Yesterday’s nasty Q3 financial report from Nokia (NOK) continues to have ripple effects, and the stock remains under pressure.
To review: The company yesterday reported unexpected weakness in both the smart phone market and its Nokia Siemens equipment joint venture. Nokia is losing market share in both areas; what seemed surprise people is the magnitude of the troubles in both areas.
Let’s run through some of the fallout:
- Nokia has made some management changes. CFO Rick Simonson becomes head of the Mobile Phones segment of the company’s Devices unit, as well as head of strategic sourcing for all of Devices, which includes both Mobile Phones and Smart Phones. Timo Ihamuotila, now head of sales, becomes CFO.
- Moody’s today downgraded Nokia’s senior debt to A2 from A1 to reflect the rating agency’s view that the mobile phone market will become more challenging for Nokia due to more modest long-term growth and more formidable competition. Moody’s says that Nokia “is unlikely to return near-term to the superior credit metrics that have marked the company’s credit profile for many years.” The agency also said that it believes the mobile phone market is “nearing saturation.” And it asserts that the Nokia Siemens venture may require more restructuring.
- Bloomberg notes that Nokia yesterday took a $1.35 billion writedown of its stake in Nokia Siemens, and that that partnership may be “unraveling.” Just what would happen is unclear; neither side seems eager to buy out the stake of the other, and an IPO would seem problematic given the troubles in the business.
- Gabelli analyst Hendi Susanto downgraded the stock to Hold from Buy. “We will become more positive when Nokia can line-up new competitive smartphones and Nokia Siemens Network can
revamp its product businesses, reverse its progressive market share loss, and deliver significant improvement in its margins.”
- Didier Scemama, an analyst with Royal Bank of Scotland’s ABN Amro unit, cut his rating to Hold from Buy. “Although we believe Nokia’s product portfolio is improving, competition remains intense and will likely cap any margin improvement in the medium term,” he writes.
And there is plenty of other worrisome commentary from the Street on both sides of the pond.
Ergo, NOK, which yesterday fell $1.71, or 11.1%, to $13.68, today is down another 18 cents, or 1.3%, to $13.50.
Sterne Agee says tighter visas for Chinese visitors to Macau won't hamper stocks such as Las Vegas Sands and Wynn Resorts.
Canadian Solar (CSIQ) late yesterday said it priced an offering of 6 million common shares at $15.75, about a 3% discount to yesterday’s closing price of $16.26.
The company granted the underwriters an option to sell another 900,000 shares to cover over-allotments. Morgan Stanley, Deutsche Bank and Piper Jaffray are leading the offering, with Wells Faro as co-manager.
CSIQ said it will use the proceeds for general corporate purposes.
CSIQ today is down 49 cents, or 3%, to $15.77.
As an avid reader, I can’t see any reason to complain about this.
As the Wall Street Journal notes this morning, Amazon (AMZN) and Wal-Mart (WMT) are suddenly locked in a ferocious price war over book prices. Wal-Mart yesterday chopped the prices on 10 much-anticipated new titles to $10; Amazon quickly matched the move. Then WMT went to $9; and Amazon has now followed suit.
(The list of titles include Sarah Palin’s much anticipated memoir, plus new novels by Stephen King, the late Michael Crichton, John Grisham, Barbara Kingsolver and Dean Koontz, among others.)
Good for readers, yes, but it can’t possibly be a good development either for bookstores or for publishers; if $10, or even $9, became the standard price for best-selling hardcovers, the economics of the book business would need a dramatic overhaul.
In today’s trading:
- AMZN is down $1.83, or 1.9%, to $94.18.
- WMT is up 3 cents at $50.98.
- Barnes & Noble (BKS) is down $1.21, or 5.8%, to $19.62.
- Borders Group (BGP) is down 13 cents, or 4.2%, to $2.96.
AudioCodes (AUDC) shares have spiked this morning after Bank of America/Merrill Lynch analyst Vivek Arya upped his rating on the provider of enterprise voice over IP products to Buy from Underperform, doubling his price target to $3.50, from $1.75.
“We upgrade the stock…on the improving spending environment, multiple growth opportunities, reduced reliance on Nortel, and substantial margin leverage,” he writes in a research note. “Weak balance sheet is a concern but cash flow generation gives us comfort.”
