Insiders' Blog

Dell's (DELL) Disappointment Weighs on Large Cap. Tech Stocks (AAPL, GOOG, RIMM, CSCO, ORCL, JNPR) Aug 29, 2008 11:39AM

Dell's (Nasdaq: DELL) disappointing Q2 earnings are weighing on the broader markets in today's very low volume session of trading. With shares of Dell currently down about 12.6% to $22.04, big cap Nasdaq stocks are being pulled down, effectively bringing down the entire index: the Nasdaq Composite is down about 1.7%, compared to the Dow Jones and S&P 500, which are down only 0.9% and 0.94%, respectively.

Elsewhere on the Nasdaq:

• Apple (Nasdaq: AAPL) down 1.9% to $170.48
  
• Google (Nasdaq: GOOG) down 1.9% to $464.70
  
• Research In Motion (Nasdaq: RIMM) down 4.2% to $121.29
  
• Cisco (Nasdaq: CSCO) down 2.5% to $24.03
  
• Oracle (Nasdaq: ORCL) down 3.6% to $21.82
  
• Sun Microsystems (Nasdaq: JAVA) down 1.3% to $8.98
  
• Juniper Networks (Nasdaq: JNPR) down 2.6% to $25.25
  
• Brocade (Nasdaq: BRCD) down 2.3% to $7.38

Dell, Inc. and its subsidiaries engage in the design, development, manufacture, marketing, sale, and support of computer systems and services worldwide.

Fannie, Freddie See Pressure After Week of Gains (FNM, FRE) Aug 29, 2008 10:37AM

Shares of GSEs Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are seeing pressure this morning, following six straight up days for Fannie and four for Freddie. Reports that Bank of China Ltd cut its holding of Fannie and Freddie debt by 29% in the past two months could be contributing to today's weakness.

Bank of China reported that it lowered its Fannie/Freddie portfolio by about $3.14 billion to $7.5 billion as of August 25th.

The news comes as speculation continues about the fate of the GSEs in light of the recently approved back-up plan by the U.S. Treasury. Some feel that if the Treasury has to step in to provide the GSEs with much-needed capital the common shareholders could be wiped out.

Fannie Mae is down nearly 11% currently to $7.09 and Freddie Mac is down over 12% to $4.62. Both have doubled off recent lows, but are still down about 90% over the past year.

Affymax (AFFY) "Significantly Undervalued"; Buy on Weakness -Baird Aug 29, 2008 09:10AM

Robert W. Baird reiterates its Outperform rating and $25 price target on Affymax (Nasdaq: AFFY).

The firm said it would be "aggressive buyers of Affymax shares on any potential weakness today as last night's announced discontinuation of Hematide's development in oncology was fully expected. We have not, and do not model, any Hematide oncology revenue."

Today's weakness is the result of an Affymax and Takeda announcement
Baird points to "enrollment completion of the remaining Hematide Phase III trials by YE08" as a potential catalyst which could drive shares higher moving forward.

Notably, shares of Affymax are down nearly 13% from yesterday's close, most recently trading at $15.30. Based on this price, Baird's $25 price target represents potential upside of 63%..

Affymax, Inc., a biopharmaceutical company, engages in the development of peptide-based drug candidates to enhance the treatment of serious and life-threatening conditions.

Dell (DELL) Sinks 10% Following Earnings Shortfall, Lower Gross Margins Aug 29, 2008 08:59AM

Shares of Dell (Nasdaq: DELL) are 10% lower this AM after failing to deliver on its Q2 earnings report, due to lower gross margin. Dell also warned that conservatism in IT spending is spreading to Western Europe and Asia.

After the close, Dell reported EPS of $0.31, which included expenses, and while not comparable, was clearly lower than the analyst consensus of $0.36. Revenues rose 11% to $16.4 billion, nicely above the consensus of $15.95 billion.

Dell said gross margins were adversely affected by actions to drive growth in strategic areas like Global Consumer and EMEA, as well as an increase in deferred revenue from the sale of successful service offerings in EMEA, which will be recognized in subsequent periods. Dell reported Q208 gross margin of $2.83 billion, versus $2.95 billion gross margin reported in last year's Q2, even though revenues were nearly $1.7 billion higher in this year's Q2. Gross margin as a percentage of total net revenues fell to 17.2% from 19.9% last year and 18.4% reported in Q1.

Commenting on its outlook, Dell said it sees continued conservatism in IT spending in the U.S., which has extended into Western Europe and several countries in Asia. Dell also said it will continue to incur costs as it realigns its business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions. Dell noted that demand also is impacted by currency fluctuations. Dell said it will continue to benefit from improving performance in areas such as emerging countries, notebooks, and enterprise and services, which collectively are driving a more diversified portfolio of geographies and products.

Dell ended the quarter with $9.5 billion in cash and investments and weighted average shares were 2 billion, a 12 percent reduction. The company spent $1.4 billion to repurchase 60 million shares of stock.

On the bright side, sales in BRIC (Brazil, Russia, India, China) countries rose 41% on a 46% increase in units. BRIC now accounts for more than 9% of Dell's revenue. Approximately 47$ of Dell's overall revenue came from outside the U.S. in the quarter.

Pali Says Accumulate Giant Interactive (GA) on Weakness Aug 29, 2008 08:47AM

Pali Research lower its price target on Giant Interactive (NYSE: GA) from $20 to $14, following the company's Q2 earnings, which were reported Wednesday after the close, but maintains a Buy rating.

Despite the in-line Q2 results, the firm believes Giant's "inability to provide Q3 guidance has added a lot of uncertainty to its 2H08 and FY09 outlook, which directly led to the initial sell-off in the stock." On the other hand, Pali believes that shares of Giant have bottomed and recommends that investors accumulate the stock on this recent weakness.

Pali cites four reasons for its maintained Buy rating:

• the slowdown during Giant's Q3 is likely temporary.
  
• business should rebound in Q4 given "the launch of the final open beta testing for Giant Online and the new expansion pack for ZT online.." The firm also cites two new games, Empire of Sports and King of Kings III as potential catalysts for growth in Q1.
  
• Giant Interactive's stock is undervalued; shares are currently trading at a discount to its peer group in China. Pali calls NetEase (Nasdaq: NTES) a "very similar" comparison to Giant: "both have huge cash positions, both rely on in-house developed games, both operate a limited number of games, both have similar business profiles and growth prospects", yet NetEase trades at 10.6x CY09 expected EV/EBITDA while Giant trades at only 4.7x CY09 EV/EBITDA. Pali arrives at its new price target by apply NetEase's multiple of 10.6x to Giant's adj-09 EBITDA estimate of $229M, plus $1 billion in cash.
  
• Giant's $150 million buyback program is expected to commence soon, and Pali believes this will create a floor on the stock price.

On a P/E basis, Pali said its lowered price target is based on 15.4x the firm's FY09 EPS estimate of $0.91. With shares of Giant trading around $9.20 in pre-market action, the firm's price target represents a potential gain of more than 50% from current levels.

Giant Interactive Group, Inc. develops and operates online games in China.