in any security.

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From Briefing.com: 6:09PM Wednesday After Hours prices levels vs. 4 pm ET: After months of relatively eventless extended sessions, investors finally have something to chew on - earnings pronouncements from heavy hitters like Yahoo! (YHOO) and Dell (00C0). All of the numbers have been noticeably ahead of analyst estimates, putting an end to the regular session's dismal mood. Presently, the S&P futures are at 1148, 9 points above fair value, and the Nasdaq 100 futures are at 1502, 17 points above fair value.

The below table lists those and other notable news items, as well as the stocks' reactions:

After Hours Mover % Change Move Reason for Move
Allstate (ALL) +1% Insurance company issues better than expected Q1 (Mar) EPS guidance; Sees EPS at $1.38-1.42 as compared to the Reuters Research consensus estimate of $1.16; Cites 'higher property-liability earned premium, lower claims due to favorable auto and homeowners loss frequency trends, and lower catastrophe losses'
Dell (DELL) +3% Personal computer maker raises its Q1 (Mar) revenue outlook by $200 mln, putting projections at $11.4 bln versus the Street estimate of $11.2 bln; Dell continues to expect EPS at $0.28, in line with the market expectation; The company only reaffirmed its Q1 outlook during its regular mid-qtr update on Feb 12, and this upward revision should serve as a source of support for the Nasdaq tomorrow
Electronic Arts (ERTS) -1% Video game maker's President & COO (John Riccitiello) resigns effectively immediately to start a private equity business; Larry Probst will continue as CEO and assume interim responsibility for Riccitiello's duties while the company evaluates candidates; News comes right after Merrill Lynch downgraded ERTS to Neutral from Buy - citing valuation - today
Genentech (DNA) +3% Biotech giant shows considerable upside to the consensus top and bottom-line estimates in its Q1 (Mar) report; On conference call, says EPS growth of 20-25% in FY04 (Dec) is 'possible;' Briefing.com has been positive on DNA since early July, and the stock has advanced 45%
Research in Motion (RIMM) -3% Designer of wireless solutions surpasses the Q4 (Feb) Reuters Research EPS estimate by $0.06 on revenues that rose 37% to $210.6 mln; Also announces a 2-for-1 stock split; Issues upbeat EPS guidance for Q2 (Mar) and Q3 (Aug); Stock has soared 620% in the past year - leading investors take profits
Yahoo! (YHOO) +10% Internet company tops the Street's EPS estimate by $0.02 in its Q1 (Mar) report; Revenues also impress, spiking 94% to $550.1 mln (consensus of $501.1 mln); Board of Directors also approved a 2-for-1 stock split; On call, Yahoo! guides Q2 (June) revenue to $580-615 mln (consensus of $534.7 mln) and operating cash flow to $210-235 mln; AMZN is up 3% in the after hours

Tomorrow, the market has General Electric (GE) on the earnings calendar along with Abbott Labs (ABT). March same store sales from retailers and two economic reports - weekly initial claims and February Wholesale Inventories - are also on tap.

For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. Heather Smith, Briefing.com

5:39PM Yahoo! raises '04 Free Cash Flow Outlook to $735 mln from $665 mln (YHOO) 48.35 -0.42: -- Update -- Stock up 4.75 to 53.10 after hours

5:37PM Yahoo! comments on outlook (YHOO) 48.35 -0.42: -- Update -- On call, says it expects Q2 revenue, ex-TAC, to be $580-615 mln; expects operating cash flow in Q2 to be $210-235 mln... raising yr-end target for paying relationships to 8.0 mln from 7.5 mln... YHOO +4.73 at 53.08 after hours

4:33PM Yahoo! beats by $0.02, ex items, raises Y04 guidance, approves 2-for-1 stock split (YHOO) 48.35 -0.42: Reports Q1 (Mar) earnings of $0.13 per share, excluding one-time gain from unredeemed third party loyalty program points that expired during qtr, $0.02 better than the Reuters Research consensus of $0.11; revenues rose 94.4% year/year to $550.1 mln, excluding traffic acquisition costs, vs the $501.1 mln consensus. Co also guides, sees Y04 revenues of $2.41-2.52 bln, excluding traffic acquisition costs, vs the R.R. consensus of $2.23 bln. Co's Board approves two-for-one split of co's common stock, payable May 11, 2004 to stockholders of record on April 26, 2004.

5:01PM Dell Computer increases guidance for Q1 (DELL) 34.82 +0.13: Co will raise guidance for Q1 revenue, reiterate expectations for resulting earnings and detail a significant increase in near-term stock repurchases during a meeting with investors, analysts and reporters. Co now anticipates fiscal Q1 sales to reach $11.4 bln, $200 mln higher than guidance Dell provided on Feb.12, Reuters consensus is $11.2 bln. Co continues to expect EPS of $0.28, in line with Reuters. Co expects to spend about $1.1 bln to repurchase common stock during a 3 month period, up from a planned $600 mln.

4:29PM Research In Motion earnings color (RIMM) 107.98 -1.80: -- Update -- In company's Dec 22 press release, it issued guidance of adjusted EPS, excluding the patent litigation charge, of $0.45-0.55. Analysts' estimates are on an adjusted basis, and the $0.56 actual compares to the adjusted, ex items Reuters consensus of $0.50. RIMM also issued GAAP guidance, which included the patent provision, of $0.30-0.40. RIMM's GAAP actual of $0.46 is comparable to, and exceeds this guidance.

4:26PM RIMM: Speaking to an analyst who covers RIMM; he says they beat by $0.06:

4:23PM Research In Motion beats by $0.06 (RIMM) : Reports Q4 (Feb) adjusted earnings of $0.56 per share, $0.06 better than the Reuters Research consensus of $0.50; revenues rose 36.8% year/year to $210.6 mln vs the $207.0 mln consensus. Company sees Q1 EPS of $0.56-0.66, before the effect of the previously announced 2 for 1 split, vs Reuters consensus of $0.56. For Q2 company sees EPS of $0.64-74 vs consensus of $0.62.

Close Dow -90.66 at 10,480.15, S&P -7.65 at 1,140.51, Nasdaq -9.66 at 2,050.24: The market spent the entirety of the session in negative territory in a reversal of last week's sweeping gains and undermined by a variety of concerns ranging from geopolitical, to corporate, to inflationary... More specifically, Iraq came back into focus due to the conflict's escalation over the last couple of days... Separately, Q1 earnings season got off to a rather uninspiring start with an earnings miss from Alcoa (AA 34.75 -1.75) and a downward estimates revision from Seagate Technology (STX 14.96 -0.63)...
Finally, the price of crude oil rallied (up $1.18 at $36.15/bbl) after the U.S. Department of Energy report indicated that supplies declined 2.1 mln barrels in the week of April 2... Accordingly, the major averages slipped at the onset of the session and spent the bulk of the afternoon drifting sideways with moderate losses... Given the modest volume totals, thought, the last hour of trade proved to be volatile as short-covering and geopolitical rumors lifted the major averages to their session highs, but only to be crushed again as Secretary of Defense Donald Rumsfeld held a press conference concentrated on the escalation of violence in Iraq...

Leadership to the upside was limited through most of the session, including the oil & gas services, and real estate operations groups... Laggards of note were easier to come by and included the retail, chemical, aluminum, casino & gaming, and computer storage sectors... Elsewhere, the bond market was little changed, with the 10-year note down 2/32, bringing its yield up to 4.16%...NYSE Adv/Dec 1610/1687, Nasdaq Adv/Dec 1561/1559

10:48AM Transwitch (TXCC) 2.98 +0.43: Transwitch raised Q1 guidance after the close on Tuesday. The designer of VLSI (very large-scale integration) semiconductors for the telecom and networking equipment markets forecast revenue of $7.5-8.0MM (+83.0-95.2% Y/Y) vs. prior guidance of $6.5MM and Reuters Research consensus at $6.5MM.

Management cited strong demand across product lines. The company exited Q1, which ended March 31, 2004, with a book-to-bill greater than 1.0.

TXCC shares are, based on our inverted EVA / DCF model, priced for sustained lower 20% revenue growth from C06 assuming steady Y/Y improvement to 25% operating margin.

Revenue growth expectations reflect the company's numerous design wins, including over 74 for ethernet over SONET products, and are in-line with market forecasts for the semiconductor industry and TXCC's end markets. The majority of design wins are from the company's 400 existing customers and are expected to go into production over the coming quarters but TXCC is not expected to reach profitability until 2005. Operating margin reflected in our model is above management's near-term target of 13-15% and below historical peak of 35%.

Shares trade at a premium to peer group. The following table shows price multiples and Y/Y growth rates for TXCC compared against direct comps and the semiconductor components group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Transwitch (TXCC) 4.1 3.6 11.4 9.1 6.8 42.5% 24.7% 34.8%
Applied Micro Circuits (AMCC) 13.1 2.1 18.3 14.8 8.4 (6.9%) 26.6% 76.8%
Cirrus Logic (CRUS) 3.5 (23.6) 3.4 3.5 2.8 (32.3%) (25.0%) 22.2%
Broadcom (BRCM) 4.4 (22.0) 8.1 5.4 4.6 48.7% 50.3% 16.3%
LSI Logic (LSI) 1.8 (17.5) 2.1 1.9 1.6 (6.8%) 15.2% 12.2%
STMicroelectronics (STM) 2.1 66.1 2.9 2.4 2.1 14.6% 21.9% 12.3%
Intel (INTC) 3.5 17.3 6.0 5.2 4.7 12.6% 14.7% 10.9%
Semiconductor Components 3.0 55.0 4.7 14.7%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

Shares enjoying relatively strong investor support on positive outlook and strong business momentum but upside is limited for this name unless management materially accelerates sustainable growth, improves operating margin and achieves profitability. We would wait for at least a 15-20% pullback before revisiting TXCC. LSI and STM are more reasonably priced names.--Ping Yu, Briefing.com

9:24AM Seagate Technology (STX) 15.59: Seagate Technology lowered Q3 guidance after the close on Tuesday. The manufacturer of hard disc drives for computers and consumer electronics guided for EPS of $0.06-0.08 vs. prior guidance of $0.20-0.30 and Reuters Research consensus at $021.

Management cited supply imbalance and the company's more concentrated customer base for the lower guidance, which comes despite the company having confirmed Q3 guidance to the low end of expectations on March 2, 2004. At that point, management attributed the revised forecast to lower than expected shipment of hard drives into the enterprise and mobile markets.

The following table shows Q2 industry shipments in millions of units, management's initial, revised and current expectations for the total available market, and estimated market share by segment. Segment Q2 Shipments Guidance Mkt Share
Initial as of 03/02 Current as of 03/02 Current
Personal Storage 53.0 47-48 47-48 46-47 32-34% 31%
Mobile Storage 16.3 16-17 14-15 13-13.5 10% 8%
Enterprise Storage 5.8 5.5 5.0 5.2 46-47% 48%
Factoring in today's weakness, STK shares have declined over 22% since the company's Q3 guidance (Story Stocks, March 3, 2004) when we advised investors to hold off buying shares until after a 10-15% pullback. Shares are down over 36% since the Q2 preview (Story Stocks, January 20, 2004) when we first advocated waiting for a pullback, citing competition and valuation concerns.

Shares are now, based on our inverted EVA / DCF model, priced for sustained lower teens revenue growth from F06 assuming flat operating margin.

The following table shows price multiples and Y/Y growth rates for STX compared against peers in the computer systems and peripherals group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Seagate Technology (STX) 0.8 8.1 1.1 1.1 1.1 3.0% 0.2% 2.6%
Maxtor (MXO) 0.4 14.3 0.5 0.5 0.5 8.1% 5.0% 5.5%
Western Digital (WDC) 0.6 11.8 0.8 0.8 0.8 18.9% 9.2% 3.7%
Komag (KOMG) 0.5 5.3 1.6 1.1 1.0 52.8% 43.4% 6.5%
Computer Systems & Peripherals 1.0 19.0 1.4 10.1%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

STX shares trade at a premium to direct comps despite today's pullback. Flip-flop on guidance, poor execution and market share loss weakens management credibility and is likely to dampen investor interest.

We would wait for at least another 15-25% decline, on top of today's pullback, or signs of accelerating growth, stabilizing market share and improving execution before buying STX shares. We would focus on Komag (KOMG 19.08), which is highlighted in the Relative Value Ideas Focus List (Story Stocks, March 1, 2004).--Ping Yu, Briefing.com

8:40AM Electro Scientific Industries (ESIO) 24.80: Electro Scientific Industries posted Q3 results after the close on Tuesday. The provider of manufacturing equipment for the electronic equipment, passive components and semiconductor markets published EPS of $0.34, including $0.18 of tax benefits, on revenue of $58.77MM (+85.8% Y/Y) vs. Reuters Research consensus at $0.12 on $60.22MM.

Semiconductor Group revenue increased 143.6% Y/Y to $37.068MM (63% of sales). Electronic Interconnect Group revenue increased 45.2% Y/Y to $9.140MM (16% of sales). Passive Components Group revenue increased 24.1% Y/Y to $12.562MM (21% of sales).

Gross margin improved Y/Y from a loss to 39.7% vs. guidance for low to mid 40%. Operating margin improved to 7.5%.

Guided for Q4 revenue of $55-65MM (+144.7-189.2% Y/Y) on orders of $60-70MM. Gross margin expected to improve to mid to upper 40%.

ESIO shares are, based on our inverted EVA / DCF model, priced for sustained lower 20% revenue growth from F06 assuming steady Y/Y improvement to 20% operating margin.

Revenue growth expectations are materially above historical performance and runs contrary to the industry's highly cyclical business cycle. Operating margin reflected in our model is above management's target and historical average of 15% but below peak operating margin of 30%.

The following table shows price multiples and Y/Y growth rates for ESIO compared against peers in the electronic instruments & controls group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Electro Scientific Industries (ESIO) 6.6 (32.3) 4.7 3.6 2.4 (24.2%) 42.1% 49.7%
GSI Lumonics (GSLI) 2.0 (124.6) 3.2 2.3 2.2 16.7% 38.1% 6.3%
Cognex (CGNX) 4.8 56.0 10.2 7.6 5.9 31.6% 34.0% 29.0%
Electronic Instruments & Controls 0.9 (110.4) 1.1 3.9%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 02, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 02, 2004.

ESIO shares trade above fair value on a discounted cash flow basis and at a premium to peer group. We would wait for at least a 20-30% pullback, on top of today's decline, before revisiting name.--Ping Yu, Briefing.com

http://finance.yahoo.com/mp/q?tqnt

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U.S. stocks fell after a sales forecast by Wal-Mart and the threat of terrorist attacks raised doubts that the market's rally will continue. Wal-Mart, the world's biggest retailer, said revenue growth will slow this month, raising concern that consumer spending will stall later this year, crimping the economic growth that has underpinned a rise in corporate profits. Reports that terrorist may strike a Paris rail line extended the decline. The Dow lost 38 points (-0.38%) to 10,4429. The S&P 500 shed 1 point (-0.1%) to finish at 1139 led by a decline in health-care and consumer companies. The benchmark is up 29 percent over the past year. The Nasdaq gained 2 points (+0.1%) to 2052. Almost two stocks fell for every one that rose on the New York Stock Exchange. Some 1 billion shares changed hands on the Big Board, 21 percent less than the same time a week ago. Markets will be closed tomorrow for Good Friday. The Dow has shed 0.6 percent, while the S&P 500 is down 0.5 percent this week. The Nasdaq Composite Index has dropped 0.4 percent since last Friday.

Strong Sectors: internet, semiconductor, computer services, insurance, advertising, oil services
Weak Sectors: gold, retail, aluminum, non-metal mining, homebuilding

Top Stories . . . The number of Americans filing initial claims for jobless benefits fell to 328,000 last week, the lowest in more than three years, a government report showed.

Inventories at U.S. wholesalers jumped 1.2 percent in February, the most in four years, signaling that companies may have stepped up production enough to rebuild stockpiles as demand rises.

General Electric, the world's largest company by market value, said first-quarter profit rose 8 percent, helped by acquisitions in health care and consumer finance and orders for industrial goods like plastics and jet engine parts.

Putnam Investments, the sixth-largest U.S. mutual fund manager, agreed to pay $110 million to settle federal and state allegations for failing to disclose improper trading by money managers.

Quotes of Note . . . ``If you want to worry about something, worry about second- half earnings,'' said Greg Tuorto, who helps manage more than $3.5 billion for Guardian Park Avenue Funds in New York. ``People are paying for the future, and not the present.''

Of Note . . . The WSJ's "Heard on the Street" column discusses the Dow Jones Industrial Average "facelift" that begins today. American International Group, Pfizer and Verizon Communications join the 30-stock Dow industrials. They replace AT&T, Eastman Kodak and International Paper. According to the article, betting on the new stocks would have been the wrong way to go the last time the Dow was revised, in Nov 1999. The four stocks that joined the blue-chip average held up for only about four months after they entered. Then, they flopped and, as a group, were eventually overtaken by the stocks they had replaced, the four stocks that were dropped from the index in 1999 have done better. "When stocks are removed it can be the low point and that can set them up to rebound," says Charles Carlson, a money manager. "My sense is that you probably are going to see Eastman Kodak and AT&T do pretty well this year after they get past this little quagmire," Mr. Carlson says.

Eco Speak . . . The average number of weekly filings for state unemployment benefits over the past four weeks fell 3,250 to 336,750, the lowest since November 2000, the Labor Department reported Thursday. Initial claims for benefits in the latest week fell 14,000 to 328,000. The four-week average is considered a better gauge of job destruction trends than the more-volatile weekly number, which is subject to large revisions and which can be distorted by special one-time factors, such as weather.

Financials . . . Bernstein upgrades Allstate to Outperform from Market Perform and raises their target to $58 from $48 after the company raised guidance last night. While their upgrade may be late, they think that the company's pricing discipline and market valuation discipline presents the possibility of some sustainable upside.

T. Rowe Price expects 1st quarter EPS to increase by about 80% versus the $0.31 earned in 1st quarter 2003 which computes to 0.56, just slightly below the $0.57 consensus. 1st quarter revenues are expected to grow 40% which computes to $306.6 million, slightly above $301 million consensus.

SunTrust Banks reported earnings of $1.26 per share, $0.03 better than the consensus of $1.23. Revenues fell 0.2% year/year to $1.46 billion versus the $1.46 billion consensus.

General Electric reported earnings of $0.32 per share, $0.01 better than the consensus of $0.31. Revenues rose 9.5% year/year to $33.35 billion versus the $32.22 billion consensus.

The WSJ's "Ahead of the Tape" column highlights General Electric, which is generating roughly half its earnings from making stuff and the other from financial activities. According to the article, the stock has been muted this year, thanks in part to pressure from arbitrageurs. The bullish case on GE is that as the premier industrial conglomerate in the world, with a dividend yield of slightly more than 2.5%. Its stock is trading at a discount to similarly large companies such as Honeywell and 3M, when looking at earnings forecasts for 2005. And if the credit-ratings concerns didn't downgrade GE last year, the bulls argue, then what chance is there that they will do so now, in a relatively benign financial environment. The bulls contend that the fruits of GE's new growth initiatives will bear out next year. That is, provided there is nothing to upend the finance side of the business between now and then.

Oil & Gas . . . The Baker Hughes international rig count for March 2004 was 799, up 9 rigs from the previous month and up 52 rigs from March 2003. The cycle low for the international rig count was in August 1999 when only 556 rigs were drilling outside North America. The Latin America rig count rose by 9 rigs in March to reach 278 active rigs. The rig count in Latin America was 23% higher in March 2004 than in March 2003. European rig activity (primarily the North Sea) was unchanged compared with activity levels recorded in the prior year’s period. The Middle East rig count was 4% higher in March 2004 compared with March 2003. The African rig count was 41, 25% lower than in March 2003. The Asia Pacific rig count was 183 or 3% higher compared with year ago levels.

South America continues to rebound following a period of major economic and political upheaval in Argentina and Venezuela. The Argentine rig count has rebounded from a low of 44 rigs in April 2002 to 66 rigs in March 2004. The rig count in Argentina was up 3 rigs in March from the previous month. The drilling rig count in Venezuela was up one rig from February to March and stands at 53, above the pre-strike level of 43 active rigs last achieved in November 2002. While Venezuelan oilfield activity should improve from current levels, it will likely do so at a more modest pace and is subject to future disruption if Venezuela’s political situation destabilizes further. Mexico remains the strongest market for rigs and oilfield services in Latin America and we see no signs of a 56 slackening in activity in 2004. Pemex (the national oil company of Mexico) continues to spend heavily on boosting oil and natural gas production capacity and we expect further increases in rig activity there in the months ahead. The rig count in Mexico surged from 79 rigs in March 2003 to reach 107 rigs in March 2004, a year-on-year gain of 35%.

In the North Sea, the Norwegian rig count rose by two rigs from the previous month while the rig count in the U.K. sector increased by three rigs. Norway is showing signs of rebounding from a protracted slump in oilfield activity following recent rig hires by Norsk Hydro and Statoil. The same cannot be said of the U.K. sector of the North Sea, where the drilling slump that began in late 2001 remains very much in evidence today. The number of active rigs drilling in the Danish and Dutch North Sea sectors was flat from February to March. We expect gradually improving activity levels this spring as seasonal drilling picks up.

The Asia Pacific rig count fell by one rig in March after falling by 6 rigs in February. The Middle East rig count rose by 2 rigs after a 6 rig drop in February. The March rig count in Africa was down 7 rigs from the previous month at 41 rigs. Drilling activity offshore West Africa decreased by 5 rigs in March following a 4 rig increase in February. The international offshore rig count was flat with February at 236 active rigs. On a worldwide basis, the international offshore rig count was 13% higher in March 2004 compared with

March 2003.

Transports . . . The Wall Street Journal reports that Ford's chairman and CEO Bill Ford Jr. said it is "unreasonable" for auto makers to expect a return to low gasoline prices in the U.S., and indicated that he is stepping up Ford's commitment to gas-electric hybrid vehicles to improve the efficiency of Ford's U.S. fleet. Mr. Ford said he is basing Ford's product strategy for North America on the assumption that U.S. fuel prices will remain higher than they have been in the recent past. He also expressed support for higher gasoline taxes or tax breaks for fuel-efficient vehicles as a way to curb U.S. demand for gasoline, though he noted measures such as a proposed tax break of $3,000 a vehicle for hybrids could be more palatable to consumers. Mr. Ford said the co will build three hybrid gas-electric vehicles for the U.S. market by the 2007 model year, two sport-utility vehicles and a midsize car. Mr. Ford said he has created a group in Ford's product-development organization to develop more hybrids, and other alternatives to conventional gasoline technology.

Retail . . . CSFB upgrades Jones Apparel to Outperform from Neutral, raises their 2004-05 ests, and raises their target to $42 from $39. The firm believes there is a good possibility that Q1 earnings beats guidance of $0.55-$0.60, and they are confident that momentum in the second half will carry into next year.

bebe stores reports comps store sales up 20.5% versus the consensus of 10.4%. The company sees 3rd quarter EPS of $0.16-0.19 versus the consensus of $0.14.

Healthcare . . . JP Morgan out with a negative note on Cardinal Health saying the recent appreciation in share price places the stock at a premium to historical multiples in relation to the manufacturers, at a time when there is considerable earnings uncertainty going forward. Although the firm believes the company is likely to meet Street consensus estimates as a result of the $1.5 billion in share buybacks instituted over the past twelve months, core earnings growth and the quality of earnings remain at risk as distributors are still transitioning from a buy-and-hold model to a just-in-time model.

Drugs . . . A small study has found an experimental Pfizer drug can more than double the level of "good" cholesterol in the body and may herald a new way of fighting heart disease. The study of six volunteers, funded by Pfizer, found that the drug torcetrapib, given twice a day for eight weeks, boosted the amount of high-density lipoprotein (HDL) by 106 percent. HDL clears "bad" cholesterol from the body. Many scientists believe that raising HDL levels is as important in fighting heart disease as cutting levels of "bad cholesterol", or LDL, although further studies are needed to conclusively show this and some researchers say the benefits of HDL may be overstated.

Abbott Labs reported earnings of $0.57 per share, $0.01 better than the consensus of $0.56. Revenues rose 13.9% year/year to $5.22 billion versus the $5.04 billion consensus. The company sees 2nd quarter EPS of $0.57-0.59 versus consensus $0.59, reaffirms 2004 EPS of $2.40-2.48, consensus $2.46

Barron's Online highlights Eli Lilly suggesting its pipeline is worth a fortune. Having launched several new drugs over the last 15 months, Lilly should introduce two more this year and another three by 2006, including some potential blockbusters. It also doesn't have any major drugs coming off patent for several years. "This is a stock that people need to own," says Trevor Polischuk, an analyst with Orbimed Advisors. "Historically, when pharmaceutical co's are undergoing a new product cycle, you always see share price movement." "Eli Lilly has by far the best sales growth prospects among U.S. major pharmaceuticals over the next five years," analyst David Risinger of Merrill Lynch wrote last week when he upgraded the stock to Buy from Neutral. Lilly's stock changes hands at 23.6x estimated earnings of $2.94 over the next four qrtrs, below its median P/E multiple of 26.2x forward earnings, according to Baseline Thomson Financial. The shares trade at a premium to the Standard & Poor's 500 index and the drug industry, but based on 2005 consensus earnings estimate of $3.32 per share, Lilly's P/E growth ratio is 1.49x, which falls below the group average (excluding Schering-Plough), according to Morgan Stanley. Merrill Lynch's Risinger says it should fetch 24x his expected 2005 earnings of $3.31 a share, which suggests a share price of 80 in the next 12 months.

Biotech . . . Analysts neutral to positive after Genentech posted strong Q1 results, exceeding consensus estimates. Although the recently approved Avastin seems to be off to a good start with sales of $38.1 million versus $26 million consensus, the company's other major drug Rituxan fell short of expectations on lower inventory and temporary disruption in usage with start of Medicare cut in 1/04. Also, the sales of Rapitva was below consensus with $9 million versus $6 million, respectively. Lehman noting that although they see upside to DNA guidance of 20-25 pct growth in 2004 EPS, they believe the upside is more than accounted for in the current valuation.

Genentech reported 1st quarter 2004 adjusted non-GAAP EPS of $0.38, above estimates of $0.31 and consensus estimate of $0.32. This was largely driven by lower than expected expenses. Of note, Avastin sales of $38.1 million exceeded our estimate of $29.5M and consensus estimate of ~$27 million. Furthermore, Rituxan sales of $401 million were ~$20 million lower than estimate and consensus estimate of ~$420 million as a result of lower inventory levels (~$8 million) at distributors and initial caution among physicians due to new reimbursement rates under Medicare (95% AWP to 81% AWP). Genentech increased adjusted non-GAAP EPS from a minimum of 20% year/year growth to 20% to 25% year/year growth (implied EPS of $1.44 to $1.50). Anlaysts have increased 2004 Avastin estimate from $295 million to $350 million and decreased US Rituxan estimate from $1.61 billion to $1.57 million. 2004 EPS remains unchanged at $1.58 after these adjustments and reflects 1Q04 reported earnings. On a P/E and P/S basis, Genentech continues to trade at a significant premium to the group (68x 2004 EPS vs group average of 38x and 16x 2004 sales vs group average of 8x). Expect pipeline and Avastin news flow to

continue to drive Genentech shares. Upcoming events include results from the Phase III Tarceva monotherapy refractory NSCLC trial in partnership with OSI and Roche in early 2Q04 and multiple presentations at ASCO in early June.

Hotel & Leisure . . . Buckingham downgrades Ameristar Casinos to Neutral from Strong Buy based on valuation as well as increasing legislative risks facing the company's Council Bluffs property, particularly in the form of potential new competition across the river in Omaha, Nebraska, The firm says the legislative drive to put a casino referendum on the Nov ballot in Nebraska has heated up and passage of a bill could occur as soon as next week, and they think the legislative issues in Nebraska and Iowa will rightly take center stage and could pressure the stock over the near-term and provide an overhang on the stock until November.

Media . . . Wedbush Morgan upgrades Infospace to Buy from Hold, raises their 2004-05 ests well above consensus, and raises their target to $48 from $38; firm believes that mgmt has been ultra-conservative with guidance for the Moviso acquisition, and demand for media downloads such as ringtones continues to increase at a rapid pace; also, given Yahoo's positive earnings announcement yesterday and bullish comments regarding its search biz from the Overture acquisition, they believe there is upside in INSP's Search & Directory segment; in addition, firm is now less skeptical that INSP will be able to monetize the Switchboard acquisition.

XM Satellite announced that Saab will offer XM Radio in its vehicle models, beginning with the brand-new 2005 Saab 9-7X sport utility vehicle.

Yahoo! reported impressive quarterly results, demonstrating particularly strong growth in all aspects of online advertising. Organic revenue growth in the core marketing services division increased 48% with strong contributions from both search and branded advertising. Revenues excluding TAC increased 91% to $550m, or 41% organically. EBITDA jumped 125% to $201m, and FCF reached $197m, bringing the trailing 12-month total to $500m. EPS beat expectations by two cents, coming in at $0.13 excluding a one-time gain from unredeemed third-party loyalty programs. The number of unique users continued its steady ramp in the quarter, to 274m globally. The number of unique paid relationships nearly doubled year-over-year to 5.8 million, further building a pipeline for future growth. Importantly, the ratio of operating cash flow to gross profit was 50%, demonstrating the impressive leverage in this model. Analysts are raising estimates reflecting the strong momentum in the quarter and management's new guidance. For 2004 expect revenues ex-TAC, EBITDA, and EPS of $2,490m, $912m, and $0.62, respectively. For 2005 re tweaking up expectations to $3,040m in revenues, $1,038m in EBITDA, and $0.78 in EPS. Analysts are encouraged by the strong revenue growth, the impressive operating leverage and the many data points that suggest this growth should continue. Upward revisions in earnings may create some near-term upside to the stock, although meaningful outperformance may be limited by valuation.

The Yahoo! analyst community is positively surprised by the amount by which Yahoo managed to exceed even the most optimistic estimates and the magnitude of positive guidance for 2004. Although no upgrades, most firms are raising their price targets. CSFB out saying they believe that Yahoo represents an attractive investment opportunity as faster than expected recovery in the online advertising market and stronger than expected share gains encourage them to raise estimates and price target to $65 from $57. Goldman out raising their target to $60 from $55 noting they think Yahoo! could trade at a 2005 P/E of 45-50x. They do note that positive online ad trends should benefit others but not to the magnitude of Yahoo's growth rate as they think Yahoo! is gaining share of branded advertising and b/c the upside in revenue relative to their estimate was driven by paid for search, which is not a driver of their other covered companies including CNET, DCLK and RNWK. Deutsche reiterating their Buy rating and expects the stock to trade up to the mid-$50 range in the near term and would be buyers at current levels. Prudential being the most conservative saying that although it appears that many of the company's businesses are performing nicely, at current valuation, they recommend that investors wait for a more attractive entry point. The firm is reiterating their Neutral rating, while raising target to $55 from $45.

Telecom . . . The Washington Post's technology section reports that the Federal Communications Commission is prepared to rule against AT&T's request that it be exempted from paying local telephone company's hundreds of millions of dollars in fees because the long-distance calls traveled partly over the Internet. According to the article, the decision could prove costly for AT&T, which has withheld some payments to regional telephone co's for as long as two years, claiming that calls carried for even short distances over the largely unregulated Internet should not be subject to traditional phone fees. A majority of at least three of the agency's five commissioners has voted to reject AT&T's argument, sources at the agency confirmed yesterday.

Wavecom and Orange announce a strategic partnership between the two companies to provide a joint machine-to-machine industry solution. The agreement calls for co-marketing and co-selling the first end-to-end communication and development platform for wireless M2M applications, encompassing Orange's M2M Connect platform and a fully compatible M2M module from Wavecom.

Electronics . . . Avnet announced that its sales and earnings, excluding a charge associated with the early extinguishment of debt, for 3td quarter (Mar) will exceed the high end of previous guidance. Sales for the quarter are estimated to be approximately $2.64 billion (previously $2.5-2.6 billion) and EPS, excluding a charge associated with the early extinguishment of debt, is expected to be in the range of $0.27-0.30 (previously $0.22-0.25), consensus is $2.56 billion and $0.25, respectively .

Network Equipment . . . Smith Barney recommends that investors buy Advanced Fibre ahead of its April 28 earnings report, as they believe that stronger than expected narrowband demand (primarily from Verizon) could allow the co to exceed their forecast. The firm also believes that AFCI has seen a significant uptick in orders for narrowband blades in 1st quarter from Verizon, which is especially constructive for the qtr's outlook, considering that narrowband contributes roughly 65% of AFCI's revenues. Maintains Buy rating and $30 target.

UBS upgrades Lucent to Neutral from Reduce and raises its target to $4.30 from $3.75 due to further strengthening of its wireless business, particularly in the US. The firm's checks suggest strong wireless momentum for Lucent, in part driven by aggressive network upgrades by Verizon and Sprint PCS. The firm maintains 2nd quarter EPS estimate at $0.04, but raises revenue estimate to $2.25 billion from $2.15 billion. 2004-05 EPS estimates move to $0.17 and to $0.22 from $0.15 and $0.20, respectively. The firm remains concerned about Lucent's large healthcare obligations for union retirees, which they see as a major overhang in the stock value if not addressed.

Research In Motion reported another solid quarter aided by higher than expected gross margin, although the magnitude of upside was not as great as in the past. There are a number of positive catalysts ahead for RIM, including geographic and carrier expansion, new products, BlackBerry Connect licensees’ launches, BlackBerry Web Client's growth, and a lack of competition. On the other hand, concerns include 4th quarter’s earnings quality, an inability to accurately forecast growth, and potential conflict between RIM's hardware and licensing businesses. While RIM's growth potential remains strong with multiple catalysts, Bear Sterns maintains a Peer Perform rating saying that stock is fully valued. The company's revs of $210.6 million came in just a tad above CIBC's $210 million estimate, and gross margins of 49.1% were 210 bp ahead of estimate due to a better mix of revenues. The firm is raising target to $150 from $115. Merrill Lynch increases estimates due to greater forecast demand and enhanced profitability; for 2005 goes to $2.95 from $2.82, for 2006 to $3.40 from $3.29 and rev estimates for 2005 to $1.16bn from $1.13bn and for 2006 to 1.38 billion from $1.34 billion. The firm reiterates Buy rating and increases price target to $121.

Storage . . . Consistent with risks we've highlighted in the drive industry, STX pre-announced March quarter shortfall at EPS of $0.06-$0.08 vs. previous guidance at the “low end” of $0.20-$0.30. While Maxtor and Western Digital have not pre-announced shortfalls and their results may not be as weak as Seagate's, the near-term risks for the industry remain -- seasonally soft demand and no supply constraints. Seagate cited desktop and notebook (slightly lower demand and inventory corrections) segments as the reasons for shortfall. While Seagate's desktop channel inventories are down from 7.5 weeks in 4th quarter to 4 weeks, caution that there's risk to near-term industry conditions -- June quarter is seasonally soft, there're no supply constraints, and there's more competition in mobile/enterprise. Given the cyclical nature of the industry, investor focus for the group should be on the change at the margin -- i.e., when earnings forecasts stop trending lower. As for collateral impact, while investors have focused on component pricing like DRAM firming, other areas (LCDs/Drives) are trending down -- higher degree of competition in hard drives is positive for the PC/Enterprise vendors. Analysts are lowering estimates on STX for 2004 (June) from $1.20 (vs. $1.43) to $0.93 and for 2005 from $1.05 to $0.60. For the March quarter, our estimates are at $0.07 (vs. $0.37) in EPS (in-line with Seagate's $0.06-$0.08 preannouncement) and revenues of $1.4 billion. Given the sharp declines in Seagate's revenues/profits, the company could take restructuring actions in the near-future.

Boxmakers . . . Dell modestly raised April Quarter revenue guidance to $11.4B from $11.2B yesterday ahead of this morning's analyst meeting. According to mgmt, the upside was driven by international markets and all product lines. The company also boosted April Quarter share repurchase to $1.1 billion from $600 million, slightly more than 100% of cash flow from operations. Smith Barney raises 2006 EPS estimate to $1.50 from $1.45 to reflect the likelihood of continued declines in tax rate as international becomes a larger part of the mix and accretive share repurchase. The firm also increases price target to $38 from $36, reiterates Hold. First Albany increases revenue estimate to 11.4 billion from 11.3 billion, maintains their EPS est of $0.29 (a penny above the consensus), but lowers gross margin est slightly. The firm sees three factors that could cause EPS to round up: 1) strength in international (lower tax rate) and enterprise (higher margins); 2) impact from the higher share buyback; 3) any additional revenue upside. Analyst reiterates Buy and remains price target at $40.

UBS maintains their Buy rating on Lexmark, raises their 2004-05 estimates above consensus, and raises their target to $107 from $98; firm cites: 1) continued benefits from the Dell OEM agreement, 2) relatively stable hardware ASP's near-term, 3) prospects for higher consumable sales, and 4) stable to increasing market share for LXK-branded products.

Semiconductors . . . The San Jose Mercury News reports Intel and National Semiconductor said they will take steps to remove the metal lead, which has been a main ingredient for decades in chip making. Lead, which can seep out of old, discarded computers into ground water, can cause a host of problems, including learning disabilities in children as well as neurological and reproductive disorders. Beginning this year, Intel will eliminate 95 percent of the lead used in its microprocessors and chip sets. National Semiconductor will offer lead-free packages for its complete line of chips. Currently, 90 percent of its analog and mixed-signal chips are available in lead-free packages.

RF Micro Device confirmed March 2004 quarterly revenue guidance in an interview Wed afternoon with Reuters. The company anticipated March quarterly revenue will be at high end of range of approx $152-163 million (originally provided in its Jan. 20) versus the Reuters Research consensus of $160.9 million.

The WSJ reports that Japan's Fair Trade Commission raided the Japanese offices of Intel on Thursday on suspicion the company pressured PC manufacturers not to use its competitors' products, a commission official said. Regulators suspect Intel improperly urged clients not to include CPU's, the key chip in PC mother boards, manufactured by Advanced Micro Devices and other company's, said Masaru Matsuo, a manager at the Fair Trade Commission. The raid began Thursday morning and continued into the afternoon, Mr. Matsuo said. The commission investigated three of Intel's locations throughout Japan including the Tokyo headquarters, an Intel spokeswoman said on condition of anonymity.

CIBC is cutting Powerwave’s 1st quarter estimates for revs to $63 million (previously $75 million) and EPS to a loss of $0.06 (previously a loss of $0.01), which is at the low end of mgmt guidance, Reuters consensus is $69 million and a loss of $0.02, respectively. Also cutting 2004 revenue estimate to $301 million (previously $313 million). Firm believes that potentially 15% of the revs are at risk due to the AT&T Wireless/Cingular Wireless merger and that reduced cap-ex spending in certain markets for both carriers has affected revs. Normal seasonal softness with the OEM channel in the March Quarter, coupled with some ramping issues at NOK (SP), may have also affected 1st quarter sales. The firm remains concerned that gross margins continue to be under pressure and cite significant ASP erosion on GSM products for Nortel (SP) as an example.