Arya writes that the company’s VoIP expertise makes it “the partner of choice for large vendors that are cutting back on internal R&D.”
He adds that the company is pursuing at last six new opportunities including Department of Defense IP-PBX upgrades, an expanded alliance with Avaya in enterprise, a partnership with Microsoft, IP phones, IP-to-IP transcoding and mobile VoIP.
AUDC today is up 33 cents, or 12.8%, to $2.90.
In response to a much-better-than-expected Q3 financial report, more or less every analyst who follows Google (GOOG) today wrote mushy love notes to the company this morning, with nearly everyone raising their target price on the stock. Examples:
- Jeff Rath, Canaccord Adams: Buy rating. Target to $700, from $560. “Improved YouTubemonetization appears to be ramping materially, supporting the notion that a second product cycle may be about to begin in order to sustain Google’s high level of growth, as its accumulation of search share begins to wane.”
- Scott Kessler, Standard & Poor’s: Hold rating. Target to $600 from $450.
- Mary Meeker, Morgan Stanley: Overweight rating. Target to $625, from $525. “We have higher conviction in outlook for search advertising and believe that YouTube / mobile are gaining traction.”
- Jeff Lindsay, Bernstein Research: Outperform rating. Target to $650, from $600. “We remain positive given still reasonable valuation and the prospect of significantly accelerating revenue growth.”
- Douglas Anmuth, Barclays Capital: Overweight. Target to $620, from $575. “We would remain a buyer of GOOG into year end as the company should be a primary beneficiary of a pick-up in consumer & advertiser spending in 4Q and 2010.”
- Christa Quarles, Thomas Weisel Partners: Overweight rating; keeps $620 target. “We expect the pace of spending to ramp again as revenue growth returns, but we also expect the returns from investments (YouTube, mobile and display) made over the last several years to begin paying dividends.”
- Benjamin Schachter, Broadpoint Amtech: Buy rating. Target to $610, from $575. “It is worth highlighting that by the end of 2010, Google will have approximately $100 per share on its balance sheet.”
- Youssef Squali, Jefferies: Buy rating. Target to $600 from $470. “Growth acceleration in key metrics bode well for the stock, while management’s bullish macro commentary is positive for our broader Internet group as advertisers grow their spend online.”
- Marianne Wolk, Susquehanna Financial: Positive rating, $625 target. “Google reported solid quarterly results nicely ahead of our and Street forecasts for 3Q09. More important, the management team reiterated recent commentary in the press that the worst was behind the company.”
- Brian Fitz and Brian Fitzgerald, UBS: Repeat Buy rating; target to $635, from $580.
I’m getting writer’s cramp. Other firms raising their targets include Citigroup, Pacific Crest, Kaufman Bros., Goldman Sachs, FBR Capital, Deutsche Bank, Collins Stewart and Needham.
GOOG today is up $17.24, or 3.3%, to $547.15.
Make no mistake, conditions at Sony Ericsson (SNE, ERIC) aren’t exactly spectacular. But the joint venture’s Q3 results were slightly less bad than they were in Q2, which at least is a step in the right direction.
The handset venture posted Q3 sales of 1.619 billion Euros, down from 1.684 billion in Q2, and 2.808 billion a year ago. Gross margin improved to 16% from 12% in Q2, though still down from 22% a year ago. Sony Ericsson posted an operating loss in the quarter of $193 million, better than the $274 million loss in Q2, but worse than the $33 million loss a year ago. Net loss was $164 million, better than the $213 million in Q2, but worse than the year-ago loss of $25 million.
Unit sales in the quarter were 14.1 million, up 2% from 13.8 million in Q2, but down 45% from 25.7 million a year ago. ASP was 114 Euros, down from 122 in Q2, but up from 109 a year ago.
Sony Ericsson forecasts that the global handset market will contract by about 10% this year to 1.19 billion units; the company estimates it had 5% global market share in Q3.
UBS says the utility is a safe bet with positive exposure to renewable energy.
Well, this isn’t good news.
