GOOG: GS Earnings First Take

AAPL, I was wrong...Bernstein on the iPad

Bernstein Initial reaction: Stretched out Touch.
Now: “By any account, the iPad is a runaway success of unprecedented proportion.”

• In the first 80 days, AAPL sold 3M units, the current run rate looks to be closer to 4.5M/quarter. This is destroying all previous records of consumer electronics adoption.
• At the current pace, the iPad is annualizing around $12B in sales.
• Bernstein is forecasting 18M units for 2011 (bullish 2011 estimates have approached the 30M unit mark, translating to $20B in sales.)
• The US market is 45%, about $9B—the total US consumer PC category is about $25B ($19B note/netbooks)

PC’s are feeling the bite.

• In an environment where consumers’ consumption dollars are limited, they are choosing the iPad.
• Using NPD data, unit growth rate for consumer PC’s as of March (just prior to the iPad introduction), was 25%. By June, three months after the iPad, the rate had dropped to 8%, as of August 3%.
• At the notebook level, it’s even more pronounced. Growth fell from 28% in March, to 8% in June, to 1% in August. Consumer notebook sales are on the verge of declining on a y/y basis—this is the first time since the data series began 2005—when y/y growth was 14%.

Cannibalism is happening.

• The iPad is sucking up dollars that would be used to buy other discretionary items (TV and SLR camera sales have declined as well).
• Best Buy is a good example—the cannibalization of the netbook/notebook category was material.
• This could continue into the holiday season—if the luster of a touch screen is enough to draw the money toward it.

Cisco Set to Add Home Video Gear--WSJ (CdeR)

By CARI TUNA
Cisco Systems Inc. is preparing a consumer version of the high-end video-conferencing technology it sells to companies, moving into a market dominated by cheap webcams and free services like Skype.

The system, which includes a video camera and a device that connects users' high-definition TVs to the Internet, will be priced at $600 and require a $30 monthly subscription fee, a person briefed on the matter said. Cisco is expected to announce the product at a news conference the company has called for next Wednesday.

Cisco's move comes as the maker of networking gear increases its focus on video, which the company says will be major driver of Internet traffic in coming years. The San Jose, Calif., company is also moving to raise its profile among consumers, now a sideline compared to its core business serving corporations and telecommunications carriers.

A Cisco spokesman declined to comment on the upcoming announcement.

Cisco has been trying to woo companies with conferencing-room setups it markets under the term "telepresence," to indicate the realism of the experience. It has also been using acquisitions to beef up its capabilities in the field.

The company recently spent $3.3 billion to buy Norway-based conferencing specialist Tandberg ASA, and $590 million for Pure Digital Technologies Inc., maker of the Flip camcorder. In August, Cisco said it would acquire ExtendMedia Corp., a maker of software that allows media companies to send video to computers and mobile devices, for an undisclosed amount.

Cisco executives have previously said the company would offer a consumer telepresence product. In doing so, industry analysts say, Cisco enters an arena dominated by inexpensive webcams attached to laptops and desktop computers, and free Internet-calling services that include video, such as Skype SA.

But interest in more sophisticated video-conferencing systems for consumers is growing, analysts add. Earlier this year, Panasonic Corp., LG Electronics and Samsung Electronics Co. announced plans to integrate Skype's software into their flat-panel TVs.

Hewlett-Packard Co., which also markets telepresence-style systems, is in discussions with a manufacturer to offer a device for home video conferencing, a person briefed on the matter said. An H-P spokeswoman declined to comment.

Elliot Gold, an analyst with the research firm TeleSpan Publishing, notes that telecommunications companies like AT&T Inc. have discussed video-conferencing services for consumers since the 1960s. But high-quality images require so much communications bandwidth that such services were relegated to business users, he said.

Now, as home broadband connections become more affordable and ubiquitous and the price of high-definition TVs and video hardware drops, "all the planets are lined up" for home video-conferencing, Mr. Gold says. "It's a completely different environment in the home today."

Using a TV to display conferencing images, assuming Cisco uses that approach, removes a barrier for older or less tech-savvy consumers who aren't comfortable using computer-based software and hardware, said Zeus Kerravala, an analyst at research company Yankee Group. "Everyone knows how to use a remote control," he said.
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Read more: http://online.wsj.com/article/SB10001424052748703431604575522371427534674.html?mod=ITP_marketplace_1#printMode#ixzz1119a0KC5

ORCL: WFC Resumes Coverage with Outperform (CdeR)

Wells Fargo is resuming coverage of ORCL with an Outperform rating and valuation range of $29-$31. Valuation based on 13-14x FY12 EPS of @2.20.