Intel will report 1st quarter 2004 results on Tuesday 4/13 after the market close, and will host a conference call at 5:30pm ET. Analysts are forecasting revenues of $8.20 billion (down 6.2% Quarter over Quarter), at the high end of the mid-quarter guidance range of $8.0-$8.2 billion (mid-point down 7.3% Quarter over Quarter). Analysts are estimating gross margin at 60.8%, also at the high end of the guidance range of 60%+/-1%, and EPS of $0.27. Based on recent informal checks with motherboard makers, expect shipments to decline by about 7-8% Quarter over Quarter in 2nd quarter 2004, slightly lower than our prior forecast of 5%, due to incremental weakness on the clone side. This is in line with a normal seasonal decline of 5-10% for 2nd quarter. On the notebook side, recent datapoints continue to indicate that excess channel inventory has cleared and demand is picking up. Based on the incrementally lower motherboard outlook, we are trimming our 2nd quarter 2004 estimates for Intel. Analysts are now forecasting revenues of $8.050 billion (-1.8% Quarter over Quarter), versus $8.125 billion previously. Note that we expect a sequential revenue change better than the past-five-year average of a 2.5% QoQ decline. Estimate gross margins to increase to 62.2% in 2nd quarter as the 300mm/90nm ramps continue. Analysts have adjusted our full-year gross margin assumption slightly from 63.7% to 63.5% as the 90nm ramp appears to be progressing at a slightly slower pace than expected, and also in part due to the tweaking of our revenue estimate. This does not have a material impact on our estimates however and we would highlight that gross margin, at 63.5%, remains above company guidance and consensus of 62%.

Software . . . Intuit reported Turbotax unit sales for the period ending April 3, where total unit sales came in at +8% Year over Year and direct came in at -8% Year over Year. JP Morgan expected units to decline, and said +8% unit growth is at the lower end of their unit target of 8-10% in order to reach their revenue estimate of 15% Year over Year for Consumer Tax for the tax season. While firm continues to believe that INTU is tracking to reach their revenue estimate for the quarter and the season, they estimate that the co is now at 0% unit growth for qtr, and the steady decline of unit growth over the last several weeks continues to raise questions about long-term growth. Maintains Neutral rating.

JMP Securities upgrades Hyperion Solutions to Market Perform from Underperform and raises their 2004-05 EPS estimates slightly above consensus. While they continue to have long-term concerns about HYSL's Essbase business and lack of a unified architecture, checks have revealed a number of positive data points: 1) customers continue to buy Hyperion products, sometimes without even looking at the competitive alternatives; 2) checks uncovered a number of data points where sales representatives had made their 3rd quarter numbers and felt good about their visibility on their numbers for Q4; and 3) firm believes that the overall demand levels for business intelligence and budgeting projects are increasing substantially. Firm also believes that some of the competitive pressures they had expected in 2004 have abated, at least in the near-term.

WR Hambrecht says that the departure of Electronic Arts Pres and COO Mr. Riccitiello is a clear loss, "unspinable" as anything else, even by the frothiest ERTS bulls, a deep management bench should allow the company to absorb the loss without major disruption. The firm expects solid 4th quarter (Mar) results and 1st quarter (Jun) guidance well above consensus as just two of several upcoming catalysts. The firm views recent weakness as an opportunity and thus reiterate its Buy rating and $59 price target.

The Wall St Journal reports that the former CFO of Computer Associates has agreed to plead guilty today to at least two criminal charges in the federal probe of the company's accounting. Mr. Zar would become the highest-ranking officer yet charged in the continuing probe of CA. Prosecutors have spent at least two years examining whether the co lied about its accounting to boost results. The pleas would bring to four the number of high-ranking finance executives netted in the probe, which has lasted more than two years.

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SENTIMENT JOURNAL: Fear Turns to Greed
By Frederic Ruffy, Optionetics.com
4/9/2004 10:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10208

Market Internals: Stocks traded relatively quietly to finish an abbreviated week of trading almost unchanged. The Dow Jones Industrial Average ($INDU) rose twice and fell twice to finish 38 points lower. US financial markets are closed Friday in observance of Good Friday. For the week, internals were mixed, but deteriorated as trading progressed. Up volume lagged down volume Tuesday through Thursday. Similarly the ratio of advancing to declining issues was negative during four trading sessions. By Thursday, the ratio was almost two-to-one negative. Meanwhile, the NYSE New High-New Low Index slipped from +305 to +133 (with 154 stocks setting new 52-week highs and only 22 setting new 52-week lows.)

The Nasdaq Composite Index ($COMPQ) rose two times and fell twice to finish the week down less than five points. Market internals were mixed, but positive overall. The ratio of up to down volume, for instance, stayed positive during three of the week’s four trading sessions. Internet stocks helped keep the Nasdaq steady, but weakness in biotechnology, semiconductor, and computer stocks kept a lid on any advance. Overall, trading was quiet and daily Nasdaq volume remained below 1.8 billion shares during every trading day this week.

Sentiment Data: As one might expect, the short and uneventful week of trading did little to change market sentiment. Overall, it appears that, after a brief episode of bearishness, pessimism, and even fear during mid-March, investors are once again bullish towards the outlook for stocks. For instance, Investors Intelligence survey reports that 48.5% are bullish and only 22.8% are bearish. Similarly, the American Association of Individual Investors [AAII] survey now reads 58.8% bullish and only 20.3% bearish.

The CBOE Volatility Index ($VIX) fell to low levels earlier this week. On Monday, the market’s “fear gauge” fell below 15 for the first time in nearly a month. At the same time, the Nasdaq QQQ Volatility Index ($QQV) has fallen to new all-time lows. This index measures the implied volatility of the actively traded Nasdaq 100 Index options. The recent drop indicates that traders expect volatility in the technology sector to remain low going forward, which would only happen if sentiment is bullish and perhaps complacent.

Elsewhere in the options market, trading activity also suggests investors remain optimistic. The CBOE put-to-call ratio finished the week at .74 and squarely in neutral territory. This indicator flashes a warning signal when it drops below .50 and triggers a bullish alert when it moves above 1.00. The ratio failed to trigger any alerts in the latest week of trading. However, the International Securities Exchange Sentiment Index [ISEE] rose to high levels earlier this week. On Tuesday, the index rose to 252 and its highest level since January 2004. The high reading indicates that there was 2.5 times more call than put purchases on the largest US stock options exchanges. The heavy call buying, in turn, is another sign that the extreme bearish sentiment that hit the market in mid-March has dissipated, and paved the way for another period of time characterized by optimism, bullishness, and perhaps even greed.

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MORNING WATCH, Apr. 12
By Frederic Ruffy, Optionetics.com
4/12/2004 6:15:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10210

Stocks are set to open modestly higher after the three-day weekend. The market was closed on Friday in observance of Good Friday, but stocks may get a lift early this week due to expectations that corporate America will deliver upbeat earnings news during the second half of April. As a result, forty-five minutes before the opening bell Monday, stock index futures pointed to a 35-point advance for the Dow Jones Industrial Average ($INDU) and a 7-point gain in the Nasdaq Composite ($COMPQ). However, while earnings reports are expected to be in focus, trading may turn a bit cautious due to ongoing violence in Iraq and ahead of a busy economic calendar later in the week.

Earnings are in focus. More than 700 companies report results this week. 60 of the S&P 500 stocks are set to report. Four Dow components release results this week, including Intel (INTC), Johnson & Johnson (JNJ), Citigroup (C), and International Business Machines (IBM). According to recent estimates compiled by Thompson First Call, analysts expect S&P 500 companies to show solid first quarter earnings growth in excess of 17%.

In addition to earnings, traders will also be watching events unfold in Iraq. Escalating violence between US troops and Iraqi insurgents is causing the numbers of casualties to mount. According to recent reports, more than 600 Iraqi, including many civilians, have died in the past week. At least 60 US soldiers have been killed since April 4. Ongoing violence and the prospect of a prolonged war in Iraq could have important political and economic consequences for the United States, which could also impact market sentiment.

In economic news this week, The Federal Reserve Bank of Kansas City releases its March manufacturing survey at 11:00 a.m. ET. At noon, the Federal Reserve Bank of Chicago releases its Midwest Manufacturing Index for February. Neither report is expected to garner a great deal of attention. However, the economic calendar picks up later in the week with key reports on manufacturing, industrial production, and consumer sentiment due out Wednesday through Friday.
Semiconductor stocks are likely to be active ahead of key earnings reports due out during the next few days. Novellus Systems (NVLS), a maker of equipment used to build computer chips, reports its quarterly results after the close of trading today. Intel, the world's largest chipmaker, reports results on Tuesday. Advanced Micro (AMD) and Texas Instruments (TXN) report on Wednesday. Call options on semiconductor companies like Novellus (NVLS), Asmel (ASML), and Linear Technology (LLTC) traded actively last week ahead of the earnings.

Elsewhere in the options market, there have been signs that traders were growing a bit more cautious last week. For instance, the CBOE Volatility Index ($VIX) has risen during the past three trading sessions and, after dipping below 15 on Monday, is now back above 16.3. The rise in the market’s so-called “fear gauge” indicates that, while investors expect corporate America to post strong quarterly earnings this week, a busy economic calendar, events in Iraq, and Friday options expiration might also add to market volatility.



Frederic Ruffy
Senior Writer
Optionetics.com ~ Your Options Education Site

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VXO, VIX vs SPX and SOX on 5 Year Weekly Charts:

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From Briefing.com: 10:36AM Nasdaq Composite probes resistance at 2066/2068 (COMPX) 2068 +15.7: -- Technical -- The index extended the opening push in recent trade with resistance mentioned in The Technical Take in the 2066/2068 area tested. Intraday support is at 2063/2060. Next resistance if able to work through the early high is at 2075/2077 (last wk's highs/range top) followed by congestion near 2085 with the Feb high/congest/retrace barrier at 2094/2100.

10:30AM SNDK started with Buy ratings at CE Unterberg 32.75 +0.08: CE Unterberg initiates coverage of SanDisk (SNDK) with Short-Term Buy/Long-Term Buy ratings and a $40 target; firm believes that potential upside to 1H04 exists due to virtually no price erosion in Q1 followed by seasonally strong Q2 revs.

9:11AM Aeroflex and Boeing Sign 5-year Deal for Development of Advanced Network Technology (ARXX) 15.7:

9:07AM UTStarcom signs $40 mln contract with China Telecom (UTSI) 29.85: Co announced a new contract valued at apprx $40 mln with China Telecom (CTC) to expand and optimize its IP-based PAS (Personal Access System) network in China's Jiangsu Province. Under the terms of the contract, iPAS networks will be expanded in seven cities in the province. UTSI will also extend its mSwitch-based iPAS core network in two cities and the value-added services (VAS) platform for the entire province.

8:10AM Advanced Micro settles patent suit with Intergraph (AMD) 17.00: Company has settled patent claims with Intergraph Corp. relating to AMD's microprocessors. Under terms of agreement, AMD will receive a license under Intergraph's "Clipper" microprocessor patents and the patent lawsuit in U.S. District Court for Northern District of California will be dismissed. AMD will pay Intergraph $10 mln, plus 2% of profits from its microprocessor sales for three years (2005-2007); payments are capped at $5 mln per year and total of all payments under agreement are capped at $25 mln.

8:08AM Wal-Mart reaffirms April comps forecast (WMT) 56.69: Co said it still expects April sales at U.S. stores open at least a year to rise in the range of 4-6%, and said Easter sales were ahead of its expectations.

7:34AM Komag guides higher for Q1 (KOMG) 18.45: Company issues upside preannouncement for Q1 (Mar), revenues to exceed $118.2 mln, consensus $116.88 mln.

7:31AM Standard Micro reports in line, guides Q1 in line (SMSC) 27.1: Reports Q4 (Feb) earnings from continuing operations of $0.17 per share, in line with the Reuters Research consensus of $0.17; revenues rose 22.3% year/year to $52.1 mln vs the $52.4 mln consensus. Co also guides Q1, sees EPS of $0.13-0.17, vs the R.R. consensus of $0.14, and revenues of $51-55 mln, vs an estimate of $53.2 mln.

7:12AM Intel upgraded at ThinkEquity (INTC) 27.37: ThinkEquity upgrades Intel to Overweight from Equal-Weight in anticipation of significant margin expansion throughout 2004; while firm is not advocating that investors buy with an anticipation of big Q1 results or even positive Q2 guidance, they say the recent correction from overly optimistic models have been based on stale news/concerns (e.g. Dothan delay); firm's key assumption is that the materiality of this bad news is largely behind Intel and leverage will return as 300mm production ramps. While Intel is not cheap, firm says the stock is attractive given that it is trading at 18x their 2005 EPS est, and that despite record rev and earnings, the stock has already underperformed its peer group.

6:54AM Nanotech label is overused - NY Times : The NY Times reports that on Thursday, investment firm Asensio & Company faxed a letter to Eliot Spitzer, the New York attorney general, charging that misuse of the nano label has become a favorite tactic for fraudulent stock promotion. Asensio asked Mr. Spitzer to investigate Merrill Lynch for including many co's that have little or nothing to do with nanotechnology in an index of 25 publicly traded nanotechnology co's that Merrill introduced on April 1. "Investors are being harmed on a daily basis," said Manuel P. Asensio, chief executive of the investment firm. Juanita Scarlett, a spokeswoman for Mr. Spitzer, said that the office's first step in response to such a request would be an informal inquiry.

6:42AM BEA Systems and Veritas Software join forces to take on software giants - WSJ : The Wall Street Journal reports that BEAS and VRTS are teaming up to defend their mkt positions against IBM, Oracle, and other software-industry giants. Today, the two are expected to announce an engineering and marketing alliance that will package together their major products. Their joint offering for "utility computing," one of this year's hottest technology trends, is intended to help customers manage clusters of low-cost computers as a single system. The integrated products are expected to be available in the second half of the year.

6:38AM Microsoft settles InterTrust suit for $440 mln - NY Times (MSFT) 25.48: The New York Times reports that Microsoft plans to announce today that it has reached a $440 mln legal settlement and licensing deal with the InterTrust Technologies, a private co and a pioneer in the development of software to protect digital music and movies from piracy. The InterTrust settlement removes a threat to Microsoft's ability to deliver piracy protection technology in its software products for playing and handling digital media. The technology for digital rights management, analysts say, is crucial for Microsoft's plans to extend its Windows software into the emerging market for legally distributing music and movies over the Internet, in competition with rivals like Apple, RealNetworks, Sony and others.

http://finance.yahoo.com/mp/q?tqnt

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U.S. stocks rose, led by energy- related shares such as Exxon Mobil and BJ Services, as oil and gasoline prices surged. The S&P 500 Index had its first advance in a week. Mounting demand for oil and gas may lift profits for companies that produce and refine the natural resource. Some 750 U.S. companies are scheduled to report earnings this week, including about 60 in the S&P 500. The S&P 500 gained 5 points (+0.5%) to 1145. Energy shares accounted for a fifth of the advance. The DJIA rose 73 points (+0.7%) to 10,515. The Nasdaq added 12 points (+0.6%) to 2065. About the same number of stocks rose and fell on the NYSE. Some 1.08 billion shares changed hands on the Big Board, the slowest day this year. Profits for the S&P 500 members probably rose, on average, by 17.4 percent in the first quarter, according to an analyst poll by Thomson Financial. Analysts began the year with an average forecast of 13.4 percent for the period, Thomson said.

Strong Sectors: telecom, biotech, broadcasting & cable TV, forest product, oil services, chemicals
Weak Sectors: utility, real estate operations, homebuilding

Top Stories . . . Gasoline futures rose to the highest price in two decades of New York trading after the International Energy Agency increased its forecast for global petroleum demand for the sixth straight month.

U.S. Treasury notes fell after San Francisco Federal Reserve Bank President Robert Parry said the Fed's key interest rate has the potential to rise to about 3.5 percent if inflation averages 1 percent to 2 percent.

Microsoft, the world's biggest software maker, agreed to pay InterTrust Technologies $440 million to end a patent dispute and license programs that help fight illegal copying of digital movies and music.

Lockheed Martin, the biggest U.S. defense contractor, delivered 50 C-130J transport aircraft to the U.S. Air Force that have deficiencies, the Pentagon inspector general said.

Gannett, the biggest U.S. newspaper publisher, said first-quarter profit advanced on higher advertising, while New York Times Co. reported lower net income as costs rose faster than sales.

Bottom-line barrage. . . This week, about 750 companies are expected to report earnings, including 57 in the S&P 500. And, the latest reading from First Call is that S&P profits will rise 20%, and perhaps 22%.

Quotes of Note . . . ``Earnings continue to impress in a quarter that was largely anticipated as good. From a general point of view, you're going to have a good year'' in the stock market. Arnim Holzer, chief investment strategist at Deutsche Asset Management, which manages $250 billion in New York. ``

Gurus . . . On the Rukeyser Show, favorable comments on Japan's iShares (EWJ), Harley Davidson, Arch Capital, Isle of Capri, Medicis, Zebra Tech, Apple Computer, SunMicro, and Ameritrade. Guest was Tobias Levkovich, strategist for Smith Barney, who is cautious on the market, envisioning lower prices by year-end. However, he does favor Gillette, Apache, and Anthem. He is under-weighting banks, and says materials could be vulnerable to a China slow-down.

On the Brenda Buttner Show on Fox, recommendations on Magna Entertainment, Sallie Mae, and Silicon Image. And, on the Wall Street Week Show, David Olstein favored Tyco, McDonald's, and Interpublic.

Morgan Stanley's Byron Wien predicts a 20 multiple for the S&P by year-end, which could produce a target of 1280, against Thursday's close at 1139.

Ed Yardeni says he believes the S&P target is 1340, based on 2005 projections.

Barron's highlights the picks of Russ Fuller, a Fuller & Thaler Associates founder and president. Fuller oversees research on about $2.6 bln in assets, mainly small-cap stocks, held in long-short and market-neutral hedge funds; he also watches over two mutual funds, JPM Undiscovered Managers Behavioral Value and JPM Undiscovered Managers Behavioral Growth. Behavioral Value, which has about $50 mln in assets, boasts a five-year return of 22%, versus 16% for the Russell 2000 Value Index. In the same span, Behavioral Growth, which has about $130 mln in assets, was up 5.7%, versus the Russell 2000 Growth Index's 3%. Mr. Fuller's funds own Orthologic, Sola International and Gold Banc. Mr. Fuller thinks that "froth stocks" such as Research In Motion, Red Hat, Mamma.com, and Sento will burst soon, and that the cycle will be much faster compared to 1998-99.

Newspapers . . . Favorable comments in Business Week on Winn-Dixie Stores, NPS Pharma, and Morgan Stanley. The N.Y. Times says soaring plywood prices may dent the housing market, while Crain's Chicago reports the Nextel-Motorola relationship may be unraveling. Barron's is bullish on Japanese stocks, and says that memory chip stocks may be expensive. The technology trader section looks at Quantum Fuel and USHG Corp. Alan Abelson's column is negative on big drug stocks.

Nano-Fraud? . . . The NY Times reports that on Thursday, investment firm Asensio & Company faxed a letter to Eliot Spitzer, the New York attorney general, charging that misuse of the nano label has become a favorite tactic for fraudulent stock promotion. Asensio asked Mr. Spitzer to investigate Merrill Lynch for including many company's that have little or nothing to do with nanotechnology in an index of 25 publicly traded nanotechnology company's that Merrill introduced on April 1. "Investors are being harmed on a daily basis," said Manuel P. Asensio, chief executive of the investment firm. Juanita Scarlett, a spokeswoman for Mr. Spitzer, said that the office's first step in response to such a request would be an informal inquiry.

Dilutive Covertibles . . . The Wall Street Journal's "Ahead of the Tape" column discusses convertible bonds that many company's issued over past several years. For example, Yahoo's shares outstanding went up by about 31 million because of the offerings, which is equal to a penny a share, based on YHOO's $0.14 in earnings, which means the offering was dilutive by 7%. This matters most for company's with convertibles that are close to being in the money. As the reality dawns on investors, this could cap certain stocks. About a year ago, Mandalay Resort issued $400 million in special convertible debt that wasn't convertible only into stock, but also had a sweetener for investors as the stock continued to go up. In exchange for this sweetener, the financing was extra cheap. But now, after its meteoric performance in the past year, Mandalay shares are about $61, within striking distance of the convertible price of about $69 a share. When holders convert, it would add about 8 million shares to the total outstanding, which CIBC estimates would be about 68 million by the end of 2006 ending in Jan. That's about 12% dilution. While CIBC estimates that Mandalay will earn $3.73 a share in operating income in fiscal 2006, after the convertible dilution it would be down to about $3.40. That puts a stock that normally trades at around 15x the coming year's earnings estimates at around 18x.

Jobs Comments . . . The economy is in the early stages of a durable expansion built on small businesses, a flexible labor force, innovation and lower tax rates. The dollar’s retreat from its deflationary strength in 2001 and 2002 was critical to the recovery, as were the 2001- 2002 interest rate cuts and the 2003 tax cut. The strength and durability of the expansion are likely being broadly underestimated. The unemployment rate has fallen to 5.7% from a post-recession peak of 6.3%, putting it at a level that was considered relatively full employment as recently as 1996. Employment is already strong enough to sustain the expansion and is likely to improve further. Several current indicators show marked improvement in the labor situation in the first quarter, pointing to the likelihood of continued gains in the establishment survey in coming quarters. On April 8, initial unemployment claims fell to 328,000. With the exception of the 1999 employment surge -- we think related to the excesses in the dollar and the stock market -- this is the lowest level of claims relative to workers on record.

The Institute of Supply Management asks manufacturing companies whether they have more workers than in the previous month. At 57.0 in March, the index of employment is at the highest since the late 1980s. The National Federation of Independent Businesses prepares a diffusion index showing hiring intentions by the nation’s smaller businesses. It shows a sharp improvement beginning late in 2003 and accelerating in 2004. Hiring intentions are near the intensity of the late 1990s, approaching the optimism reflected in the new all-time record in the Russell 2000 index hit on April 5. (The Manpower survey of hiring intentions shows a similar surge.)

The household survey (Labor Department phones about 60,000 households per month) showed 1.3 million new jobs in 2003. In contrast, the establishment or payroll survey (Labor Department contacts about 160,000 businesses and government agencies covering approximately 400,000 different worksites) showed a net decline of 61,000. The household survey and the unemployment rate are giving a clearer picture of the employment situation than the establishment survey. The establishment survey is distorted by the 1999 bulge in establishment jobs. Some of those jobs probably didn’t exist (e.g., double counting as people job-hopped), while some existed but weren’t dependable (telecom jobs at now-bankrupt companies). Establishment jobs rose from a steady 94% of household jobs prior to 1995 to a bulge of 99% of household jobs in 1999 and have now subsided to a more-normal 96% of household jobs. Early in an expansion, the establishment survey is regularly revised upward toward the household survey – in 1994, the

Labor Dept found 1.8 million more jobs on nonfarm payrolls for 1992 and 1993 than they had initially estimated.

One of the factors for revising the establishment survey is already showing a tendency toward a strong upward revision, which we expect to occur later in 2004 and in 2005. On March 26, wage and salary income was revised upward by a cumulative $138 billion (at an annual rate) for the period July 2003 through January 2004. The revision used new information through September 2003. One possible explanation is that there were more jobs created in the third quarter than currently being counted. Two other likely factors in the revision are higher wages and more hours worked per week, both of which also point to a stronger employment situation than previously reported.

One criticism of the employment situation involves the decline in the labor participation rate and the increase in the number of discouraged workers, workers whose response to the Labor Department’s telephone survey of households is that they don’t have a job and have not been looking for a job because they don’t have good prospects. The two measures are similar in concept and show similar movements – an extreme in 1999 followed by a reversion to normal in recent years. The decline in labor force participation reflects workers leaving the labor force for any reason, not just discouragement. It

has returned to its mid-1990s level of roughly 66%, after rising to 67% in the late 1990s. The percentage of discouraged workers relative to the working-age population is now at the same levels as the mid-1990s.

The government releases several measures of unemployment – the conventional one which shows a 5.7% rate; a measure now at 6.0% which takes into account discouraged workers; and a broader measure, now at 8.6%, which measures the whole pool of available workers by adding to the unemployed those individuals who say they would like a job but aren’t currently looking for one. These three measures show the same trend – record low unemployment in 2000, a rise during and after the 2001 recession, and a healthy subsequent decline. In all three measures, the current unemployment rate is below those recorded in the mid-1990s and well below the peaks after the recessions of 1990-1991 and 1982.

Many criticisms have been levied against the statistical accuracy of the employment surveys. Economic data is, in general, not very precise. The unemployment rate gives a reasonably accurate picture of the labor-market situation, whereas the establishment survey is more challenged. It is based on a statistical sample seeking to measure small changes (say 100,000) in a large number (131 million.) One particular criticism of the establishment survey is that it does not accurately adjust for the birth and death of new firms. The adjustments started in April 2003 and are shown below. The government assumed a lot of firms failed in January, so it reduced the net jobs created by 321,000, a large adjustment relative to the final result (a seasonally-adjusted gain of 159,000). There’s a good chance that the government is underestimating the birth of new firms, creating the prospect of upward revisions to the establishment survey later on.

Buffet Mania . . . According to Barron's, Berkshire Hathaway shareholders and other followers ought to pay more attention to what Warren Buffett does and less to what he says. The cover page of his annual shareholder letter shows a remarkable outperformance by Berkshire Hathaway vs the S&P 500 index, but this record measures Berkshire's book-value gains against gains in a stock-price index. There is a footnote in the letter that implies that Berkshire's performance is handicapped by having to pay taxes, whereas the S&P index doesn't pay taxes. This is true in itself, but again it is based on an unfair comparison. Surely Buffett meant that, despite the fact that the S&P 500 company's in the index pay taxes, the S&P 500 index itself doesn't pay taxes. The article also notes that Berkshire's board is full of his friends and family members, and some even have significant, related-party transactions with Berkshire. According to article, there are several other risks that shareholders of Berkshire Hathaway are taking by following Buffett's major strategies and policies: Berkshire's overall goal seems to be the reinsurer of last resort for other reinsurers, so a massive terrorist attack on the U.S. or other disaster of unprecedented size could wipe out a good portion of Berkshire's liquid assets, or the liquid portion of its equity; any major tax-law change or regulatory change adversely affecting company's with large deferred tax liabilities, retained earnings, or investment-co status could dramatically affect Berkshire's fortunes; the cult-like following that Buffett has attracted among money managers, regulators, and the press is a bad sign, since Buffett will not live forever, and his sudden death could expose the company to forces that his successors could not control.

Financials . . . Mellon Financial reached a definitive agreement with Safeco to acquire Safeco Trust Company. Terms of the agreement, expected to close within 30 days, were not disclosed.

Oil & Gas . . . JP Morgan downgrades Occidental Petroleum to Neutral from Overweight as its top-of-the-pack valuation fully reflects its strong fundamentals and limits further upside. According to the firm, doubts linger on the company's ability to continue to fight the decline in the US asset base and lack of share buyback program has been a disappointment. The firm suggests that top-tier free cash flow generation supports continued debt reduction and dividend increases. The firm projects 4% annual volume growth from 2003-2006, inline with its peers.

A combination of improved transport access, new recovery projects, continued low costs and improving refining margins, should keep Petrokazakhstan well positioned to maintain and grow production ahead of its North American pack. Despite recent appreciation, PKZ remains cheap especially in light of accretive projects to boost 2004 earnings. Current indications suggest

CNPC will build a pipeline east from PKZ’s Turgai Basin to 3 refineries in Northwestern China. This simple change in direction from west to east can boost the market value of PKZ’s reserve base relative to more distant competitors or alternatives. Wedged within the GEM Universe, PKZ maintains strong corporate governance standards, disclosure and management access. Await progress on a material acquisition which may reload its portfolio otherwise expect a special dividend possibly in the order of $3.00/sh. 1st quarter 2004 output may disappoint due to field stoppage - volume growth targets remain 10% beyond. Trading at only 3.1x 2005E EBITDA and 5.1x 2005E cash flow, PKZ remains cheaper than Russians and Chinese but more expensive than

Latins or some US independents. Our reserve depletion model suggests a value of $35.40/ADR or 4.6x 2005E EBITDA and 5.8x ‘05E cash flow suggesting 20% upside.

Energy . . . Entergy guides 1st quarter EPS of $0.85 versus the consensus of $0.96, due to lower earnings contribution from Entergy-Koch, LP joint venture. The company also reaffirms 2004 EPS guidance of $4.10-4.30 versus the consensus of $4.23.

Barron's highlights Quantum Fuel Systems Tech, a company that sells lightweight fuel tanks and fuel lines for vehicles that burn natural gas or hydrogen. Its tanks also hook up to fuel cells, a still-developing technology that works like a hydrogen-powered battery. Quantum's tanks apparently are top notch, and its biggest customer is General Motors. GM's loyalty is also inspired by the 20% of Quantum stock that GM got when the little firm was spun off from tank-maker Impco Technologies in 2002. In the past 12 months, Quantum's shares have roared from just a few dollars to 8. But the business from GM and other customers didn't enable Quantum to turn a net profit on its $19 mln in revenues for the nine months ended January. Quantum blames GM's low production volumes. According to the article, there's a more direct problem with the reasoning of folks who invest in hydrogen plays like Quantum just because the price of oil is rising: These days, most hydrogen is made from oil. So as oil gets more expensive, hydrogen does, too.

Transports . . . FedEx hosted a well attended analysts meeting in Memphis last Thursday that provided access to its senior management team, an update on its long term strategy for growth and improved shareholder value, its vision regarding Kinko’s strategic and financial importance to FDX and an update of near term earnings guidance as well as initial guidance for 2005. Management laid out its strategic plans for long term 10% revenue and 10%-15% EPS growth. A combination of strong international and above market domestic ground volume growth and solid rational global pricing should allow FDX to achieve its goals for the foreseeable future. FDX had identified a need to grow its retail outlet and small business customer presence—two of the industry’s fastest growing and most profitable engines. Kinko’s gives it a great entry into these markets, albeit at a steep purchase price. Suspect FDX had few strategic alternatives to penetrate these markets and was concerned Kinko’s future interest might diverge from it. Management citing a strong economy and strong improvement in volumes, particularly IP, one month into the quarter took up continuing EPS guidance by about a nickel or 4% for 4th quarter 2004. It also provided its first guidance for 2005 in a range of $4.00 to $4.20 compared to our former estimate of $3.97 and prior Consensus of $4.03. The intermediate term direction of revenue and EPS as continuing upwards for FDX. Longer term we continue to expect FDX’ to be rewarded with an increasingly higher valuation relative to the S&P 500, as it continues to show better than market internal growth with less cyclicality and improving cash flow and returns.

Paper . . . Kimberly-Clark raised guidance. The company now sees 1st quarter EPS of $0.91 versus the consensus of $0.87 and prior guidance of $0.85-0.87, due to strong top-line growth, success in reducing costs and a slightly lower effective tax rate, and reports record sales of $3.8 billion versus an estimate of $3.67 billion. The company also sees 2004 EPS toward high end of targeted range of $3.55-3.65 versus the consensus of $3.61.

Consumer Products . . . CSFB initiates coverage of Gillette with an Underperform rating and $38 target. While they believe that the co owns the consumer sector's best brand franchise and its mgmt team is executing well against its strategic plan, they say the company's turnaround and growth prospects are more than reflected in the stock price.

Food & Beverage . . . The Wall Street Journal reports that Coca-Cola's general counsel, Deval L. Patrick, has resigned after three years with the company. Douglas Daft, Coke's chairman and CEO, delivered the news in an e-mail sent Sunday night to employees world-wide. Mr. Patrick "guided the legal team through significant challenges and obstacles faced by our company during the past four years," Mr. Daft said in the statement. Coke named Geoff Kelly, a 34-year Coke veteran and chief deputy counsel, as interim general counsel. Mr. Patrick has been heavily involved since last year with two government investigations into the company's accounting.

Retail . . . Wal-Mart still expects April sales at U.S. stores open at least a year to rise in the range of 4-6%, and said Easter sales were ahead of its expectations.

Wedbush removes Bebe Stores from its Focus List based on valuation. The firm believes that the co should be valued on an ex-cash basis. The co had approximately $7.50 of cash per share. Excluding cash, the stock currently trades at 20.3x C04 est. The firm's $37 target is based on a 19x 2004 EPS estimate plus the company's $7.50 per share in cash. The co is currently trading at 26.2x and 24.7x firms 2004 and 2005 earnings estimates. The company's current peer group multiples for F04 and F05 are 24.5x and 21.2x. Within the past five years, the company's stock has traded within a range of between 6.5x and 32.2x forward earnings with a median multiple of 18.3x.

The Wall Street Journal reports that Limited Brands, owner of the Victoria's Secret chain of lingerie stores, said Saturday that it is canceling its provocative annual televised fashion show in the wake of an indecency crackdown by federal regulators. According to the company's Chief Marketing Officer, Limited spent close to $10 million to produce and advertise the program.

The WSJ reports that Limited Brands, owner of the Victoria's Secret chain of lingerie stores, said Saturday that it is canceling its provocative, annual televised fashion show, in the wake of an indecency crackdown by federal regulators. Ed Razek, chief marketing officer for Limited, said that the decision to skip the annual special was made several weeks ago, after Janet Jackson's incident during the Superbowl half-time. "It was a mutual decision" with CBS, said Mr. Razek. "We were in the middle of negotiations when it became apparent that to consummate a deal made no sense." According to Mr. Razek, Limited spends close to $10 million to produce and advertise the program.

Healthcare . . . Barron's highlights Larry Feinberg, a founder at a health-care hedge fund Oracle Partners. According to the article, Mr. Feinberg has a negative take on the big-cap pharmaceutical company's after being quite bullish on the sector just a few months ago. His benign view of the major drugs was grounded in the conviction that their nicely improving product pipelines more than made up for the bruising competition from generics. He also shrugged off as less than imminent any groundswell for massive imports of drugs from Canada. On that, he now believes, he was dead wrong, and sees the passage of drug-reimportation legislation as a sure thing. Mr. Feinberg hasn't sworn off all drug stocks and certainly not those with biotech bona fides. He's very hot, by way of example, on Biogen Idec, a stock he recommended. He thinks it's pretty much a cinch that the co will file for FDA approval this summer and its also pretty much a cinch that the FDA will say OK. He has also shorted Serono, a Swiss biotech co and a leading supplier of an existing drug for MS. The stock, a big favorite in Europe, currently trades around 16, and Larry's downside target is 10.

Barron's highlights Odyssey Healthcare, which is showing impressive growth numbers, but questions are arising about patient care and level of Medicare payments. According to the article, there are also signs the co can't keep up with its heady growth. Higher labor costs, especially in California, which represent 13%-15% of its revenues, as well as higher drug costs hurt Odyssey's margins in last year's Q4. In reporting those results on Feb. 23, the company forecast lower-than-expected earnings for this year. Odyssey also disclosed, in its most recent quarter, six of its programs exceeded the amounts they were entitled to receive in Medicare reimbursements, raising questions about whether patients admitted to its programs are truly eligible. Some former nurses and marketing representatives told Barron's that patients being kicked out of Odyssey programs after 90 days upon being "reevaluated" or because they required hospital care. Former staffers complain about lack of access to supplies and caseloads that are heavier than industry norms. The company's CEO, David Gasmire, says Odyssey follows all federal guidelines.

Stifel Nicolaus defends Odyssey Healthcare after a negative article in. The firm take issue with the implication that the co's service practices and standards, particularly at its San Diego hospice site, are below industry norms. The article cited deficiencies only at its hospice site in San Diego, with all the critical violations having been corrected in December 2003. Importantly, the article does not make mention of any of its other 67 hospice sites throughout the country. Also, many of the other allegations are nothing new. This is just the first time that it has been published in an influential journal.

Medical Devices . . . Wachovia upgrades Ventana Medical Systems to Outperform from Market Perform to reflect decreased earnings risk. The firm believes that Ventana will be able to continue to market and sell its Human Papilloma Virus (HPV) testing products. The firm remains bullish regarding the outlook for Ventana's Benchmark and Symphony products and retains 2005 EPS estimate of $1.55 that is $0.16 higher than consensus. Valuation range is $51-$54.

Drugs . . . JP Morgan downgrades Abbott Labs to Underweight from Neutral. The firm has become increasingly convinced that Abbott's $539 million US Biaxin franchise will succumb to generic competition from Teva beginning in May 2005. This includes both Biaxin and Biaxin XL and is by no means in Street forecasts, which assume a smooth transition from the original Biaxin to the XL formulation. The firm estimates the hit to Abbott's EPS from generic Biaxin XL at $0.18. This brings to seven the number of drugs that Abbott has "at risk" in the 2005-06 timeframe, including Synthroid, Tricor, and Ultane, which has gotten little Street attention, and the three BI drugs - Flomax, Micardis, and Mobic. The stock trades at 17.1x and 16.3x the firm's 2004 and 2005 EPS estimates (pre-spin). This is in line to slightly above its peers, most of which have higher forecasted longer-term growth rates.

Biotech . . . Piper Jaffray downgrades Alkermes to Market Perform from Outperform and lowers its target to $16 from $19. J&J is quietly but aggressively developing an active metabolite to replace Risperdal. Paliperidone is expected to have an improved side effect profile relative to Risperdal. Paliperidone is further along than expected. Assuming successful clinical development, the firm projects that oral paliperidone and paliperidone palmitate could be on the market as early as mid-2007 and 2008, respectively. The firm is increasing its discount rate from 30% to 35% to account for the potential risk posed to ALKS' peak sales estimate by paliperidone and a slower-than-expected U.S. launch of Consta.

Morgan Stanley downgrades Trimeris to Underweight from Equal Weight. Despite TRMS/Roche's redoubled marketing efforts, prescription data for Fuzeon indicate that demand has seen little growth. The firm's lower sales forecast for Fuzeon leads it to believe that TRMS's ability to reach profitability and generate meaningful earnings could be in jeopardy. The firm lowers its 2004-06 EPS forecasts, and removed its price target.

Media . . . Banc of America upgrades Comcast to Buy from Neutral and raises its target to $41. The firm is increasingly convinced that Comcast will ultimately abandon the Disney bid as the considerable bid/ask spread is unlikely to close. The firm believes the bid has overshadowed positive fundamentals for the group and, in absence of the bid, the stock is particularly compelling. The firm's $41 target price is based on an average of DCF, using a 8.4% WACC and 4% FCF growth in perpetuity, and discounted P/FCF analysis, which applies a 20x, 17x and 17x multiple to 2006E, 2007E and 2008E FCF, respectively.

