MACRO AND HOUSING Housing Slowdown Hitting Other Industries With a Lag The Joint Center for Housing Studies at Harvard University estimated that the decline in new and existing home sales of almost 10% in 2006 has already led to about 100,000 job losses, and will lead to further job losses in 2007 because the full impact won't be felt until late this year. January housing starts were the lowest since August 1997. Housing and related industries account for about 23% of the economy, according to the center. Industries suffering from the housing slowdown include furniture, construction supplies, domestic appliances, and plumbing. Recent announcements of job cuts include 4,500 by plumbing and heating equipment firm Wolseley plc, 4,500 by appliance manufacturer Whirlpool, 8,000 by paint and faucet manufacturer Masco, and smaller cuts in housing related manufacturing by Emerson Electric and Stanley Furniture. Caterpillar recently forecast "sharp declines" in earth moving equipment in 2007. Copper prices are down 35% since their May record and inventories are up fourfold since July, as the construction slowdown reduces demand for pipes and wires. Sources: Harvard University Joint Center for Housing Studies, Bloomberg Conference Call Transcripts: Toll Brothers Earnings Call Transcript Commentary: Toll Brothers: Earnings Drop 67%, Beat Estimates • Housing Bubble and Real Estate Market Tracker • NAR Hoping Semantic Games Will End Housing Slump Stocks/ETFs to watch: Masco (MAS), Whirlpool (WHR), Emerson Electric (EMR), Wolseley plc (WOS), Stanley Furniture (STLY), Caterpillar Inc. (CAT) TECHNOLOGY Sanyo's Accounting Problems Are Bad News for Goldman Sanyo Electric Co. announced today its accounting practices are being investigated by the Securities and Exchange Surveillance Committee, sending shares down a whopping 21% in Tokyo trading. sanyy.pk Wall Street Journal says the news has serious implications for Goldman Sachs, which helped bail Sanyo out of its difficulties last year by purchasing more than a billion dollars worth of preferred shares. It is believed Goldman was close to selling off its stake in Sanyo at a large profit. A Sanyo spokesmen said only, "We are fully cooperating with an inquiry" without elaborating. The charges, reported in the Asahi Shimbun this morning, state the company misrepresented its F2004 losses by as much as $1.1 billion. Had the company reported honestly, it would likely have been in the red for F2004. Fukoku Capital Management analyst Tomokatsu Mori: "The company lacks management competence." Sources: Wall Street Journal, Bloomberg, AP Commentary: Polarization Creates Clear Winners and Losers In Japan's Recovery Tide • Sanyo to Voluntarily Delist from Nasdaq Stocks/ETFs to watch: Sanyo Electric Co. (SANYY.PK), Goldman Sachs Group (GS). Competitors: Sony (SNE), Toshiba (TOSBF.PK). ETFs: iShares MSCI Japan Index (EWJ) Alcatel-Lucent Wins $1.52 Billion Patent Judgment Against Microsoft A California jury has ruled that Microsoft must pay Alcatel-Lucent $1.52 billion for infringing two MP3 audio compression patents. Microsoft will appeal the verdict. Microsoft uses MP3 software in its Windows Media Player. The software was co-designed by Bell Labs, Lucent's predecessor, and the Fraunhofer Institute for Integrated Circuits. Microsoft paid Fraunhofer $16 million for the technology, but Alcatel-Lucent claims it is owed up to $4.56 billion. This is one of 15 patent suits Alcatel-Lucent filed against Dell and Gateway; Microsoft voluntarily added itself to the defendants. The judgment gives Alcatel the right to forbid Microsoft to use its MP3 software, and could open the floodgates for scores of lawsuits against other companies that use the technology. The decision might be affected by a case currently before the U.S. Supreme Court on the way patent damages should be calculated for international software companies. Microsoft has countersued Alcatel for its own patent infringements, and will battle Alcatel in court over the video-decoding technology in its Xbox 360 videogame console. Sources: Forbes, Bloomberg, News.com, information Week, Wall