Advanced Micro Devices (AMD) told investors on the company’s Q3 conference call this afternoon that it expects Q4 revenue to show a less than seasonal increase over the third quarter, due to “the big build we’ve seen of PCs in anticipation of the Win 7 launch.” Microsoft is slated to debut Windows 7 next week.
The company said it is “waiting for the consumption side of that build” to happen, and so is calling for a moderate sequential increase, “which is a little less bullish than average seasonality.”
AMD said it views 9% as the seasonal increase in Q4 over Q3, with 6%-7% on the low side - and the company indicated it sees sequential growth in that range.
While a 6% sequential increase would imply revenue of $1.48 billion, ahead oft the old Street consensus of $1.36 billion, it would be a significant deceleration from the 18% growth reported in Q3.
Those comments are clearly weighing on the stock: AMD in late trading is down 24 cents, or 3.9%, to $5.95.
Shares of check maker Deluxe have fallen victim to evolving technology, but a generous dividend keeps the stock interesting.
Raymond Silcock, the home builder's new CFO, added 30,000 more shares to his position this week.
Brooks Automation (BRKS) this afternoon said it now sees revenue for its fiscal fourth quarter ended September 30 of $64 million, up about 45% sequentially. The company’s previous forecast was for a sequential gain of at least 25%. The Street consensus has been $56 million.
Moreover, Brooks said it expects Q4 revenue to be up at least another 45%, which implies close to $93 million, dramatically ahead of the Street at $61.7 million, and ahead of the $73.4 million reported a year earlier.
The company said the higher revenue reflects “a sharp upturn in requirements from our semicondcutor OEM accounts throughout the world.”
Brooks will report full results on November 12.
In late trading, BRKS is up 48 cents, or 6%, to $8.53.
SuccessFactors (SFSF) is losing ground in late trading, after the company announced plans to sell 10 million shares, with proceeds to be used for working capital and general corporate purposes, including potential acquisitions. The company has authorized the underwriters - Goldman Sachs and Morgan Stanley - to sell another 1.5 million shares to cover over allotments.
SFSF has 57.3 million shares outstanding.
The company also said it expects to report Q3 revenue of $38.2 million to $38.7 million, ahead of the Street at $37.6 million; for Q4 SFSF sees $39.3 million to $39.7 million, ahead of the consensus at $38.25 million. For the full year, the company now sees $147 million to $148 million, ahead of the Street at $148.5 million.
After hours, SFSF is down 64 cents, or 4%, to $15.25.
Advanced Micro Devices (AMD) this afternoon posted better-than-expected Q3 results.
For the quarter, AMD reported revenue of $1.396 billion, down 22% year-over-year, but up 18% sequentially, and ahead of the Street consensus estimate of $1.26 billion. The company lost 26 cents a share in the quarter excluding a gain of 8 cents a share from the repurchase of debt; the Street had expected a loss of 42 cents.
Gross margin in the quarter was 42%, up from 37% in Q2; product company margin was 38%, up from 27%.
AMD said microprocessor unit sales were up sequentially from Q2, but flat versus a year ago. ASPs were up sequentially, but down year over year.
GPU units were also up from Q2, and flat year-over-year; ASPs were lowered compared to both Q2 and the year-ago quarter.
The company said Q4 product company revenues will be up modestly from Q3.
In late trading, AMD is down 3 cents, at $6.16.
Google (GOOG) CEO Eric Schmidt told investors in a Q3 earnings conference call this afternoon that “the worst of the recession is behind us,” and that the company now has the business confidence to invest “heavily” in the next phase of innovation.
Schmidt said the company will invest both in people - he said they are stepping up hiring - and in innovation.
Schmidt also said the company will focus more on strategic deals and acquisitions. He says Google is “open for business to make strategic acquisitions both large and small.”
Get ready to see a lot of Google will acquire FILL IN THE BLANK rumors.
Schmidt said they will focus mostly on small acquisitions, with larger deals every year or two.
Asked about possible stock repurchases, he said that they would not rule it out, but advised investors not to expect that to happen any time soon.
GOOG this afternoon is up $10.59, or 2%, to $540.50.
IBM (IBM) shares are trading lower in the after-hours sessions despite stronger-than-expected Q3 results.