Barron's highlights BSkyB given its enormous growth opportunities with its digital channels being watched by 28% of all households in the United Kingdom and Ireland, up from nothing seven years ago. Investors may want to start tuning in. Although Sky's ADR's have been in the doldrums, sliding about 1% this year, the company's business prospects have been brightening. Sky, which holds the main contract to air the national pastime, soccer, and is expanding its news and entertainment programming, is well-positioned to boost sales to two camps: existing customers upgrading their service and the nearly 13 million households in the U.K. and Ireland that still have neither satellite nor cable. First Call's consensus of analysts' estimates puts earnings for the fiscal year ending June 30, 2005, at $2.40 an ADR, up from a projected $1.39 for the current year. That would bring the lofty P/E ratio of 36.5 times the current year's earnings down to a more earthly 21.1x 2005 earnings. Or, if the multiple holds a little stronger at, say, 28 times the higher earnings that would suggest a price of about $67, up 33% from the current $50.20.

Tech Talk . . . From a larger perspective, we continue to get a stream of data points implying stable/improving IT demand, as the recent tech stock weakness is reflective of normal seasonal business trends and stock prices. Despite tech stock underperformance in the February through May period, we haven’t seen fundamental signs of business slowing and would prepare to build positions by late Spring.

IT Hardware: The sense is that the general demand environment for IT hardware continues to move in the right direction, with several “macro” drivers suggesting greater optimism in 2004. Still expect a modest expansionary cycle in 2004 owing to a confluence of strengthening macro trends, replacement cycles and several “killer apps."

Data Storage: In storage systems, with application-driven requirements and need for product refreshes, the demand outlook is clearly improving. In SAN components, the key investment issues remain competition: new technologies (iSCSI), OEM emphasis on lowering SAN costs, and new players (CSCO). In drives, June is usually the seasonally toughest quarter and we don’t see any supply constraints.

iAppliances & Imaging: The trend toward mobility remains strong with robust demand for iPod mini and notebooks (masked by a short-term inventory correction). While smartphones are garnering more interest given Treo 600 results and strength at RIM, demand for PDAs is still disappointing. As for printers, we’re seeing favorable industry dynamics with growth in AiOs and benign industry pricing.

EMS . . . Raymond James upgraded Flextronics to Strong Buy from Outperform due to better-than-expected demand trends, an improved outlook for its burgeoning ODM business, and the recent Nortel agreement. Although Mach Quarter is typically the weakest, the firm believes that the sequential drop-off will not be as severe as expected. As a result, Flextronics is now one of the firm's top priority investments in the EMS sector. Valuation also remains attractive. Based on a two-year 20% revenue CAGR and 5% EBIT margin, Flextronics has earnings power of approximately $1.70, or 10.7x the current price versus the EMS industry average multiple of nearly 14x. The firm's price target of $24 is based on 40x its 2005 EPS estimate.

Network Equipment . . . Barron's highlighted Nokia, which gave an earning warning early last week, but still looks cheap, at about 17x expected 2004 earnings. According to the article, the company still has the fattest margins in the cell phone business, which it continues to dominate. It is expanding its wireless-infrastructure business and it has a plethora of new models coming. Albert Lin, an analyst at American Technology Research, thinks the market-share losses and margin erosion will reverse as new models are introduced. He says the company's woes are exaggerated by currency: Without the weak dollar, Lin notes, revenue would have been at the high end of guidance. He thinks Nokia shares are a steal, saying the stock is relatively inexpensive and investor expectations low. The stock, he says, has "disaster already priced in."

Barron's highlights 3Com, which was a once-high-flying wonder of the tech-bubble days that crashed and burned with all the rest and now has even grander ambitions to recreate itself as a co that aims to take away a big slice of the lucrative networking business from rival Cisco. Last year 3Com struck up a partnership with Huawei, arguably the premier networking company in China, that opened up shining new vistas. The arrangement allows 3Com to sell Huawei's high-end networking gear in the U.S. and Europe, and thus target the bigger company's that have long been Cisco's entrenched domain. The Huawei-3Com joint venture gives 3Com access to incredibly cheap labor, whether for engineering or manufacturing. As a result, says chief financial man Mark Slaven, "We've been able to triple the number of engineers working on R&D projects." Promising as the partnership is, and the potential is huge, let us hasten to add that the payoff isn't just around the corner. Indeed, Mr. Slaven estimates that 3Com won't turn cash-flow positive until late this year and won't hit break-even until next summer. However, 3Com's cash burn is modest and its cash hoard is immense, some $1.4 billion, or almost $3.50 a share. At $6.73 a share, down from a high of $9.34 earlier this year, shares are going for 1.7 times book and less than two times net cash.

William Blair upgrades Tellabs to Outperform from Market Perform, as they believe that shipments of enterprise hardware are increasing, which will gradually lead to greater demand for T1/T3 links and drive demand for the company's core Titan 5500 product; also, firm believes that TLAB's wireless product lines continue to experience healthy demand, and that the addition of Krish Prabhu as the company's new CEO will provide it with broader perspective and vision in future years.

UTStarcom announced a new contract valued at approximately $40 million with China Telecom to expand and optimize its IP-based PAS (Personal Access System) network in China's Jiangsu Province. Under the terms of the contract, iPAS networks will be expanded in seven cities in the province. UTSI will also extend its mSwitch-based iPAS core network in two cities and the value-added services (VAS) platform for the entire province.

Kaufman upgrades Westell to Buy from Hold and raises their target to $10.50 from $8.50. The firm believes that the company will benefit as its customers look to transition the majority of their businesses to integrated Wi-Fi modems over the next several years, and also notes that near-term order trends at WSTL remain strong, as its largest customer Verizon is set to report strong growth in DSL subscribers.

Lightreading reports that Bookham Technology's deal to buy the components division of Nortel Networks is looking even better these days, given an interesting pricing relationship. According to the article, sources say Nortel sold the business to Bookham with the agreement that it would continue to keep Bookham as a supplier and buy the components at fixed prices, even though the market rate for optical components is dropping. Nortel agreed to buy a fixed percentage of its components from Bookham for three years, with purchases guaranteed to total at least $120 million for the first 18 months. According to sources, part of the deal has Nortel paying fixed prices on certain parts, a deal that gets worse as component and module prices decline. This also implies that Bookham is collecting some revenues that will dry up when the prix-fixed contracts end. Nortel accounted for 58% of Bookham's sales in the quarter ended Dec. 31. Analyst Jeff Montgomery with ElectroniCast Corp. notes that some long-haul component prices fell as much as 60% between 2000 and 2003. One of the sources noted the same kind of situation might exist between Avanex and Alcatel. Avanex acquired the component divisions of both Alcatel and Corning in a deal that included a three-year purchasing commitment from Alcatel, among other concessions.

Semiconductors . . . JMP Securities raises their 1st quarter rev/GAAP EPS estimate for AMD and their 2004 EPS estimate above consensus. The firm cites higher ASPs and margins on its processor mix as well as slightly more bullish assumptions on the margin improvements in its flash memory biz. Maintains Outperform rating and $20 target.

CE Unterberg initiates coverage of SanDisk with Short-Term Buy/Long-Term Buy ratings and a $40 target. The firm believes that potential upside to 1st half 2004 exists due to virtually no price erosion in 1st quarter followed by seasonally strong 2nd quarter revenues.

Reuters reports Intel is freshening up its money-losing communications business with a new set of chips for cell phones, days ahead of its quarterly earnings report. The company plans to introduce chips that will allow video conferencing on mobile phones and DVD-quality video playback on handheld devices. The new chips aim to inject some life into Intel's communications business, which lost $858 million last year. Intel combined its communications and data networking businesses last year after failing to gain traction in the fiercely competitive mobile phone chip business. Texas Instruments is the largest supplier of cell phone chips.

ThinkEquity upgrades Intel to Overweight from Equal-Weight in anticipation of significant margin expansion throughout 2004. While firm is not advocating that investors buy with an anticipation of big 1st quarter results or even positive 2nd quarter guidance, they say the recent correction from overly optimistic models have been based on stale news/concerns (e.g. Dothan delay); firm's key assumption is that the materiality of this bad news is largely behind Intel and leverage will return as 300mm production ramps. While Intel is not cheap, firm says the stock is attractive given that it is trading at 18x their 2005 EPS estimate, and that despite record rev and earnings, the stock has already underperformed its peer group.

Advanced Micro has settled patent claims with Intergraph relating to AMD's microprocessors. Under terms of agreement, AMD will receive a license under Intergraph's "Clipper" microprocessor patents and the patent lawsuit in U.S. District Court for Northern District of California will be dismissed. AMD will pay Intergraph $10 million, plus 2% of profits from its microprocessor sales for three years (2005-2007); payments are capped at $5 million per year and total of all payments under agreement are capped at $25 million.

Boxmakers . . . Goldman Sachs says it continues to view Dell as one of the most attractive technology opportunities and would be buying the shares now. According to the firm, applying Dell's 28x multiple to their preliminary FY2006 earnings forecast of $1.46 implies a stock price of around $40-$41 even without the expected earnings upside. The firm is also positive on other players in the field noting they would overweight a basket of DELL, EMC and LXK as the firm sees Dell a notable stimulus to both partners. In contrast, while note recommends being underweight HPQ, the firm would be an opportunistic seller of its shares over the intermediate term as they believe the co is seeing tough competition from Dell.

Software . . . The Wall Street Journal reports that BEA Systems and Veritas are teaming up to defend their market positions against IBM, Oracle, and other software-industry giants. Today, the two are expected to announce an engineering and marketing alliance that will package together their major products. Their joint offering for "utility computing," one of this year's hottest technology trends, is intended to help customers manage clusters of low-cost computers as a single system. The integrated products are expected to be available in the second half of the year.

The New York Times reports that Microsoft plans to announce today that it has reached a $440 million legal settlement and licensing deal with the InterTrust Technologies, a private co and a pioneer in the development of software to protect digital music and movies from piracy. The InterTrust settlement removes a threat to Microsoft's ability to deliver piracy protection technology in its software products for playing and handling digital media. The technology for digital rights management, analysts say, is crucial for Microsoft's plans to extend its Windows software into the emerging market for legally distributing music and movies over the Internet, in competition with rivals like Apple, RealNetworks, Sony and others.

Prudential says that conversations with field contacts suggest that Peoplesoft's 2004 license guidance of $700-$715 million might be at risk. With many deals not only slipping in, but even lost in 1st quarter, the firm is now forecasting 2004 license revenue of $655 million. The firm thinks PSFT is in the unfortunate position of being squeezed in a secular shift inside the applications market, as leader SAP continues to take market share at the high-end with MSFT business applications moving upstream at a quicker pace than conventional wisdom; with the shares trading 18.8x their 2005 EPS estimate, firm maintains their Neutral-Weight rating and $23 target.

Raymond James upgrades Convergys to Outperform from Market Perform on yet more positive news for the company's IMG (billing) division. Last week, Convergys announced retention of AT&T Wireless as a customer; this after re-signing a deal with Sprint PCS, winning a wireless data billing deal with Verizon, new business at O2, and acquiring a strong presence in the wireline market via purchase of Alltel information systems. The stock's valuation is relatively low: 15X FCF, P/E of 16X, and 1X sales.

Hot Items - Check out the "Hot Items" page (updated daily)


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Disclaimer: Due to the nature of the Internet, RobBlack.com and Goodwyn, Long & Black (GLB) does not make specific trading recommendations or give individualized market advice. Information contained in this publication is provided as an information service only. RobBlack.com and (GLB) recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, readers should be aware that GLB, its employees and affiliates may own securities that are the subject of reports, reviews or analysis within this publication. We obtain the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall GLB or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. Rob Black and (GLB) carry positions in many of the names reported on. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. RobBlack.com and Goodwyn, Long & Black Investment Inc. relies on information provided by corporations, news services, in-house research, published brokerage research, Edgar filings, and also may include information from outside sources and interviews conducted by ourselves. Readers should not rely solely on the information contained in this publication, but should consult with their own independent tax, business and financial advisors with respect to any investment opportunity, including any contemplated investment in any security.

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STOCK TALK: Rising Rates Triggers REITs Retreat
By Frederic Ruffy, Optionetics.com
4/12/2004 2:30:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10218

The Dow Jones Real Estate Investment Trust [REIT] Index ($DJR) plunged last week and the slide continued on Monday. Since April 1, the index has now lost nearly 16%. Volatility in the sector has skyrocketed amid concerns that recent signs of economic strength might lead to higher interest rates, which could potentially drive investors out of real estate investment trusts. As a result, during the past six trading sessions, there has been a mass exodus from the REITs sector. The decline has in turn left many investors wondering: has the dramatic sell-off created a buying opportunity among Real Estate Investment Trusts, or is the decline in the sector a warning sign for other sectors of the US stock market?

Real Estate Investment Trusts are investment vehicles with shares listed for trading on the US stock exchanges. Also known as REITs, these trusts invest in different types of real estate properties. While some of real estate investment trusts deal primary with mortgages, others focus on commercial properties such as shopping malls and office buildings. There are also REITs that focus on residential properties. Investors buy REIT shares when they expect real estate prices to remain strong. However, when investors expect the real estate market to face tough times, they are more inclined to sell REITs.

Trading under the symbol DJR, the Dow Jones REIT Index is a market value weighted index consisting of more than one hundred different Real Estate Investment Trusts. The 114 companies within the Dow Jones Index represent 95% of the total REIT universe. Therefore, the performance of the index reflects the composite performance of most of the REIT investment vehicles that exist today.

During the month of April, the DJ REIT Index has been extremely volatile. The index hit an all-time high on April 1. From that point forward, it made a turn for the worse. On April 5, the index tumbled 4.1%. The next day, it slipped another 3.8%. It was the largest back-to-back decline in the index since its inception more than ten years ago. For the week, DJR fell more than 8%. Furthermore, on Monday, the slide continued, as the index plummeted another 5%. The chart blow shows the index’s freefall.

Some market watchers worry that a bubble in the real estate market had developed—one similar to the conditions that existed in the stock market prior to March 2000. During the past few years, low interest rates have led many investors to buy into REITs. As a result, since 1999, real estate investment trusts rose 63%, according to statistics from an article in Monday’s Wall Street Journal (“Booming Sector Starts To Show Stress Cracks,” by ES Browning). Since that time, the Dow Jones Industrial Average ($INDU) actually fell 9%. According to the article,

As most stocks sagged during the bear market, real estate surged. And as market interest rates—bond yields, money-market rates—fell to their lowest levels in 45 years, investors looked for other ways to generate steady dividend income. REITs on average have yielded about 7% historically. With real estate booming, they were the place to be.


Recently, however, some investors have been growing more concerned about the prospect of rising interest rates and the toll rising rates might have on REITs. For one, a monthly employment report released on April 2 showed a much larger-than-expected increase in jobs during the month of March. Meanwhile, a separate report released on April 5 showed stronger-than-anticipated strength in the non-manufacturing sector of the economy. The strong economic data in early April raised some talk among economists about the prospect of inflation. If so, the Federal Reserve may be forced into action, which would also mean moving interest rates up from 45-year lows.

It is the prospect of higher interest rates, then, that sparked the recent volatility in the REIT sector. If rates move higher, less risky investments, like Certificates of Deposit [CDs], money markets, or government bonds, may become more appealing vis-à-vis real estate investment trusts. In addition, some popular strategies designed to take advantage of low interest rates will no longer work if the Fed begins to raise rates. For instance, some financial institutions have been borrowing money at extremely low short-term rates, of 3% or less, and reinvesting that money in higher yielding investments like REITs. However, the specter of rising interest rates may have caused a knee-jerk reaction among some of these institutions last week. That is, the possibility of rising interest rates and falling REIT prices, triggered a wholesale sell-off in the sector that continued on Monday.

Some market watchers believe that investors may have overreacted and the decline in REIT prices represents a buying opportunity. Not only are the yields on these investments quite high relative to other investments, but the interest rate risk might be quite low. After all, the Federal Reserve probably won’t raise rates dramatically in the near future. Instead, rates are more likely to see a gradual move higher. At the same time, however, investors are faced another important question. Namely, after the 14-month 48% gain in the DJ REIT Index, have shares in the sector become overvalued? Was there perhaps a bubble in the REIT worlds? If so, judging by the 6-day 16% slide in the DJR, the bubble appears to have been pricked; and this may serve as a warning sign about the risks inherent in some of the more interest-sensitive sectors of the stock market.


Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
Visit Fred Ruffy’s Forum

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From Briefing.com: 6:13PM Tuesday After Hours prices levels vs. 4 pm ET: Selling has continued in the extended session, although the catalyst for it - Intel's (INTC) somewhat problematic Q1 (Mar) report - is much different from the regular session. The semiconductor company fell short of the market's top-line expectation, and that has kept the bears in charge of the market action. Presently, the S&P futures, at 1125, are 3 points below fair value and the Nasdaq 100 futures, at 1472, are also 3 points below fair value.

The below table lays out Intel's news as well as the other notable news items of the evening:

After Hours Mover % Change Move Reason for Move
ADTRAN (00C0) +6% Mid-cap communications equipment company shows upside to the Reuters Research consensus top and bottom-line estimates in its Q1 (Mar) report; Declares an annual cash dividend of $0.32/share (dividend yield of 1.1%); Says it will issue guidance for Q2 (June) and FY04 (Dec) tomorrow morning during a 10:30 ET conference call
Intel (INTC) -2% World's largest chip company issues mixed Q1 (Mar) numbers and Q2 (June) outlook; Excluding a $0.017 charge, Intel beat by a penny with EPS of $0.28; Revenues missed the Street's expectation of $8.17 bln, rising 20% to $8.09 bln; Company guided Q2 revenues to the low-end of estimates at $7.6-8.2 bln; Gross margins were put at 60% (plus or minus a few points), near where they were in Q1
Linear Tech (LLTC) +3% Semiconductor name delivers a 42% increase in net income, to $0.27 per share, and a 36% increase in revenues, to $209.1 mln, in its Q1 (Mar) report; Both figures were ahead of Reuters Research estimates; In Briefing.com's preview on In-Play, a service for Platinum subscribers, we suggested the company would beat estimates; Conference call - where Linear should guide - is tomorrow at 11:30 ET
Maxim Integrated (MXIM) +1% Analog semiconductor company files a lawsuit against Qualcomm, claiming the company misused its extensive patent portfolio to squelch competition in the wireless market; According to Reuters, Qualcomm's CDMA code dominates the cellular market in the US and is growing in popularity in Asia and Latin America; QCOM is down 1% in the after hours
McDonald's (MCD) -3% Fast food chain preannounces Q1 (Mar) comparable store sales of 9.4% and issues above consensus EPS targets; Sees earnings at about $0.40 per share, representing a 38% increase over last year; Briefing.com has been positive on MCD in Story Stocks since July 29, and the stock has appreciated 23%; Traders are taking some profits from those gains tonight
Parker-Hannifin (PH) unch Industrial company raises its Q3 (Mar) EPS forecast to $0.80 from $0.55-0.65 citing volumes that increased 15% from last year; Parker plans to further revise its Q4 (Dec) projection when it reports Q3 earnings on April 19; Briefing.com has an Overweight position in Industrial on our Sector View page

Tomorrow, earnings reports from Bank of America (BAC) and Delta (DAL) await investors before the market open. Economic data in the form of the February Trade Balance and the March CPI are also due out. After the close, technology companies Advanced Micro Devices (AMD), Rambus (RMBS), and Texas Instruments (TXN) will release their Q1 (Mar) results.

For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com

5:54PM Linear Tech beats by $0.02, beats on revs (LLTC) 39.25 -0.21: Reports Q3 (Mar) earnings of $0.27 per share, $0.02 better than the Reuters Research consensus of $0.25; revenues rose 36.0% year/year to $209.1 mln vs the $203.7 mln consensus.

5:53PM LLTC prelim $0.27, beats on revs :

5:08PM Maxim Integrated files claim against Qualcomm (MXIM) 49.11 -0.86: Co announced that it has filed a claim against Qualcomm in federal district court. MXIM's claim states that Qualcomm has violated U.S. antitrust laws and has misused its patents in maintaining dominance in the market for CDMA technology.

4:36PM Intel Fallout (INTC) 27.66 +0.06: --Update-- INTC bouncing around in reaction to mixed results, currently down 0.20 from its closing price and having traded in a range of $27.00 to $27.95 since the report hit. Secondary names include AMAT -0.01, KLAC -0.20, NVLS -0.20, AMD -0.05... As noted in earlier preview, market wasn't expecting fireworks from Intel, and pretty much got what it expected (mixed results with generally in-line guidance). As a result, the fallout from Intel's qtr has been minimal.

4:20PM INTC reaffirms 2004 gross margin forecast of 62% :

4:18PM INTC sees Q2 rev $7.6-$8.2 bln, consensus $8.11 bln; gross margin 60% :

4:17PM INTC Q1 gross margins 60.2% vs approx 60% guidance :

4:16PM INTC prelim $0.28 ex-items? vs $0.27 consensus; revs $8.09 vs $8.17 bln consensus :

4:30PM Dupont Photomask appoints Dr. Franklin Kalk to CTO (DPMI) 23.92 -0.64: Co announced the appointment of Franklin Kalk to the position of chief technology officer. Dr. Kalk will lead DuPont Photomasks' global research and development programs as well as coordinate co's research and development programs in DuPont Photomasks-Dresden/AMTC. Dr. Kalk joined DPMI in 1992, and has led several tool and material development programs and served as manager of the research and development group at the DPI Reticle Technology Center.

9:19AM MRVL target raised to $56-$58 at CE Unterberg 47.93: CE Unterberg maintains its Buy on Marvell (MRVL) and raises its target range to $56-$58 from $52. The firm believes Marvell's business is tracking well. The co should see strong revenue opportunities from microdrives, power management, and WLAN products. The new target is based on 30x-35x p/e multiple of FY06E EPS of $1.75.

11:24AM Johnson & Johnson (JNJ) 51.76 +0.56: By most accounts, Johnson & Johnson's (JNJ) Q1 (Mar) report was a great one. Net earnings rose 20% to a quarterly record - $2.5 bln, or $0.83 per share - and surpassed the Reuters Research consensus EPS estimate by $0.03. Total revenues increased 18% to $11.56 bln (consensus of $11.36 bln) with organic growth representing 12%. Citing the strong start to the year and the contribution from currency, management raised its FY04 (Dec) EPS guidance to 'as high as $3.00' from $2.95, the current consensus estimate.

The caveat to all of this, though, is that Johnson & Johnson regularly reports double-digit net income/sales growth... and it's done nothing for the stock. Shares have actually declined 10% in the past year - 21% over a two-year period - as investors have found various things to nitpick with the company. Encroaching competition, patent expiration, and a lack of exciting new products have overshadowed the good earnings news.

In the pharmaceutical segment (47% of net sales), two major products face patent expirations. Eprex, a member of the company's largest drug family, will lose market exclusivity in the next two years, and that should effectively cap sales with Amgen's (AMGN) products already dominating the anemia market. Duragesic, Johnson & Johnson's fourth largest drug, stands to lose its own patent on July 23 barring a six-month pediatric extension. Finally, a number of oral contraceptive products - like Ortho Tri-Cyclen, the nation's best selling birth control pill - have already gone off patent.

The medical devices and diagnostic division (36% of net sales) presents the other challenge to Johnson & Johnson. Cypher may never live up to expectations with Boston Scientific's (BSX) Taxus winning over accounts. The rival drug-eluting stent already claims 50% of the US market after a month on the market. Share outside of the US (where Taxus won approval earlier) appears to have stabilized, but this does not necessarily bode well for Johnson & Johnson at a disappointing 46%.

With all of these factors pointing to a slight slowdown in revenue growth, Briefing.com continues to see few upside catalysts needed to move JNJ out of its current rut. We remain confident that Johnson & Johnson will manage to overcome these problems - much as it has over its 100-plus year history - but believe better plays (Boston Scientific, Guidant, Pfizer) exist within the healthcare industry. Investors with a long time horizon are the only ones we would recommend JNJ to at this time, owing to the stock's reasonable valuation (at 17.5x estimated FY04 earnings) and 1.9% dividend yield, and the company's earnings track record. Heather Smith, Briefing.com

9:05AM Novatel Wireless (NVTL) 27.18: Novatel Wireless raised Q1 revenue guidance after the close on Monday. The provider of wireless data access solutions for portable computers and handheld devices forecast Q1 revenue of $14.8-15.1MM (+97.6-101.6% Y/Y). Q2 revenue is expected to come in at $17.0-18.0MM (+122.0-135.0% Y/Y).

Gross margin is expected to increase to over 28% in Q1 and 30% in Q2. Management expects the company to post higher operating income and positive GAAP net income in Q1 despite increases in R&D.

Reuters Research prints consensus Q1 EPS at $0.00 on $12.0MM and Q2 at $0.02 on $15.0MM. NVTL reports after the close on May 6.

Shares are, based on our inverted EVA / DCF model, priced for sustained upper teens revenue growth from C06 assuming steady Y/Y improvement to 15% operating margin.

The following table shows price multiples and Y/Y growth rates for NVTL compared against the communications equipment and computer systems & peripherals groups. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Novatel Wireless (NVTL) 5.2 (34.6) 12.9 5.8 3.5 17.3% 121.2% 66.7%
Sierra Wireless (SWIR) 5.3 523.8 8.9 4.8 3.8 28.6% 85.5% 28.4%
Wavecom (WVCM) 0.8 (10.6) 0.5 0.6 0.5 (50.0%) (12.5%) 22.5%
Ericsson (ERICY) 2.9 (44.8) 3.1 2.9 2.7 (19.2%) 7.4% 8.0%
Motorola (MOT) 1.2 37.8 1.6 1.4 1.4 (0.8%) 8.0% 6.2%
Nokia (NOK) 1.6 11.6 2.2 2.2 2.1 (1.9%) 1.5% 7.9%
palmOne (PLMO) 0.8 30.2 1.2 1.1 1.0 6.4% 7.5% 15.8%
Research in Motion (RIMM) 7.6 (176.5) 14.5 7.3 5.7 65.3% 98.6% 29.0%
Communications Equipment 1.8 40.1 2.4 (5.1%)
Computer Systems & Peripherals 1.0 18.9 1.4 10.2%
Blended 1.3 27.4 1.8 3.4%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

NVTL has strong position in 3G UMTS. Carriers also demonstrating growing interest in NVTL's CDMA and GPRS solutions. UMTS products being deployed by multiple carriers in Asia and Europe during 2004. NVTL is the lead CDMA vendor to Sprint and a key EVDO vendor to Verizon. Carriers in Asia expressing interest in company's GPRS and CDMA solutions. Company will need to address challenge from embedded chip level solutions over the long-term.

Shares are attractively priced on a forward price-multiple-to-growth and on a discounted cash flow basis, particularly vs. direct competitor SWIR which is priced for sustained mid to upper 30% revenue growth assuming improvement to 18-19% operating margin. We would swap out of Sierra Wireless (SWIR 45.03) and Research in Motion (RIMM 109.06) into NVTL.--Ping Yu, Briefing.com

8:43AM Novellus Systems (NVLS) 35.30 Novellus Systems reported Q1 results after the close on Monday. The developer and manufacturer of CVD (chemical vapor deposition ), PVD (physical vapor deposition) and ECD (electrochemical deposition) equipment used for manufacturing semiconductors published EPS of $0.11 on revenue of $262.862MM (+10.3% Y/Y) vs. guidance of $0.08-0.10 on $245-255MM and Reuters Research consensus at $0.10 on $251.97MM. EPS, excluding $2.5MM of pre-tax litigation settlement, was $0.12.

Shipments came in at $311.0MM vs. forecast for shipments of $295-305MM on bookings of $330-340MM. Deferred revenue increased to $153.2MM.

Korea accounted for 25% of sales, the U.S. 22%, Taiwan 19%, Japan 13%, SE Asia 10%, Europe 8% and Greater China 3%.

Gross margin increased 134 bps Y/Y to 47.4%. Operating increased 457 bps Y/Y to 8.8%.

Market conditions remains strong and operating performance continues to improve. Management expects growth to continue to trend higher but at a more moderate, sustained pace. Bookings expected to be $375-390MM and shipments $340-360MM. Guided for EPS of $0.18-0.20 on revenue of $305-325MM (+27.6-36.0% Y/Y) vs. consensus at $0.18 on $292.91MM.

Shares are, based on our inverted EVA / DCF model, priced for sustained lower 30% revenue growth assuming steady Y/Y improvement to 25% operating margin.

The following table shows price multiples and Y/Y growth rates for NVLS compared against the semiconductor components group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Novellus Systems (NVLS) 3.6 (155.9) 5.7 4.3 3.4 4.5% 33.3% 27.9%
Applied Materials (AMAT) 5.7 (400.4) 7.7 4.9 4.0 (2.7%) 74.5% 22.4%
Axcelis Technologies (ACLS) 2.6 (24.5) 3.6 2.2 2.0 4.0% 67.4% 8.7%
Mattson Technology (MTSN) 3.1 (44.2) 4.0 3.1 2.4 (14.3%) 30.3% 26.2%
Semitool (SMTL) 2.7 (18.3) 3.2 2.5 1.5 (9.4%) 26.6% 68.8%
ASM International (ASMI) 1.1 60.4 1.7 1.3 1.0 12.2% 32.2% 27.6%
Semiconductor Capital Equipment 3.1 (242.8) 3.6 (10.5%)
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

Management's upbeat comments likely to help float shares near-term. But we continue to view most of the semiconductor capital equipment group as offering very limited upside and would trade out of NVLS / the semiconductor capital equipment group given unsustainable growth and margin expectations, and above average relative valuations (see Novellus, Story Stocks, February 26, 2004).

NVLS shares are priced above fair value on a discounted cash flow basis and trade at a premium to peers on a relative value basis despite the 23% pullback since November 25, 2003, when we wrote that there is no justifiable upside even if NVLS grew revenue at 30% because the market is already pricing into NVLS shares sustained 30%+ revenue growth and factoring in over 2500 bps in gross and operating margin improvement.

For investors seeking a semiconductor capital equipment play, we would focus on ASM International (ASMI 23.92). ASMI has risen almost 40% since we first mentioned the company on the Tech Stocks page (October 14, 2003) but remains one of the most attractively priced names within the group.--Ping Yu, Briefing.com

http://biz.yahoo.com/mu/story.html

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Amateur Investors Mid Week Market Analysis (4/13/04)

http://www.amateur-investors.com/Mid_Week_Market_Analysis_4_13_04.htm

As mentioned in our Weekend Market Analysis the prospects of rising Interest Rates and high Oil Prices may act as a long term negative for the market. It looks like the market is beginning to realize that this may become a problem down the road.

In the near term the major averages need to hold support near their respective 50 Day EMA's because if they don't then this will likely lead to a retest of the late March lows rather quickly. The Dow closed just below its 50 Day EMA (blue line) near 10400 and if it fails to hold support near this level the next area of short term support would be at its 100 Day EMA (green line) near 10275. If the Dow breaks below 10275 then it will likely drop back to its late March low near 10000 (point A) or its 200 Day EMA (purple line) near 9925.



The Nasdaq needs to hold support at its 50 Day EMA around 2010 to be constructive in the near term. If the Nasdaq fails to hold support near 2010 then the next area of support would be at its 100 Day EMA (green line) near 1990. A drop below 1990 would likely lead to a much bigger fall back to its previous late March low near 1890 (point B) which is also close to the Nasdaq's 200 Day EMA (purple line).



The S&P 500 closed near its 50 Day EMA (blue line) near 1130. If the S&P 500 fails to hold support at its 50 Day EMA then look for the next area of short term support at its 100 Day EMA (green line) near 1110. If the S&P 500 fails to hold support near 1110 then look for a retest of its late March low near 1090 (point C).



Another thing to keep in mind is that the S&P 500 is heavily influenced by the Banking Sector (BKX). A chart of the BKX shows that it's nearing a key short term support area at its 100 Day EMA (green line) near 98. If the BKX breaks below 98 this could lead to a much larger drop back to its 200 Day EMA (purple line) around 94 and also have a significant affect on the S&P 500 so watch the BKX closely over the next few days.



Another key sector to watch is the Semiconductors. The Semiconductor Holders (SMH) are at a key short term support zone in the 40.25 to 40.50 area which coincides with their 50 Day EMA (blue line) and 100 Day EMA (green line). If the SMH's break below 40 this could lead to a quick drop back to their 200 Day EMA (purple line) around 38.25 or their previous late March low just below 37 (point D).



Although I spend a lot of time focusing on stocks for upside potential I also look for those stocks that may provide shorting opportunities as well especially when the market is going through a correction or pullback. One pattern to look for when screening for stocks to short is the "Head and Shoulders Top" pattern.

ALVR is a recent example of a stock that is exhibiting a Head and Shoulders Top pattern and briefly broke below its Neckline today. If ALVR continues lower in the days ahead its next major support area would be at its 200 Day EMA (purple line) just below $10.40 and that is where I would cover my short position if a position was initiated. Meanwhile if ALVR decides to reverse to the upside instead then I would place a Stop Loss Order near the top of its 2nd Shoulder around $13.50 or so.

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Ratio Analysis

One of my favorite types of analysis is ratio analysis, because it tends to reveal when the historical numerical ratio between correlated markets/sectors is at extreme points, and thus, ripe for reversal.

http://www.financialsense.com/Market/wrapup.htm

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Ten detrimental deficits
Connecting the dots on America's financial hole
By Paul B. Farrell, CBS.MarketWatch.com
Last Update: 8:28 PM ET April 12, 2004

ARROYO GRANDE, Calif. (CBS.MW) -- Deficits, deficits, deficits. We hear a lot about "connecting the dots" in the intelligence arena. But nobody's connecting the deficit dots.
Vice president Dick Cheney reminded critics that "Reagan proved deficits don't matter." Maybe he's right. We've dug our way out many times before. But Cheney is only talking about the federal deficit. What about all the many other mounting deficits throughout the American economy? Like Warren Buffett's recent warning about the trade deficit: "We're selling the nation out from under us."
I see at least 10 deficits accumulating. Maybe one or two aren't worth the pessimism Buffett expresses. But taken together, when all the dots are connected, we may be watching a critical mass of multiple domestic deficits, one that will implode and do more damage than any external terrorist threats.
1. Trade deficit
As a result of huge annual trade imbalances, foreigners now own $2.5 trillion of America. And it'll get worse. Buffett using a folksy analogy in Fortune: America is acting like a rich farmer that's consuming more than they produce. To cover the shortfall they sell off big chunks of their land every year and increase the mortgage on what's left. Coincidently, the value of our currency continues dropping in the global market; eventually that'll backfire, triggering trade wars.
2. Federal deficit
Maybe deficits don't matter. But out-of-control spending does. The budget's growing at an annual rate of nine percent, and that's with the party historically against big government in power. Yet neither Congress nor the President has any desire to control spending. Instead, America acts like obese teenage drug addicts with stolen credit cards. Today's $500 billion annual deficits have reversed a one-time projected surplus of $5.6 trillion and will drive America $7.8 trillion in debt by 2011.
A Brookings Institution study warns that if we do nothing for the next 10 years, problems will get so bad that "balancing the budget would require a 41 percent cut in spending on Social Security and Medicare, a 47 percent cut in discretionary spending, or a 17 percent cut in all non-interest spending." The study also predicts that politically nothing will be done until the crisis explodes.
3. Medicare deficit
The Medicare reform bill passed with inadequate prescription drug freebies for voting seniors. The drug cartel got huge benefits including an absurd no-price negotiation clause. Within weeks the White House had to admit the price tag was underestimated; it is $500 billion not $400 billion. Boston University economist Larry Kotlikoff estimates long-term net Medicare debt at $36.6 trillion, and climbing. Politicians will want to give seniors even more, negating any chance of serious reform.
4. Social Security deficit
Social Security will be bankrupt by 2016. Or 2046. Or maybe never, depending on which politicians are jiggling the numbers. Critics blame the tax cuts, warning of $7 trillion shortfalls. But Wharton Economist Jeremy Siegel says a one-percent change in productivity estimates and the problem disappears. Still, the administration promised to privatize Social Security, giving Wall Street access to trillions of new fee-generating assets. Unfortunately, privatization will not take care of the system's underlying structural problems and America's declining savings rate.
5. Savings deficit
We have become a financially obese consumer nation, with little set aside for the future. Since 1980 the savings rate of American citizens has dropped from eight percent to about one percent. Only one in three Americans is saving enough to retire comfortably. The net worth of the average American, exclusive of home equity, is only $15,000. Without Social Security the average person over 65 would be living below the poverty level.
6. Consumer-credit deficit
Easy credit encourages ever increasing consumption. Today consumer debt is about $2 trillion and increasing. That doesn't include home mortgages. Meanwhile, more than one million Americans declare personal bankruptcy annually. We are a nation living beyond its means, mortgaging the future excessively.
7. Energy-oil deficit
Economist Paul Erdman recently wrote: "One of the great geopolitical clichés of our time is that he who controls the supply, and thus also the price, of crude petroleum, is Master of the Universe," but that's no longer true. So far the Iraqi war has produced the opposite result intended. We've driven allies away and hardened alliances among Islamic nations, many of which control the supply and price of oil. More and more we see deficits in our access to oil. The rising price of domestic gasoline is just one consequence.
8. War deficit
We are now engaged in World War III, euphemistically calling it a war on terror. It will continue indefinitely. Unfortunately, the federal budget omits long-term estimates of maintaining 100,000 military in Iraq, another deficit exceeding $1 trillion over the next decade.
9. Credibility deficit
America's international credibility is near zero due to our failure to find the weapons of mass destruction in Iraq. Even our allies don't trust us. And a billion Muslims worldwide now see America as the neo-Christian crusaders attacking their culture. Moreover, the internal political forces that pushed the administration into war with Iraq are now working behind the scenes to escalate this WW III to a new level, by attacking Iran.
10. Humility deficit
Humility? We've lost it. That's lethal. Political historian Kevin Phillips warned us: "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out." And the cost of our arrogance may compound America's multiple deficits for generations to come.
If you're bearish and pessimistic, Buffett offers a tip, he has $31 billion in cash sitting in his Berkshire Hathaway Fund (BRKA: news, chart, profile) because he says there's nothing worth buying. If you're a bullish investor, do nothing -- assuming you have a well-diversified portfolio.
Email us: Do the dots connect for you? Did we miss any? Are you pessimistic or optimistic? Then politics aside, tell us: What do you think about the cumulative impact of all these deficits on America today and our future. What solutions will work?

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Stocks fell for the second straight session on Wednesday, as data on consumer prices fueled fears that inflation could prompt a Federal Reserve rate hike sooner than previously expected. The S&P 500 fell 1 point to 1,128. The DJIA lost 3 point to 10,377. The Nasdaq Composite shed 5 points to 2,024. According to the federal funds futures market at the Chicago Board of Trade, the Federal Reserve's overnight interest rate target will likely rise to 1.75 percent by the end of the year from the current 1 percent. While odds of a rate hike at the May meeting remain low, the odds of hike in June rose to 46 percent from 32 percent earlier, based on the July contract. A rate hike in August is fully priced into the market, with a 32 percent chance of a half-point hike. The market predicts further increases at the September and December meetings. The Federal Reserve next meets to discuss interest rates on May 4.

Strong Sectors: biotech, internet, drug, chemical, transportation

Weak Sectors: metal mining, restaurant, healthcare facilities, iron & steel, financial, homebuilding, utility

Top Stories . . . Prices paid by U.S. consumers in March rose 0.5 percent, a fourth straight increase, boosted by rising energy, transportation and clothing costs. Excluding energy and food, core prices climbed the most in two years.

The U.S. trade deficit narrowed to $42.1 billion in February from a record the previous month as a weaker dollar and improving global economy contributed to the biggest rise in exports in more than seven years.

U.S. Treasury notes fell, pushing the yield on the benchmark 10-year note to the highest this year, after the consumer price index rose more than forecast in March, raising concerns of faster inflation.

Bank of America, the second- biggest U.S. bank, said first-quarter profit rose 11 percent as consumer lending increased and fees from money management and investment banking rose.

HCA, the biggest U.S. hospital chain, said profit for the first quarter fell short of its forecasts and lowered its 2004 outlook because more patients didn't pay bills. The shares fell as much as 11 percent.

Mortgages Numbers . . . Mortgage applications fell for the 4th consecutive drop-off with the applications index falling 22.1%, according to the Mortgage Bankers Association. The purchase index dropped 9.5%, the lowest going back to early January, while refinancing tanked by 30.7%, the largest drop since late July. Thirty-year fixed-rate mortgages bumped up 2 basis points to 5.77% from a week ago, hitting a 3-month high.

Market Comment . . . Rather than a rollover, we are at an upward inflection point in the global economic outlook. The U.S. has moved fully out of its strong-dollar deflation crash of 2000-2001 and Japan is following along. Larger firms have finally started buying inventory and hiring new workers, after lagging behind U.S. small businesses in 2002 and 2003 .

Strong March retail sales (up 1.8% m/m), the upward revisions to January and February, the strength of February inventory growth, and the continued growth in real and nominal wages support our expectation of consumer resilience and a coming snapback in inventories. This should contribute to further hiring and inventory rebuilding, adding to the expansion despite interest rate increases.

The bears contend that U.S. consumption growth depends on tax refunds and mortgage refinancings. We disagree. U.S. consumption growth is more firmly based, depending instead on:

• Real wage and salary income, which has been strong in the last decade as explained below;

• Lifetime income expectations, which have been properly bolstered by productivity growth and the steady 20-year downtrend in the unemployment rate (see No Rollover in Consumption, September 30, 2002); and

• The steadily high savings rate and record household net worth. The government’s misleadingly low “personal savings rate” (1.9% in February) substantially understates actual additions to savings by excluding realized gains on houses, equities and mortgage refinancing payments.

We don’t think mortgage refinancings and tax refunds are key variables in the outlook.

• True, we expect sharp rises in interest rates and bond yields. This will curtail the mortgage refinancing bulge, but we think cash-out refinancings have been overstated as a cause of consumption.

• Also true, the extra tax refunds will stop, but the much more important factor, lower income tax rates and the related gains in disposable income, are likely to last at least through 2010 (assumes a second Bush term).

• Some thought U.S. consumption growth would stop in the fourth quarter of 2003 after the third quarter burst (supposedly driven by rebate checks and cash-out mortgage refinancings). Instead, consumption growth remained steady in the fourth quarter.

• In recent years, disposable income has been bumpier than consumption due to tax changes. Both continue to grow strongly,

Wage Growth Continues

Critics of the 2002-2004 U.S. expansion contend that wage growth has slowed (true) and is now weak (not by historical standards). Part of the confusion is that wage growth is usually expressed in nominal terms, without taking into account the dramatic decline in the inflation rate in the 1980s and 1990s. In addition, we think wage growth was exaggerated in the late 1990s by the 3.8% unemployment extreme.

• In real terms, hourly wages rose 0.5% in the 12 months through March, which is less that the 3% peak growth in 1998 but better than the real wage declines after the 1982 and 1990-1991 recessions. Why did real wage growth hold up so well after the 2001 recession? It was due to the flexibility of the work force, productivity growth, and because the unemployment rate peaked at only 6.3%, much lower than after previous recessions.

• Importantly, the growth in total wages and salaries, a measure which combines wages, the length of the work week and total employment, has revived.

Part-time, Low-paying Jobs?

Some contend that nearly all of the 308,000 net new jobs in the March employment survey were part-time jobs, which increased 296,000. This isn’t correct. It confuses information from two different surveys.. The 308,000 increase was the change in nonfarm payrolls and came from a survey of firms. This survey doesn’t ask whether a job is part-time or full-time. The 296,000 increase in part-time employment is from the household survey, which asks respondents if they are working full or part time. The household survey has been showing a decline in part-time jobs, so March was a catch-up month for part-time jobs.

• In February, part-time jobs fell 277,000 while the establishment survey showed an increase of 46,000, yet that doesn’t mean that part-time jobs were converted into full-time jobs—the data is from two different surveys.

• Over the three months through March, part-time jobs were down 55,000 and over the six months through March it was down 163,000.

• The proper conclusion is that part-time jobs have been declining while full-time employment, whether based on the establishment or household survey, has been rising. Another argument is that the U.S. is substituting lower-paying jobs for higher-paying jobs. This isn’t correct. The share of manufacturing jobs has been declining steadily for 50 years, yet U.S. per capita income has been rising strongly. The key reason behind relative strong wage and salary growth in the face of the weakness in manufacturing employment is that non-manufacturing wages are nearly as high as manufacturing wages.

• In March, average hourly earnings of production workers in manufacturing were $15.16 ($16.01 with overtime) while average hourly earnings in service sector jobs was $15.13.

• Average earnings in service-sector jobs have been, on average, narrowing the gap with manufacturing jobs for at least 20 years and have now almost reached parity.

• When retail and leisure jobs are excluded, service jobs paid $17.20 on average.

• Over the past six months, service jobs excluding retail and leisure have risen by more than 400,000 while manufacturing jobs have fallen 65,000. The lower-paying retail and leisure jobs rose 204,000.

Economy Heating Up . . . The Wall Street Journal carries a front page article on an economy that is gathering, you should pardon the expression, "increased momentum." Everybody is rushing to adjust first-quarter GDP from 4.0%-to-5.0%, and ISI says March will probably be viewed as a turning point for the recovery to broad-based, and self-feeding.

Yesterdays Shakeout . . . .The intense downside reaction yesterday has something to do with the goodies being enjoyed by the 45-year low in short rates. There is the carry trade, where professionals have been borrowing at 1.0%, and getting a return 300 basis points higher. Jim Bianco says the Bond Market is twice as leveraged as it was ten years ago, when the Fed began a tightening round. Also, more and more consumer debt is adjustable. Of the $2.3 trillion increase in consumer debt over the past three years, 44.0% is tied to short-rates, according to macro mavens. But, it is not a given that the Fed is going to tighten by August. Maybe they would want to see a couple of confirming months in job creation, and consumer spending. All of which places enormous focus on April 21st, when Fed Chief Alan Greenspan will appear before the Joint Economic Committee of Congress.

Financials . . . Merrill Lynch downgrades Annaly Mortgage to Neutral from Buy due to the increasing risk of Fed action on short term interest rates. The firm notes that the company's dividend typically comes under pressure as the yield curve flattens, and firm says the more the yield curve flattens as the Fed raises rates, the more pressure they would expect on NLY's dividend. Also, firm says their earnings estimates reflect 100 basis points of rising short-term interest rates over 2005, and should the Fed act sooner, it would likely cause modest short-term pressure on their earnings estimate.

American International was upped to Overweight at Lehman. The upgrade from Equal Weight comes as firm now expects the favorable environment for AIG`s P/C business to be more sustainable than firm originally had thought. Additionally, Lehman thinks life segment earnings are more sustainable than firm did previously due to company's strong position in less competitive distribution channels. Firm's 2004 estimate goes to $4.52 from $4.35 and initiates above-consensus 2005 estimate of $5.31 (consensus $5.13). Price target goes to $92 from $72.

Bank of America reported earnings of $1.83 per share, which includes $0.16 charge to cover mutual fund settlement, $0.04 better than the consensus of $1.79. Revenues rose 5.7% year/year to $9.69 billion versus the $9.80 billion consensus. If one adds back the $0.16 charge, company beat consensus by $0.20. In touch with Reuters to ascertain which actual is comparable to consensus.

Merrill Lynch reported first quarter 2004 operating EPS of $1.22 - 14% ahead of consensus-like estimate of $1.07 per share. Overall, net revenues rose 25% Quarter/Quarter and believe it is important to note the top-line growth at MER, as many doubted the firm’s ability to put up such top-line growth. The firm's record quarterly results were primarily driven by principal transactions. However, MER saw a second consecutive quarterly improvement in investment banking revenue (up 10%) and retail activity (commissions grew 17%) quarter over quarter. In conjunction with MER’s recently announced $2 billion share repurchase plan, the firm repurchased 8.2 million shares for a total of roughly $500 million. Expect the same rate of share repurchases over the remaining three quarters of 2004. Looking ahead, expect organic growth to remain solid and believe MER management will continue functioning with operating discipline. Additionally, would not be surprised to see MER do a bolt-on acquisition, perhaps in order to further automate its trading business. Analysts are raising: 1) 2nd quarter 2004E from $1.05 to $1.17 per share; 2) 2004E from $4.22 to $4.72 per share; and 3) 2005E from $4.70 to $5.30 per share. Reiterate an Outperform rating on MER shares and our $72 yearend 2004 price target. MER shares are currently trading at an unwarranted 10% discount to peers.

Capital One reported March performance data for its auto finance trusts this morning. Overall, the data showed a continued seasonal decrease in delinquencies. All the trust series were in compliance with their respective credit quality and extension rate tests. Of the ten auto loan securitizations, seven have seasoned for ten months or more. All of these securitizations showed a decrease in delinquencies. Extension rates declined in six of the series and remained unchanged in one series, indicating that the decrease in delinquency rates was not attributable to an increase in extensions. Recoveries may have benefited from slightly higher used car prices in March as the Manheim Index increased by 1.7% from February, showing the highest monthly increase in used car prices since July 1998. Although the continued decline in delinquency rates appears to be largely seasonal, the delinquency

Paper . . . Georgia-Pacific issues upside preannouncement for 1st quarter (March), sees EPS of approximately $0.60, excluding a $0.06 charge versus consensus of $0.48. GP cites strong performance in its building products businesses.

Transports . . . Delta Air Lines reported a loss of $3.12 per share, $0.10 worse than the consensus of ($3.02). Revenues rose 4.3% year/year to $3.29 billion versus the $3.33 billion consensus. "This was a disappointing quarter for Delta and there are more challenging times ahead," said Gerald Grinstein, Delta C.E.O.."Continued losses of this magnitude are unsustainable".

Harley-Davidson reported earnings of $0.68 per share, $0.04 better than the Reuters Research consensus of $0.64. Revenues rose 4.7% year/year to $1.17 billion versus the $1.17 billion consensus.

Food & Beverage . . . Pepsi Bottling cut to Equal Weight from Overweight at Morgan Stanley. The downgrade is based on valuation upside relative to firm's beverage coverage universe.

Consumer Products . . . Procter & Gamble cut to Neutral from Buy at Bank of America. The downgrade is based on valuation as stock sits within 1% of firm's $107 price target.

Restaurants . . . The WSJ reports that Global-Dining, a Tokyo-based restaurant chain, is in talks with Krispy Kreme Doughnuts to jointly bring the U.S. doughnut chain's shops to Japan, according to a senior executive at Global-Dining. The Japanese company last met with Krispy Kreme in February at the doughnut maker's headquarters, said Michael Nishi, Global-Dining's CFO. The co is waiting for Krispy Kreme to make a decision about whether to go ahead with the partnership. A spokeswoman for Krispy Kreme said the company is eager to expand in Japan, but declined to discuss any possible tie-ups.

McDonald's cut to Sector Perform at CIBC. The downgrade is based on company's report of weak same-store sales in March. CIBC believes that the shares are hyper-sensitive to comp metric given much more challenging comps starting in May. While U.S. comp deceleration is subtle, it raises macro issues (higher gas prices, food costs) and competitive ones (can MCD comp as well if Burger King is positive too?).

UBS out in defense of McDonalds after the company last night reported disappointing March same store sales in both Europe and the US, causing the stock to fall 3% in after hours trading. US same store sales growth was +10% vs. 11-13% Street expectation with Europe same store sales declining -3% vs. firm's +3% expectation. UBS notes they would be buyers on weakness as they believe the higher than expected EPS growth was driven by stronger than expected margin expansion at company-owned restaurants. The firm also thinks their +3% European SSS estimate in 2Q04 could prove conservative based upon the rollout of salads and other better-for-you menu items in Europe as well as a lessening negative weather impact. They are reiterating their Buy rating with $35 target.

McDonald's guided 1st quarter EPS to be about $0.40, better than $0.38 estimate and consensus of $0.37. Strong EPS guidance even in the face of softer than expected March international sales supports view that MCD is still operating at a below normalized earnings level. March same store sales were strong in the U.S., up 9.9%, exceeding up 9% expectation. But European constant

currency same store sales declined 2.9%, against a down 5.4% comparison. APMEA comps were also softer than expected, up 2.7%, versus down 9.9%. There were negative trade day influences in the month that we were aware of-- down 1% in the U.S., down 2.2% in Europe and down 3.3% in APMEA. MCD offered little color on Europe, but the Salads Plus intro in the U.K. and Germany was not completed until the very end of the month with no advertising until early April. MCD focus in 2004 is on Europe, which has significant earnings leverage. Analysts are concerned about the March sales disappointment in Europe but still anticipate a 2004 turnaround in that key region. Analysts are maintaining above consensus estimates despite the encouraging 1st quarter guidance until European trends are clearer.

Retail . . . CL King maintains their Sell rating on Wild Oats, saying checks indicate that the company is retaining much lower proportions than others of the business gained during the 20 week strike/lockout at the "Big 3" Southern California supermarket chains ended late February.

Banc of America downgrades Target to Neutral from Buy based on valuation, as the stock is trading near their $46 target. While firm says it is clear that the co has seen an inflection point in earnings, those buying the stock today will need to push estimates higher and higher to make the stock work.

Healthcare . . . Tenet Healthcare announced that it has been informed of two unrelated new inquiries being conducted by federal investigators in Southern California. The company said it has received a voluntary document request from the U.S. Attorney's office in Los Angeles seeking information from 1993 to the present about coding and billing practices at the Comprehensive Cancer Center at Tenet's Desert Regional Medical Center in Palm Springs. Separately, co has received a voluntary request for documents from the Los Angeles U.S. Attorney's office primarily seeking information from Jan. 1, 2003 to present about the relationship between Tenet's Centinela Hospital Medical Center and Allied Homecare Consultants.

Barron's Online highlights Visx, which warned in January that the company's first-quarter outlook would fall short of Wall Street's estimates. But according to article, Visx should generate eye-popping growth this year as the economy improves and a new technology boosts revenues. More patients are likely to undergo laser surgery and more doctors should begin using a new system that will generate higher royalties for Visx. As Visx's margins widen in the face of analysts' lowered expectations, its earnings could beat Wall Street's consensus. "If you look at what they are expected to earn this year, it is around 70 cents a share. I think that by 2005, it will be $1.00 a share," says Joseph Garner, director of research for Emerald Asset Management. Known as lasik or refractive laser surgery, this elective surgery costs between $1,800 and $5,000 for both eyes and is not covered by most health plans. Jason Mills, an analyst at First Albany, says Visx shares could fetch a P/E multiple of 28.6x his 2005 earnings estimate of 90 cents a share -- or 26. And Emerald's Garner says it could command 30 times his 2005 earnings estimate of $1 a share, for a target price of 30.

HCA Healthcare now sees 1st quarter EPS of $0.69 versus the consensus of $0.76, to reflect results of company's March "hindsight analysis" of its accounts receivable and a significant increase in uninsured volumes. The company also revises 2004 guidance, now sees EPS of $2.60-2.70, versus the consensus of $2.87 and prior guidance of $2.85-2.95, to reflect a decrease in its previously expected medical liability insurance premium expense of approx $28 million.

Johnson & Johnson reported solid first quarter results. EPS at $0.83 up 20.3% year/year beat estimates by $0.04 and consensus by $0.03. First quarter sales rose 17.7% to a record $11.6 billion, benefiting 5.4% from positive FX. Analysts are increasing 2004 EPS estimate to $2.97 (+12% year/year) from $2.95 previously. This estimate is below management's $3.00 guidance because it now incorporates the assumption of DURAGESIC generic competition from July 2004 on vs. early 2005, as the market takes a more conservative stand on the topic. Total 2004 sales should increase 9% to $45.75 billion. Not much has changed in the J&J story. Competition in key products continues to intensify and the threat of generic pharmaceuticals is increasingly real. While the market has yet to gain real clarity as to how management will successfully offset these near-term risks, cost cutting initiatives are underway which should help fund R&D investment and help sustain EPS growth as well. Still, JNJ continues to exceed expectations, the company has an enviable cash position and balance sheet and JNJ shares trade at compelling valuation levels. Analysts continue to believe that JNJ shares could reach $57 by year-end, as the company delivers solid results and investor's worst case fears don't fully materialize. During 1st quarter 2004, Pharmaceutical and Consumer sales increased 15.2% and 14.3% year/year respectively, exceeding estimates by approx. 5%. MD&D rose 22.9% despite CYPHER sales of $532M versus $606 million estimate.

Drugs . . . Piper Jaffray upgrades Pharmaceutical Resources to Outperform from Market Perform. Yesterday, the company announced both an interesting acquisition and a disappointing 1st quarter report. The firm would use the stock's extended weakness over the past several days as an opportunity for longer-term investors to begin rebuilding positions in this well run emerging generic story. However, CIBC downgrades the stock to Sector Perform from Sector Outperform due to the acquisition, sub-optimal economics in the generic Ribavirin market, and delays in launches of generic Catapres-TTS and Glucovance. Although the stock trades at a 35% discount to the generic group, the name now appears to be more of an 2005 story. The firm's target goes to $59 from $84.

The WSJ reports Pfizer will offer free Viagra pills to loyal users in a move to maintain market share for impotence treatments as new rivals Levitra and Cialis come on the market. After six Viagra prescriptions are filled, the seventh will be free, Pfizer told the Journal. But the plan will only apply to those who pay for Viagra themselves, not for patients whose Viagra purchases are subsidized by insurance, it said.

Biotech . . . Vaxgen reports positive results of animal efficacy studies of Smallpox vaccine candidate.

Media . . . Sanders Morris Harris has a negative note out on Sirius Satellite this morning due to the firm's expectations of 90k subs in 1st quarter, which is below consensus of just over 100k. According to the firm, to get this, SIRI spent an estimate $75 million or $833/new sub, which comes with a payback period well over a decade. In addition, SIRI management gave themselves 65 million shares and options, which at current levels equates to a bonus of over $700/sub in 2003. The firm believes that is a considerable amount of money given the company's monthly rev of $13. SMH believes the company built a massive cash war chest (est. $655 mm at the end of 1st quarter), and are overspending to fuel sub growth.

Knight-Ridder was upped to Overweight from Neutral at JP Morgan based on valuation. According to firm, improving macroeconomic statistics indicate that labor markets are finally beginning to tighten. KRI has the most exposure to the high margin depressed help wanted category of any of the publishing groups. They also have the most relative exposure the increasingly successful online CareerBuilder, where metrics continue to show nice momentum. The firm increases estimates for '04 to $4.00 from $3.86 due to more optimistic estimates for help wanted and retail advertising. According to analyst, KRI is cheap on EV/2004 EBITDA at 10.2x, an 18% discount to peers. It is also undervalued on a private market basis. In addition, KRI has been willing to return capital to shareholders, which should allow for solid returns via dividends, share buy back, and modest EPS growth.

EMS . . . Thomas Weisel previews 1st quarter for the EMS sector. The firm expects strong revenue numbers, reflecting a broad-based recovery in key end markets, but the earnings picture continues to be mixed. The firm believes Flextronics has the best chance to beat its EPS forecast with others making the numbers, but Celestica may struggle. After Jabil, FLEX is clearly the best of the rest. The firm expects Sanmina to meet estimates though there is greater likelihood of top line upside.

Storage . . . Susquehanna Group upgrades Adaptec to Net Positive from Continued Net Neutral as its new product portfolio provides significant upside. Adaptec is on the cusp of a transition. The company is benefiting from the growth in the platforms business and from a technology shift to SATA and SAS from SCSI. Its storage platform business can double in 2005. The firm believes the co has a time-to-market advantage in the iSCSI storage arrays (with SATA drives), and the firm's checks indicate a solid pipeline in this area. Other subsystems including (FC-SATA storage arrays) are also gaining traction.

Network Equipment . . . Thomas Weisel expects Scientific- Atlanta to beat consensus fiscal 3rd quarter rev/EPS estimate of $408.3million/$0.31 and at least meet firms $419.8 million/$0.31 estimate. Firm expects upside to be driven by continued strength in DVR shipments and incremental contributions from previously dormant elements of the customer base. In addition, a higher mix shift toward HD and HD-DVR set-tops means more customers are upgrading. Given the healthy growth outlook over the next couple of years, driven by the DVR upgrade cycle, the potential for upward earnings revisions and the attractive valuation, firm continues to be bullish on the stock.

Schwab SoundView out saying they think Motorola's 1st quarter results will show substantial improvement in handset unit sales, beating their above-consensus 21.7 million unit estimate.

IRG initiates coverage of InterDigital Communications with Buy rating and $27 price target. With many leading wireless OEMs as licensees, the company is well-positioned to benefit from wireless-industry spending as it transitions from 2G to 3G platforms. Catalysts include favorable arbitration resolution with Nokia and Samsung, share gains by current licensees, signing additional licensees, and market acceptance of a full W-CDMA (3G) solution. Firms $27 price target is based on a blended multiple of 2005E EPS. With only one direct comparable (Qualcomm), a peer-group valuation is not possible. InterDigital has a solid balance sheet, with $1.80 in cash per share and little debt. Also, its products typically carry 100% gross margins.

Semiconductors . . . CIBC believes that Linear Tech's quarter and outlook speaks well for its analog peers Maxim, Semtec, Microsemi and Integrated Silicon and lends credence to firm's continuing thesis that high performance analog will outperform and lead the broader semi group in 2004.

Susquehanna upgrades AMD to Net Positive from Net Neutral and raises 1st quarter-2nd quarter estimates above consensus; despite a back-end loaded 1st quarter. The firm believes that AMD should be able to beat consensus revenue of $1.12 billion. The firm says the key driver to AMD's strength in 1st quarter is its flash business, which appears to have come in higher than expected due to strong demand for handsets; also, checks confirm that the company has successfully transitioned its Athlon 64 processors targeting the notebook PC and enterprise markets.

Analyst community in general seeing Intel's earnings and guidance as a non-event with no rating changes or meaningful changes to estimates issued. Smith Barney comments that Intel's results and outlook were somewhere between the bull and bear cases for the occasion -- but the bull and bear cases were not terribly far apart in the first place. Even though guidance implies that Street consensus needs to be trimmed for 2nd quarter, they believe that investors had been widely anticipating that change. They also note that some of the more negative speculation in recent weeks about gross margins did not materialize, which may be a bit of a relief for some investors. JP Morgan out saying they are concerned that Intel's inventory has ballooned to 79 days, the highest level since 1995. Although the company claimed this was due to unexpected yield improvements on its 90nm Prescott products, JP Morgan and several other firms noting this might not be the whole truth and that Intel needs above-seasonal revenue growth during 2nd half 2004 in order to avoid either an inventory write-down or lower utilization rates. On a more positive side, the company commented that it believes inventory levels of notebook processors, which caused the lower-than-expected revenue in 1st quarter 2004, have normalized and Intel is expecting seasonal unit shipment patterns going forward.

Intel’s gross margin in 1st quarter 2004 was notably strong, and was attributed to better than expected yields in its 90- nanometer production. Excluding the settlement charge, which was included in the cost of sales, GM was 62.2%, well above the company's guidance of 60% +/-1%, and above our estimate of 60.8%. On a sequential basis, despite the 7.4% Quarter over Quarter decline in revenues, gross margin in 1st quarter 2004 actually stayed flat, excluding one-time factors. Intel guided for 2nd quarter 2004 revenues of $7.6-$8.2bn (down 2.4% Quarter over Quarter at the mid-point) and gross margin of 60%+/2%. Anlaysts are lowering revenue estimate from $8.05 billion to $8.00 billion and our EPS from $0.28 to $0.27. Analysts are maintaining gross margin estimate at 62.2%. Analysts strongly believe Intel's gross margin guidance is conservative, as revenues are expected to decline by only 1.1% Quarter over Quarter, and expect startup costs for 65nm development to be minimal. In addition, expect 90nm production to increase at a rapid pace and believe yields will continue to improve. The manufacturing story is coming through as we expected and Intel's execution is par excellent. Analysts are maintaining our gross margin estimates for the remainder of this year: our GM for 2004 is now 63.4%, which

remains above Intel’s guidance of 62% +/- a few points. Analysts have lowered revenue estimates slightly from $34.68bn (+15.1% Year over Year) to $34.44bn (+14.3% Year over Year). EPS goes from $1.34 to $1.30, though note that $0.02 of the reduction is due to the legal settlement which we had not factored into estimates previously. Intel shares present a compelling risk-reward ratio in our view, and we reiterate our Outperform rating and $38 price target. Expect recent concerns surrounding the stock to be put to rest as: (1) notebook channel inventory has clearly been worked down, (2) concerns surrounding 90nm delays should be alleviated given the excellent execution in 1st quarter, (3) Intel is clearly starting to regain market share in flash.

Software . . . Amtech reiterates their Buy rating on Take-Two after the company warned and announced the resignation of CEO Jeff Lapin. They believe any weakness in the name today represents a buying opportunity; while the co is changing its publishing schedule with two franchises, firm notes that it has maintained that the next Grand Theft Auto game, San Andreas, is still coming in October. Also, firm notes that the mgmt change comes after what they understand has been internal issues, and even though TTWO changed Lapin's compensation in Dec in an effort to retain him.

Portal Software upped to Sector Outperform at CIBC. Price target is $10. The upgrade reflects likelihood of two possible scenarios, improved financial performance or acquisition candidate, over the next 12-18 months, either of which could present meaningful upside to current stock price and limited downside risk. With respect to the acquisition possibility. The firm believes that following recent contract announcements in CommSoft industry, M&A could now become a more viable way to increase market share - quality of assets and customers and stock's relative valuation could make an attractive acquisition target.

Sprint has significantly expanded its deployment of MicroStrategy's platform, adopting MicroStrategy Report Services, and making MicroStrategy its enterprise-wide business intelligence standard. Sprint is harnessing MicroStrategy for such areas as call-traffic analysis, marketing analysis, financial performance assessments, and Web-traffic analysis.

Take-Two guides below consensus for 2nd quarter (Apr), now sees a loss of $0.15 versus consensus of a $0.34 profit, on revenues of $170 million, consensus $220 million. Cut in guidance is result of moving of launch of Red Dead Revolver game to 3rd quarter from 2nd quarter. The company also reiterates 3rd quarter guidance, still sees EPS of $0.12-0.17 versus consensus of $0.16 on revenues of $180-200 million, consensus is $188.6 million. TTWO also announces Richard Roedel has been named Executive Chairman and Interim C.E.O., following resignation of Jeffrey Lapin as C.E.O.. Take-Two also announces Paul Eibeler has been named President. Eibeler previously served as President and a director of Take-Two from Dec 2000 to June 2003.

JP Morgan upgrades NetIQ to Overweight from Neutral and raises their 2004 estimates above consensus. The firm thinks that a seasonally slower March quarter is in the stock and the earnings picture improves starting in June, which will serve as a catalyst for outperformance. The firm also notes that the stock trades at a discount to peers at 1.8x EV/Sales versus peers at closer to 4.0x.

Hot Items - Check out the "Hot Items" page (updated daily)


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From Briefing.com: 7:26AM LRCX upgraded after strong MarQ at WR Hambrecht 26.82: WR Hambrecht upgrades Lam Research to Buy from Hold and raises its target to $30 from $26 after the co reported a strong MarQ last night. As demand for etch equipment leads other process tools in a cyclical upturn, bookings of $350 mln were up 30% this quarter and guidance calls for another 10%-15% increase in JunQ. Gross margins improved by 80bp and are estimated to improve by more than a point next quarter, with further improvement to 49% in FY:05. Higher margins and accelerating revenue growth lead the firm to increase its FY:04 and FY:05 EPS estimates to $0.49 and $1.63 (from $0.43 and $1.40).

7:23AM MCHP upgraded at Piper Jaffray 26.86: Piper Jaffray upgrades Microchip Tech to Outperform from Mkt Perform and raises their target to $35 from $31; firm believes that top-line growth will accelerate as the co exits the March qtr due to broad-based strength in most of its end markets, and after essentially flat gross margins over the last two years, they believe the co is reaching an inflection point for a resumption in gross margin expansion; also, firm says checks indicate that lead-times have lengthened and are now approaching 6-8 weeks.

7:07AM EMC Corp beats by $0.01, guides Q2 revs above consensus (EMC) 13.2: Reports Q1 (Mar) earnings of $0.07 per share, $0.01 better than the Reuters Research consensus of $0.06; revenues rose 35.2% year/year to $1.87 bln vs the $1.82 bln consensus. Company sees Q2 EPS of $0.08 vs consensus of $0.08 on revenues of $1.950-1.975 bln, consensus $1.91 bln.

6:44AM Artisan Components platform selected by UMC for 90-Nanometer technology (ARTI) 23.31: Co announces that UMC (UMC) has licensed Artisan's Advantage Platform for its 90-nanometer (nm) process technology. The agreement provides system on chip (SoC) designers with proven 90nm design platform targeted for UMC's latest process generation.

6:29AM Fairchild Semi beats by $0.02, ex items (FCS) 25.36: Reports Q1 (Mar) pro forma earnings of $0.17 per share, $0.02 better than the Reuters Research consensus of $0.15; revenues rose 12.6% year/year to $397.8 mln vs the $384.9 mln consensus.

6:10AM European Summary: UK +0.27%, France +0.29%, Germany +0.08% : European stocks trading flattish with consumer-electronics companies such as Royal Philips Electronics NV and Nokia gaining after Apple Computer and Texas Instruments posted quarterly earnings that beat estimates. Sage Plc, the U.K.'s biggest maker of accounting software, climbed close to 4% after saying fiscal first-half pretax profit increased some 17% from a year earlier. Computer accessory maker Logitech (LOGI) announced a share buy-back of up 250 mln Swiss francs ($197 mln) as it posted record annual earnings, and reiterated upbeat results forecasts. Swedish fashion retailer Hennes & Mauritz delivered March sales growth of 7%, well short of expectations, blaming cold weather which hit demand for its spring collection. A consortium led by European aerospace firm EADS is set to win a contract worth up to 4 bln euros ($4.9 bln) from NATO for surveillance aircraft, the Financial Times reported... The dollar steadied near a one-month high versus the yen and held recent gains against other major currencies on Thursday as a run of upbeat U.S. data bolstered expectations of higher U.S. interest rates, Reuters reporting.

http://finance.yahoo.com/mp/q?tqnt

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The DJIA rose, led by pharmaceutical shares Pfizer and Merck, as investors shifted into companies whose earnings will hold up even if higher interest rates slow the economy. Financial stocks dropped as some investors said the Federal Reserve may lift interest rates as soon as September to prevent economic growth from sparking inflation. The DJIA added 19 points (+0.2%) to 10,397. The S&P 500 gained 0.67(+0.1%) to 1128. Health-care shares had the biggest increase among the benchmark's 10 industry groups. The Nasdaq, which gets 39 percent of its value from computer-related stocks, dropped 22 points (-1.1%) to 2002. About the same number of stocks rose and fell on the New York Stock Exchange. Some 1.57 billion shares changed hands on the Big Board, 5.4 percent more than the same time a week ago. Two stronger-than-expected manufacturing reports helped lift the S&P 500, which is up 41 percent since its 2003 low. Financial shares fell on concern rising interest rates will reduce the value of their bond holdings and crimp demand for mortgages and loans. An index of 83 banks, insurers and brokers in the S&P 500 lost 0.6 percent, extending its decline this week to 3.3 percent.

Strong Sectors: real estate operations, drug, gold, oil services, coal
Weak Sectors: internet, networking, semiconductor, software, telecom, storage, insurance, retail, iron & steel

Top Stories . . . A gauge of manufacturing in New York state rose more than expected this month as companies stepped up hiring to fill increased orders, signaling continued expansion, a Federal Reserve survey showed.

Manufacturing in the Philadelphia region expanded at a faster pace than expected this month as new orders and shipments improved.

The number of Americans filing initial claims for jobless benefits rose to 360,000 last week, a 30,000 increase that was the biggest in more than a year.

International Business Machines, the world's largest computer maker, said first-quarter sales and profit rose as companies bought more machines, software and related services.

Citigroup, the world's largest financial-services company, said earnings rose 29 percent to a quarterly record, boosted by higher fees on credit cards, loans to consumers and share sales.

EnCana, Canada's largest natural-gas producer, agreed to buy Tom Brown for $2.35 billion in cash to boost output in the U.S.

EMC., the world's largest maker of computer data-storage software, said first-quarter profit almost quadrupled as sales rose 35 percent, helped by acquisitions and new products.

PepsiCo, the world's second- largest soft-drink maker, said first-quarter earnings rose 15 percent as new Gatorade flavors and advertising for Lays snacks fueled the biggest sales increase in two years.

Southwest Airlines increased first-quarter profit and Continental Airlines narrowed its loss as more people flew than at the start of 2003, when the Iraq war and the SARS virus reduced travel.

Quotes of Note . . . ``What we're seeing today is more rotation than anything, specifically out of financial stocks. What's preventing us from falling further from here is the market's ability to rotate into other groups'' like health-care companies”. Peter Boockvar, equity strategist at Miller Tabak.

``The Fed is not going to be as easy and profit growth is decelerating. People are looking toward larger stocks with longer-term earnings growth.'' George Burwell, a money manager at Chartwell Investment Partners, which has $7 billion in assets in Berwyn, Pennsylvania.

Gurus . . . Even as these excellent quarterly results roll in, Ned Davis worries about a possible profit margin erosion. While the slow down indication can be early, at current valuations, we don't need any problem with earnings.

What works in 2004 . . . The Wall Street Journal says that dividend paying stocks are getting a bigger play, and that quality dividend names will be the way to go in 2004. Meanwhile, as tax day arrives, USA Today says tax refunds are not as large as expected.

All about Interest Rates . . . Robert Parry, the outgoing President of the San Francisco Fed, told a California conference that the Fed would not become excessively concerned about accelerating inflation until there is a series of increases. In other words, bonds recently have gone berserk, based on one retail sales report, and one inflation statement.

A Bloomberg poll of the 23 primary dealers finds Lehman predicting a September increase, Banc of America guessing August, while Bank One agrees on September. No one is talking May 4th, the next Fed meeting. We acknowledge the discounting process, but three months is far out.

Inflation . . . Wednesday’s CPI data showed evidence of rising inflation. It is not a fluke.

• The dollar has weakened roughly 30% since the end of 2001, stopping the deflation and putting upward pressure on prices.

• Inflation is not dependent on capacity constraints. U.S. prices, including core CPI prices, are more related to the value of the dollar than to other factors.

• The uncertainty stemming from the Fed’s 1% interest rate is a bigger risk -- to the economy and equity markets -- than a rate hike would be.

• Higher inflation would actually be good news if it served to break the Fed out of its 1% paralysis. Rate hikes would help head off a bigger inflation later on. For now, however, higher inflation is mostly a negative – it doesn’t clarify the timing of rate hikes, stop the damage from the 1% rate, or end the uncertainty about the impact of a rate hike.

Caveats

Investors need to understand the unique nature of the economic environment, a multi-year bowl-shaped deflation/inflation process rather than a business cycle.

• No one has any experience with a prolonged 1% interest rate, rate hikes at this low a level, or the record levels of debt and leverage.

• No one knows how much CPI inflation will occur. U.S. prices were sticky on the downside during the deflation but the dollar has weakened substantially since then. U.S. awareness of inflation risks was intense in the 1970s, but declined in the 1980s and 1990s, so it’s unclear how quickly prices and inflation expectations will react..

• No one knows how much inventory the world will want to stock now that the 1980-2001 disinflation process is over.

Our View

• Fed funds futures have now priced in a rate hike in August. Some economists hold open the possibility of a June hike in the event of strong economic or inflation data in April.

• It’s easy for the Fed to accelerate the timing of the interest rate hike. At the Chairman’s discretion, it can hint at hikes, causing the market to price in hikes and then allowing the Fed to follow the market.

• Expect a mild inflation problem over the next several years, higher interest rates, and also strong growth in GDP and corporate profits. Expect further overshoots in commodity prices and demand as the inventory rebuilding process gathers pace.

• We don’t think the latest evidence of inflation, or even the first interest rate hike, will cause a fundamental change in the environment. Expect the “free-lunch” to continue for as much as a year until the Fed shows signs of moving interest rates to neutral. In the meantime, monetary policy will still lag, meaning that it will remain loose and stimulative even as rates are rising. Just as deflation perceptions deepened during the 2001 interest rate cuts, we expect inflation perceptions to worsen a bit more as interest rates rise.

• There was a harsh stress test of higher bond yields in July 2003, with little fallout beyond the bond market losses. As bond yields rose, equities went sideways, waiting for more economic news.

• We don’t think politics is a critical factor in the timing of the rate hikes. Economic data, plus Chairman Greenspan’s thinking on inflation and risk, are the keys. Some will blame the interest rate hikes on the fiscal deficit, making them a political issue. The rate hikes will be evidence of a strengthening economy. Election research shows that voting is affected by GDP growth more than other economic factors and that the incumbent does better when interest rates are rising.

Financials . . . Citigroup reported earnings of $0.98 per share, which excludes a $0.03 gain, $0.03 better than the consensus of $0.95. Revenues rose 15.9% year/year to $21.49 billion versus the $21.47 billion consensus.



The WSJ's "Ahead of the Tape" column discusses bank stocks that may be good buys as interest rates start to rise. According to the article, the banks that have been most aggressively playing the rate curve in the "carry" trade, in which they lend for the long term and borrow at low-cost short-term rates, are obvious candidates to shun. The problem is that this is pretty much every large financial institution, as evidenced by the huge rise in mortgage-backed securities purchases among big banks, according to FED data. But some are more vulnerable than others. According to the article, Investors Financial Services and New York Community Bancorp are among those that have attracted skeptics. The drawback is that the skeptical view on these names has been well aired. One question is how well the consumer will weather higher interest rates. Investors are worried about that, sending stocks such as MBNA and Capital One Financial down almost 3% yesterday. But if they believe the economy is getting better, that means wages and employment will firm up. That could easily offset a gradual rise in rates and suggests that even if those company's are expensive, they won't be hurt substantially in a new higher rate environment.