Street Journal, Paid Content Commentary: Alcatel-Lucent Won't Be Seeing Any Microsoft Money Soon (information Week) • Jury finds against Microsoft in $1.5B dispute with Alcatel-Lucent (AP) • Microsoft Down Eight Straight Days: Reversal Time? • Conference call transcripts: Alcatel-Lucent Q4 2006, Microsoft F2Q07 Stocks/ETFs to watch: Alcatel-Lucent (ALU), Microsoft Corp. (MSFT), Gateway Inc. (GTW), Dell Inc. (DELL) Intuit Shares Fall on Soft Guidance Tax software maker Intuit reported FQ2 profits fell 22% from a year ago, and lowered guidance for F2007, sending shares lower in after-hours trading. intu Net income was $145.4 million (EPS of $0.40) versus $183 million (EPS of $0.50) in the prior-year period. EPS after 1-time items was $0.45 on revenue of $763.3 million -- a 3% gain from the year-earlier period. Thomson estimates called for EPS of $0.42 on revenue of $762 million. On its investor conference call, CEO Steve Bennett blamed the lower profit on "revenue shifts in QuickBooks and ProTax." Looking ahead, Intuit provided guidance for F2007 of revenue between $2.63-$2.68 billion and EPS of $1.33-$1.37; analysts were looking for $1.39. The soft guidance sent shares down $0.51, or 1.65%, to $30.35 in after hours trading. Sources: Intuit F2Q07 Earnings Call Transcript, Press Release, Business Week, Reuters, TheStreet.com Commentary: Intuit Earnings Likely To Have Little Effect On Seasonal Price Swings • Buying Intuit Into Tax Season • Intuit Founder Dumps Shares Ahead of Routine Seasonal Weakness Stocks/ETFs to watch: Intuit Inc. (INTU). Competitors: H&R Block (HRB). ETFs: Software HOLDRS (SWH), iShares Goldman Sachs Software Index (IGV) BEA Systems Posts 15% Q4 Revenue Rise Enterprise software company BEA Systems posted 15% Q4 revenue growth yesterday, ahead of Street expectations. Q4 revenue came in at $391.8 million versus $341.4 million in Q4 last year. Analysts were expecting EPS of $0.15 on sales of $385.5 million. Full-year sales were up 17% to $1.4 billion from $1.2 billion. The company is not yet prepared to Bea Systems 23 02 2007 Chart report its quarterly or full-year earnings as it is conducting an internal investigation into its stock-option practices; it will be restating results from fiscal 1998 through 2007. Analysts are forecasting $0.14 EPS on $364.5 million in revenue for Q1. For the full year, the Street anticipates EPS of $0.62 on revenue of $1.55 billion. Sources: Press release, TheStreet.com, Business Week, ABCMoney Commentary: BEA Systems: An Outline of Options Exposure • Will Oracle Pass BEA In the Middleware Market? • Goldman On IT Trends: What Tech Companies Stand To Gain? • Bea Systems Earnings Conference Call Transcript (later today) Stocks/ETFs to watch: BEA Systems, Inc. (BEAS). Competitors: Oracle Corp. (ORCL), Sun Microsystems Inc. (SUNW), International Business Machines Corp. (IBM). ETFs: Internet Infrastructure HOLDRs (IIH), PowerShares Dynamic Software (PSJ) MEDIA Getty to Buy WireImage for $200 Million; Jupitermedia Up Next Stock photo powerhouse Getty Images Inc. will purchase MediaVast Inc., parent of WireImage, for $200 million in cash. Digital image provider Jupitermedia has also confirmed that it is in talks to sell itself to Getty for $9.60 per share. WireImage provides Getty with a substantial archive of celebrity photos and video, a niche for which there is increasing demand. Getty will maintain the WireImage brand and will Getty Images 23 02 2007 Chart retain its main photographers and executive staff. WireImage, along with MediaVast's Film Magic and Contour Photos businesses, will be incorporated into Getty's editorial arm, which accounted for about 12% of the company's 2006 sales. Speculation about the Jupitermedia sale caused the company's shares to pop 25%, topping $10. They have since retreated to around $9.35. Over the past year, the shares have ranged from $5.45 to $18.81. A Getty-Jupitermedia deal would give the combined company a 40% market share, prompting some analysts to raise the specter of antitrust regulation. Sources: SeattlePI.com, TheStreet.com, Business Week Commentary: Picture This: Getty Images May Buy Jupitermedia • Innovative Jupitermedia Set To Return To Web • Meckler Confirms Jupitermedia & Getty Image Talks (24/7 Wall Street) • Conference Call Transcripts: Getty Images Q4 2006, Jupitermedia Q3 2006 Stocks/ETFs to watch: Getty Images Inc. (GYI), Jupitermedia Corp. (JUPM). Competitors: Reuters Group plc (RTRSY), CNET Networks Inc. (CNET). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ) FINANCIAL Nymex To Announce Earlier Date for Secondary Offering The Wall Street Journal reports that NYMEX holdings, operator of the New York Mercantile Exchange, will soon announce it is planning a secondary share offering worth over one billion dollars. NYMEX shares debuted in November and jumped more than 100% on their first day of trading, largely due to the relatively small size of the float (less than 10% of the company's valuation) and speculation for further consolidation in the Nymex 23 02 2007 Chart exchange industry. The company is not expected to profit off the secondary offering which would come exclusively from NYMEX member holdings. The announcement may come as soon as today, and the offering make take place within a month. While the offering will free up more shares for institutional investment, WSJ says, it could also put downward pressure on the stock over the next few days. Nymex shares IPOed at $59/share, closed that day at $132.99, and currently trade at $140. Sources: Wall Street Journal, Reuters Commentary: Nymex: Beware of Slippage • Is a NYMEX-Optionable Buyout in the Works? • Cramer's Take on NMX Stocks/ETFs to watch: NYMEX Holdings (NMX). Competitors: Chicago Mercantile Exchange Holdings (CME), CBOT Holdings Inc. (BOT), IntercontinentalExchange Inc. (ICE) H&R Block Swings to Q3 Loss on Subprime Mortgage Business Tax preparer H&R Block posted a Q3 loss yesterday on the back of writedowns at Option One, its subprime mortgage lending arm. Option One lost $69.7 million in the quarter versus a gain of $42.4 million a year ago as delinquencies surged. H&R Block is setting aside $111 million for anticipated loan losses. The company reported a loss of $44.7 million (-$0.14/share) HR Block 23 02 2007 Chart in the three months ended Jan. 31 versus a profit of $12.1 million ($0.04/share) a year ago. Excluding Option One, income from continuing operations was $25 million ($0.08/share). Q3 revenue was up 11% from $860.3 million to $955.1 million. Analysts were expecting EPS of $0.13 on sales of $1.13 billion. In November, the company announced it was exploring "strategic alternatives" for Option One, but analysts are skeptical that the company will be able to sell the unit. Tax service revenues were up 14.5% in Q3 to $628 million, thanks to new loan products linked to tax refunds and the opening of 330 new outlets. Shares were up $0.12 to $22.42 in AH trading. Sources: Chron.com, Bloomberg, MarketWatch, TheStreet.com Commentary: Berkshire Hathaway: Notable 13F Changes • Fisher's Buyout Candidates • Jim Cramer on HRB (Jan. 10) Stocks/ETFs to watch: H&R Block Inc. (HRB). Competitors: Intuit Inc. (INTU), Jackson Hewitt Tax Service Inc. (JTX) HEALTHCARE/BIOTECH Genentech Shares Fall on Triple-Tough News Shares of Genentech were off 2.6% to $85.49 yesterday on three pieces of bad news: the company's Cabilly patent on the manufacture of human antibodies has been overturned; the FDA has ordered Genentech to put a new warning on asthma drug Xolair after it was found that it can cause anaphylaxis; and trial data indicate that low doses of lung cancer drug Avastin might be as effective as full doses. Genentech plans to appeal the U.S. Patent and Trade Office's decision on Cabilly, but analysts estimate the company could lose up to $200 million in royalties during the appeal process. In the case of Xolair, Genentech Inc 23 02 2007 Chart anaphylaxis manifested in only 0.1% of the 39,500 patients in clinical trials, but because the condition can be life-threatening, the FDA is requiring the warning. Xolair accounted for over $430 million in sales last year. A clinical trial of Avastin, meanwhile, showed that together with chemotherapy, both a 7.5 mg dose