For the quarter, IBM posted revenue of $23.6 billion, down 7% from a year ago, up 1% from Q2, and ahead of the Street at $23.4 billion. EPS of $2.40 a share was two cents ahead of the Street consensus.
The company also raised 2009 EPS guidance to at least $9.85, from at least $9.70.
Other key points:
- The company said it remains well ahead of pace to hit its 2010 goal of $10 to $11 in EPS.
- On a year-over-year basis, revenues were down 5% in the Americas, down 12% in EMEA, and flat in Asia-Pacific.
- Global Services revenue was down 7%, though pre-tax income increased 11%.
- IBM signed $11.8 billion in services contracts in the quarter, down 7%, including 13 contracts worth more than $100 million. The company said it signed three deals in the first two days of October worth nearly $1 billion.
- Total services backlog at quarter end was $134 billion, up from $132 billion at June 30.
- Software revenue was down 3%.
- Systems and Technology revenue was down 12%.
- Gross margin was 45.1%, up from 43.1% a year ago, but down from 45.5% in Q2.
In late trading, IBM is down $4.78, or 3.7%, to $123.20.
Google (GOOG) posted stronger-than-expected Q3 results.
Revenues for the quarter ex TAC were $4.38 billion, ahead of the Street consensus at $4.24 billion. Overall revenue was $5.94 billion; traffic acquisition costs were $1.56 billion, or 27% of ad revenue.
Non-GAAP EPS was $5.89 a share, ahead of the Street at $5.42. GAAP EPS was $5.13 a share, up from $4.06 a year ago.
In a statement, CEO Eric Schmidt said that “while there is a lot of uncertainty around the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future.”
Other key datapoints:
- Paid clicks were up 14% year over year, and 5% sequentially.
- Cost per click was down 6% year over year, but up 5% sequentially.
- TAC at 27% of revenue was down from 28% of revenue a year ago.
- Headcount fell to 19,665, from 19,786 one quarter earlier.
- The company finished the quarter with $22 billion in cash.
- Google sites revenue was up 8% year over year; partner sites revenue, through AdSense, was up 7%. Revenue from Google-owned sites was 67% of revenue.
- International revenue was 53% of the total, up from 51% a year ago, and flat with Q2.
In late trading, GOOG is up $9.19, or 1.7%, to $539.10.
That story in the WSJ a couple of weeks ago about Brocade (BRCD) shopping for a buyer so far has not played out, although it has given a nice boost to the company’s shares. But there’s a growing camp on the Street that isn’t convinced a deal will happen any time soon.
Jim Yin, an equity analyst with Standard & Poor’s, today cut his rating to Hold from Buy, noting that the stock (with no small lift from the Journal) has gotten within 5% of his $10 price target.
“While we think BRCD could receive an attractive takeout offer after the company has put itself up for sale,” he writes, “we think significant risks exist that such an offer may take longer than anticipated.” Yin adds that he is also concerned about a sluggish recovery in enterprise IT spending, and about increased competition from Cisco (CSCO), “as customers prefer fewer vendors that provide more comprehensive solutions.”
BRCD today is off 6 cents, or 0.6%, to $9.53.
Previously: Brocade: Seeing No Deal, Oppenheimer Downgrades (October 12, 2009)
The two companies, whose paths parted long ago, reported better-than-expected quarterly results. Is this a sign of things to come?
Western Digital (WDC) shares have taken a hit today from Stifel Nicolas analyst Aaron Rakers, who this morning cut his rating on the disk-drive maker’s stock to Hold from Buy. Rakers keeps his $37 price target on the stock, which yesterday closed at $37.72.
“While HDD fundamentals look to remain positive into the December quarter, we believe investor sentiment could begin to factor in mid-cycle/peak earnings power and we believe there is some potential risk for near-term PC supply chain overbuild,” he writes. Rakers contends it is widely expected that the company will post solid upside to Street estimates for the September quarter - consensus is now 90 cents, versus the company’s guidance of 75-82 cents, and he says sentiment could be as high as $1 a share.
Risk/reward in the stock is now balanced, he contends.
Given that the stock has more than tripled this year, maybe taking some profits wouldn’t be a bad idea.
WDC today is down $1.71, or 4.5%, to $36.01.