Bank of America after it reported first quarter earnings of $1.83 per share, $0.03 above the consensus mean. This quarter demonstrated the strength of the franchise, with 7% revenue growth and continuing improvements in credit quality and loan growth. The reported EPS number as more or less in line with core or operating earnings. The cost of the mutual fund investigation and

brokerage settlement of $285 million coupled with the $275 million write-down in mortgage banking assets were largely offset by $495 million in securities gains taken in the quarter. Vice Chairman James Hance indicated on the conference call that the bank expects to achieve deeper cost savings from the FleetBoston acquisition, as evidenced by the new targeted full-year run-rate cost savings range of $1.1 billion - $1.375 billion, up from the previously stated goal of $1.1 billion. He also suggested that cost savings in 2004, which were originally estimated to be $250 million, could be as much as three times that number as a result of the earlier-than-anticipated closing of the deal and more cost cuts that could be achieved this year. Analysts are maintaining our above-consensus operating earnings estimates of $7.30 per share for 2004 (versus current consensus mean of $7.18) and $8.15 per share for 2005 because these developments are generally in line with what drove our higher estimates previously. Analysts are raising cash EPS estimates, which we calculate as operating earnings adding back intangible amortization expense related to acquisitions, to $7.53 for 2004 and $8.41 for 2005 because of higher expected intangible amortization expense as disclosed in Bank of America’s latest proforma estimates. Analysts are raising our price target, which is based on 2004 cash earnings estimate and target multiple for Bank of America of 12.5, to $94 from $93.

Transports . . . Southwest Air reported earnings of $0.03 per share, which includes an $18 million charge that was not included in analysts' estimates. On CNBC, C.E.O. says that excluding charge, company "met First Call consensus". First Call consensus is $0.04. Revenues rose 9.8% year/year to $1.48 billion versus the $1.47 billion consensus.

FTN Midwest downgrades Harley Davidson to Neutral from Trading Buy, saying the near-term catalyst of stronger than expected Q1 retail has played out; in addition, firm says their long-term thesis remains that limited motorcycle production capacity will prevent significant EPS upside from the company's core motorcycle business (~80% of sales), and given that the actual motorcycle shipment number generally does not differ materially from guidance, they feel there is limited upside to EPS coming from unit shipments.

Continental Air reported a loss of $1.36 per share, $0.03 better than the consensus of ($1.39) and $0.07 better than the consensus of ($1.43). Revenues rose 11.1% year/year to $2.27 billion versus the $2.26 billion consensus.

Prudential believes Delta Airlines will likely be facing a difficult period of comparison relative to peer players. The firm thinks company faces significant challenges with the uncertainty of market pricing, a noncompetitive cost structure, the possibility of sustained fuel prices amidst an absent hedge position, and continued unsustainable losses. Analyst lowers 2004 EPS estimate to -$6.33 from -$5.96. Target price moves to $7 from $11.

ExpressJet reported earnings of $0.53 per share, $0.03 better than the consensus of $0.50. Revenues rose 18.7% year/year to $364.0 million versus the $352.9 million consensus.

Food & Beverage . . . PepsiCo reported earnings of $0.46 per share, in line with the consensus of $0.46. Revenues rose 10.9% year/year to $6.13 billion versus the $6.03 billion consensus. The company guides 2004, sees EPS of approx $2.29 versus the consensus of $2.30. The company also increases its annual dividend by 44%, from $0.64 to $0.92 per share.

Retail . . . UBS believes that weak mortgage application indices are negative for Home Depot and Lowes.

The Washington Post's tech section reports that Amazon.com quietly launched an Internet search service Wednesday, jumping into a marketplace already crowded with offerings from Google, Yahoo! and Microsoft. The service, in test mode for now, is operated by a Palo Alto-based subsidiary and branded separately. Like its competitors, Amazon's A9.com offers both a Web site and an Internet Explorer toolbar from which users can enter search terms. Searches also can be limited to just Amazon.com products, as well as the text of books available at Amazon.com. A9's service relies heavily on Google, which supplies many of the search results, and Amazon's Alexa subsidiary, which provides traffic, related sites and other information on specific Web sites.

UBS says that Abercrombie's April sales will likely by soft; even though the company likely started April strongly given the residual clearance activity and resurgence in mall traffic and more seasonal weather. They believe that lean inventories are likely to hold back results; and while they believe there is modest upside in gross margin. The firm thinks the weak sales trend increases the likelihood of negative leverage on occupancy costs and SG&A. Raises target to $38 from $36.

Barron's Online highlights auto part chains, such as AutoZone and O'Reilly Automotive, as the recent selloff may create some buying opportunities in these rapidly growing retailers. "More people are driving, resulting in more people working on their cars, and more miles being driven per year per vehicle," proclaims Cid Wilson, an analyst with Whitaker Sec. And because cars are generally made better and last longer these days, that's good news for auto parts dealers."Older cars need more frequent repairs" says Michael Cox, analyst with Piper Jaffray. Also, more people will visit body shops to replace and update parts because of wear and tear, and that helps auto parts retailers' commercial business. The popularity of SUVs bodes well for these retailers, too, since SUV parts can cost up to 50% more than parts for smaller vehicles. Total sales for the auto parts market is estimated at $180 bln, and they're growing at 4% annually, says Christopher Svezia, analyst with Wells Fargo. AutoZone stock has fallen 20% off its 52-w high, and it now sells at only 12.5x earnings for the fiscal year. That's below its long-term annual earnings growth rate of 15%, so its PEG rate is an eye-catching 0.84. O'Reilly Automotive trades 11.5% off its 52-w high, sports a P/E multiple that's still below its 20% projected annual long-term earnings growth rate. And it's trading at a slight discount to its median P/E of 19x projected earnings for the last five years.

Healthcare . . . UnitedHealth Group reported earnings of $0.88 per share, $0.01 better than the consensus of $0.87. Revenues rose 16.8% year/year to $8.14 billion versus the $8.25 billion consensus. The company now sees 2004 EPS guidance of $3.75-3.78 versus the consensus of $3.75.

Biotech . . . Cepheid has been granted an export license for its GeneXpert Anthrax test cartridge and GeneXpert system by the US State Department in accordance with export regulations, including ITAR (International Traffic in Arms Regulations - 22 C.F.R. 120 - 130). The export license provides Government clearance for Cepheid to market its state-of-the-art technology for biothreat use to specific government agencies in the United Kingdom, Germany, France, Belgium and Switzerland. The system has been designed to enable users to rapidly and accurately detect the potential presence of anthrax, going from raw specimen to result in as little as 30 minutes.

Corcept Therapeutics priced its IPO at $12 late yesterday, and traded for the last hour on Wed, opening at $12.25. The $12 pricing was below the expected $15-$17 range. It's rare to see an IPO price and open so late in the day which allowed it to slip past us. Some traders like these late openers as they trade well the next day thanks to a lack of initial exposure. However, the pricing was poor as the supply of biotech/pharma IPOs in 2004 has outpaced demand... The co makes drugs to treat severe psychiatric and neurological diseases. Its lead product candidate, Corlux, is currently in Phase III clinical trials and has been granted "fast track" status by the FDA for the treatment of the psychotic features of psychotic major depression, a disorder that affects 3 million people in the US each year and for which there are no FDA-approved treatments. The company has also initiated a clinical study to evaluate the tolerability and efficacy of Corlux in improving cognition in patients with mild to moderate Alzheimer's disease. This is a 5 million share deal, led by Thomas Weisel and Piper Jaffray.

Media . . . Knight-Ridder reported earnings of $0.70 per share, $0.03 better than the consensus of $0.67. Revenues rose 1.9% year/year to $712.3 million versus the $704.3 million consensus.

Merrill Lynch out positive on Pixar saying they believe underlying fundamentals and importantly, investor sentiment, will continue to improve over the balance of the year; several catalysts ahead, reiterating Buy, 78 target.

Goldman Sachs expects CNET Networks to be weak and would take profits as firm believes valuation is ahead of the fundamentals. Firm also cautions investors invested in other second tier online ad driven companies in the hope that these companies would see the level of growth and outperformance similar to Yahoo!

Tribune reported earnings of $0.40 per share, excluding a $0.05 charge, $0.03 worse than the consensus of $0.43. Revenues rose 3.3% year/year to $1.33 billion versus the $1.34 billion consensus.

CSFB maintains their Outperform rating on CNET and raises their target to $17 from $11 after the company reported stronger than expected 1st quarter results. The firm views the stock as a high growth Internet media play with significant leverage to the increasing momentum of the advertising recovery. The firm also believes it is relatively early in the advertising cycle generally, and in the tech ad cycle specifically, and that will be the ultimate driver and catalyst for the eventual earnings power of the company and the stock price as well.

Telecom . . . Covad and Qwest Communications sign a 3-year commercial line sharing agreement. The agreement enables Covad to continue to offer high-speed DSL service to thousands of small and medium businesses and home users in the seven states within the Qwest region where Covad offers service. The co notes that this marks the first time a competitive communications carrier and a regional Bell operating company have negotiated commercial terms for access to line sharing since the FCC's Triennial Review decision.

The WSJ's "Tracking the Numbers" column reports that shareholders of cellular carrier Nextel Communications who care about executive pay dug into the company's proxy statement last week and found out that Timothy M. Donahue, Nextel's president and chief executive, took home a hefty pay package in 2003 of nearly $30 million. In Mr. Donahue's case, a Form 4 shows that he was awarded 1 million restricted Nextel shares last August. That exercise ends up with a grant valued at $17.9 million. Mr. Donahue was also awarded options on an additional 400,000 Nextel shares in February 2003.

IT Services . . . Unisys reported earnings of $0.13 per share, excluding impact of pension accounting, $0.04 better than the consensus of $0.09. Revenues rose 4.6% year/year to $1.46 billion versus the $1.46 billion consensus. The company also reaffirms 2004 EPS guidance of $0.83-0.87, excluding impact of pension accounting, versus the consensus of $0.71.

EMS . . . Solectron held an upbeat Analyst meeting at the New York Stock Exchange yesterday. Management reiterated May quarter revenue guidance of $2.9 - $3.2B (up 6% Quarter/Quarter) and EPS of ($0.02) - $0.01, maintained that the gross margin and free cash flow would be up Quarter/Quarter in May (as anticipated in our preview), and outlined a compelling roadmap to

an incremental 650-800 bps of gross margin over the current 4.5%. SLR provided convincing detail of its changing approach to its core manufacturing competency with its recent introduction of Lean Six Sigma which is focused on eliminating labor, and overhead transformation costs (15-20% of COGS). Typical lean implementations reduce transformation costs by 20-30% over 18-24 months yielding a potential 300-600bps margin opportunity (some shared with OEMs). SLR also highlighted other key gross margin initiatives which we estimate as another 350 bps opportunity

including: (1) more disciplined quoting process for new business (200bps of improvement on new business ramps), (2) increased capacity utilization, (3) leveraging design, (4) renegotiating pricing on select contracts, and (5) changing sales compensation to be profitability focused. Analysts have increased confidence in normalized EPS estimate of $0.42. The 650-800 bps of gross margin opportunity are more than enough to double the current 4.5% gross margin and allow management to achieve its target of a 4-5% EBIT margin and 11-18% after-tax ROTIC exiting 2005. SLR would need only a 2.2% EBIT margin to reach its ROTIC target in today's zero tax environment. SLR's stock is down 5% YTD, but down 32% from its Jan 20 high of $8.20. SLR is currently trading at 18x 2005 EPS estimate of $0.31 which is a 22% discount to the EMS group average of 23x, and only 13x our normalized EPS estimate of $0.42. A $9 target price is 21x our normalized EPS estimate, 28x our 2005 EPS estimate of $0.31, and below $11 DCF.

Network Equipment . . . SG Cowen comments that Redback Networks exceeded expectations on many fronts, giving firm increasing confidence with respect to Redback Network's ability to capitalize on the growing DSL market and achieve break even by year-end. SG Cowen believes shares should outperform market given solid initial execution and firm's expectation that company will turn profitable by year's end. RBAK is one of firm's favorite names and would recommend adding to positions.

Thomas Weisel believes Extreme Networks estimates remain too optimistic, and that significant DSO rise and departure of head of sales add wrinkles.

Schwab Soundview says that Texas Instrument’s 50% sequential growth in Digital Light Processing chips as well as commentary on strong demand reflects positively on JDS Uniphase, which supplies sealants and lenses for D.L.P. display products and suggests an area that might provide upside to rev at JDSU this quarter. Firm says TXN's commentary on D.L.P. growth highlights an area of investment for JDSU that they expect is a theme over the next 18 months -- light engines and optical components for high definition projection TVs -- since TXN's DLP chips are increasingly used in large rear projection display TVs, and JDSU benefits as a supplier.

The WSJ reports that even though the cellphone market is booming, Nokia is facing a third year in succession with no growth in sales amid increasing signs that competitors are narrowing its long-held market lead. Nokia, which is due to report its full 1st Quarter results tomorrow, remains the world's largest handset maker. But it shocked investors last week by warning that its revenue in the quarter declined 2% to €6.6 billion ($7.9 billion) because of currency movements and a loss of market share. Nokia may be able to win back market share in the second half of this year, but many observers expect growth in the handset market to have slowed by then. Some analysts are now forecasting that Nokia's sales will be flat this year, while others anticipate a decline of as much as 5% to less than €28 billion from €29.46 billion in 2003. Although cost-cutting means Nokia's net profit may still rise this year, another decline in annual revenue would be a big blow to the company's efforts to convince investors that it is a growth stock. Kulbinder Garcha, a London-based analyst with CSFB, says this is the first time that Nokia has had to contend with "the four players below them executing effectively at the same time."

Storage . . . EMC reported earnings of $0.07 per share, $0.01 better than the consensus of $0.06. Revenues rose 35.2% year/year to $1.87 billion versus the $1.82 billion consensus. The company sees 2nd quarter EPS of $0.08 versus consensus of $0.08 on revenues of $1.950-1.975 billion versus consensus $1.91 billion.

WR Hambrecht upgrades Lam Research to Buy from Hold and raises its target to $30 from $26 after the company reported a strong March quarter last night. As demand for etch equipment leads other process tools in a cyclical upturn, bookings of $350 million were up 30% this quarter and guidance calls for another 10%-15% increase in June Quarter. Gross margins improved by 80bp and are estimated to improve by more than a point next quarter, with further improvement to 49% in 2005. Higher margins and accelerating revenue growth lead the firm to increase its 2004 and 2005 EPS estimates to $0.49 and $1.63 (from $0.43 and $1.40).

Semiconductor Equipment . . . Artisan Components announced that UMC has licensed Artisan's Advantage Platform for its 90-nanometer (nm) process technology. The agreement provides system on chip (SoC) designers with proven 90nm design platform targeted for UMC's latest process generation.

Semiconductors . . . Fairchild Semi reported pro forma earnings of $0.17 per share, $0.02 better than the consensus of $0.15. Revenues rose 12.6% year/year to $397.8 million versus the $384.9 million consensus.

Piper Jaffray upgrades Microchip Tech to Outperform from Market Perform and raises their target to $35 from $31. The firm believes that top-line growth will accelerate as the co exits the March quarter due to broad-based strength in most of its end markets, and after essentially flat gross margins over the last two years, they believe the company is reaching an inflection point for a resumption in gross margin expansion. Also, firm says checks indicate that lead-times have lengthened and are now approaching 6-8 weeks.

AMD reported strong revenues and earnings which were driven by a 11% Quarter over Quarter revenue increase in Flash and a less than seasonal revenue decrease of 2% Quarter over Quarter in MPU. AMD reported revenues of $1.236 billion higher than estimates of $1.195 billion and consensus of $1.172 billion. EPS of $0.12 came in higher than our estimate of $0.04 and consensus of $0.03. AMD saw its GM increase by 240bp from 35.4% to 37.8%. Guidance for 2nd quarter was stronger than consensus. AMD guided for a flat Quarter over Quarter revenues. In the

Flash business AMD expects sales to be modestly up for the quarter. With regards to microprocessors, AMD believes that revenues will be down within industry seasonal patterns. Going into earnings, analysts had expected that AMD would beat 1st quarter estimates and provide strong/aggressive guidance. With regards to Flash, AMD has shown strong performance in 1st quarter on the heels of growth in both low density flash and high density Mirrorbit flash. Though, AMD’s flash guidance is impressive, Intel had signaled significant price cuts on the high density NOR flash which may make this flash strength temporary. Though AMDs microprocessor ASP gains are impressive in 1st quarter and we expect further ASP gains in 2nd quarter, analysts are not expecting market share gains in 2nd quarter as units are expected to decline by more than seasonality. With regards to its product mix, AMD continues to successfully ramp up its 64-bit MPU family which we estimate comprised about 8% of total MPU units shipped in 1st quarter. However, with Intel's 64 bit processors ramping, AMD's ability to increase ASPs in 3rd quarter will be challenging. Although analysts are raising 2nd quarter EPS estimates from $0.01 to $0.08 and for 2004 and 2005 from $0.25 to $0.48 and $0.40 to $0.58 respectively , we are maintaining our Peer Perform rating because: 1) The strong 2nd quarter guidance is already priced into the stock; 2) Intel has significant cost advantage over AMD given its lead in 300mm

and 90nm technologies and 3) AMD’s ability to gain market share in desktop or server MPUs is remote despite its 64-bit efforts.

Analysts generally positively surprised by Advanced Micro's results with some seeing current strength offering a short-term trading opportunity to the upside. Yet, even the positive ones note that expectations on AMD might be getting ahead of what an investor should reasonably expect and believe the stock could see some weakness post the positive digestion of the 1st quarter upside. CSFB is out raising their 2004 estimates from $4.9 billion and $0.39 to $5.3 billion and $0.67 and 2005 from $5.2 billion and $0.44 to $5.6 billion and $0.62. They believe the stock can continue to benefit near-term off richer PC mix and Flash demand although still see risks including execution and competitive threats longer from Intel MPU's and a more crowded space in flash memory. Also, SG Cowen raising their estimates and noting they believe that there is a near- term trading opportunity in AMD stock that they expect to last through the end of 2nd quarter. By 3rd quarter the firm believes AMD is likely to underperform due to increasing competition in the flash market from Intel and others, below-industry growth prospects caused by weak competitive positioning in both emerging markets and notebook processors, and the high relative valuation.

NVIDIA cut to Hold from Buy at Wedbush Morgan. The firm is downgrading stock b/c current valuation is not compelling enough even on firm's well above consensus 2005/2006 EPS estimates of $1.10/$1.30 respectively (consensus estimates are $0.68/$0.99). Currently, it is selling at P/E of 20x firm's 2005 estimate vs ATI's (ATYT) 15x..

Texas Instruments reported 1st quarter revenue and EPS at the high end of guidance and in line with consensus as a result of stronger than seasonal growth in its semi business in general and in its high performance Analog and catalog DSP in specific. Guidance for 2nd quarter was stronger than consensus. Revenue had a mid point of $3.205 billion compared to estimate of $3.101 billion, and EPS was $0.23-0.26 versus $0.23 estimate. With regards to wireless, due to TI’s consignment inventory program with Nokia there is no inventory impact on TI. Analysts are estimating a 2.2% Quarter over Quarter wireless revenue increase in 2nd quarter as the weakness in Nokia is more than offset by market share gains at SonyEricsson and LG, continued increase of overall wireless silicon BOM per handset and strength in wireless infrastructure. In 1st quarter, TI experienced strong demand in both standard logic and linear devices and has had its customers on allocation since early March. The strength in standard logic ASPs will have a stronger impact on rev in 2nd quarter than in 1st quarter because of the time lag between bookings and shipping. High-performance analog was particularly strong in 1st quarter where TI experienced market share gains, and we expect this to continue into 2nd quarter 2004. Analysts are raising 2nd quarter revenues from $3.101 billion to 3.205 billion and our EPs estimates from $0.23 to $0.25 on the heels of improving commodity analog and logic ASPs, strength in high-performance analog and improving demand for logic (MCU, DLP etc.). In addition analysts are raising 2004 and 2005 EPS estimates from $0.99 to $1.03 and from $1.33 to $1.37 respectively. TI could hit a price target of $38 because of: 1) leading analog and DSP capabilities with exposure to high growth semi segments; 2) shift to 2.5G and 3G favors TI’s wireless product portfolio; 3) ability to gain market share in wireless . In 2nd quarter TI is to benefit from strength in all semiconductor

segments, particularly in analog and commodity products. Its results demonstrate that it can easily overcome any weakness in Nokia through its other legs.

Boxmakers . . . Silicon Graphics sells Alias Software to private equity investment firm Accel-KKR for $57.5 million in cash. The transaction is expected to close in the current quarter, and SGI expects to realize approx $50 million in net proceeds after working capital adjustments and transaction costs. SGI had previously announced in Feb that it was in negotiations to sell the Alias subsidiary.

Apple handily beat estimates from record iPod shipments and some counter-seasonal strength in consumer PCs and again provided favorable forward guidance. While it's now the fourth consecutive quarter of above-consensus results and outlook, analysts are maintaining a Peer Perform rating on valuation which seems to already reflect investor optimism on iPod. AAPL reported 2Q04 EPS of $0.14 (vs. $0.04), above our and consensus EPS of $0.09, based on higher revenues of $1.91billion (vs. $1.48 billion). Highlights included strength in iPod (record units of 807K) as well as counter-seasonal stability in consumer PCs (iBook/iMac revs were flat Quarter/Quarter), while Power Mac G5 units (down 16% Quarter/Quarter) stalled further which Apple attributed to inventory reduction. On a positive note, AAPL’s results benefited from more synchronized strength across its business along with continued pent-up demand for iPod, and we see further potential 2H catalysts (iPod from H-P, new iMac, Power Mac G5 speed bump). Conversely, our concerns are that the G5 cycle has disappointed, Apple is still ceding PC share (units up just 5%) and at some point iPod supply will catch demand. Analysts are raising estimates for 2004 from $0.50 to $0.65 in EPS (vs. $0.20) on higher revenues of $7.9 billion, up 28% Year/Year and for 2005 from $0.65 to $0.80 on revenues of $8.8bn, up 11% Year/Year. Also, we’re initiating an 2006 EPS estimate of $0.95 on revenues of $9.6bn, up 9% Year/Year. For 3rd quarter 2004, EPS goes from $0.11 to $0.15 (versus $0.05) on revenues of $1.93 billion (vs. $1.55 billion) versus guidance of $0.14-$0.15 on $1.925 billion. As to valuation, if we apply a 25x multiple on 2005 operating EPS of $0.74 and add back “excess” cash of around $10, we arrive at a fair value of $29, in line with AAPL’s after-market price. A 25x multiple is warranted as it’s a discount to target multiple on Dell which is twice as profitable with more engines of growth, though Apple's momentum could provide further business upsides.

Analysts astonished by the magnitude by which Apple managed to surpass their expectations as strong iPod and iBook sales kicked in. We are seeing firms raise their 2004 and even 2005 estimates significantly as they see iPods becoming significant contributor to Apple's revenue stream, accounting for about 22% of sales in 2nd quarter 2004 vs. about 13% in the prior quarter and only 2.0% in 2nd quarter 2003. Among the more positive firms, UBS is raising their 2004 EPS estimate to $0.65 from $0.46 with 2005 going to $0.80 from $0.60. Price target goes to $35 from $30. Yet, we think it's also worth noting the co saw weakness in its PowerMac line with the long-awaited upgrade cycle still lagging expectations. As the most important source of long-term profits for Apple, one would expect market participants to take note. Prudential among the more negative one's out noting that if one strips out excess cash and interest income from the operating earnings calculation, at $29 Apple is trading 29x 2005 EPS estimate. By point of contrast, Dell is currently trading at 28.5x current 2006 (CY05) earnings estimate. They would expect the shares to trade back down once the euphoria and the momentum begins to subside. Firm sees fair value at $25.

Software . . . Network Associates was upped to Buy from Hold at Legg Mason. The upgrade is based on four reasons: 1) the firm believes NET will post solid 1st quarter 2004 results and that there is the potential for an upward revision to Street estimates or improved visibility on current estimates at the least; 2) belief that NET will look to sell/divest Sniffer over the next few quarters, which the firm estimates will be neutral at worst and positive from an investor perception perspective; 3) opinion that NET could look to buy back its outstanding convertible debt, which would be accretive even at its current premium to par and; 4) combination that the first three factors could put upward pressure on the Street's 2005 consensus est of $0.83 and could get the Street looking to a potential of $1.00 in EPS in 2005. Applying a 25 multiple to $1.00 in EPS potential yields $25 or over 30% potential upside from current levels.

The New York Times reports that RealNetworks made a direct appeal last week to Apple Computer, suggesting that the two company's form a common front against Microsoft in the digital music business. The offer to create a "tactical alliance" was made by Rob Glaser, CEO of RealNetworks in an e-mail message to Steven P. Jobs, Apple's chairman. But if an alliance with Apple could not be struck, Mr. Glaser strongly hinted in the e-mail message that he might be forced to form a partnership with Microsoft to pursue "very interesting opportunities" because support for Microsoft's media-playing software seems to be growing. Apple executives would not comment on the message. But it seems likely Mr. Jobs will rebuff the offer. Mr. Glaser said he had not received a response from Mr. Jobs, and in his e-mail message Mr. Glaser said he was going to be in Silicon Valley this week and suggested that he meet with Apple executives today.

RBC Capital out saying Take-Two remains their Top Pick despite yesterday's warning; firm sees limited downside from current levels. Price target $44.

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From Briefing.com: 6:00PM Weekly Wrap: This was a week where bad news was bad news and good news was bad news. That's because bad news was treated in its rightful manner - with selling interest - whereas good news, specifically on the economy, was greeted with concern that it would prompt the Fed to raise rates sooner rather than later.

On Friday Richmond Fed President Broaddus helped assuage those concerns with some dovish commentary on inflation prospects and the Fed's willingness to remain patient before pulling the tightening trigger. With the weaker than expected industrial production, capacity utilization, and Univ. of Michigan consumer sentiment reports, the market looked as if it half-believed him.

We say half because the market ended the week on a mixed note, with the Nasdaq shedding six points and the Dow and S&P posting modest gains. Meanwhile, the Treasury market licked some of its rate-scare wounds, with the 10-yr note recouping nearly a half point to bring its yield down to 4.34% from a high of 4.40% on Thursday. For the week, however, the 10-yr yield rose 15 basis points and is now 46 basis points above the level it was trading at just before the release of the March employment report.

That report really got things rolling in terms of rate hike concerns, and when the retail sales and CPI reports for March checked in this week stronger than expected, it simply fanned the flames. As noted above, things settled down on the rate concern front in the latter part of the week, but overall, the specter of a higher interest rate environment clearly bothered the market.

In that regard, several rate-sensitive areas like the financial, utility, and homebuilding groups were among the biggest laggards, along with the semiconductor and telecom equipment groups, which were hit by valuation concerns and some uninspiring earnings reports from the likes of Intel (INTC) and Nokia (NOK).

At the same time, the blue chip averages outperformed the more volatile Nasdaq Composite and Russell 2000 by a wide margin, suggesting that investors were more risk averse this week in deference to concerns about higher rates. Those concerns, in turn, prompted a rotation into some more defensive-oriented groups like drug, biotech, and tobacco. Additionally, with worries about rising inflation contributing to the rate hike concerns, buying interest was also seen in the energy and basic materials sectors.

The dollar strengthened versus both the yen and the euro which, again, reflected the market's attention toward the prospect of a rising rate environment. That strength fueled a wave of profit taking in gold as the commodity dropped 4.5%, or $19.10, for the week to $401.60/oz.

By and large, the earnings reports this week were generally pretty solid. However, the threat of rising rates slowing the pace of earnings growth down the road ran interference with the good news. Next week, more than 500 companies are scheduled to release their results, including 11 Dow components, a G-7 meeting will be held, and there are a number of Fed speakers on the docket, including Alan Greenspan who will testify before the Senate Banking Committee and the Joint Economic Committee. Suffice it to say, there shouldn't be any shortage of trading catalysts.

In conclusion, Briefing.com would reiterate that we are maintaing our moderately bullish outlook for the stock market, but believe the time is right, in light of shifting interest rate expectations, for entertaining the idea of rotating funds into more defensive-oriented sectors and dividend paying companies. Further thoughts on the matter are provided in our Tying It Together column.-- Patrick J. O'Hare, Briefing.com

 
 Index    Started Week  Ended Week Change % Change YTD  
 DJIA         10442.03  10451.97    9.94   0.1 %   0 %  
 Nasdaq        2052.88   1995.74  -57.14  -2.8 %  -0.4 %  
 S&P 500       1139.32   1134.57   -4.75  -0.4 %   2.0 %  
 Russell 2000   597.88    583.37  -14.51  -2.4 %   4.8 % 

Close Dow +54.51 at 10451.97, S&P +5.77 at 1134.61, Nasdaq -6.43 at 1995.74: The stock market started on a sour note and steadily improved over the course of the day - never enough, however, to lift the Nasdaq out of negative territory... The Composite will thus finish 2.8% lower for the week as the index was pummeled by selling in tech... A slew of earnings reports from bellwether tech companies failed to impress investors and prompted selling across the board...
The same was true of today as March quarter results from IBM (IBM 92.31 -1.66), Nokia (NOK 14.60 -1.45), PMC Sierra (PMCS 15.66 -0.96), Siebel Systems (SEBL 11.39 -0.2), and Sun Microsystems (SUNW 4.26 -0.16) did nothing for the market... It wasn't so much the quality of earnings as the recognition that 'easy year/year comparisons' are a thing of the past... Companies will face much harder comparisons in the second half of the year, and thus growth rates will slow... That fact held back buying interest in tech and pushed the Nasdaq below the 2000 mark at the close... The blue chips fared much better with interest-rate sensitive issues that got slammed in the beginning of the week bouncing back today... Banking and REIT performed especially well, along with basic material...

Economic data were a mixed bag today with March Housing Starts and Building Permits surpassing market expectations, and March Industrial Production and Capacity Utilization falling short of consensus estimates (please see Briefing.com's Economic Calendar for specific details)... April Michigan Consumer Sentiment was also a disappointment with the preliminary reading declining to 93.2 (consensus of 97.0)...SOX -1.8, NYSE Adv/Dec 2409/892, Nasdaq Adv/Dec 1643/1533

2:23PM PMC-Sierra (PMCS) 15.65 -0.97: PMC-Sierra posted Q1 results after the close on Thursday. The designer of high-speed broadband communications and storage semiconductors and microprocessors reported EPS of $0.09 on revenue of $78.66MM (+42.0% Y/Y) vs. Reuters Research consensus at $0.04 on $78.38MM.

Book-to-bill was over 1.1 on improved demand for service provider related products including ADSL infrastructure applications in China and North America and non-DSL network access in metro optical transport applications.

Closed a number of design wins in the laser printer market for the microprocessors business. Seeing increased activity in EDGE routing, metro transport, multiservice switching, network access, and telematics, and deployment of ethernet over SONET.

Asia accounts for 51% of sales; North America 39%; Europe 9%; other 1%.

Gross margin increased 931 bps Y/Y to 69.8% on mix shift in favor of service provider products. Operating margin increased 3,619 bps Y/Y to 18.0% on tight expense control.

Guided for Q2 revenue of $82.59-84.95MM (+36.8-40.7% Y/Y). Reuters Research prints consensus at $0.05 on $83.59MM.

PMCS shares are, based on our inverted EVA/DCF model, priced for sustained upper 20% revenue growth assuming steady Y/Y improvement to 27% operating margin vs. management targeted operating model of 25% and historical peak of 38%. Implied growth falls to lower 20% assuming 35% operating margin.

The following table shows price multiples and Y/Y growth rates for PMCS compared against a broad group of peers and the semiconductor components group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
PMC Sierra (PMCS) 6.8 (139.4) 10.3 8.2 6.6 22.8% 37.0% 24.9%
Agere (AGR) 1.9 (26.9) 2.5 2.4 2.1 0.3% 10.3% 14.4%
Applied Micro Circuits (AMCC) 13.1 2.1 16.8 13.6 7.8 (6.9%) 26.6% 74.3%
Broadcom (BRCM) 4.5 (22.7) 7.7 5.1 4.4 48.7% 50.4% 16.6%
Exar (EXAR) 8.0 1190.7 11.4 10.9 9.0 (4.6%) 0.7% 20.3%
Marvell Technology Group (MRVL) 3.3 63.3 7.3 5.2 4.2 62.3% 42.0% 22.2%
Transwitch (TXCC) 4.3 3.8 9.1 7.3 5.4 42.5% 24.7% 34.8%
Vitesse Semiconductor (VTSS) 6.6 (54.2) 7.5 5.7 4.2 (8.8%) 48.1% 35.2%
Intel (INTC 3.4 16.8 5.5 5.0 4.5 17.8% 28.7% 25.7%
Maxim Integrated Products (MXIM) 7.0 21.0 12.7 11.0 8.7 10.7% 23.5% 26.0%
Texas Instruments (TXN) 3.1 41.6 4.6 3.9 3.4 20.9% 17.5% 22.1%
Semiconductor Components 3.1 53.1 4.9 13.1%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

Large, attractive end markets but shares are priced for high revenue growth and margin expansion, and trade at a premium to peers on a relative value basis. Downside risk greater than upside potential unless management accelerates top-line growth and improves operating margin beyond the low 30 to mid 30% range.--Ping Yu, Briefing.com

9:21AM IBM (IBM) 91.20 -2.77 After the close on Thursday, IBM published Q1 EPS of $0.93 on revenue of $22.250B (+10.9% Y/Y) vs. Reuters Research consensus at $0.93 on $21.929B.

Currency added 7 points to reported growth. Demand consistent with our view that the economic recovery continues to unfold and demand is improving across the globe. Achieved double-digit growth in emerging markets including Brazil, China, Eastern Europe and India. Americas revenue increased 6% Y/Y (4% adjusting for currency) to $9.1B (41% of sales). Europe/Middle East/Africa revenue increased 15% Y/Y (1% adjusting for currency) to $7.3B (33% of sales). Asia-Pacific revenue increased 16% (6% adjusting for currency) to $5.2B (23% of sales).

Signed services contracts totaling over $10B; ended the quarter with an estimated services backlog of $120B, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance. Made progress in zSeries servers and WebSphere middleware. Storage Systems revenues increased on strength in midrange disk and tape products. Personal Systems Group revenue increased 18% $2.8B, driven by mobile personal computers. eServer iSeries midrange server and Microelectronics revenues declined.

The following table shows sales, gross margin and Y/Y change in gross margin by revenue segment. Segment Revenue Y/Y Growth Gross Margin
$ in B % of Ttl Reported in Constant Currency Reported Y/Y Variance
Global Services 11.099 50% 9.1% 1% 24.5% (40)
Hardware 6.735 30% 16.0% 10% 26.7% 10
Software 3.466 16% 10.8% 3% 86.0% 140
Global Financing 0.662 3% (6.0%) (12%) 60.5% 160
Enterprise Investments 0.288 1% 13.2% 6% 39.5% 280
Total 22.250 100% 10.9% 3% 36.0% --
Gross margin declined 5 bps Y/Y to 36.0%. Operating margin increased 61 bps Y/Y to 9.7%.

Management indicated consensus is reasonable. Reuters Research prints consensus at $1.11 on $23.274B (+7.6% Y/Y). IBM shares are, based on our inverted EVA / DCF model, priced for sustained mid to upper teens revenue growth assuming steady Y/Y improvement to 15% operating margin.

Expectations priced into shares are materially above reported results but margins are expected to rise on improving demand environment for consulting services and operating results for the microelectronics business, and an expected mix shift in favor of higher margin software and hardware sales as enterprise technology spending continues to ramp.

The following table shows price multiples and Y/Y growth rates for IBM compared against a cross-section of competitors from the computer services, computer systems & peripherals, semiconductor and software & programming groups. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
International Business Machines (IBM) 1.2 12.9 1.7 1.7 1.6 9.7% 7.4% 6.3%
Hewlett-Packard (HPQ) 0.6 17.9 0.9 0.9 0.8 18.4% 7.5% 6.3%
Intel (INTC) 3.4 16.8 5.5 5.0 4.5 17.8% 14.0% 11.1%
Microsoft (MSFT) 4.0 18.7 7.9 7.6 7.1 11.3% 11.5% 7.4%
BEA Systems (BEAS) 2.6 22.9 4.9 4.4 4.0 8.4% 11.4% 11.6%
Oracle (ORCL) 3.5 12.0 6.3 6.2 5.8 5.2% 7.3% 7.2%
Accenture (ACN) 0.7 7.2 1.8 1.7 1.6 9.2% (0.1%) 9.7%
Computer Sciences (CSC) 0.4 8.9 0.6 0.6 0.5 22.6% 28.0% 6.7%
Electronic Data Systems (EDS) 0.4 (67.9) 0.4 0.5 0.5 16.8% (5.8%) 1.5%
Dell (DELL) 1.6 20.2 2.2 1.8 1.6 17.1% 17.4% 15.3%
Computer Systems & Peripherals 1.0 18.9 1.4 10.2%
Semiconductor Components 3.1 53.1 4.9 13.1%
Software & Programming 3.0 33.0 5.2 4.8%
Computer Services 1.2 18.9 1.7 6.4%
Blended 1.7 54.2 2.5 8.6%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

Shares trade at a discount to peers and blended average of sectors, suggesting modest upside for long-term holders on a relative value basis, provided management makes greater progress towards delivering on the expectations reflected in our model.--Ping Yu, Briefing.com

7:10AM Nokia reports, guides Q2 revenues below consensus (NOK) 16.05: Reports Q1 (Mar) earnings of $0.20 per share, converted from Euros, earnings actual was preannounced on April 6; revenues rose 10.7% year/year to $7.89 bln, this number was also preannouned Apr 6. Company sees Q2 EPS of $0.23-0.25, ex $0.07 charge, converted from Euros, on revenues of $8.37 bln, consensus $8.59 bln.

7:02AM California Micro raises MarQ outlook, plans 1.3 mln share offering (CAMD) 13.63: -- Update -- Co now expects MarQ revs of $15.6-$15.8 mln vs prior guidance of $14.7-$15.5 mln (Reuters consensus $15.1 mln); co now sees EPS of $0.06-0.07 vs former guidance of $0.04-0.06 (consensus $0.07). Fully diluted fiscal 2004 earnings are now estimated to be between $0.18 and $0.19 per share and revs at $59.3-$59.5 mln (consensus $0.16/$58.98 mln). Co also announced plans to offer 1.3 mln shares.

http://finance.yahoo.com/mp/q?tqnt

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SENTIMENT JOURNAL: Time to Jump Ship?
By Frederic Ruffy, Optionetics.com
4/16/2004 9:30:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=10242

Market Internals: Although the Dow Jones Industrial Average ($INDU) snapped its losing streak on Thursday, the technical action of the market has turned decidedly bearish. Advancing issues have now trailed declining issues during seven of the past eight trading sessions. Even on Monday, when the Dow added 73.5 points, the ratio of advancing to declining issues was only even. On Tuesday, when the industrial average plummeted 134 points, the ratio was more than seven-to-one negative! Ouch. Meanwhile, up volume has trailed down volume during seven of the past eight trading sessions. The New York Stock Exchange New High New Low Index is also pointing to market weakness. The index dipped into negative territory on Wednesday, when 224 stocks set new 52-week lows on the New York Stock Exchange and only 36 set new highs.

The Nasdaq Composite Index ($COMPQ), meanwhile, has fallen during the past three trading sessions (through Thursday, April 15, 2004) and is now revisiting the technically significant 2,000 level. Market internals are also deteriorating on the Nasdaq Stock Market. For one, total trading volume is clearly accelerating on the down days and there has been no contest between up and down volume since Monday. For example, on Thursday, as the Nasdaq fell 22.7 points, the ratio of up to down volume was four to one negative. Nasdaq advancing issues have trailed declining issues during four of the past five trading sessions.

Sentiment Data: The recent deterioration in market internals appears to have stirred up very little angst or bearishness. Instead, most of the sentiment indicators continue to suggest that investors are predominantly bullish or upbeat about the stock market. For instance, Investors Intelligence survey now reports that 50% are bullish and only 22% are bearish. Similarly, the American Association of Individual Investors [AAII] survey is now extremely lopsided, with (hold on to your hats) 63.8% bullish and only 13.8% bearish.

Meanwhile, the CBOE Volatility Index ($VIX) remains at low levels. As of Thursday afternoon, the CBOE Volatility index was down .50 points on the week. The drop in the market’s so-called “fear gauge” is somewhat unusual given that both the Dow and the Nasdaq are also down on the week. Normally, VIX moves higher when stocks fall. However, the index’s recent decline might be a sign that many investors believe the recent deterioration in the technical action of the stock market will be short-lived; and then perhaps followed by a return to more normal, less volatile, trading.

Elsewhere in the options market, traders are showing a few signs of caution. For example, the CBOE put-to-call ratio jumped up to .92 on Tuesday. Readings above 1.00 from this indicator suggest relatively high levels of bearish sentiment. Values of .50 or less are often indicative of excessive bullishness or optimism from options traders. The ten-day average of this ratio is now .75, and therefore perfectly neutral.

Overall, then, judging from the collective readings from the sentiment data, it appears that the majority of investors remain upbeat or optimistic despite the market’s recent slide. However, as we noted during the first two paragraphs, market internals are deteriorating significantly and the technical outlook has turned somewhat bearish. For that reason, the high level of bullishness reflected in the sentiment data is perhaps a red flag. It is possibly a sign that investors are too optimistic: and that stocks will continue to fall as a greater number of bulls jump ship and sign on with the bears.

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Sharp rise in prices in China = looming inflation around the world

http://straitstimes.asia1.com.sg/asia/story/0,4386,246259,00.html?

China's ability to set prices in many industries gives it a growing influence on the world economy

GUANGZHOU - China's newest export could just be inflation.

A petrol station board in Beijing shows the price of petrol, which hit a four-year high earlier this month. -- AFP
As managers of businesses across China opened booths here at the nation's biggest trade fair, the common refrain was that prices of everything were rising sharply, and that prices of exports to the United States, Europe and elsewhere would have to follow.

The prices for orders placed now will not show up in most US indices until months later, when goods are actually shipped. But as prices begin to rise in the US, concerns are growing that China will become an exporter of inflation.

Even though its goods account for a small percentage of total US purchases, China has played an oversize role in worldwide prices, with low labour costs that allow it to set prices in many industries.

A socket wrench maker said his high-quality models had risen in price by 10 per cent in the last six months and his lesser-quality models by as much as 50 per cent.

The prices of steel and other materials are major culprits. Another is energy costs. A motorcycle manufacturer in China said he has had to close a factory for three days each week because of electricity blackouts, forcing a 4-per-cent increase in prices.

Food and other necessities are putting pressure on wages. A maker of key-cutting machines in central China said it was paying workers 10 per cent to 20 per cent more to help cover sharp increases in rice prices, and had raised export prices for the machines by 25 to 30 per cent.

Price increases in raw materials and other business costs in China, a government spokesman said, will probably spill over soon to consumer prices, in China and abroad.

'There is a time lag, but it can't be too long, and there is pressure for price rises,' said Mr Zheng Jingping of the National Bureau of Statistics at a news conference in Beijing on Thursday.

'If this goes on for a long time, it will cause problems.'

China's efforts to keep the economy from overheating and igniting inflation have been unsuccessful so far.

The economy grew at a rapid 9.7 per cent in the first quarter, faster than expected, while consumer prices were exactly 3 per cent higher in March than a year earlier.

But the true increase in consumer prices could be 7 or 8 per cent, according to Morgan Stanley's China economist Andy Xie.

In the US, the Labour Department reported on Wednesday that prices climbed 0.5 per cent in March, with gasoline and clothing leading the way, for an annualised rate of 6 per cent if sustained.

Though prices of housing and health care have been rising for some time, increases in other areas stoked concerns that inflation could rear its head in coming months.

Within China, ferocious competition has kept prices from rising for big-ticket items like cars, household appliances and mobile phones. Giant companies like Wal-Mart, moreover, have some ability to force suppliers to hold down price increases.

But managers from two companies in Wuhan said that factories there had lifted wages by at least 10 per cent to help workers cope with rising food prices.

Buyers at the trade fair talked about marking up prices in coming months.

Mr Paul Bartels, who buys products in bulk for American mail-order companies, said that he had taken price increases of a few percentage points out of his own profit margins, but had passed on larger increases.

'With every customer I have, I've gone back and revised prices, and none has gone down,' he said.

Whether the trend will be sustained depends on many variables. Chinese leaders have taken steps to slow the economy and brake inflation.

By next year, the many steel mills under construction could start easing the acute shortages that are driving up prices. New power plants should curb blackouts if coal mines can increase output fast enough to supply them.

At the trade fair, a marketing company's export director, Mr Ke Sheng Feng, rattled off price increases for work boots, up 10 per cent; machetes, up 20 per cent; and folding steel ladders, up 50 per cent.

'If the conditions continue like this, business will be difficult,' he said. -- New York Times

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Amateur Investors Weekend Stock Market Analysis (4/17/04)

Looking at the major averages from a longer term perspective the Dow has been holding support above its 23.6% Retracement Level (calculated from the October 2002 low to the February 2004 high) and 40 Weekly EMA (blue line) after peaking in February near 10750 while undergoing a corrective 4th Wave. It still not clear whether the low made in late March was the beginning of the final upward moving 5th Wave in association with Elliot Wave Theory or whether it was just an oversold bounce. One thing is for sure the 9900 to 10000 range is a key longer term support area for the Dow. If the Dow breaks below 9900 this would likely lead to a drop back to its longer term 38.2% Retracement Level near 9400 (point A).



The Nasdaq found support in late March near its 23.6% Retracement Level (calculated from the October 2002 low to the January 2004 high) and 40 Weekly EMA (blue line) near 1890 while undergoing a corrective 4th Wave. Just like the Dow the question is was the low made in late March the end of the corrective 4th Wave and the beginning of the final upward moving 5th Wave or was it just an oversold bounce? Meanwhile the Nasdaq has a key longer term support area near 1890 which will need to hold for the Nasdaq to be constructive. If the Nasdaq breaks below 1890 the next downside support area would be at its 38.2% Retracement level near 1750 (point B).



As far as the S&P 500 it has held support above its longer term 23.6% Retracement Level and 40 Weekly EMA (blue line) since peaking in early March and undergoing a corrective 4th Wave. As with the Dow and Nasdaq the question remains was the low made in late March the end of the corrective 4th Wave and beginning of the final upward moving 5th Wave or was it just an oversold bounce? Although the S&P 500 found support in late March near 1090 I believe the key longer term support level to watch in the weeks ahead is in the 1075-1080 area (point C) which coincides with the S&P 500's 23.6% Retracement Level and 40 Weekly EMA (blue line).



Meanwhile looking at a few sectors the Semiconductor Holders (SMH) may have already completed their Elliot 5 Wave pattern and are now undergoing a longer term correction. A key support level to watch in the near term is around 37 (point D). If the SMH's break below 37 then the next area of downside support would be near 35 which is their 38.2% Retracement Level calculated from the October 2002 low to the January 2004 high.



A simplified chart of an Elliot 5 Wave Pattern is shown below. Notice how Waves 1,3 and 5 are upward moves with Wave 3 lasting the longest while Wave 5 is the shortest. Meanwhile also notice that Waves 2 and 4 are corrective Waves which only last for a brief period of time before the upward trend continues. Also notice that once the 5 Wave pattern completes itself that this is followed by a longer term correction.



Meanwhile the Banking sector (BKX) which is heavily weighted in the S&P 500 is showing a Head and Shoulders Top pattern. The BKX broke below a key support level last week near 98 which coincided with its Neckline and 100 Day EMA (green line). The key thing to watch next week is will the BKX break above the 98 level and rally back to its 50 Day EMA (blue line) just above 99 or will it stall out near 98 leading to a potential drop back to its 200 Day EMA (purple line) near 94?



As far as the major averages in the near term the Dow has resistance around 10575 (point E) so if it tries to rally next week this is where it could stall out at. Meanwhile if the Dow comes under some selling pressure look for initial support at its 100 Day EMA (green line) around 10275. A break below 10275 would likely lead to a retest of the late March low near 10000 (point F).



The Nasdaq is near its 100 Day EMA (green line) and has upside resistance around 2080 (point G) while a key support level exists in the 1890-1900 area which coincides with its late March low (point H) and 200 Day EMA (purple line). I would be surprised if the Nasdaq just nosedives down to the 1890-1900 level without first going through some type of possible bounce as it's becoming somewhat oversold based on the Slow Stochastics. Notice that in most cases when the %K Line has dropped to 20 or below (points I) this has signaled the potential for an upside reversal except in mid March when the Nasdaq only rallied for a day (point J).



As far as the S&P 500 if it rallies next week look for upside resistance around 1050 (point K). Meanwhile if the S&P 500 drops below 1120 look for initial support at its 100 Day EMA (green line) near 1110.



Finally even though a majority of stocks will follow the trend of the market noticing those that are acting well while the market is correcting can still lead to substantial gains. TASR is an excellent example of this as it continues to surge higher. When looking at the overall chart of TASR during the past 2 years shows that it initially broke out of a Cup and Handle (H) pattern in September of 2003 and then went from $8 to $31 by December of 2003. Those investors who missed the initial breakout in TASR were given a second opportunity as it then developed a small 5 week Flat Base (FB) before breaking out again in Janaury of 2004 accompanied by strong volume (V). Over the next 5 weeks TASR doubled in price going from $31 to $64. Meanwhile those investors who missed the original breakout and second breakout were given a third opportunity as TASR developed a small Symmetrical Triangle (ST) in February of 2004 before breaking out again in mid March accompanied by strong volume (V). Over the past 6 weeks TASR has nearly doubled in price once again.

The chart of TASR shows three chart patterns to look for (Cup and Handle, Flat Base and Symmetrical Triangle) when screening for stocks to invest in. The key is to recognize those chart patterns before a stock breaks out and not afterwards.



How can a Premium Membership to Amateur-Investors.Com benefit you as an investor? We focus on stocks which are exhibiting favorable Sales and Earnings Growth that have developed a favorable chart pattern such as a "Cup and Handle", "Double Bottom", "Flat Base" or "Symmetrical Triangle". These stocks are then included in our "Stocks to Watch List" which gives investors a quick reference to those stocks which may provide the best buying opportunities to the long side in the weeks ahead. Each stock in our "Stocks to Watch List" includes specific Buy Prices, Stop Loss Prices (very important) and projected Target Prices.

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The DJIA fell, led by shares of McDonald's after Chief Executive Officer James Cantalupo died of an apparent heart attack. Microsoft rose, pushing the Nasdaq Composite Index higher for the first day in five. The DJIA lost 14 points (-0.1%) to 10,437, for its first drop in three days. The Nasdaq increased 24 points (+1.2%) to 2020. The S&P 500 added 1 point (+0.1%) to 1135.84. Computer-related shares contributed the most to the gain. About the same number of stocks rose and fell on the New York Stock Exchange. Some 1.19 billion shares changed hands on the Big Board, 19 percent less than the three-month daily average. About a third of S&P 500 members release results this week including Pfizer, the world's largest drugmaker, and Microsoft, the biggest software maker.

Strong Sectors: internet, networking, semiconductor, software, telecom, biotech, industrial, retail
Weak Sectors: banking, broker/dealer, drug, gold, insurance, oil services

Top Stories . . . The index of leading U.S. economic indicators rose 0.3 percent in March, a sign the expansion has gained momentum. The year-over-year increase in the measure of where the economy is headed is the biggest in two decades.

3M, the maker of Scotch tape, said first-quarter earnings rose 44 percent as the economic rebound and new products helped boost sales of computer touch screens and safety equipment. The company raised its 2004 profit forecast.

Computer Associates fired nine employees in its legal and finance departments after former Chief Financial Officer Ira Zar and two other officials pleaded guilty to securities fraud.

McDonald's Chairman and Chief Executive James Cantalupo, who in 16 months rejuvenated the world's largest restaurant chain's U.S. sales after coming out of retirement, died of an apparent heart attack in Orlando, Florida. He was 60.

Halliburton, the world's largest oilfield-services provider, said a construction project off Brazil's coast that is more than a year behind schedule cut first- quarter profit by $62 million, or 14 cents a share.

Quotes of Note . . . ``The market's incorporated a lot of the good news. A lot of investors aren't surprised by what they're seeing. We're being cautious.'' Chris Matlock, whose Lighthouse Opportunity Fund has returned 55 percent in the past year, double that of the Standard & Poor's 500 Index.

Earnings of Note . . . With 101 companies in the benchmark having reported, first- quarter earnings jumped 19.2 percent according to Thomson Financial. Profits are beating analyst estimates, on average, by 6.8 percentage points, or more than double the historic average, Thomson said.

Gurus . . . . Rod Smyth, strategist for Wachovia, has reduced equity exposure about 4.0%, particularly in the small caps, and he plans to hold that money in cash. His equity exposure is now very slightly above neutral. Rod is also dramatically reducing exposure to emerging markets. He sees stocks in a trading range between S&P 1050 and 1170, with upside to 1250, if geopolitics turns for the better.

In a Barron's interview, Ned Davis also expresses some jitters, noting that sentiment is still too bullish, and supply-and-demand is worsening. He agrees that the first Fed rate hike will not be damaging, and only after a series of hikes does the market begin to gag. Nevertheless, Davis is still 70% long in stocks, although he is hedged in long puts.

On the Nightly Business Report, Mike O'Higgins rolls out his "Dogs of the World." The author of "Dogs of the Dow" says contractions can buy under-achieving global indices. His favorites are Brazil (EWZ), Germany (EWG), Russia (TRF), Singapore (EWS), and South Korea (EWY).

On the Rukeyser Show, recommendations on Tribune, Dell, Johnson & Johnson, Eli Lilly, TXU Corp., Consol Energy, American Power Conversion, and All-State

Barron's highlights TheStreet.com founder James Cramer's picks. Mr. Cramer's sexy six are: WebEx, Netflix, Amedisys, Armor Holdings, XM Satellite Radio and Taser International. The anointed half-dozen also share what Mr. Cramer plainly believes to be a great virtue, they are not household names. Finally, what they have in common are valuations that, when they're not elevated, are absurd. Although Mr. Cramer exudes enthusiasm for all six, he cautions, in the interest of prudence, against buying every one of them; instead, he prescribes "one or two" as part of a "discretionary portfolio," which he thoughtfully explains "as not meant for retirement but meant to augment income." The article notes that Mr. Cramer gave in Feb 2000 a similar group of stocks, entitled with characteristic restraint, "The Winners of the New World." Here are the fabulous 10 stocks Mr. Cramer touted so grandly on Feb. 29, 2000: 724 Solutions, Ariba, Digital Island, Exodus Communications, InfoSpace, Inktomi, Mercury Interactive, Sonera, Verisign and Veritas Software.

Of Note . . . The WSJ's "Tracking the Numbers" column discusses interest rate concerns and financial company's profits possibly being pressured. There are four pure-play financial firms in the DJIA index, but there's plenty of financial exposure among other component company's in the 30-stock index. Caterpillar's financial-products division accounted for 23% of overall profits last year. IBM derived 11% of its 2003 pretax earnings from its financing division. About half of General Electric's profits came from its General Electric Capital division. Nearly three-quarters of General Motors's came from its financing and insurance operations. Deere & Co.'s financial-services group accounted for 51% of its overall profits in 2003. Harley-Davidson's financial-services division accounted for 16% of the company's 2003 operating profit. Ford Motor would have shown a loss in 2003 if it not for the earnings of Ford Credit. If the Federal Reserve were to begin raising its Fed-funds target rate, and short-term rates were to climb faster than long-term rates, the yield curve would flatten and trouble could be in the offing. Deutsche Bank estimates that if the Fed were to raise its target rate to 2% from the current 1%, the move would cut earnings at Ford Credit by $153 million. William Gross, managing director at Pacific Investment Management Co., says, higher rates mean the product nonfinancial company's sell -- "whether it's a car or a house -- gets more expensive."

China . . . China’s growth rate will moderate, but remain fast.

• On April 15, China reported 9.7% GDP year-over-year growth for the first quarter. This is consistent with the 19.4% growth in March’s year-over-year industrial production reported on April 9.

• On April 12, China raised its reserve requirement to 7.5% from 7%. For poorer-quality banks, the reserve requirement is 50 basis points higher, at 8%. In our view, this is a moderate step aimed at controlling credit excesses in China’s smaller banks, and will have only a small effect on overall growth. Expect additional measures along these lines, but don’t think they constitute a meaningful “monetary tightening.”

• China’s CPI inflation has moved from negative territory in 2001-02 to positive territory in 2004. March CPI registered 3%, vs. 2.1% in February (which was lower in large measure due to Lunar New Year calendar effects).

• Taken together, some are concluding that China is overheated, is taking steps to choke off growth, and faces a hard landing. Expect additional measures to restrain growth (particularly in new investment), but not necessarily a hard landing.

• With the yuan linked to the dollar, China’s monetary policy is linked to the U.S., meaning it remains super-loose and probably won’t move to neutral for many quarters. However, rising year over year CPI inflation and growing expectations for U.S. rate hikes likely raise China’s comfort level with explicit interest rate increases in the near to medium term.

For years, people have looked high and low for a hard landing in China without finding it.

the 2003 dollar weakness, and so on.

• The hard-landing hype has varied, including the weakness of its banking system, the inadequacies of its market systems, social risks, the risk of a yuan collapse during the 1997-1998 Asian devaluation crisis, the risk of a yuan revaluation during the 2003 dollar weakness, and so on.

• China’s stabilizing factors including the 1978 agricultural reform, the 1993 yuan stabilization, China’s

commitment to the WTO, and its numerous pro-growth market liberalizations in the 1990s and 2000s.

• Expect normal overshoots in some sectors in terms of demand and price, in the context of rising secular trends. However, these problems remain of the sector-by-sector variety, and do not constitute an economy-wide problem. In announcing China’s first quarter GDP, China’s National Bureau of Statistics noted that “irrational investments in redundant low-level construction projects in certain industries and selected areas have not been controlled effectively.”

Eco Speak . . . The U.S. index of leading economic indicators rose 0.3 percent in March, as expected. "Economic growth in the first quarter was strong and the second quarter may be as good or better," said Ken Goldstein, economist for the board. In March, six of the 10 leading indicators improved: vendor performance, money supply, jobless claims, building permits, orders for consumer goods and consumer expectations. Over the past six months, seven of the 10 indicators have improved. In March, the coincident index rose 0.2 percent, while the lagging index fell 0.1 percent. The leading index was flat in February.

Financials . . . Fannie Mae reported earnings of $2.03 per share, $0.12 better than the consensus of $1.91. "Given an additional quarter's perspective and our current assessment of the dynamics of the market, we have adjusted our expectations for several components of our core business earnings and our balance sheet but have not changed our outlook for growth in core business earnings per share in 2004 compared with the guidance we gave in January."

Metris cut to Neutral from Outperform at CSFB based on valuation.

Wachovia reported earnings of $0.98 per share, ex items, $0.08 better than the consensus of $0.90. Revenues rose 21.7% year/year to $5.68 billion versus the $5.53 billion consensus.

Barron's highlights Aon, which appears to finally be making a comeback. At around 28, they were trading at 12.8x this year's expected earnings. In contrast Marsh & McClennan, sports a multiple around 15, and the entire insurance-brokerage group's price-earnings ratio is near 14. Aon's CEO, Pat Ryan has said the company's goal is to boost its profit margin of about 15% to 20% next year, and that he considers this realistic. If that target were hit, it would bring Aon's margin up to the level of the industry leader, Marsh & McLennan, and other, smaller rivals, such as Arthur J. Gallagher and Brown & Brown. The company's prospects also have been aided by a successful effort to consolidate its computer systems and by changes in pay policies that provide incentives for key employees without overpaying them. One of the primary complaints about the co is that Mr. Ryan, a major Aon shareholder, has long been overcompensated, considering the results he has produced. For 2004, the consensus estimate puts earnings at $2.19 a share, compared with last year's $1.97, with 2005 earnings, on average, pegged at $2.45 a share. Encer Chen, an analyst of Pzena Investment Management, states: "We started buying the stock in the last half of last year at around 20 and continued buying until Pzena now holds 7.3 mln shares. We think the co historically was undermanaged, but now is doing a lot of things to improve profitability."

Oil & Gas . . . Prudential downgrades Anadarko Petro to Neutral-Weight from Overweight based on valuation, as the stock has exceeded their $54 target.

Refining margins rose in all regions except on the West Coast due to gasoline and distillate prices that were on average 6% and 7% higher, respectively. Higher product prices were partially offset by higher crude feedstock costs, which rose by an average $1.23/bbl or 3.5% nationwide. The increase in crude feedstock cost was least pronounced on the East Coast. East Coast refining margins rose most sharply -- up 43% to $9.34/bbl. Crude inventories have risen six of the last seven weeks and are now at 295 million barrels (excluding the SPR), their highest level since August 30, 2002, when the price of crude was $29.00/bbl. Inventories have risen by 21.6 million barrels in the last seven weeks, compared to an average 11.2 million barrel build during the same period in the last ten years. However, crude oil inventories remain 19 million barrels or 6%

below the ten year seasonal average level. Higher refined product prices are working their way to the wholesale level. The marketing margin on the Gulf Coast has climbed out of its negative position to an average 3.2 cents per gallon in the second quarter to date. The West Coast marketing margin jumped 112% to 14.0 cents per gallon.

Oil futures topped $38 an ounce for the first time in a month following news that Spain will soon withdraw its troops from Iraq. Spain announcement "adds to the deterioration of the confidence level that Iraq will be politically stable by the June 30 turnover date," said John Person, head financial analyst at Infinity Brokerage Services. May crude is at $38.10 per barrel, up 36 cents on the New York Mercantile Exchange. Futures prices, which climbed nearly 2 percent last week, haven't traded above $38 on an intraday basis since March 17. May unleaded gasoline is up 0.69 cent at $1.178 per gallon. At the pump, the average retail price for a gallon of unleaded gasoline is at $1.803, up from $1.798 a gallon on Friday and at a fresh record higher, according to AAA's daily fuel gauge report.

Transports . . . The average manufacturer discount on new vehicles sold in the U.S. fell from February to March, according to Edmunds.com. The decrease comes as auto sales firm up this spring. Edmunds.com said the average manufacturer incentive in March fell $80 from February to $2,379 but was up $144 from last year. Notably, U.S. automakers eased off on their aggressive marketing while foreign automakers ratcheted up their deals, the first time the auto research firm has recorded such a shift since it began sampling rebates and other deals in January 2002.

Morgan Stanley downgraded Frontier Airlines to Equal-Weight from Overweight based on concerns that rev trends in the company's top markets have disappointed over the past 4-6 weeks, as well as their belief that expectations are too high; firm cuts their FY05 EPS estimate to $0.40, which is well below consensus of $0.74.

Deutsche Bank upgrades Delphi to Hold from Sell based on valuation, as they believe that a lot of bad news is already factored into the stock. The firm maintains $10 target.

Defense & Aerospace . . . Barron's highlights Taser, which is slated to report earnings Tuesday. According to the article, the earnings report will be worth watching. The momentum "junkies" on the chat boards are insisting earnings will come in vastly higher than the 22-cent per-share estimate put forth by analysts. Anything less than great numbers Tuesday, and the sellers will take charge of the market for Taser, if only momentarily. What could possibly justify a share price of 28 times this year's sales, 16 times projected 2005 sales, 115 times 2004 forecast earnings and 72 times next year's profits? Perhaps the most salient question: Would anyone really want to live in a country where the market for miscreant-subduing weapons could possibly grow to justify such a mountainous capitalization? If the Taser cult were susceptible to the persuasive pull of reason, mathematics and common sense, the stock would never have approached its current three-digit status. Eventually, for unknowable reasons, the shares will fall earthward, short-sellers insist. And they're rooting for sooner, not later. At latest count, the shorts held about 40% of Taser's free-trading shares.

The WSJ reports that internal documents show that Northrop Grumman covered up major accounting irregularities during the late 1980s to stay in the Pentagon's good graces. The documents, which haven't been made public, form the heart of a U.S. government lawsuit against Northrop Grumman that could result in penalties of hundreds of millions of dollars. They suggest questionable behavior stretching through the end of the Cold War, when the company's B-2 Stealth bomber and electronic systems it built for military aircraft epitomized former U.S. President Ronald Reagan's massive defense buildup. The Justice Department's False Claims Act case has been pending for years, but a federal district-court judge in Chicago is about to unseal some files and a trial could start later this year. The lawsuit accuses Northrop Grumman's Rolling Meadows, Ill., facility of defrauding the government by overcharging for advanced radar-jamming devices and other protective equipment installed on some of the Pentagon's advanced jets, including F-15 fighters and B-1 bombers. Managers at what was then Northrop's Defense Systems Division in Rolling Meadows recognized the pervasive cost-accounting and material-tracking problems and sought to conceal them from Pentagon auditors, the documents show. A Feb. 21, 1986, memo distributed to 37 managers had explicit instructions on explaining accounting faults. "We can't tell the truth," it said.

Food & Beverage . . . Morgan Stanley believes that Coca-Cola’s board is potentially within 2 weeks of announcing the new Chairman & CEO, and industry sources leads them to believe that Gillette Chairman & CEO Jim Kilts is the leading candidate. The firm believes that this appointment would be viewed favorably by investors, and says KO shares could also be driven higher by strong 1st quarter results (firm is $0.02 ahead of consensus). The firm expects that the real positive news for KO could be global volume of growth of 5%+, which is ahead of the most bullish 4% forecasts.

Consumer Products . . . 3M reported earnings of $0.90 per share, $0.03 better than the consensus of $0.87. Revenues rose 14.4% year/year to $4.94 billion versus the $4.82 billion consensus. The company also guides, sees 2nd quarter EPS of $0.94-0.96, versus the consensus of $0.91, and raises 2004 guidance to $3.60-3.70 versus the consensus of $3.61 and prior guidance of $3.52-3.62.

Barron's highlights Colgate-Palmolive suggesting poor performance and the resulting decline in its stock price have created a potential opportunity for investors. If the co can get back on track and deliver an expected 11% gain in earnings in 2005, its shares could be sharply higher a year from now. "We view Colgate as a good-quality value name," says Owen Fitzpatrick, a managing director at Deutsche Bank Private Wealth Management, which began purchasing shares for clients in the low 50s late last year. U.S. toothpaste represents a slim 10% of Colgate's sales. Yet "90% of investors' attention" is on the U.S. market, says William Pecoriello, a Morgan Stanley research analyst, who has an Overweight rating and a $60 price target on the shares. Almost 75% of Colgate's toothpaste is sold overseas, where the co boasts a commanding market share and P&G's Crest is little seen or used. This year Colgate's earnings are expected to grow only 7%, well below the company's long-targeted double-digit goal. But many drags on profit growth will disappear in 2005. Sales comparisons for Colgate's Simply White tooth-whitening gel begin to grow easier in this year's 2nd half. The company's acquisition of Gaba Holding will boost margins in '05 after diluting earnings in '04. And Latin American operations could surprise to the upside both this year and next, as the currency devaluations and economic crises of recent years recede. "We think the earnings disappointments are behind them," says Mr. Fitzpatrick. Colgate trades for 21x expected '04 earnings of $2.62 a share and 19x next year's estimates of $2.92. Those P/E multiples are well below the 29 P/E the stock sported three years ago. "With earnings accelerating, the stock could trade at a 30% premium to the market," says Deutsche Bank's Fitzpatrick. It's now at a 12% premium.

Retail . . . A.G. Edwards is raising their rating on Dillard's to Buy from Hold and setting their price target at $23. Firm states that based on the theory that the pending sale of Marshall Field's to either May or Federated (firm sources over the weekend indicated that May or Federated could end up buying the chain and that FD does not have an edge, as earlier believed) could ultimately help serve to put a long-lagging DDS's chain "in play" as an acquisition target.

Wal-Mart Stores expects April same-store sales to come in at the low end of its 4-6 percent growth range. "With one less Easter week and tougher comparisons in the period, we are expecting to be at the low end of the range," the company said on its weekly recorded sales update. The strongest categories in the past week were electronics, food, office supplies, toys, pet supplies, lawn and garden and sporting goods. The East and Southeast were the strongest regions. Wal-Mart also opened 18 stores in the past week, 17 of which were Supercenters, one a discount store.

Restaurants . . . JP Morgan reiterates their Overweight rating on McDonald’s and would encourage investors to buy the stock on weakness following the death of CEO Jim Cantalupo; at the time of Cantalupo's appointment in early 2003, The firm believed he would remain CEO for 3-5 years with a likely transition of the job to COO Charlie Bell, who the Street views as heir apparent to the CEO role. While not confirmed, firm believes that Charlie Bell would make a logical choice for the CEO title given his broad background as President of Europe, President of Asia Pacific, Middle East, and Africa, and Managing Director of McDonald's Australia.

Healthcare . . . Wachovia upgrades Anthem to Outperform from Market Perform based on valuation. The firm says valuation appears attractive at 12x their 2005 EPS estimate, and they note that the Wellpoint deal is nearing completion and that business is off to a strong start in 2004. Valuation range is $102-$109.

Banc of America downgrades HCA to Neutral from Buy and cuts their target to $42 from $52, citing the company's recent preannouncement. Also, firm says they are unprepared to call a peak in HCA's bad debt expense. Firm also downgrades Triad to Neutral from Buy and cuts their target to $32 from $40 to reflect their concern that bad debt is unlikely to decline in 2004 given industry trends.

Medical Devices . . . Deutsche Bank says they would buy Medtronic on weakness related to Friday's announcement that the co is recalling a subset of two ICD models that utilize a defective capacitor (that is no longer being employed). The firm is not overly concerned with the recall given that it does not affect MDT's current and future product offerings, and should not have a material financial impact on the company; maintains Buy rating and $57 target. Separately, firm also reiterates their Buy rating on BSX ahead of tomorrow's 1st quarter results, as they believe there could be upside to forecasts due to strength in Taxus, potentially stronger than expected gross margins, and favorable forex.

Drugs . . . Barron's discusses sleeping problems treatments that begin with sleep position training, weight loss, exercise, quitting smoking and avoiding alcohol. While drug company's are exploring remedies, the most immediate advances are likely to come from improvements to continuous air machines. The market for those devices is dominated by two co's, ResMed and Respironics. At current prices, both stocks sell at multiples below that of the medical-appliances industry generally. Another not-uncommon sleeping problem, afflicting perhaps as many as 250,000 people in the U.S., is narcolepsy, which essentially is a kind of specialized reaction from not having had enough sleep. The leading treatment here is Cephalon's Provigil, whose sales surged 40% last year. Even so the stock, at about $57, is well below its 52-w high and could be worth a look. In partnership with heavyweight Pfizer, Neurocrine Biosciences is now in late Phase III trials of Indiplon, another potential sleeping pill that has few "morning after" effects and apparently puts users to sleep, and keeps them asleep, quickly.

Eli Lilly reported earnings of $0.70 per share, excluding acquired in-process R&D charges related to AME acquisition, $0.04 better than the consensus of $0.66. Revenues rose 16.9% year/year to $3.38 billion versus the $3.23 billion consensus. The company also guides, sees 2nd quarter EPS of $0.67-0.69, versus the consensus of $0.68, and 2004 EPS of $2.80-2.85 (ex items), versus the consensus of $2.83.

Barron's discussed the drug sector and suggests some of its patents will soon expire on some blockbuster drugs, and there isn't enough in the industry's own development pipeline to fill the breach. According to the article, Big Pharma is on the lookout for any little firm with a good-looking molecule. The runup has left biotech stocks quite pricey, biotechs with earnings now go for 40x the next 12 months' earnings. In picking possible beneficiaries, Morgan Stanley biotech analyst Steve Harr likes to focus on firms with new treatments for the toughest medical problems, like cancer. Among those firms are OSI Pharmaceuticals, Millennium Pharmaceuticals and Onyx Pharmaceuticals. Mr Harr sees partnerships as clear opportunities for certain company's, including Eyetech Pharmaceuticals and Angiogenics. One hedge-fund pro, who doesn't want to be named, has become intrigued by SuperGen. The firm has done a poor job of testing its drug for a kind of bone cancer. Its stock has slid from about 13 to 8 this year, leaving firm with a $300 million stock market value. But clinical trials hint that SuperGen's drug could yet prove effective, in more capable hands, says the investor. Another interesting little biotech is Keryx Biopharmaceuticals. The company is conducting Phase III trials of a product that prevents kidney damage in patients with diabetes. Shares in the development stage co have risen tripled this year, to 16.

The WSJ's "Ahead of the Tape" column highlights Eli Lilly, which reported earnings this morning. According to the article, drug investors fixate on the pipeline, often to the exclusion of focusing on today's profits. This tends to lead them to overvalue company's that have plenty of late-stage products to highlight at analysts meetings and to undervalue company's that are overflowing with cash but seem to have bare cupboards. Such appears to be the case with Eli Lilly. The most eagerly awaited is antidepressant Cymbalta, which could be approved sometime this summer. Investors haven't yet started to worry that a controversy about currently marketed antidepressants and suicidal tendencies could mean delays for Cymbalta.

Biotech . . . Banc of America initiates coverage on ImClone Systems with a Buy rating and $91 target. The firm says IMCL receives nearly unprecedented economics on U.S. sales of Erbitux through partner BMY (IMCL gets a 39% royalty of net sales, and a 10% mark-up above drug manufacturing costs), and believes that favorable economics and no cost of goods expense for the first billion in Erbitux sales could drive long-term earnings power of $3/share or more.

Hotel & Leisure . . . Century Casinos target raised to $7 at Merriman Curhan.

Media . . . Ask Jeeves upped to Outperform at Piper Jaffray. Price target $45.

Ask Jeeves upped to Outperform from Peer Perform at TWP. The upgrade is based on recent improvements made to the company's technology and user interface that should help Ask Jeeves increase the penetration of its existing user base and add new users, a stepped up focus on Ask Jeeves' presence in the UK including a new ad campaign and a better understanding of the growth and contribution that the ISH properties should add both economically and strategically.

Piper Jaffray upgrades Ask Jeeves to Outperform from Market Perform as the company: 1) has gained a strong negotiating position vis-a-vis paid search providers, 2) the acquisition of ISH is likely to introduce a number of new initiatives, and 3) the company has strong momentum in traffic and 2005 estimates are very likely to increase. The firm also raises its target to $45 from $40 on 28x 2005E EBITDA. The firm would be buyers of the stock ahead of the 1st quarter earnings release tomorrow as the firm believes there will be additional upside to the company's March 4 pre-release.

EchoStar estimates raised at Schwab SoundView. The firm is raising 1st quarter net adds to 300K from 280K (consensus 290K) due to company's record TV marketing in 1st quarter. According to the firm, TV marketing has historically been directionally indicative of overall marketing spend by both DISH and DTV. Also, the aggressiveness of DISH's campaign likely indicates that the inventory problems that plagued 3rd quarter and 4th quarter largely are behind the company. With the shares trading 17x 2005 fully taxed FCF, the firm is maintaining their Outperform rating and $43 target.

Emmis Broadcasting CEO Jeff Smulyan, in an interview with Broadcasting & Cable

magazine, said he would unveil a plan at this week's National Association of Broadcasters convention in Las Vegas that would provide a digital TV model in which local broadcasters would "broadcast" the 15-40 most significant cable channels at a $25 per sub. Emmis' digital plan

addresses a few broadcasting realities. First, the question of how the broadcasters will earn a return on the industry's $4 billion commitment to digital TV has never been answered. This is an alternative and is currently being attempted in Salt Lake City by USDTV. In addition, Emmis' plan would address another vexing problem facing local TV broadcasters; how to create a more stable, consistent revenue stream to provide balance to advertising, broadcasting's sole revenue stream. This would add a subscription service for local broadcasters. In the article, it was clear that technological concerns (quality of broadcast signal, set-top boxes) and industry cooperation all lay ahead for the business.

Network Equipment . . . Prudential downgrades Nokia to Underweight from Overweight based on intensifying competition and a lack of visibility in the company's core mobile handset business. There have been recent product missteps, increased competition, and increased branding competition from wireless carriers. The firm reduces its 2004 rev estimate to $28.7 billion from $31.7 billion and lowers its 2004 EPS estimate to $0.64 from $0.84. UBS downgrades Nokia to Neutral from Buy. Despite the stock likely being close to the bottom of its trading range, there is insufficient visibility to the success of anticipated product launches and the duration of margin compression in the interim. While the co has been in this position before, the recovery this time could prove more difficult. JP Morgan downgrades to Neutral from Overweight; firm believes that Nokia is not simply losing share to Samsung at the high end but is also under pressure across its range from Sony Ericsson, Siemens and Motorola. The firm lowers its Mobile Phones unit operating margins estimate to 20% in 2nd quarter from 25% in 1st quarter. The firm reduces its 2004 EPS estimate by 13%.

Digitimes reports that Corning, the world's largest T.F.T. L.C.D. glass substrate provider, suffered a loss of millions of NT dollars due to voltage drops at the Tainan Science Park last Friday, according to sources. According to the article, the voltage drops caused malfunctions at Corning's glass furnace, and may exacerbate the already tight supply of glass substrates. This is the third incidence of power surges and voltage drops at TSP since the beginning of April. In this case, six company's, including Coretronic, Helix Technology, E-One Energy Technology and West Electric, lost a total of nearly NT$10 million. Some of the company's said they are not ruling out asking for compensation from Taiwan Power.

Boxmakers . . . Lexmark reported earnings of $0.91 per share, $0.03 better than the consensus of $0.88. Revenues rose 13.4% year/year to $1.26 billion versus the $1.22 billion consensus. The company sees 2nd quarter EPS of $0.88-0.98 versus the consensus of $0.90.