and a 15 mg dose meet patient survival goals for non-small cell lung cancer. Though the study was not designed to compare the doses, some investors fear the data will cause doctors to prescribe half-doses, cutting into revenue. Avastin represented $1.75 billion of Genentech's 2006 sales. Sources: Wall Street Journal, Business Week, Red Herring Commentary: Genentech Takes Hit On Cancer Drug Success • Genentech to Appeal Cabilly Patent Rejection • Genentech: How Much Downside From Avastin News? • Conference call transcript: DNA Q4 2006 Stocks/ETFs to watch: Genentech, Inc. (DNA), Roche Holdings Ltd. (RHHBY). Competitors: Bristol-Myers Squibb Co. (BMY), Novo Nordisk (NVO), Amgen (AMGN). ETFs: Biotech HOLDRs (BBH), SPDR S&P Biotech (XBI), Vanguard Extended Market Index ETF (VXF) INTERNATIONAL Berkshire on Selling Its PetroChina Stake: "And Then What?" Warren Buffett's investment company, Berkshire Hathaway Inc., has rejected calls from "the media, shareholders and others," to sell its stake in PetroChina Co., whose parent company, China National Petroleum Corp., operates in Sudan -- a nation accused of genocide. In a statement, Berkshire said selling its 1.1% stake (it is PetroChina's biggest overseas investor) would not have a beneficial effect on Sudanese policy, since PetroChina PetroChina 23 02 2007 Chart isn't even active in Sudan: "Subsidiaries have no ability to control the policies of their parent." Berkshire entered its PetroChina position in 2003 for about HK$1.70. Shares presently trade at HK$9.47, netting Berkshire over $2.3 billion on its investment. Analysts agreed with Buffett, saying investors likely confused PetroChina with its parent. Berkshire also said that any sale of China National Petroleum shares would almost certainly be bought up by the Sudanese government at a substantial discount, begging the question, "And then what?" Sources: Berkshire Hathaway Statement (.pdf), Bloomberg Commentary: PetroChina: Natural Gas Growth Expected to Continue • Comparing China's Two Oil Giants • Asian Energy Fundamentals Stocks/ETFs to watch: PetroChina Company (PTR), Berkshire Hathaway Inc. (BRK.A) MUST-READS ON SEEKING ALPHA TODAY U.S. Market: Pollyanna is Back - With a Vengeance Housing: The Mortgage Market Debacle: It's All in the Incentives Long Idea: Ryanair: The Best Airline You've Never Heard Of Short Idea: "Best Ideas" Hedge Funds: A Pandora's Box of Potential Problems Internet: Google Releases Details of Transferable Options Program Telecom: Cisco and Apple to Share iPhone Trademark: What about iPhone.com? Networking: B.O.S.: New Management Should Take It To The Next Level Chips: The Semiconductor Cycle Game Software: Google To Microsoft: Let's Rumble Consumer Electronics: Will Apple’s iPhone Be a Disappointment? Media: Hearst 'News Reader' Attempts To Rescue Failing Print Paradigm Healthcare: Rob Black's Healthcare Stock Report Biotech: Does GTx Have the Muscle for Growth? Retail: A Zale Short Reviews Its Conference Call Transport: Honda: A Buying Opportunity Coming Soon? Gold: Peru's Lack of Publicity Bodes Well For Its Investment Opportunities Energy: Occidental Petroleum: Very Liquid Oil Financial: Financial Accounting Standards Board Offers Optional Fair Values Asia: Implications of a Weak Yen in 2007 ETFs: Why Aren't Developing Countries Rich? Small-Caps: Selling Half My Position in Stoneridge Inc. Sound Money Tips: Tips on Tax Scams Jim Cramer: Latest stock picks Conference Call Transcripts: JCPenney Q4 2006 • Williams Companies Q4 2006 • TRW Automotive Q4 2006 • PG&E Q4 2006 • Agnico-Eagle Mines Q4 2006 • Toll Brothers F1Q07 • VA Software F2Q07 • Intuit F2Q07 • Pan American Silver Q4 2006 • Newmont Mining Q4 2006 • Emdeon Q4 2006 • Move Q4 2006 • Marchex Q4 2006 Have Wall Street Breakfast emailed to you every morning before the market opens. Related Articles Read more articles by SA Editors Subscribe to email alerts about valuable stock and ETF related articles Read more on the themes Today's Market, Wall Street Breakfast Research Stocks and ETFs Type in stock symbol to get opinion and analysis, earnings call transcripts, quote and chart: