Archive for July 8th, 2012

Post June Jobs Report, Eyes on Earnings and SEMICON West This Week

Last Week
Friday’s job report, which was simply bad in many different ways in my view, capped a quiet week on Wall Street in terms of trading volume if not data flow. To me one of the most illuminating ways to look at the recent string of employment reports is to view them on a trailing quarterly basis. When viewed from that perspective we see that only 225,000 non-farm jobs were created in 2Q2012, down significantly from 677,000 jobs in 1Q 2012. Simply put the vector or direction and magnitude of job creation is in the wrong direction and does not support the would be view of “moving forward.”

The June Employment report was the latest report that showed a deceleration is occurring in the U.S. economy. Early last week, we learned the manufacturing economy contracted in June, marking the first time this has happened since July 2009 according to The Institute for Supply Management. Add in the string of weaker data on the European and Asian economies in recent weeks and I am surprised that it took even the always “blue skies” International Monetary Fund this long to cut its global economic forecast.

Speaking in Tokyo, IMF Managing Director Christine Lagarde said “The global growth outlook will be somewhat less than we anticipated just three months ago.” While many have their eyes turned on Europe and it current economic contraction and increasingly on the U.S. following last week’s dismal indicators, Lagarde correctly warns that Brazil, China and India are showing signs of slower growth as well. Per IMF data, those three countries along with Russia will comprise more than 20% percent of the world economy this year.

Already we have ample proof that the slowing global economy is taking its toll. During the last weeks in June, a number of companies – including Procter & Gamble Co. (PG), Best Buy Co. Inc. (BBY), O’Reilly Automotive Inc. (ORLY), AK Steel Corp. (AKS), FedEx Corp. (FDX), Family Dollar Stores Inc. (FDO) and Nike Inc. (NKE) – have warned of weaker-than-expected results or adjusted their outlooks in a downward fashion. Characteristic of most corporate earnings seasons, the number of reports will trickle in and then several days in we will be hit with a landslide of companies reporting second-quarter results. If what we have heard thus far is any indication of what is to come, fasten your seat belts as it’s going to be a bumpy ride over the next few weeks. While some investors like to close their eyes and shut their ears once they have made their stock selections, that is simply foolish behavior. Competitors, customers and suppliers of the companies in which we invest provide timely, crucial information that helps give confirmation or warning ahead of when our held companies report their results.

The Week Ahead

Monday marks the official start of 2Q 2012 corporate earnings as Alcoa (AA) reports its second quarter results. As tends to be the case, corporate earnings reports will start off with a trickle and build into an avalanche of reports. Even if none of the companies an investor owns is broadcasting its results this week, I find it worthwhile to breakdown any and all customer, supplier or competitor earnings reports in order to double check my investing theses. With this in mind, investors will be watching Yum! Brands (YUM) closely as a gauge for growth prospects in China, which also happens to be a key growth area long-term for Burger King (BKW) as well as Starbucks(SBUX). Similarly, commentary from SemiLEDS on light emitting diode (LED) volumes and pricing will weigh heavy on Cree (CREE) as well as Rubicon Technology RBCN).

Aside from formal earnings announcements (see below for some of the more noteworthy ones), investors will also be listening to management presentations this week at SEMICON West 2012, which runs through July 10-12 in San Francisco. While keynotes will be heard from Intel (INTC), Applied Materials (AMAT) and Xilinx (XLNX) over the three days, a flurry of press releases touching on industries and companies that serve them — semiconductors and semiconductor capital equipment, LEDS, photovoltaics/solar, and more — are likely ahead this week. Given improving demand for semiconductor capital equipment, particularly for next generation 28 nanometer equipment, commentary from Applied Materials, Lam Research (LRCX), KLA-Tencor (KLAC) and others will be closely watched and dissected.

Monday, July 9
Consumer Credit (May)
Alcoa Inc. (AA)
PriceSmart Inc. (PSMT)
WD-40 Co. (WDFC)
Yum! Brands Inc. (YUM)

Tuesday, July 10
SEMICON West 2012
Helen of Troy Ltd. (HELE)
SemiLEDS Inc. (LEDS)

Wednesday, July 5
SEMICON West 2012
MBA Mortgage Index (Weekly)

Thursday, July 12
SEMICON West 2012
Weekly Initial & Continuing Jobless Claims (Weekly)
Fastenal Inc. (FAST)

Friday, July 13
Producer Price Index (June)
Michigan Sentiment Index (July)
Educational Development Corp. (EDUC)
JP Morgan Chase & Co. (JPM)
National Beverage Corp. (FIZZ)
Wells Fargo & Co. (WFC)

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Opera Software bets big on digitisation wave in India

NEW DELHI: Betting big on Indian government’s digitisation drive, Norway-based Opera Software today said it looks to partner with set top box (STB) manufactures, which will help DTH, IPTV and cable subscribers to access Internet from their television sets.

Browsers such as Opera, Internet Explorer and Google Chrome are used for accessing Internet.

“It is a good time to get into this (digital devices space)…We would look at partnering someone like say Huawei to built our browser onto their platform,” Opera Software Sales Director (India and SAARC) Sunil Kamath told reporters.

He, however, added that no such deals have been signed as of now but the company, which offers Opera Web browser, is exploring the option. The company offers browsers for computers, mobiles and tablets and other devices.

The government has declared that analogue cable service would be phased out and complete digitisation will usher in cable sector in Delhi, Mumbai, Chennai and Kolkata by November 2012.

To implement this decision, STBs have to be installed in households subscribing to cable service. According to estimates, there are at over 103 lakh subscribers in the four metros alone.

IT peripherals maker Amkette had recently launched a new device ‘EvoTV’ priced at Rs 9,995, which allows users to surf Internet on their television sets. Globally, Apple and Google have also introduced similar offerings.

Opera has also partnered with telecom companies like Bharti Airtel and Idea Cellular to distribute a co-branded version of Opera Mini, its mobile phone browser. Many handsets, especially those from domestic handset makers, come embedded with Opera browser.

“Such tie-ups help us reach out to more consumers and gives us another distribution channel,” Kamath said, adding that Opera Mini has close to 179 million users globally.

Though he declined to comment on India-specific numbers, Kamath said its userbase in the country has grown 4-5 times over past two years.

“India is a strategic market for us. We support 14 Indian languages and we are confident that we will continue to see the strong growth that we have seen in the last few months,” he added.

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The Next iPhone Will Be Very Fast, It Will Have To Be

It would be unfair to describe the Samsung Galaxy S III as a prototype of the next iPhone. But the similarities between Samsung’s flagship phone — and the capabilities that will be available to Apple’s next iPhone — are striking.

Like Apple’s iPhone, the Samsung Galaxy S III is now a global brand. While silicon inside its handsets vary from market to market, Samsung is rolling out very nearly identical handset across different carriers and different countries. And like the next iPhone, the Galaxy S III has access to a treasure chest of new technologies that simply weren’t available next year.

And while even Apple may not know if it will stick with the 3.5-inch-high resolution screen on the iPhone 4S or go with something comparable to the monster 4.8-inch screen on the Galaxy S III, the array of silicon now available for Apple to play with means that one thing is already clear: the next iPhone will be fast as hell.

Two reasons: fast processors and faster networks. Let’s start with processors: Apple now relies on Samsung to build the digital brains for its smartphones. Samsung’s own smartphone processor — Exynos chip, which includes four CPU cores — relies on manufacturing capabilities that weren’t available last year to shrink the size of the features on its chips to just 32 nanometers, allowing it to wring more power out of the same amount of energy.

Even if Apple turns to another manufacturer to build its chips, it will almost surely move past the 45 nanometer process technology to build the processors now found in the iPad and iPhone. Access to that manufacturing technology alone should make the iPhone’s chips comparatively quick, even if Apple doesn’t follow Samsung and Nvidia to four-core processors (think of each computing core as a digital ‘brain’ able to tackle a different set of tasks) and sticks to a dual-core processor design.

The real payoff, however, will come thanks to access to the latest-generation of wireless chips that can handle both older, slower networks and the latest ‘LTE’ wireless networks being rolled out by wireless carriers. Older handsets relied on two separate wireless ‘modems’ to do all this work, which added bulk and subtracted battery life. That’s a compromise Apple chose not to make with the iPhone 4S.

Now that tradeoff is no longer necessary. In the U.S. market, Samsung is using Qualcomm’s latest ‘Snapdragon’ chips, which combine a dual-core processor using the latest 28 nanometer manufacturing technology with support for LTE networks. Apple will probably go a somewhat different route: while Qualcomm isn’t talking, analysts say Apple will almost surely use Qualcomm’s MDM9615, which combines support for every network a phone could need — including LTE – on a single 28 nanometer part.

Combine that part with an improved processor, and Apple will be able to phone that tears through applications — and downloads — at ridiculous speeds compared to today’s iPhone 4S. The technology now available to Apple means that it can. Competition such as the Galaxy S III means that it must.

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Apple faces new legal challenge in China

BEIJING: A Chinese technology firm has filed a legal challenge accusing US giant Apple of infringing its patented voice recognition software with its Siri function on the iPhone, the company said Saturday.

The move comes just days after Apple paid $60 million to end a dispute over who could use the iPad name in China.

Shanghai Zhizhen Network Technology Co Ltd patented its Xiao i Robot software in 2004, while Apple’s Siri, which made its debut with the release of the iPhone 4S last year, was first developed in 2007.

The Chinese company’s version operates in a similar way to Apple’s personal assistant and works on the iOS and Android operating systems.

Si Weijiang, a lawyer acting for the Shanghai-based firm, said it had tried to contact Apple two months ago over the alleged infringement but received no response.

“We sent legal notices to Apple in May, but no one contacted us. We filed the lawsuit in late June to the Shanghai number one intermediate people’s court,” Si told AFP. “Currently the case is now at the court-mediated stage.”

“We mainly ask Apple to stop infringing on our patent and cover the court costs, but once the court confirms Apple has infringed on our patent, we will propose compensation,” he added.

The company’s chairman, Yuan Hui, told the Apple Daily newspaper that the firm had 100 million users in China.

“People feel that China has no innovation, that companies here just copy. But in fact, we are leaders in our field, and we have created our own innovation,” Yuan told the paper.

It added that Apple was also facing legal action from another Chinese company for allegedly infringing its “Snow Leopard” trademark.

The High Court of the southern province of Guangdong said on Monday that Apple had paid $60 million to settle a long-running legal battle with Chinese computer maker Shenzhen Proview Technology over the iPad name.

Both Proview, based in the southern city of Shenzhen, and Apple had claimed ownership of the Chinese rights to the “iPad” trademark.

Proview’s Taiwanese affiliate registered “iPad” as a trademark in several countries including China as early as 2000 — years before Apple began selling its hugely successful tablet computer.

Analysts said the Chinese government wanted the matter resolved, wary of the damage a ruling against Apple could do for the foreign business climate in China.

Greater China — which includes Hong Kong and Taiwan — has become Apple’s fastest-growing region, with revenues second only to the United States.

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