Semiconductors . . . Schwab SoundView upgrades Skyworks to Outperform from Neutral and raises their target to $14 from $12. The firm is citing stronger than expected CDMA growth from Samsung, as well as the stock's recent pullback; also, firm expects that transceiver wins at Samsung will be a positive catalyst, and note that SWKS has no exposure to Nokia GSM or TDMA, and only about 10% exposure to NOK overall.

Agere Systems has adopted Virage Logic's Self-Test and Repair Memory System. Agere is using the system to implement an embedded memory test and repair architecture for its second-generation multi-service traffic management network processor, the APP550.

Deutsche Bank upgrades Advanced Micro to Buy from Hold. The firm says a common response to AMD's strong 1st quarter was "things can't get better", yet they believe that it can get better (in the near-term at least); while the market appears to be focused on cycle risk at the moment, firm says AMD is currently benefiting from a strong product cycle (AMD64) and improved leverage. Also, firm says the stock trades at a discount to peers. Target is $20.

Samsung as expected reported record revenue and net profit in 1st quarter 2004. The outlook for the remainder of 2004 is solid, as market share gains and high spending levels should lead to strong volume growth, and as pricing trends in its major product groups remain favorable. Expect earnings to double this year. In 2nd quarter, expect Samsung to defy seasonality and see further revenue growth sequentially. With a 29% Quarter over Quarter increase in handset shipments in 1st quarter to 20.1m units, Samsung clearly gained market share as the industry declined 9% Quarter over Quarter, and expect its competitive position to remain strong in the next few quarters given its strong product pipeline. Estimate handset shipments to increase 56% Year over Year to 87 million in 2004. Samsung's ASP and margins also continue to be among the highest in the industry. Samsung's NAND prices are holding up well in 2nd quarter 2004. ASP is expected to be flat to slightly down in 2nd quarter as the company does not see the need for a signficant price cut given the strong demand. In DRAMs, Samsung's 2nd quarter bit growth guidance of 15% supports our expectation of a softer price environment in 2nd quarter, as analysts anticipate increased supply growth to meet incrementally weaker demand in the quarter. The outlook for TFT-LCDs continues to look incrementally better. Samsung now expects a slight oversupply only

at the end of this year, versus its prior expectation of oversupply in 2nd half 2004. Although a sizeable supply increase in the industry is slated for 2nd half 2004 from 5G ramps in Taiwan, the actual ramps could fall short of planned levels due to continued tightness of components such as color filters.

Software . . . Synopsys terminates merger agreement with Monolithic. SNPS paid MOSY a $10 million termination fee. In addition, MOSY announced separately that it has authorized a $25 million buyback plan.

Microsoft and Sonic Solutions unveiled DVD Producer - WMV HD Edition, a special version of Sonic's professional authoring application that supports the production of DVD titles using Microsoft Windows Media Video High-Definition (WMV HD).

JMP Securities initiates coverage of Red Hat with an Outperform rating and $30 target; firm believes the stock's rich valuation is justified by strong fundamentals and explosive growth in the disruptive technology Linux market. The firm also believes that a number of factors could drive rev and earnings growth, including: 1) growth of Linux into enterprises' data center environments, 2) increasing OEM revs from Dell, H-P, and IBM, 3) int'l opportunities, and 4) new functionalities such as systems and storage mgmt (Sistina) and enhanced security features.

Barron's discusses the booming videogame business, which three weeks from now will descend on Los Angeles for E3, the industry's biggest annual trade show. Basically, there is lots of bullish news coming from an industry in which share prices have jumped 50% to 100% since early 2003. But some smart investors have been taking profits, preparing for what they see as more difficult days ahead as the industry looks toward the next generation of console games, coming in 2005 and 2006. Lately, business conditions have been excellent, notes Mike Wallace, an analyst at UBS. He notes that both Activision and THQ pre-announced better-than-expected 1st quarter profit, and that Microsoft's recent move to cut the Xbox's retail price is drawing new buyers. "Near-term, I'd still own them," Wallace says of the stocks. "Things look good, with the hardware price cuts, and big games coming. But my concern is that six months from now, in the fall, people will start looking into next year." In 2005, Wallace predicts, U.S. videogame sales will be flat-to-down. Hardware sales, he says, are likely to be down as well. The next big growth year for the industry, he says, will be 2007. The logic is clear: The current generation of game consoles is aging. The Xbox 2 is expected in stores by Christmas 2005, which means no significant software titles for it much before 2006. Wallace thinks Microsoft might provide details about the next Xbox at E3. But it could do otherwise, particularly if the new platform isn't backward-compatible with the current one. Meanwhile, the next-generation Playstation, the PS/3, isn't due until 2006. He says that anyone who still owns any of the stocks this fall should start worrying about the impact of expectations for flat sales in 2005.

JP Morgan adds Oracle to its Focus List, as they expect the company to report strong 4th quarter results. The firm believes that the database cycle is stronger than expected, and that ORCL's database options continue to gain momentum, providing further room for outperformance. Firm says ORCL is displaying a clear acceleration in rev and EPS growth, and says near-term catalysts include: 1) several upcoming investor conferences, 2) the naming of a CFO likely in May, 3) strong May quarter results, and 4) the resolution of the PSFT overture. Target is $15.

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U.S. stocks fell, sending the S&P 500 Index to its biggest decline in seven months, after Federal Reserve Chairman Alan Greenspan hinted that interest rates are headed higher. Shares of Phelps Dodge, the world's second-biggest copper company, and other producers of raw materials led the decline on concern higher interest rates will cool the economy. Benchmark indexes fell even as profit from 20 members of the S&P 500 today exceeded the average analyst forecast. The S&P 500 shed 17 points (-1.6%) to 1118, for its steepest decline since Sept. 24. An index of computer-related shares was the biggest contributor to the drop among the benchmark's 10 industry groups. The Nasdaq, which gets 39 percent of its value from technology shares, dropped 41 points (-2.1%) to 1978. The DJIA lost 123 points (-1.2%) to 10,314. More than three stocks fell for every one that rose on the New York Stock Exchange. Some 1.51 billion shares changed hands on the Big Board, 2.1 percent more than the three-month daily average.

Strong Sectors: autos, office equipment
Weak Sectors: gold, security systems, oil, REITs, mining, semiconductors

Top Stories . . . Federal Reserve Chairman Alan Greenspan said the threat of deflation is ``no longer an issue'' for the U.S. and companies appear to have a greater ability to raise prices.

General Motors, the world's largest automaker, said profit in the first quarter fell 14 percent after a gain last year from the sale of a military business generated a third of earnings. The company raised its earnings forecast for the year.

Wells Fargo, the fifth-biggest U.S. bank, said first-quarter profit rose 18 percent as the company opened more accounts and made more loans to consumers.

Pfizer, the world's largest drugmaker, said first-quarter earnings fell 50 percent on costs related to its purchase of Pharmacia and Esperion Therapeutics, as sales of the cholesterol-lowering Lipitor drug increased.

Starwood Capital Group and casino operator Kerzner International raised their joint offer for Wembley Plc to 309 million pounds ($555 million), topping an MGM Mirage bid, as U.K. government plans to relax gambling laws prompt competition for venues.

Janus Capital Group said Chief Executive Officer Mark Whiston is stepping down as the U.S. mutual fund company struggles to settle allegations that it permitted improper trading that hurt investors.

Motorola, the world's second- largest maker of mobile phones, said first-quarter profit more than tripled to the highest since at least 1990 as phone handset sales surged 67 percent.

NextWave Telecom, which filed for bankruptcy in 1998 because it couldn't pay $4.3 billion for cell-phone airwave licenses it won in auctions, agreed to return most of its remaining spectrum to the U.S. government and pay $386 million.

Quotes of Note . . . ``The earnings are coming in great, but that is not the focus right now. eople are focused on interest rates.'' Greenspan was ``pretty subtle in indicating interest rates are going to rise.'' Arthur Micheletti, who helps manage $1.5 billion for Bailard Biehl & Kaiser.

Gurus . . . Bloomberg says there is still back-and-forth on the rate outlook. Remarkably, says the financial service, Ed McKelvey, Senior Economist at Goldman Sachs, continues to feel a Fed policy change is a 2005 affair, citing continued slack in the Labor Market in particular, and the economy in general. He says the 10-year note will end the year with a 3.9% yield. On the other hand, Richard Berner, Morgan Stanley's Chief Economist, says Treasury notes are in a bear market that will drive yields to the highest in almost two years. He feels the labor market has turned the corner.

Ed Hyman of ISI is lifting his inflation forecast to 3.0% for the Consumer Price Index. As a result, he expects the Fed to tighten by 100 basis points by the middle of next year, and for bond yields to move above 5.0%.

As for stock gurus, CBS Market Watch says Bob Brinker of Market Timer remains bullish. The noted timing guru and radio personality believes the fundamentals supporting this cyclical bull remains in place. These include low inflation, high productivity, and rising corporate profits.

Of Note . . . An industry group said North American chip equipment makers had their eighth straight monthly gain in orders in March.

Standard & Poor announced that Mylan Labs will be added to the S&P 500, replacing Sprint PCS after the close on Thursday, while Valero Energy will replace John Hancock Financial Service at a date to be announced.

IPO . . . The New York Post reports that because of a technicality, Google's IPO may come as soon as the end of this month. SEC rules state that a company must report financial results if it has at least $10 million in assets and has more than 500 shareholders. Google has both and may have to issue quarterly reports starting April 30. If true, it would make sense for Google to go public as soon as possible, to avoid disclosing its financial information without the benefits of a stock offering. Because of the expense and the private information that is revealed, very few company's file reports with the SEC yet remain privately held. The other option for Google would be to buy back shares from some of its employees, but that is expensive and unlikely. Google officials refused to comment on the company's filing plans.

Financials . . . Bank One reported earnings of $0.87 per share, excluding $0.22 in one-time gains, $0.06 better than the consensus of $0.81. Revenues rose 15.8% year/year to $4.57 billion versus the $4.69 billion consensus.

The SEC notified Novastar Financials that it is conducting an informal inquiry into certain business practices. This follows a WSJ story last week that the co had compliance issues with certain state licensing agencies. The co says it is currently approved and authorized to do business in every state in which it operates, but has hired a law firm to do an outside review.

Fannie Mae reported core business EPS of $2.03, well above estimate of $1.92. The positive surprise was attributable to a wider than expected net interest margin and higher than expected guaranty-fee rate. Both will decline in future quarters we believe, making the retained portfolio once again the principal driver of earnings growth. The net interest margin widened to 107 bps in 1st quarter from 105 bps in 4th quarter, apparently a result of higher short term debt (though without a balance sheet, it is difficult to tell). The NIM is expected to begin falling again as refinancings and prepayments decline. Guarantee fees were very strong, reflecting healthy MBS portfolio growth and higher prepayment related average guaranty fee rates. MBS growth should remain robust, but the g-fee rate will likely decline as prepayments fall. The retained portfolio declined at a 7.8% annualized rate in the first quarter. Analysts remain optimistic that growth will

improve in the second half of 2004, assuming prepayments decline and short-term interest rates rise. Portfolio growth remains the most important variable in our estimates. First quarter earnings were very strong, but largely as a result of abnormally high margins in both the retained and

MBS businesses. Retained portfolio growth still remains difficult. Analysts are raising 2004 estimate to $8.05 from $7.93 to reflect the 1st quarter margin strength, but are reducing 2005 estimate to $8.60 form $8.70 to reflect slightly weaker portfolio growth this year.

Ameritrade reported earnings of $0.19 per share, $0.01 better than the consensus of $0.18. Revenues rose 63.8% year/year to $249.4 million versus the $254.9 million consensus. The company sees 3rd quarter EPS of $0.14-0.22 versus the consensus of $0.22. The company sees 2004 EPS of $0.59-0.79 versus the consensus of $0.73

The WSJ's "Heard on the Street" column discusses investor's rumors of a potential Wachovia acquisition. The concerns on Wall St are that the chairman and CEO G. Kennedy Thompson could lead the bank into a dilutive acquisition that damages the co's bottom line, which has hampered the stock's rise and made it cheap compared with its peers. That is on top of worries that rising interest rates could slice into profits at Wachovia and other banks. Still, it might be a mistake to ignore Wachovia's shares. Even if the bank were to jump into another megamerger, the 53-year-old Mr. Thompson and his integration team showed that after First Union acquired the former Wachovia in 2001, it can put together two big banks without hurting earnings in the long run. For now, some outsiders also think Wachovia is looking only at relatively small, nondilutive acquisitions in attractive states such as Texas. "If people are worried about a big crazy deal, I don't think you're going to get it in Texas," says Robert Maneri, a bank analyst at Victory Capital Management in Cleveland. Victory owned about 500,000 Wachovia shares as of Dec. 31. "I think the stock's cheap," Mr. Maneri adds.

Life insurance stocks have strongly outperformed the broad equity market both year to date and over the past 12 months, especially “cyclical” higher-beta insurance stocks, whose profitability is more highly affected by the equity markets. Valuations now favor the larger, more diversified companies like Prudential and MetLife. With 1,462 life/health insurers, consolidation should remain a major force shaping the industry. However, recent M&A transactions have shown that this is a buyer’s market. Simply put, M&As should not be a catalyst for sector valuations. Consider MetLife to be well-positioned to benefit from the consolidation trend. Decomposition of ROE analysis is a modification of the “Dupont model” used to analyze non-financial companies. This analysis provides a useful look at the key drivers of profitability for the different companies.

The industry’s generally positive operating fundamentals are now reflected in the sector’s valuation.

Oil & Gas . . . Diamond Offshore reported a loss of $0.08 per share, $0.02 worse than the consensus of ($0.06). Revenues rose 26.1% year/year to $184.2 million versus the $176.3 million consensus. The company attributes shortfall to the impact from planned surveys as well as greater than anticipated idle time on several of companys mid-water and deepwater units.

Energy . . . Dominion reported operating earnings adjusted for certain items of $1.37 per share, $0.01 worse than the consensus of $1.38, citing pressure on several areas of its business; revenues rose 8.4% year/year to $3.88 billion versus the $3.65 billion consensus. The company also revises guidance, now sees 2004 EPS of $4.75-4.90, versus the consensus of $4.94 and prior guidance of $4.80-5.00. The firm sees 2005 EPS of 5.10-5.20, vs the consensus of $5.18.

Ballard Power named Heliocentris Energy Systems as a distributor in N. America and Europe of Ballard's AirGen portable fuel cell generator and Nexa fuel cell power module. Heliocentris is the third worldwide (excluding Japan) distributor Ballard has signed to distribute the AirGen portable fuel cell generator, after MGE UPS SYSTEMS Inc. and Mitsubishi Canada Limited.

The WSJ's "Tracking the Numbers" column highlights Devon Energy, a company that has made $20 billion in acquisitions since 1999, completing a deal a year in each of the past five years. Buoyed by soaring commodity prices, the co announced record earnings for 2003, and its stock has leapt 35% in the last six months. Still, David Tameron isn't convinced the growth story can continue. Mr. Tameron, a senior exploration-and-production analyst in Denver for Stifel Financial's Stifel, Nicolaus & Co. is concerned about Devon's ability to digest so many acquisitions and has a market underperform rating on the stock. That puts him squarely in the contrarian camp. The mean target price for the stock among all of the analysts who follow Devon is $67; Mr. Tameron's target is $53. According to Mr. Tameron, Devon has executed so many acquisitions in the past few years that the key issue is whether it has the ability to grow organically. His general take on it is that finding and development costs have been higher than the industry average, and we haven't seen sufficient growth internally. There are some upfront development costs, for example with a project in the Gulf of Mexico, that will show up as costs but don't yet show up as production. According to Mr. Tameron look at the valuation of the co today against its peers, and it appears fully valued.

Transports . . . General Motors reported earnings of $2.25 per share, $0.47 better than the Reuters Research consensus of $1.78; total auto and other revenues rose 0.8% year/year to $40.14 billion versus the $38.97 billion consensus. The company also guides, sees 2nd quarter EPS of $2.00-2.25 (ex items), versus the consensus of $1.87, and 2004 EPS of $7.00, versus the consensus of $6.26 and prior guidance of $6.00-6.50.

The WSJ's "Ahead of the Tape" column highlights car industry problems. Investors have started to fear inflation, but car and truck prices are still subject to discounts. After three months of anemic sales, General Motors fell back into heavy use of incentives in April. Interest rates are going up and this is going to likely pinch profits and, potentially, sales. At this point in an economic recovery, usually the prices are firming, points out BofA's Ronald Tadross. The problem, of course, is that there is little pent-up demand for autos since people took advantage of 0% financing and bought new ones throughout the downturn. Deutsche Bank's Rod Lache has been writing about the problem that many customers are coming into the dealer with "negative equity" in their cars. In other words, the debt that remains on the car loan is greater than the trade-in value of the car itself. The average amount financed on a new car was $26,221 in 2003, he says, compared with $22,822 in 2001. The problem of being "upside down" in a loan, another term for having negative equity, could have serious ramifications. Meanwhile, inventories are up near record levels. GM, which posts 1st quarter results today, had inventory at 1.3 million units at the end of March, while normally it might have inventory of about 1 million to 1.1 million. Ford Motor inventory is high, too. Says Mr. Lache, the auto makers need "to move the metal or else."

Defense & Aerospace . . . TASER reported pre-split earnings of $0.24 per diluted share, $0.02 better than the consensus of $0.22. Revenues rose 286.5% year/year to $13.1 million versus the $12.8 million consensus. The companyo will be completing a two-for-one stock split effective on April 29, 2004, for all of shareholders of record on April 15, 2004.

Food & Beverage . . . Kraft reports pro forma 1st quarter of $0.45, $0.02 ahead of consensus on lower tax rate. Base volume growth of 0.8% is disappointing, as company cites shifts in promotions, inventory deloading and damage from low-carb diets. Better results seen in cheese, cold cuts and Planters nuts. But planned annual 3% revenue growth now more heavily second half loaded, as is incremental $500-$600 million in marketing spend. Cutting second quarter forecast by $0.03, to $0.47, on higher marketing spending, soaring cheese costs. Commodities pose risk to achieving low end of previous $1.93 to $2.00 range. Analysts maintain Outperform rating and 2004 EPS estimate of $1.94. Valuation attractive at 16.2x, versus 17.1x for large

cap group average.

Tobacco . . . Altria reported earnings of $1.16 per share, excluding a $0.09 charge for food restructuring and other items, $0.03 better than the consensus of $1.13. Revenues rose 12.7% year/year to $21.84 billion versus the $20.59 billion consensus. The company reaffirms prior 2004 (Dec) guidance of $4.80-4.90, ex items, consensus is $4.86.

Retail . . . Linens'n Things reported earnings of $0.11 per share, ex items, $0.13 better than the consensus of ($0.02). Revenues rose 15.0% year/year to $552.8 million versus the $548.9 million consensus. The company sees Q2 EPS, ex items, of $0.15-0.16 versus the consensus of $0.06. For 2004 sees EPS ex items of $1.91-1.96 ex items, versus the consensus of $1.75.

Smith Barney upgrades Amazon.com to Hold from Sell based on valuation. However, while they believe that the company's pricing and growth strategies are fundamentally sound, they believe that lower gross margins will act as somewhat of an offset to stronger free cash flow growth, and will likely weigh on share price performance in the near-term. Target is $55.

Coach reported earnings of $0.30 per share, $0.03 better than the consensus of $0.27. Revenues rose 42.1% year/year to $313.1 million versus the $302.1 million consensus. The company expects 4th quarter (Jun) revenue and EPS of at least $330 million and at least $0.30 versus consensus of $316 million and $0.27. For fiscal 2005, co expects revs and EPS of at least $1.55 billion and at least $1.60 versus consensus of $1.53 billion and $1.51, respectively.

Ethan Allen reported earnings of $0.61 per share, $0.01 worse than the consensus of $0.62. Revenues rose 8.9% year/year to $244.6 million versus the $239.5 million consensus. Company reaffirms, "we continue to believe we have the opportunity to generate fiscal year sales and earnings per share increases of approximately 5% and 10%, respectively."

Restaurants . . . Thomas Weisel upgrades Panera Bread to Outperform from Peer Perform to reflect their growing conviction that top-line rev trends will begin to strengthen during 2004 and continue into 2005. The firm believes that stronger sales trends will be driven by: 1) a diminishing impact from the adverse effects linked with the low-carb diet craze, 2) stronger new product development and innovation, 3) the rollout of the Via Panera take-out/delivery platform, 4) enhanced volume contribution from other dining day parts, and 5) progress in alleviating throughput constraints at its bakery-cafes during peak lunch hours. Target is $50.

Outback Steakhouse reported earnings of $0.62 per share, $0.02 worse than the consensus of $0.64. Revenues rose 25.3% year/year to $816.6 million versus the $778.7 million consensus.

McDonald's Chairman & CEO, Jim Cantalupo, died of an apparent heart attack last night in Orlando where the company's worldwide operator convention was starting today. Analysts credit Mr. Cantalupo, who returned to McDonald's as CEO effective January 2003, with the tighter capital allocation that has been a critical part of the company's turnaround efforts. Expect MCD's board to act quickly to at least fill the CEO slot on an interim basis and possibly to act more

decisively and skip the "interim" step. The most likely candidate to be named CEO is 43-year old Charlie Bell, President & COO. Charlie and Jim Cantalupo were the only two members of management on MCD's board. Expect MCD to maintain the strategic course set by Jim Cantalupo. CFO Matt Paull is a champion of the tighter capital allocation. Mike Roberts is a very effective leader of the U.S. business. Charlie Bell came through the operating ranks in the international business. Jim Skinner will continue in a senior role. A price target of $33-$35, roughly 18-19x 2005 EPS estimate. Jim Cantalupo's death obviously adds a new level of uncertainty. But the stock is inexpensive and we expect the company to stay the course on its turnaround efforts.

Healthcare . . . Barron's Online highlights HCA Healthcare's stock, which has dropped 9% since last Wednesday due to the co cutting profit projections for 2004. "We are getting pretty close to the point where we are unlikely to see any improvement in 2004, and there is more than a 50% likelihood that things will get worse before they get better," says Kemp Dolliver, an analyst with SG Cowen. According to the article, the problem is that not all employers provide employee health benefits. Those that do often make new hires wait several months before extending coverage. Other company's continue to slash benefits, forcing workers to pay higher deductibles and co-payments, says Paul Ginsberg, a healthcare economist. As long as the trend continues, bad debt will be an increasing issue for hospitals," he added. HCA expects to earn from $2.60 to $2.70 a share in '04, down 25 cents from previous projections. On Monday, Gary Taylor, an analyst with BofA, downgraded the stock to Neutral from Buy. At 38.71, the stock fetches 14x earnings over the next four qrtrs, or a 19% discount to the industry. Historically, it commands a median P/E multiple of 17.4x forward earnings.

Medical Devices . . . Boston Scientific reported earnings of $0.23 per share, $0.01 better than the consensus of $0.22. Revenues rose 34.1% year/year to $1.08 billion versus the $1.04 billion consensus. Co reports Q1 TAXUS stent worldwide sales were $216 million. Preliminary U.S. sales from Apr 1st-19th (13 selling days) were approx $93 million. Co said it was shipping to approx 1,100 accounts at the end of this period; estimates its share of the U.S. drug-eluting stent market - as of April 19th - to be approx 70%, on a reorder basis; estimates the adoption rate for drug-eluting stents in the U.S. to be approx 70%.

Drugs . . . Pfizer reported earnings of $0.52 per share, excluding non-cash charges, $0.01 better than the consensus of $0.51. Revenues rose 46.8% year/year to $12.49 billion versus the $12.53 billion consensus and the $12.65 billion consensus. The company also guides, sees 2004 adjusted EPS of $2.13 (ex items), versus the consensus of $2.10, and revenues of $54 billion versus an estimate of $52.84 billion.

Lilly’s new products (Cialis, Strattera, Forteo, Xigris, Alimta) and upcoming launches (Cymbalta, Yentreve) make Lilly’s product portfolio among the youngest in the industry. Management continues to expect summer 2004 launch for Cymbalta and late-2004/early-2005 launch of Yentreve (duloxetine) in U.S. Aside from Zyprexa patent litigation, the company is also facing little in the way of near-term generic erosion of major brands. There are, however, some concerns regarding the growth prospects for the base business with Zyprexa prescriptions in steady decline and U.S. sales growth a sluggish 3% in the quarter. It is unclear when or if Zyprexa volume growth will resume. Lilly could benefit from the new Medicare law, when enacted in 2006, when dual-eligible beneficiaries (those old enough to be eligible for Medicare and with incomes low

enough to be eligible for Medicaid) will be covered by the Medicare Rx benefit. For Zyprexa, this change could result in a $200 million reduction in Medicaid rebate payments to states, albeit a one-time event. Strattera market share has also flattened at around the 11% level after a very strong start in the first half of 2003.

Biotech . . . JMP Securities upgrades Protein Design to Outperform from Market Perform and raises their target to $32 from $11; with business model risk substantially reduced and royalties achieving critical mass in 2004. The firm says investors can now focus on real pipeline data coming out in the next 12 months. Also, firm does not believe that investors have fully accounted for the upside in PDLI's rev coming from recent developments in its royalty biz, nor resulting from increasingly probable development of at least one drug from the company's emerging pipeline of five clinical stage product candidates.

Hotel & Leisure . . . Deutsche Bank raises their target on Shuffle Master to $40, and refers to the company as a "mini IGT" in the making since it continues to model itself after the highly successful IGT model. The firm also believes that SHFL's pending CARD acquisition and new product introductions could likely provide upside to their 2004-05 estimates, and thinks the company's desire to repurchase shares is a very bullish signal investors should be paying attention to.

Station Casinos reported adjusted earnings of $0.51 per share, excluding non-recurring items, $0.05 better than the consensus of $0.46. Revenues rose 19.7% year/year to $239.0 million versus the $232.0 million consensus. The company also guides, sees 2nd quarter EPS of $0.45-0.49 versus the consensus of $0.45, and 2004 EPS of $1.81-1.96, versus the consensus of $1.80.

Media . . . CSFB lowers their view on the Cable sector to Underweight from Marketweight given increasing competitive pressure as well as the likelihood that free cash flow forecasts will have to come down. Firm says that high speed data competition will continue to be strong, the entry of the RBOCs into video could be significant enough in 2004 to drive basic subscriber growth negative for several of the largest MSOs, the competitive nature of VoIP will be more intense than expected, and competitive pressures coupled with greater than expected capex and higher cash tax burdens will drive lower than expected free cash flow. Cuts Comcast target to $32 from $36 and cuts COX target to $32 from $34.

CSFB out positive on Disney saying they think that Street estimates for 2005 are potentially low to a significant degree -- calling it a definitely non- consensus, out of the box thinking these days, particularly as people think Street estimates are too high for 2005. The firm believes the biggest drivers going forward are the theme parks and ESPN, but the TV stations are performing well despite weakness at the network. TV performance over the past several quarters has outperformed the industry and they believe that its major market presence and strong local news should drive outperformance going forward. With the shares trading 10.7x 2005 EBITDA, the firm is reiterating their Outperform rating and $37 target.

The Financial Times reports that Liberty Media is in talks with News Corp about acquiring international TV production and programming assets from the company. John Malone, Liberty chairman, said the co could swap News Corp shares it holds for operating assets as Liberty expands internationally. In an interview with the FT, Mr Malone described the talks as "fairly active". He said: "There are certain small assets that we feel fit Liberty better than News Corp. We could exchange small amounts of our News Corp shares back for these assets." This year Liberty increased its stake in News Corp to 17%, representing more than 9% of the voting rights - second only to the Murdoch family interests. Mr Malone declined to name the assets Liberty was targeting. But people familiar with the situation hinted that the co was looking at the international arms of News Corp's National Geographic and FX channels. Trading at $11.07 yesterday, Liberty's shares face a discount of more than 30% against the sum of its parts, which include stakes in company's. "The impact of the spin-off and rights issue will be a step in the right direction," said Mr Malone. "But we don't anticipate that this single action by itself will wipe out the discount. Mr. Malone states "There may be subsequent actions that Liberty will need to take to address that large and growing discount." He said that Liberty could sell off non-strategic holdings to cut debts or seek a bigger stake in Discovery, the TV network.

Telecom . . . EarthLink reported 1st quarter non-GAAP earnings of $0.11 per share, before facility exit costs, $0.03 better than the consensus of $0.08. Revenues fell 0.6% year/year to $351.6 million versus the $350.0 million consensus. The company guides, sees 2nd quarter EPS of $0.13-0.17 versus the consensus of $0.13, and revenues of $350-355 million versus an estimate of $353.8 million. The company reaffirms 2004 revenues of $1.41-1.44 billion versus an estimate of $1.43 billion. The company also signs three-year marketing and sales agreement with Sprint, building on their six-year relationship and ensuring that EarthLink will be preferred high-speed ISP for Sprint's local residential and small-business customers.

The New York Post reports that AT&T introduced a VoIP calling plan for New York yesterday as part of the company's aggressive rollout of the digital technology. The service cuts AT&T's costs and allowing consumers such computer-friendly features as a merged voice mail and e-mail inbox. "What we've seen is that consumers like the price, but that the features are the wow factor," said Cathy Martine, senior vice president at AT&T. Price differences may also be a wash for most customers, since they are required to pay for a high-speed Internet connection to use the phone service. At first, AT&T VoIP will cost $20 a month for unlimited calls; that will go up to $40 a month later this year. Verizon plans to roll out VoIP in New York this summer; Time Warner cable hopes to introduce its service sometime this year.

Sprint FON reported earnings of $0.36 per share, ex items, $0.01 better than the consensus of $0.35. Revenues fell 4% year/year to $3.44 billion versus the $3.46 billion consensus. Sprint PCS reports 1st quarter (Mar) loss of $0.08 per share, ex items, $0.01 better than the Reuters Research consensus of ($0.09); revenues rose 16.6% year/year to $3.44 billion versus the $3.32 billion consensus. Company will combine its tracking stocks on Friday, raises 2004 combined revenue guidance from previous expectation of 2-3% growth to 3-4% revenue growth; co reaffirms combined EPS guidance for 2004 of $0.70-0.75 per share. No combined company consensus estimates available as of yet.

Electronics . . . Sony Corp boosts outlook for fiscal year 2004 (ended Mar 31) to 88 billion yen (approx. $715 million) from 55 billion yen. Sales outlook goes to 7,500 trillion yen from 7,400 trillion yen.

Barron's Online highlights PalmOne, a company that has seen its stock triple over the past year as it launched its famous PalmTreo and sold about 100,000 Treos in each of its past two quarters. Yet "one sparrow doesn't make a spring," Charles Wolf, an analyst at Needham, wrote recently. Despite the success of the Treo, PalmOne still generates just under three-quarters of its sales from plain-old personal digital assistants. And Gartner Dataquest, a market research firm expects the worldwide market for handheld organizers to decline by 6%, to 11.2 million next year from 12 million in 2002. Meanwhile, the market share of rivals like Sony, Hewlett-Packard and Dell grew as more people bought Pocket PCs, which use the Windows CE operating system. Last year Windows CE picked up nearly 12 points of market share to about 38%. That puts it in striking distance of the Palm operating system's shrinking 50% share. Among all-in-one devices, Research in Motion has a strong lead over PalmOne. While Research in Motion has been selling the BlackBerry device for several years, it added more than 200,000 BlackBerry subscribers in the three-month period that ended in Feb. While CFO Bruner says the co will meet its 4th quarter demand and is bolstering its list of suppliers, the co may not be able to ramp up Treo production after May. PalmOne is expected to lose 26 cents a share for its fiscal year that ends next month. But based on F05 estimates, the shares change hands at a premium to RIMM's 30x F05 consensus estimate. Also, at 1.1x trailing-12-months sales, PalmOne's stock is at a premium to its five-year median ratio of 0.8x sales.

Storage . . . UBS upgrades EMC to Buy from Neutral and raises their target to $17 from $16, as they believe that storage fundamentals are solid and that EMC is well-positioned to benefit as the market leader. The firm says software sales are tracking ahead of expectations, the CLARiiON product line has momentum (with more key products to come), and they believe that competitors' bark may be worse than their bite in 2nd half 2004 in terms of Symmetrix competition.

Network Equipment . . . CIBC initiates coverage of Redback Networks with a Sector Perform rating and no target. The firm says that the company appears well-positioned for growth due to its status as a pure play on residential broadband secular growth, however it needs to demonstrate solid traction for its new SmartEdge platform and show solid growth following its recent financial restructuring.

Lucent reported earnings of $0.03 per share, ex items, $0.01 better than the consensus of $0.02. Revenues fell 8.7% year/year to $2.19 billion versus the $2.16 billion consensus.

Semiconductor Equipment . . . Analysts generally considering the March below-consensus book-to-bill ratio of 1.10 a non-event with JP Morgan noting that as long as bookings rise in absolute terms and incremental news flow builds investor confidence in the potential length and upside magnitude of the cycle, they think equipment stocks can lead the market higher again as the year unfolds. Morgan Stanley out saying they believe that the shortfall in March front-end bookings may be explained by a heavily back-end loaded, April Quarter for Applied Materials and relative weakness in 1st quarter order intake at KLA-Tencor. Under this scenario, to support AMAT's guidance for +30% Quarter/Quarter order growth for April Quarter, the firm estimates that SEMI front-end bookings need to increase by approx +14% Month/Month to $1,150 million next month. Firm maintains their Attractive view on the sector. Merrill Lynch noting they believe investors should hold on to semiconductor equipment stocks and use the recent pullback in particular to add positions. Firm thinks that the current malaise of stocks in the sector already discounts the expected slower order growth in the mid-summer time frame but does not reflect the likely potential for accelerating orders in 4th quarter 2004 and into early 2005.

Semiconductors . . . Smith Barney out cautious on Pixelworks advising investors to stay levelheaded about this potentially strong growth company. According to the firm, Q1 came in very strong with EPS, revenue and gross margin ahead of expectations. The firm thinks that Q2 might come in good too but possibly without the same momentum or gross margin upside. With the stock trading at 37x their forward estimates, the firm believes Pixelworks is fully valued at current levels. Firm's $15 target price is based upon a 30x multiple of our forward 2005 earnings estimate of $0.50.

Boxmakers . . . Lexmark delivered another impressive quarter with upside reflecting strong inkjet demand, and issued even more favorable guidance which still assumes incremental pricing competitiveness (leaving potential for EPS upsides) and underestimates Dell's potential unit contribution. Analysts are raising 2004/2005 numbers and year-end 2004 target from $95 to $115 and reiterate an Outperform rating. The thesis on LXK remains that it is poised for upsides in 2004 as its guidance continually assumes further price aggression, contrary to the view that H-P is less likely to accelerate its competitive posture given the self-impact and H-P's agenda to subsidize PC/server margins to meet EPS targets. Further, LXK's inkjet business upside bodes

well for volume strength at Dell in its April quarter. LXK reported 1st quarter 2004 EPS of $0.91 that surpassed our high-end estimate of $0.89 and Street at $0.87 on stronger revenues of $1.26 billion (up 13% Year over Year) fueled by demand strength in consumer/inkjet. Robust hardware sales grew 17% Year over Year (boosted an incremental 28% Year over Year in units from Dell by our estimate), while supplies growth, up 14% Year over Year, reaccelerated nicely after 4 straight quarters of solid hardware sales.

Software . . . CSFB out positive on Activision saying they believe the co is an effective way to play the growth in the overall entertainment software industry. The firm notes that while Activision's growth has underperformed most of its peers, over the past 12-months the stock has outperformed the group, as the company's holiday products exceeded expectations and investors focused on a strong product pipeline. With the shares trading at a 19% discount to its historical cycle P/E multiple, the easy money has been made, but some additional upside remains. The firm subtracted the impact of the company's interest income on their 2005 estimate of $0.70 and applied a multiple of 20x and $5.65 in cash per share, arriving at new target price of $19 (vs $15.50 perviously). Separately, Schwab SoundView has initiated coverage of ATVI this morning with an Outperform and $20 target.

Check Point reported earnings of $0.25 per share, $0.02 better than the consensus of $0.23. Revenues rose 10.8% year/year to $116.1 million versus the $113.9 million consensus. License revenues rose 8.2% year/year to $63 million.

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Disclaimer: Due to the nature of the Internet, RobBlack.com and Goodwyn, Long & Black (GLB) does not make specific trading recommendations or give individualized market advice. Information contained in this publication is provided as an information service only. RobBlack.com and (GLB) recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, readers should be aware that GLB, its employees and affiliates may own securities that are the subject of reports, reviews or analysis within this publication. We obtain the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall GLB or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. Rob Black and (GLB) carry positions in many of the names reported on. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. RobBlack.com and Goodwyn, Long & Black Investment Inc. relies on information provided by corporations, news services, in-house research, published brokerage research, Edgar filings, and also may include information from outside sources and interviews conducted by ourselves. Readers should not rely solely on the information contained in this publication, but should consult with their own independent tax, business and financial advisors with respect to any investment opportunity, including any contemplated investment in any security.

http://www.robblack.com/rb_marketwrap.shtml

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Chart of the Day
When is the best time of the year to buy or sell a home? Today's Chart of the Day answers that question plus demonstrates that timing your home purchase or sale could save you a significant amount of money. To create today's chart, we compared each month's 1990-2003 average selling price to the entire 1990-2003 average to determine if home prices carried a premium or discount for any given month. As the chart shows, home buyers were willing to pay a premium during the summer when the weather was generally good and the kids were out of school. The greatest discounts occurred in February when the weather was bad, the kids were in school, and the initial tax benefits were a long way off. Also of interest is the magnitude of the variance. For example, the average selling price in June was 5.8% higher than in February. At first glance, that might not seem so dramatic but the data suggests that a $300,000 home in February could turn into a $317,400 home four months later.

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From Briefing.com: 8:28AM Integrated Circuit beats by a penny (ICST) 23.61: Reports Q3 (Mar) net earnings of $0.26 per share, $0.01 better than the Reuters Research consensus of $0.25; revenues rose 11.3% year/year to $67.8 mln vs the $68.4 mln consensus.

8:04AM Mattson beats, guides above Reuters consensus (MTSN) 12.03: Reports Q1 (Mar) earnings of $0.07 per share, $0.02 better than the Reuters Research consensus of $0.05; revenues fell 21.7% year/year to $53.1 mln vs the $48.3 mln consensus. Company sees Q2 revenues of $57-60 mln, Reuters consensus is $55.7 mln, First Call single analyst consensus is $58.1 mln.

7:16AM AMCC upgraded at CIBC 5.30: CIBC upgrades Applied Micro to Sector Perform from Underperform following strong Q4 results, as they think the bias on the stock has changed to positive from negative; firm also cites their belief that momentum in the co's core WAN biz should continue, and they expect accretive, strategic acquisitions.