WFC: ORCL is one of the plays in the data center transformation theme and can leveragfe the Sun acquisition to take a larger share of IT spend. Forecasting operating margins to expand from 41.9% in FY11 to 43.9% in FY13. Revenue estimate for FY2011 is $34.1B reflecting growth of 26% and we estimate EPS for FY11 of $1.93, up 33% from FY2010.

GOOG

The Justice Department has reportedly opened an antitrust probe into Google's (GOOG) $700M deal to purchase travel software firm ITA Software. Sources say the investigation is still in an early stage, and is focused on whether Google could unfairly disadvantage potential new rivals by cutting off their access to ITA's software or unfairly steer web searchers to its own travel services. Google had previously disclosed that the Justice Department had asked for more information on the deal, but hadn't specified the department's concerns.

Monday Meeting 9/7

Monday Meeting 9/7
For Thurs:
LIFE review
VIV look again
Data storage
Review Trim, Buy and Watch

SDRL: good report on the company
ABB: wouldn't buy here, hold for now, story is still good.
VZ: could make sense for newer money, bought the ETF which has a good slug
PX: would buy here, valuation
VIV: would buy in here, HW has been selectively adding at 3%. Unicell is a competitor, but VIV has better coverage
TBT and TBF: encouraged by last week's action, but think it will pull back.
LIFE: under review, WJ holds in High Plains but struggling for a reason to continue to hold it. There are some hurdles looking at the next few quarters.
TEVA: still a hold

DS will pull telecom info if people are interested in increasing exposure to that sector. Especially in Latin Am.

EPD is merging with it's GP, more to come

Trim Report
-Change sort to YTD
-Trim report will encompass only the top 50 BBI holdings, the buy and watch lists will be removed.

Next meeting Thurs at 3 pm

JMP: ADBE, Maintain MO, PT $46

Adobe Systems, Inc. (1) (ADBE - $27.95; $14.6B market cap): We maintain our Market Outperform rating and $46 price target on Adobe Systems. On Wednesday, August 18, we are visiting with Adobe’s CEO, Shantanu Narayen, at the company's headquarters in San Jose. Areas we intend to explore include the tone of business, the status of the CS5 product cycle, operating margin expansion potential, and, most important, in our view, the drivers for the next stage of Adobe’s growth including monetizing Flash and expanding in the enterprise. We like Adobe’s leadership position in the creative software space and find current valuation levels attractive. We maintain our above-consensus non-GAAP EPS estimates of $1.93 in FY10 (consensus is $1.86) and $2.24 in FY11 (consensus is $2.15). Adobe is reasonably valued, trading at a 2011 PE of 13x while our price target implies a 2011 PE of 24, in line with the five-year average for Adobe.

GLW: 'Gorilla' glass may be new face of touch-screen tablets, high-end TVs

CORNING, N.Y. — An ultra-strong glass that has been looking for a purpose since its invention in 1962 is poised to become a multibillion-dollar bonanza for Corning Inc.

The 159-year-old glass pioneer is ramping up production of what it calls Gorilla glass, expecting it to be the hot new face of touch-screen tablets and high-end TVs.

Gorilla showed early promise in the '60s, but failed to find a commercial use, so it's been biding its time in a hilltop research lab for almost a half-century. It picked up its first customer in 2008 and has quickly become a $170 million-a-year business as a protective layer over the screens of 40 million-plus cell phones and other mobile devices.

Now, the latest trend in TVs could catapult it to a billion-dollar business: Frameless flat-screens that could be mistaken for chic glass artwork on a living-room wall.

Because Gorilla is very hard to break, dent or scratch, Corning is betting it will be the glass of choice as TV-set manufacturers dispense with protective rims or bezels for their sets, in search of an elegant look.

Gorilla is two to three times stronger than chemically strengthened versions of ordinary soda-lime glass, even when just half as thick, company scientists say. Its strength also means Gorilla can be thinner than a dime, saving on weight and shipping costs.

Corning is in talks with Asian manufacturers to bring Gorilla to the TV market in early 2011 and expects to land its first deal this fall. With production going full-tilt in Harrodsburg, Ky., it is converting part of a second factory in Shizuoka, Japan, to fill a potential burst of orders by year-end.

GOOG Barron's Article 07-17-2010

Cover article from this week's Barron's.

Many investors think Google's amazing run is over. It's not. The stock is undervalued by 35% or more.

GOOG: Duller margin outlook, but revenue growth sufficient to own stock (GS)

GS EPS Overview
Rev growth accelerated by 2.6% y/y on easier comps
Expense growth outstripped rev growth on restaffing
Operating income and EPS grew 20-23%y/y lagging gross revs for the first time since late 2008

Recommend accumulate GOOG given potential upside of 21% (15x 2011 EPS multiple). Trim TGT to %600, costs appear set to rise in line with revs. Legal costs are increasing on tough regulatory oversight, full time and temporary headcount are increasing to staff new projects and disply and mobile revenue generate structurally lower margins than desktop search.

VALUATION: Lower magins and lower terminal multiple cuts GS’ 6 month PEG and DCF based PTto $600, 21x 2010E and 18x 2011E EPS.

RISKS: Slower rev growth on tougher comps, lower margins on rev mix shifts, competition from MSFT, AAPL, Facebook.

GOOG Misses, beats on revs

Google misses by $0.07, beats on revs (494.02 +2.68)

Reports Q2 (Jun) earnings of $6.45 per share, $0.07 worse than the Thomson Reuters consensus of $6.52; revenues ex-TAC rose 25.0% year/year to $5.09 bln vs the $4.99 bln consensus. GOOG Average cost per click -3% q/q, Q1: +4%; Average Paid Clicks +2% q/q, Q1: +5%. Non-GAAP operating income in the second quarter of 2010 was $2.67 billion, or 39% of revenues. This compares to non-GAAP operating income of $2.17 billion, or 39% of revenues, in the second quarter of 2009.

MSFT extends XP for life of Windows 7

Windows XP, which debuted in 2001, will continue to be with us for yet another decade. MSFT announced it would allow some Windows 7 customers to buy Windows XP "downgrade" licenses until January 2020. Initially the company planned to let Windows 7 customers downgrade to Windows XP only through April 2010, but that end-date was quickly extended until October 2011. Now, the company says it will extend the downgrade option through the entire Windows 7 support cycle, which is scheduled to last until January 2020.

The move is intended to appease business customers, many of whom skipped an upgrade cycle by ignoring the widely panned Windows Vista. Though the software giant said its customers are moving quickly to adopt the newest Windows version, it acknowledged that some still want the option to downgrade. A full 74% of Microsoft's business customers are still using the outdated Windows XP, Windows marketing head Tami Reller said this week at Microsoft's Worldwide Partner Conference in Washington, D.C.

The extension means that Windows XP will live for 19 years -- about four times longer than most computers last. For context, downgrading to XP at the end of this decade would be like a current Windows user downgrading to Windows 3.1, which went on sale in 1992.

MSFT will cease supporting XP in April 2014.

CIO zone vendor survey

Cisco (CSCO): Thus far, the networking giant has flexed its muscles – more than twice as many respondents indicate Cisco compared with any other vendor in the NETWORKING sector.  Fifty-four percent (54%) of these respondents have indicated an INCREASE in 2H10 spending versus 1H10, while 8% have indicated either a DECREASE in spending or that they’re REPLACING the vendor.

AAPL: Bernstein raising estimates

AAPL (Toni Sacconaghi): 3M iPads were sold in its first 80 days ont he market, outpacing the iPhone, iPod Touch & all netbooks for their full 1st Q sales. The high end of buyside expectations is ~ 25M for 2011. Under a 25M unit scenario, iPad would add $15B in revs & 1700 bps of rev growth to Apple in FY 11. However, iPad's GMs are not known (we est ~30%, at the low end of estimates) providing a big range of EPS ($2-$4) & GMs (0 to -200 bps) outcomes for FY11. Toni outlines bull & bear considerations & estimates 18M iPads for FY11. Raising '10 and 11 EPS. Outperform, TP $300.

Bernstein CIO Survey

From the meeting today, here is Bernstein's survey of CIO's that Margery referenced.

MSFT Vulernerable?? - WSJ CdeR

MSFT - WSJ article, click here

Don't Miss the JPmorgan Notes! - Cde R

See the Tech page.