7:16AM Kulicke & Soffa beats handily (KLIC) 10.85: Reports Q2 (Mar) earnings of $0.44 per share, $0.08 better than the Reuters Research consensus of $0.36; revenues rose 81.4% year/year to $221.8 mln vs the $209.0 mln consensus. Note, co also reports a number of charges so upside likely greater. Co expects Q3 (Jun) sales of $180-$200 mln vs consensus of $198 mln.

7:14AM Ultratech Stepper misses by $0.05 (UTEK) 20.43: Reports Q1 (Mar) earnings of $0.01 per share, ex items, $0.05 worse than the Reuters Research consensus of $0.06; revenues rose 20.9% year/year to $26.6 mln vs the $28.7 mln consensus.

7:11AM ATMI beats by $0.02, ex items (ATMI) 25.72: Reports Q1 (Mar) earnings of $0.12 per share, excluding $0.04 from activities of discontinued operations and a gain of $0.03 related to sale of gallium nitride business, $0.02 better than the Reuters Research consensus of $0.10; revenues rose 51.4% year/year to $56.0 mln vs the $51.1 mln consensus.

http://finance.yahoo.com/mp/q?tqnt

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MU ST bot 1000 shares@15.10 - Just looking for a bounce!

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I'm watching STM as the 6 month chart looks promising for gains ahead:

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From Briefing.com: 6:52PM Thursday After Hours prices levels vs. 4 pm ET: Buyers continue to flock to stocks in the after hours, despite the 1.4-1.9% move higher today. Upside earnings reports and quarterly outlooks from bellwethers like Microsoft (MSFT) have kept the rally going strong, particularly in tech. Presently, the Nasdaq 100 futures, at 1496, are 8 points above fair value, and the S&P futures, at 1140, are 1 point above fair value.

The below table details Microsoft's news, as well as other influential earnings reports of the nig

After Hours Mover % Change Move Reason for Move
Amazon.com (00C0) -3% Internet retailer beats the Reuters Research consensus EPS and revenue estimates in its Q1 (Mar) report; Issues in line Q2 (June) revenue guidance and raises its FY04 (Dec) sales outlook; Stock takes a bit of a hit, though, following today 7% rally off EBAY's report last night
Amgen (AMGN) +2% Biotech company tops the Street Q1 (Mar) EPS estimate by $0.02 on revenues that were lighter than expected ($2.34 bln versus the consensus of $2.36 bln); In response to rumors of price discounting that hit the market yesterday, Amgen says that there are 'modest price differences' between its Aranesp drug and competitors; Briefing.com recommended AMGN in a Mar 30 Story Stock
Broadcom (BRCM) +5% Communications chipmaker delivers Q1 (Mar) EPS of $0.29 on sales that increased 75% to $573.4 mln; On its call, Broadcom guides Q2 (June) revenues to approximately $631 mln (or up 10% sequentially) versus the consensus of $588.6 mln; Stock has dropped 5% since mid-Apr, and BRCM has recovered all of that - plus more - in today's action
Emulex (ELX) -7% Storage company delivers an in line Q3 (Mar) report, but warns for Q4 (June) - sees EPS and sales below Wall Street expectations; Briefing.com recently profiled a Raymond James initiation of coverage of ELX at an Underweight rating on In-Play; In the Apr 14 note, firm said that Emulex had 'no place to go but down after riding the high margin FC HBA highway'
Microsoft (MSFT) +5% World's largest software maker exceeds the Street's Q3 (Mar) EPS estimate by $0.05 and revenue estimate by 6%; Issues upside forecasts for Q4 (June), putting EPS at $0.28 and sales at $8.9-9.0 bln; Also gives a mixed view of FY05, indicating that revenue will fall short of current expectations but that earnings will surpass them; MSFT was highlighted as a 'cheap teck stock' in the WSJ today
PeopleSoft (PSFT) -3% Software name misses on EPS, revenues, and license revenues in its Q1 (Mar) report; On its call, management says some deals didn't close and slipped into Q2 (June); Says that EPS should be $0.20-0.22, revenues should be $675-695 mln, and license revenues should be $150-170 mln; The first two forecasts are toward the low-end of analyst estimates
Xilinx (XLNX) -2% After raising its Q4 (Mar) outlook twice, semiconductor company reports EPS that doubled and revenues that jumped 32%; Gross margins also expanded 290 basis points to 64.7%; For Q1 (Mar), Xilinx said it looked for a sequential revenue increase of 5-8%, implying a range of $424-436 mln and above the consensus estimate for $417.5 mln
Tomorrow, earnings reports will drop off significantly with only 22 companies scheduled before the open. March Durable Goods is the lone economic report scheduled for release.

For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com

6:43PM Chartered Semi beats by $0.04, ex items; guides above Q2 consensus (CHRT) 9.60 -0.01: Reports Q1 (Mar) earnings of $0.01 per share, ex items, $0.04 better than the Reuters Research consensus of ($0.03); revenues rose 119.9% year/year to $228.4 mln vs the $227.5 mln consensus. Co sees Q2 EPS of $0.01-0.05, Reuters consensus is a loss of $0.03 and revs $249-255 mln., consensus is $234 mln.

6:10PM Metrologic Inst beats by $0.04; guides for Q2 and Y04 (MTLG) 21.00 +1.68: Reports Q1 (Mar) earnings of $0.22 per share, $0.04 better than the Reuters Research consensus of $0.18; revenues rose 24.6% year/year to $39.7 mln vs the $39.5 mln consensus. Co sees Q2 (Jun) EPS of $0.17-0.19 and revs of $39.0-40.0 mln, Reuters consensus is $0.19 and $41 mln. Co also sees Y04 (Dec) EPS of $0.78-0.84 and revs of $163-168 mln, Reuters consensus is $0.80 and $166 mln, respectively.

5:32PM Broadcom guides revenues higher for Q2 (BRCM) 43.06 +2.26: -- Update -- On call, management says Q2 revenues are expected to increase 10% sequentially, suggesting revenues of $631 mln. The Reuters Research consensus calls for Q2 revenues of $588.6 mln. Gross margins in Q2 are expected to decline 50 basis points sequentially; Q1 gross margins were 50.6%.

5:09PM Vitesse Semi reports in line, ex items, guides Q2 in line (VTSS) 5.70 -0.16: Reports Q2 (Mar) pro forma net earnings of $0.01 per share, in line with the Reuters Research consensus of $0.01; revenues rose 47.0% year/year to $56.0 mln vs the $55.3 mln consensus. Co also guides, sees pro forma EPS of $0.02 (ex items), vs the R.R. consensus of $0.02, and revenues of approx $60.5 mln (based on sequential growth of 8%), vs an estimate of $60.4 mln.

4:56PM Micrel reports in line, guides Q2 revs above consensus (MCRL) 11.99 -0.28: Reports Q1 (Mar) earnings of $0.05 per share, in line with the Reuters Research consensus of $0.05; revenues rose 20.2% year/year to $61.3 mln vs the $62.0 mln consensus. Co also guides, sees Q2 revenues of $68-70 mln, vs an estimate of $65.4 mln.

4:52PM Integrated Silicon beats by $0.04 (ISSI) 15.69 -0.58: Reports Q2 (Mar) earnings of $0.10 per share, ex-itmes, $0.04 better than the Reuters Research consensus of $0.06; revenues rose 130.8% year/year to $51.5 mln vs the $48.8 mln consensus. Co notes it has $160.6 mln in cash/inv, which computes to roughly $4.39 per share, with no long term debt.

4:52PM Emulex reports in line, ex items, guides Q4 below consensus (ELX) 19.59 +0.04: Reports Q3 (Mar) non-GAAP earnings of $0.25 per share, ex items, in line with the Reuters Research consensus of $0.25; revenues rose 24.4% year/year to $99.0 mln vs the $100.9 mln consensus. Co also guides, sees non-GAAP Q4 EPS up to $0.25, vs the R.R. consensus of $0.26, and revenues of $100-103 mln, vs an estimate of $105.4 mln.

4:52PM Microchip beats by $0.02, beats on revs; guides above Q1 consensus (MCHP) 28.33 +0.58: --Correction-- Co reports Q4 (Mar) earnings of $0.22, $0.02 better than Reuters consensus of $0.20; revenues rose 20.1% year/year to $191.52 mln vs consensus of $185.77 mln. Co sees Q1 (Jun) EPS of approx $0.25 and revs of $205-207 mln, Reuters consensus is $0.21 and $193 mln, respectively.

4:38PM Integrated Device beats by $0.02, ex items (IDTI) 15.09 +0.09: Reports Q4 (Mar) non-GAAP earnings of $0.08 per share, ex items, $0.02 better than the Reuters Research consensus of $0.06; revenues rose 17.0% year/year to $94.5 mln vs the $93.6 mln consensus.

4:34PM UTStarcom to acquire Telos Tech (UTSI) : -- Update -- Co announces that it will acquire substantially all of the assets of Telos Tech, a provider of distributed mobile switching products for voice and data communication networks to rural, enterprise, and emerging wireless mkts. The transaction includes an initial cash consideration of $29 mln, and is subject to an additional payment of up to $19 mln based upon the achievement of certain rev milestones.

4:33PM Brooks Automation beats by $0.11, guides JunQ higher (BRKS) 18.05 -0.76: Reports Q2 (Mar) earnings of $0.24 per share, ex-items, $0.11 better than the Reuters Research consensus of $0.13, far better than guidance of $0.10-$0.15 at the start of the quarter; revenues rose 48.4% year/year to $138.0 mln vs the $123.4 mln consensus... For Q3 (Jun), co expects revs of $140-$150 mln and EPS, excluding restructuring charges, of $0.24-$0.29 vs consensus of $134.2 mln and $0.21.

4:32PM Western Digital beats by a penny (WDC) : Reports Q3 (Mar) earnings of $0.22 per share, $0.01 better than the Reuters Research consensus of $0.21; revenues rose 6.1% year/year to $749.0 mln vs the $729.9 mln consensus.

4:30PM Xilinx beats, ex items, guides Q1 revs, extends stock buyback plan (XLNX) 37.79 +0.57: Reports Q4 (Mar) earnings of $0.28 per share, which excludes multiple items, may not be comparable to the Reuters Research consensus of $0.25; revenues rose 32.0% year/year to $403.4 mln vs the $399.1 mln consensus. Co guides Q1, expects revenues to increase 5-8% sequentially while co's Board authorizes a stock repurchase whereby up to $250 mln of its common stock will be purchased in the open market; Board also declares a quarterly cash dividend of $0.05 per share. In touch with Reuters for clarification.

4:19PM Microsoft beats by $0.05, guides higher (MSFT) : Reports Q3 (Mar) earnings of $0.34 per share, excluding multiple charges, $0.05 better than the Reuters Research consensus of $0.29; revenues rose 17.1% year/year to $9.18 bln vs the $8.67 bln consensus. Company sees Q2 EPS of $0.28 vs consensus of $0.27 on revenues of $8.9-9.0 bln, consensus $8.86 bln

4:15PM Corning beats by $0.03, guides higher (GLW) : Reports Q1 (Mar) earnings of $0.08 per share, $0.03 better than the Reuters Research consensus of $0.05; revenues rose 13.1% year/year to $844.0 mln vs the $804.9 mln consensus. Company sees Q2 EPS of $0.07-0.09 vs consensus of $0.06 on revenues of $900-950 mln, consensus $838 mln.

4:14PM ISSI prelim $0.10, 4 cents ahead; revs $51.5 mln vs $48.75 mln consensus :

4:10PM TriQuint Semi beats by $0.01, guides Q2 in line, raises Y04 rev guidance (TQNT) : Reports Q1 (Mar) net of breakeven, $0.01 better than the Reuters Research consensus of ($0.01); revenues rose 25.4% year/year to $89.9 mln vs the $86.3 mln consensus. Co also guides, sees Q2 loss of $0.01 to profit of $0.01, vs the R.R. consensus of breakeven, and revenues of $90-92 mln, vs an estimate of $88.4 mln; sees Y04 revenues of $365-375 mln, vs an estimate of $364.4 mln and prior guidance of $340-355 mln.

4:09PM Broadcom beats by $0.03, ex items (BRCM) : Reports Q1 (Mar) earnings of $0.29 per share, ex items, $0.03 better than the Reuters Research consensus of $0.26; revenues rose 75.1% year/year to $573.4 mln vs the $562.4 mln consensus.

4:04PM Celestica beats by $0.05, ex items, guides Q2 above consensus (CLS) : Reports Q1 (Mar) adjusted net earnings of $0.02 per share, excluding restructuring charges, $0.05 better than the Reuters Research consensus of ($0.03); revenues rose 27.1% year/year to $2.02 bln vs the $1.87 bln consensus. Co also guides, sees adjusted Q2 EPS of $0.07-0.13 (ex items), vs the R.R. consensus of $0.01, and revenues of $2.15-2.35 bln, vs an estimate of $1.97 bln.

4:02PM Microsemi beats by a penny (MSCC) : Reports Q2 (Mar) earnings of $0.07 per share, in line with the Reuters Research consensus of $0.07 and a penny better than First Call consensus of $0.06; revenues rose 19.7% year/year to $57.7 mln vs the $57.4 mln consensus.

Close Dow +143.93 at 10461.20, S&P +15.86 at 1139.95, Nasdaq +37.28 at 2032.91: A stealth rally swept the market today as buyers came out of the woodwork around 11 ET and bid stocks steadily higher into the close...
A variety of reasons can explain the uptick, but the most logical are (1) a combination of short covering and buy programs when the indices demonstrated resiliency at early technical levels (e.g. the 50-day simple moving averages for the Nasdaq and S&P 500), (2) a slew of better than expected earnings reports (Altera, eBay, Merck, Qualcomm, Starbucks) that lent credibility to the recovery in corporate American, and (3) the idea that rising interest rates are well understood by most market participants, and the recognition that the Fed will raise slowly when it does start tightening... As a result, the market rallied across just about every industry group with only a handful (casino, department store) bucking the trend... Breadth figures were extremely favorable and up volume led down volume by a 4-to-1 margin at the NYSE... Economic data were mixed across the board and had little impact on trading...

Weekly initial claims were worse than expected at 353K versus the consensus estimate of 340K, and March PPI was stronger than expected at 0.5% versus the consensus estimate of 0.3%....NYSE Adv/Dec 2489/838, Nasdaq Adv/Dec 2061/1128

3:40PM QUALCOMM (QCOM) 68.58 +2.74: QCOM reported Q2 results after the close on Wednesday. The supplier of CDMA (code division multiple access) digital wireless communications solutions posted EPS of $0.53, excluding QSI (QUALCOMM Strategic Initiatives), on revenue of $1.216B (+19.5% Y/Y) vs. Reuters Research consensus at $0.48 on $1.184B and guidance of $0.48-0.50 on $1.19-1.21B.

QCT (CDMA Technologies) shipped 32MM MSM (Mobile Station Modem) phone chips (+14% Y/Y), most of which were 3G CDMA2000 1X, 1xEV-DO and WCDMA (UMTS). Business was supply constrained on MSM5100 and MSM5500 chips; at less than the 15-16 weeks required by manufacturers and distributors; expect imbalance to correct over the next two quarters.

Shipped CSM infrastructure chips for 3G CDMA2000 1X and 1xEV-DO to support approximately 5.7MM equivalent voice channels (+280% Y/Y). CSM infrastructure chips currently support 8-32 voice channels per chip.

QWBS (Wireless Business Solutions) shipped approximately 11,200 (+33.3% Y/Y) OmniTRACS units and related products, bringing cumulative total to over 511,000 units.

QTL (Technology Licensing) revenue increased due primarily to greater phone and infrastructure equipment sales by licensees. WCDMA royalties account for 12% of royalty revenue.

The following table shows sales, gross margins and Y/Y change by revenue segment, excluding reconciling items except in company totals. Segment Revenue Gross Margin Operating Margin
$ in MM % Sales Y/Y Growth in % Y/Y Variance in % Y/Y Variance
Products--CDMA Technologies 711.257 59% 10.0% 59.1% 379 36.3% 198
Products--Wireless & Internet Group 144.627 12% 13.6% 2.7% (455)
Licensing and Royalty 390.257 33% 50.0% 100.0% -- 92.7% 185
Total 1,215.648 100% 19.6% 72.4% 596 47.1% 558
Gross margin increased 596 bps Y/Y to 72.4%. Operating margin increased 558 bps Y/Y to 47.1%.

Guided for Q3 EPS, excluding QSI loss of $0.02, of $0.48-0.50 on revenue of $1.264-1.301B (+41-44% Y/Y) vs. consensus at $0.37 on $1.047B; and F04 EPS of $1.93-1.98 on $4.846-4.961B (+26-29% Y/Y). Expect Q3 ASPs (average selling prices) on CDMA handsets to be flat at approximately $194, and to ship 33-35MM MSM phone chips; to ship 152-160MM in C04 vs. guidance of 138-147MM.

Shares are, based on our inverted EVA / DCF model, priced for sustained lower 30% revenue growth assuming steady Y/Y improvement to 54-55% operating margin.

The following table shows price multiples and Y/Y growth rates for QCOM compared against the semiconductor components and communications equipment groups. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Qualcomm (QCOM) 6.4 23.7 12.6 11.7 10.7 10.8% 14.6% 8.7%
Infineon (IFX) 0.9 (32.0) 1.3 n/a 18.2% n/a
STMicroelectronics (STM) 1.9 60.3 2.6 2.3 2.0 16.2% 21.5% 12.9%
Texas Instruments (TXN) 2.7 28.6 4.5 3.7 3.2 20.9% 31.7% 15.8%
Motorola (MOT) 1.1 34.6 1.5 1.3 1.2 9.0% 29.4% 6.0%
LM Ericsson (ERICY) 2.8 (43.6) 3.2 2.9 2.7 (19.2%) 9.3% 8.0%
Nokia (NOK) 1.4 9.9 2.0 2.0 1.8 (1.9%) (3.2%) 8.2%
Semiconductor Components 2.9 42.5 4.6 n/a 14.8% n/a
Communications Equipment 1.7 36.8 2.2 (5.0%)
Blended 2.1 38.8 3.0 1.1%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 16, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 16, 2004.

Results reflect building momentum as carriers, including KDDI, mmO2 (OOM 17.98 -0.02), Orange, T Mobile and Verizon Communications (VZ 37.94 +0.25), roll out new services. Trends favor QCOM and we would expect the company to continue to deliver strong results over the coming quarters but revenue growth expectations are close to what industry fundamentals can sustain over the long-term given current expectations for market growth, and operating margin expectations suggest peak performance with little room for upside. Management guided for QCT operating margin of approximately 32% for F04.

ASP compression is not a near-term concern in view of management guidance for stable ASPs. But as noted in the Q1 review (Story Stocks January 22, 2004), competition is heating up from Texas Instruments (TXN 27.85 -0.49) and STMicroelectronics (STM 22.88 +0.51), who have co-developed a standard cdma2000 1xEV-DV (1xEvolution for Data and Voice) solution. The two firms began sampling chips in December 2003, and expect products in the market by Christmas. TXN has access to QCOM's portfolio of CDMA patents under a technology cross-licensing agreement.--Ping Yu, Briefing.com

10:16AM Juniper Networks (JNPR) $25.63 -0.20: Juniper published Q1 results after the close on Wednesday. The designer of networking equipment published EPS of $0.08 on revenue of $224.053MM (+42.5% Y/Y) vs. Reuters Research consensus at $0.08 on $215.67MM.

Booked revenue on 1,318 units and shipped 23,288 ports reflecting strength in high-end. High-end products account for 41% of sales; mid-tier 25%; and low-end 34%. Revenue was approximately evenly split between core and access products. North America was 46% of sales; Asia-Pacific 28%; and Europe 26%.

NetScreen Technologies, acquired on April 16 (refer to February 29, 2004 Story Stocks for details), posted EPS of ($0.03) on $93.5MM (+60.4% Y/Y). Non-GAAP EPS of $0.15 excludes amortization of purchased intangibles and deferred compensation and merger related costs of $15.3MM.

Gross margin increased 599 bps Y/Y to 67.0%. Operating margin increased 1,517 bps Y/Y to 22.8%.

The following table shows sales, gross margins and Y/Y change by revenue segment. Segment Revenue Gross Margin
$ in MM % Sales Y/Y Growth in % Y/Y Variance
Product 194.184 87% 43.7% 70.9% 665
Services 29.869 13% 35.6% 41.6% 48
Total 224.053 100% 42.5% 67.0% 599
Guided for Q2 EPS of $0.03-0.04 on $270-275MM under purchase accounting method, which includes only 75 of 90 days of Netscreen Technologies results in Q2. Infrastructure products & services revenue expected to be approximately $235MM; security products & services revenue to be $35-37MM; and blended gross margin to be 64-65%.

EPS would be 0.10 on $335-340MM and gross margin at 68-69% assuming a full quarter of Netscreen results under pooling of interests method. Reuters Research prints consensus EPS at $0.09 on $225.60MM.

H2 EPS forecast to be $0.20-0.21 on $705-720MM, excluding $15MM of service revenue due to purchase accounting. EPS would be $0.22-0.23 on $720-735MM under pooling.

Shares trade at a premium to industry average and are, based on our inverted EVA/DCF model, priced for sustained lower 30% revenue growth assuming steady Y/Y improvement to 33-34% operating margin.

The following table shows price multiples and Y/Y growth rates for JNPR compared against peers in the communications equipment group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Juniper Networks (JNPR) 6.8 126.5 13.3 10.9 9.1 32.1% 33.3% 20.2%
Cisco Systems (CSCO) 4.5 21.9 7.8 7.1 6.3 3.2% 15.4% 12.7%
Lucent (LU) 1.9 68.0 2.0 1.9 1.8 (13.0%) 5.0% 6.0%
Nortel Networks (NT) 1.8 60.5 2.4 2.1 1.9 (7.2%) 10.4% 10.7%
Communications Equipment 1.7 36.8 2.2 (5.0%)
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 16, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 16, 2004.

JNPR is benefiting from the budding recovery in carrier capital spending coupled with strong government spending. As well, the transition to a converged data and voice (IP/MPLS) network is gaining momentum, and increasing demand for Juniper's edge and core products. But growth expectations baked into shares reflect improving sector fundamentals and significant improvement in operating results.

JNPR shares are down over 10% since the Q4 review (Story Stocks, January 16, 2004), when we commented that we would wait for a 20-25% pull-back before initiating a new position. We would instead focus on Cisco Systems(22.12 -0.25), which offers modest upside at current level. Refer to CSCO's Q2 review, Story Stocks, February 4, 2004, for analysis and summary. Reuters Research prints Q1 consensus EPS at $0.18 on $5.545B (+20.1% Y/Y). CSCO reports after the close on May 11.--Ping Yu, Briefing.com

9:00AM KLA-Tencor (KLAC) 48.32 KLA-Tencor reported Q3 results after the close on Wednesday. The provider of process control and yield management solutions for semiconductor and microelectronics manufacturers posted EPS of $0.33 on revenue of $389.772MM (+28.1% Y/Y) vs. Reuters Research consensus at $0.29 on $379.54MM.

Orders for wafer inspection, metrology and reticle inspection was strong. KLAC exited the quarter with approximately $79MM in shippable backlog.

Product revenue increased 30.9% Y/Y to $312.645MM (80% of sales). Service revenue increased 20.0% Y/Y to $77.127MM (20% of sales). The U.S. accounts for 32% of orders; China, Korea and Singapore 27%; Taiwan 16%; Japan 14%; Europe 11%.

Gross margin increased 774 bps Y/Y to 56.2% on higher capacity utilization and cost reductions. Operating margin increased 1,410 bps Y/Y to 22.5%.

Guided for Q4 EPS of $0.43-0.45 on revenue of $440-450MM (+42.7-46.0% Y/Y) vs. consensus at $0.43 on $457.79MM. Orders could be up 10% or down as much as 15% depending on the timing of two large fab orders.

Uncertainty in timing of orders reflect the lumpy nature of the business, and the relatively small size of the process control / yield management market relative to the total market for semiconductor capital equipment. Process control equipment account for approximately 10-15% or $3.5-6B of the $35-40B semiconductor capital equipment market.

KLAC shares are, based on our inverted EVA/DCF model, priced for sustained lower 30% revenue growth assuming stable 22-23% operating margin.

The company is benefitting from an increase in spending on process control equipment as semiconductor manufacturers attempt to maximize yield and build out new fabs in a rising demand environment. As well, the transition to advance technologies require more process control tools to integrate the different architectures and materials. But the growth expectations priced into shares imply KLAC is a $20-21B revenue company at the end of the forecast period, and is clearly not sustainable.

The following table shows price multiples and Y/Y growth rates for KLAC compared against the semiconductor equipment group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
KLA-Tencor (KLAC) 5.7 68.2 7.0 6.4 4.3 2.4% 12.8% 49.1%
Applied Materials (AMAT) 5.2 (369.8) 6.8 4.4 3.6 (2.7%) 74.4% 22.7%
ASM International (ASMI) 1.0 56.1 1.6 1.2 0.9 12.1% 34.7% 27.6%
Semiconductor Equipment 2.9 (244.9) 3.4 (10.9%)
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 16, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 16, 2004.

KLAC, like many of its peers, trade at levels that price in unsustainable revenue growth and operating margin given the highly cyclical and lumpy nature of the industry. We would focus on ASM International (ASMI 21.93), which has one of the broadest product portfolios, and despite having risen over 28% since we first spotlighted the company on Tech Stocks page (October 14, 2003), remains one of the most attractively priced names within the group.--Ping Yu, Briefing.com

http://biz.yahoo.com/mu/story.html

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I am thinking of changing formats for the daily market wrap from 12-14 pages of mostly news, reports, earnings and some commentary. I am considering changing it to a shorter piece that is filled with 2 or 3 lessons about what is happening and why. The lessons will be focused on how we look at stocks but not limited to just the news. I believe that we can add occasional pieces on estate planning, taxes, mortgages, and more. Seriously I need some feedback on today’s market wrap so that we can decide what to craft in the future. Please send comments to [e-mail] . . .let me know if you want the old daily market wrap or something new like this.

Today’s Lesson Plan

#1 Shooting Holes in Stocks
#2 Portfolio Diversification
#3 Analyzing Semi’s
#4 What is happening to REITs

Lesson #1
Shooting Holes in Stocks
Most investor’s know why they like a company but few have a case on what might go wrong or when to turn negative on a company. Having a plan to sell is as important as having a plan to buy.

While Sun currently enjoys a dominant position in UNIX servers, the market is concerned that Wintel and Lintel servers with superior price/performance are likely to take share from low-end Sun servers for "edge-of-the-network" and even some application tier workloads in coming years. While Sun recently introduced a line of low-end Lintel, SPARC and Solaris-on-X86 servers in order to boost its relative value proposition at the low-end, these new servers are likely to dilute margins and, unless net incremental to gross profit dollars, de-lever the company on relatively fixed proprietary microprocessor R&D spending. Sun derives 45% of total revenue from the telecom and financial services verticals in which demand remains relatively weak. Should these factors have a greater impact on the company than anticipated, analysts targets might not prove to be conservative enough. Similarly, should factors turn more positive than anticipated, the stock could continue to trade above target prices.

Additionally, if Unix server demand proves stronger than we currently expect (especially in Sun's key verticals such as telecommunications and financial services), the SCO/IBM lawsuit significantly affects new Linux deployments, Sun's new software strategy performs better than we expect, or the market migration to Intel architecture takes longer than expects, the shares could materially outperform our target.

Sun Microsystems is speculative due primarily to the relative lack of scale discussed above, the recent divergence between growth in revenue and growth in costs and very low historical predictability of earnings. Given Sun's $5.5 billion in cash and investments, just $1.2 billion in debt and significant opportunities for more efficient working capital management, do not view liquidity as a significant near-term issue.

Lesson #2
Portfolio Diversification.

Many investors fall in love with the large cap names like Intel, Citigroup, Microsoft, Dell, Pfizer, etc . . . Investors buy these names as they feel the most comfortable with them. I don’t want you to not buy these names but I want you to get some balance into some other styles and sizes as what works on Wall Street this year may not work next year..

* Both large-caps and small-caps have delivered total annualized returns just above 13% over the past 25 years.

* Slightly more than 600 bps of this return is due to EPS growth, 200–300 bps is from dividend yield, and the rest — about 400 bps per year — comes from multiple expansion.

* Since 1978, growth has beaten value in terms of large-cap EPS growth, but, strangely, value has won in small-caps.

* In terms of EPS growth, small-cap value has nicely outpaced large-cap value (7.0% versus 5.4%), but small-cap growth has lagged large-cap growth (5.0% versus 6.5%).

* Expect long-term EPS growth of 600 bps per year, but a lower dividend yield and the end of multiple expansion would hold back total returns.

* Also expect small-cap EPS growth to outpace large-caps by 150–200 bps in both growth and value over the longer term, which is in line with very long-term returns, but has not been seen (except in value) since 1978.

Over a very long period— i.e., since 1925 —small caps appear to have delivered higher share price returns than large-caps. This difference appears to be 150–200 bps per year on average (albeit with large fluctuations over that period). Most of this outperformance comes from EPS growth, particularly since the multiples cannot continuously diverge in

perpetuity.

However, since 1978, small-cap EPS growth has not outperformed large-cap EPS growth for the indices overall. Small-cap value has outperformed large-ca p value, and quite handily —7.0% versus 5.4%. Small cap growth has lagged, in our view, due to the

aforementioned reasons. Looking ahead, the recent performance of value stocks will be the norm. That is both growth and value small-caps will again outpace large caps

in terms of EPS growth over the medium to longer term. We believe a reasonable expectation for this outperformance would be the historical average of 150–200 bps per year. While this higher EPS growth rate should result in a higher P/E multiple for small-caps, some of this gain is mitigated by their higher risk. Historically, small-cap

have traded at a P/E premium of 2%–5% relative to large-caps. This is where we are today, and this is about right.

Portfolio diversification is not as easy as I make it sound here but it is also not as hard as some people make it out to be. Most investors do not have the ability to pick individual stocks and do the appropriate research on them. Consider ishares or ETFs (www.ishares.com or www.etfconnect.com) especially if you are intimidated by what is large cap value, mid cap value, mid cap growth, small cap value and small cap growth.

Lesson #3
Analyzing Semi’s

When do you buy or sell semiconductors depends on where we are in the semiconductor cycle. Inventory corrections are bad (sell?) and can only be destroyed by the bullish fires of accelerating hardware demand. Investors can wilt under the pressure of broken charts, peaking Year over Year growth and rising capex. Let’s take a look at this a bit closer.

30-60 days ago, it seemed that the main question asked by many semiconductor investors was 'where are we in the cycle?' Reading between the lines, which is another way of saying that many investors were looking to time their exit from the sector. Now the most common question seems to be whether we can get one more rally in the group. An easy interpretation of that question is that many investors wish they had unloaded their chip stocks earlier, but are now hoping for a bounce so they can bail out a little higher.

Put differently, the psychology has shifted from 'buy on dips' in 2003 to 'sell into rallies' today -- a corrosive condition for the group since valuations for most chip stocks remain above pre-bubble highs. What is required to drive chip stocks higher is having major hardware companies stand up and announce that business momentum is meaningfully better and accelerating.

The fundamental reason why notable improvements in hardware demand are necessary is because purchasing managers see building chip inventories. That process can run anywhere from 1-3 quarters. To avoid a drop in chip shipments after a stockpiling phase passes (such as happened in mid-2002), the chip industry needs hardware demand to improve significantly. Simple 2nd half seasonality is not enough -- the last three

cyclical collapses began in the second half of the year.

The market needs network equipment, boxmakers, and storage to grow. Most analysts are optimistic about hardware growth (e.g., 2004 PC unit growth forecast was raised last week to 14% from 11%), analysts are hopeful that a follow-through in hardware demand will occur, thereby driving a rise in chip stock prices.

The market can say with a high level of conviction that chip inventories at customers will rise on a DOI basis in 1st quarter. Aside from the cyclical reasons (tighter supply, lengthening lead times, stable or rising prices) for inventories to rise, customers' inventories have risen during 1st quarter in each of the last seven years.

This seasonality occurs because customers drain inventories at the end of the year anticipating the typical 1st quarter sales drop, and that process begins to reverse itself in 1st quarter. In most instances, DOI slides in 2nd quarter, but cyclical forces will likely cause it to be flat or up this time around.

Watching customers' inventories likely will not provide much insight. Expect DOI levels to rise, but can they rise for two quarters or two years? Since we are presumably moving off of record DOI lows, what DOI level constitutes 'too much' inventory?

Chip delivery lead-time information is likely to be the key leading indicator. When lead times broadly begin to shorten, believe that means that the supply/demand balance is moving back toward oversupply and the customers can begin to enter an inventory reduction mode.

Lesson #4

What is happening to REITs

In the midst of the bloodletting in the REIT market a week and a half ago, the sell-off in

REIT shares is more likely a correction than the beginning of a bear market.

More Jobs Will Drive Increased Demand for Real Estate

A strong job market will lead to increased demand for most property types. Increased demand will initially translate into increased occupancy and, later, into increased rents. After four years of deteriorating real estate fundamentals for all property types other than retail, the recently bottoming fundamentals will likely translate into improving fundamentals if job growth continues to accelerate. REIT earnings slipped 2.1% in 2003, and they are expected to rise 3.9% in 2004 and 7.4% in 2005.

Higher Interest Rates Should Benefit Inflation-Hedging Assets Such as Real Estate

Real estate has proven to be a good store of wealth in an inflationary environment. The back-up in interest rates suggests that inflation could be poised to accelerate. Many leases are written with inflation adjustments in the rents, they move to market at expiration, or they are short term in nature, allowing rents to keep pace with inflation. The fixed cost of owning real estate at the original investment cost suggests returns will rise as rents increase. With less than 50% of asset value in debt, the repricing of interest rates as debt matures will

have a less significant impact.

Relative Valuations Still Attractive

Considered in isolation, REITs appear expensive relative to their historical trading levels. However, compared to the valuations of the broad market, their valuations appear more in line. REITs are currently trading at a 14% premium to the ten-year historical average funds from operations (FFO) multiple, while the S&P 500 is trading at a 9% premium to the 20-year

historical EPS multiple. Both interest rates and inflation today are much lower than they have been over the past ten years, partially explaining the premium valuations.

REITs Got Ahead of Themselves

Through the end of the first quarter, REITs advanced more than 14% while the broad market ended the quarter flat. REIT multiples expanded during the quarter while multiples for the broad market were flat. In 2003, REIT market multiples kept pace with the broad market, with an approximate 25% expansion. The broad market rallied hard through mid-quarter and

then gave back the gains, while the REIT market rallied hard through the end of the quarter and then gave it all back. REITs have now reestablished their relative valuation to the broad market.

Hot Items - Check out the "Hot Items" page (updated daily)


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Disclaimer: Due to the nature of the Internet, RobBlack.com and Goodwyn, Long & Black (GLB) does not make specific trading recommendations or give individualized market advice. Information contained in this publication is provided as an information service only. RobBlack.com and (GLB) recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, readers should be aware that GLB, its employees and affiliates may own securities that are the subject of reports, reviews or analysis within this publication. We obtain the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall GLB or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. Rob Black and (GLB) carry positions in many of the names reported on. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. RobBlack.com and Goodwyn, Long & Black Investment Inc. relies on information provided by corporations, news services, in-house research, published brokerage research, Edgar filings, and also may include information from outside sources and interviews conducted by ourselves. Readers should not rely solely on the information contained in this publication, but should consult with their own independent tax, business and financial advisors with respect to any investment opportunity, including any contemplated investment in any security.

http://www.robblack.com/rb_marketwrap.shtml

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SENTIMENT JOURNAL: Perceptions and Reality
By Frederic Ruffy, Optionetics.com
4/23/2004 2:30:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10278

Market Internals: The Dow Jones Industrial Average ($INDU) rose three times and fell twice to finish the week little changed. When all was said and done, the industrial average added 20 points on the week. The Nasdaq ($COMPQ) performed better. Thanks to strength in Internet, software, and biotechnology stocks, the Nasdaq managed a 55-point, or 2.8%, gain since last Friday.

Market internals were mixed during the latest week of trading. For example, although the industrial average moved higher during the past three trading sessions, by Friday, advancing issues on the New York Stock Exchange lagged declining issues nearly two to one. The New York Stock Exchange New High New Low Index also gave a bearish divergence when it fell into negative territory Friday despite the rise to new highs in the Dow. Overall, however, not much was changed since last Friday and the S&P 500 Index finished the week up just six points.

Sentiment Data: The stock market’s surge on Thursday combined with quiet trading throughout most of the week helped to push the CBOE Volatility Index ($VIX) to new multi-year lows Friday. VIX finished Friday at 14.01 and its lowest levels since August 1996. The drop in the market’s so-called “fear gauge” is somewhat troubling to the contrarian investor because it is a sign that investors seem complacent and perhaps overzealous, which is often the type of sentiment that prevails when stocks are reaching a peak and due to head south.

Yet, while the low VIX is a sign of bullishness among investors, it also reflects the relatively low levels of volatility inherent in the market today. To illustrate, the chart below plots the CBOE Volatility Index along with the actual volatility of the market during the past few years. While VIX measures the volatility reflected in S&P 500 Index ($SPX) options, statistical volatility is computed using past prices. In this case, we have plotted SPX 30-day statistical volatility (which is the annualized standard deviation of SPX closing prices during the past thirty days) along side of the VIX.

As we can see, both the VIX and the statistical volatility of the S&P 500 Index have been moving lower for several years and that trend is well in place. The actual volatility of the market hit a peak in mid-2000 when it rose above 40%. Since then, it has been in a downtrend and, despite sudden one-day rallies and sell-offs, volatility remains very low today. In fact, so far during the month of April, the average daily move in the S&P 500 Index has been only 6.6 points, or roughly .6%.

The line along the bottom of the graph shows the relationship between VIX and the actual volatility of the S&P 500. It is computed as VIX minus the SPX 30-day statistical volatility. As we can see, the line stays above zero most of the time. That is, VIX is almost always above the actual volatility of the S&P 500 Index. For instance, today, while the volatility index is near 14%, the statistical volatility of the SPX is 13%—a 1% difference. So, relative to the actual levels of market volatility, VIX is not exceptionally low.



At the same time, there is some other evidence to suggest that investor sentiment remains extremely bullish and perhaps complacent. It is not just a matter of VIX being low. For instance, according to the latest survey of investor sentiment from Investors Intelligence, 49.5% of those surveyed are bullish and only 22% are bearish. Meanwhile, the CBOE put-to-call ratio, which indicates high levels of bullishness among options traders when it falls towards .50, dipped below .70 on three different occasions this week (Friday’s closing numbers were not yet available). Finally, the Trader’s Index ($TRIN) which sends an overbought signal when it falls below .5, is once again producing low readings. It remained below 1.00 four times this week and hit an extreme low of .52 on Wednesday. The 5-Day TRIN (i.e. sum over five days), which signals overbought conditions when it falls towards 4.00, is now raising a red flag at 4.27.

http://www.optionetics.com/articles/article_full.asp?idNo=10278