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This week's rumor round-up: AMD, Circuit City in play?

Friday the 13th. Superstitious? If you are, don't read any further.

But hey, you're in the market, aren't you? You know what this game's all about. Then read on, because you never know what's around the next corner, do you? Just be careful not to walk under any ladders.

ADVANCED MICRO DEVICES INC (NYSE: AMD)

On Monday the chip maker announced that it would report first quarter revenue of $1.23B, about $300M below what was expected, and said it would immediately look to cut costs. So much for those rosy sales forecasts. And it may not get any better any time soon. No matter what, these guys need a cash infusion really badly. So the next thing you know, the rumors began to fly that a private, and friendly, equity partner would emerge from the shadows to help out. While the stock reacted positively to the retrenching news, there's another possibility to consider: management will sell the company. Down route 82 in Santa Clara, meanwhile, Intel Corporation (NASDAQ: INTC) was said to be smiling broadly.

CIRCUIT CITY STORES INC (NYSE: CC)

Repeat after me: "They hired Goldman Sachs Group Inc (NYSE: GS) to help them look at strategic alternatives." Okay? They've said it's to help them sell those 900 stores they have up in Canada. But they're closing stores in a lot of places, aren't they? They're also firing all those hard working execs who make too much, and will continue to trim the f-a-t, especially that unnecessary spending. Many analysts feel good vibes, focusing on a future they think will be blessed with a long-term upswing. That said, the stock smiled. Repeat after me: "Goldman's not there just to shut the doors on some Canadian stores." Okay? The competition -- think Best Buy Inc (NYSE: BBY) -- isn't going to back off. And word about is that they may go private. That'll keep the stock afloat for now, but then what?

Correcting my General Electric buys Vetco Gray error

In a recent post I made a significant error in a statement I wrote regarding the buyout of Vetco Gray by General Electric (NYSE:GE). I was reviewing the comments readers had made on my posts and you can imagine my horror when I saw the magnitude of my blunder. I conjectured that GE could recoup its investment in Vetco Gray of $1.9 billion in less than two years. I submit to you my humble apology for such journalistic sloppiness. In my half-handed attempt to complete the piece at 3 a.m., I foolishly mistook Vetco Gray's revenue flow and brainlessly translated it as net profit. I hope my readers realized my mistake and understood what had happened.

In amends for my error I offer you this small look into Vetco Gray:

Vetco Gray is the world's leading supplier of drilling and well asset production equipment for the oil and gas industries. It is driven by the principles of commitment to the customer which were instituted and rigorously implemented by its third President and CEO, Donald K. Grierson. Vetco Gray holds offices in the United States, Canada, Mexico, Scotland and Argentina among others comprising a list of 29 countries. Vetco Gray produces wellhead equipment, offshore drilling equipment, pipeline materials and associated aftermarket support and solutions.

On January 7, 2007 General Electric announced that it had entered into an agreement to purchase Vetco Gray from Candover, 3i & JP Morgan Partners for a total $1.9 billion. Vetco Gray is expected to post total sales volume exceeding $1.6 billion for 2006. GE states that it is excited about the complimentary value which Vetco Gray shall add to GE's Italian-based oil and gas division.

Revisiting rumors of Yahoo! or Google buying Baidu

Baidu.com Inc. (NASDAQ:BIDU) is the leading Chinese Internet search engine. Baidu holds over 62% of the search market in China. Today (overnight Chinese time), Baidu reported third-quarter financial results with profits rising sharply. Net income was $10.8 million, or 31 cents a share, up more than 900% from the same period last year, on revenues of $30.3 million, a 169% increase. However, like most companies that lowered forward estimates, BIDU stock price fell today closing down 2.83% to $84.81.

This was a good time for StockRumors.com to revisit rumors of a possible buy out by Google, Inc. (NASDAQ:GOOG) or Yahoo!, Inc. (NASDAQ:YHOO), including a possible LBO given Baidu's large cash reserve.

As I mentioned above, Baidu holds 62% of the growing Chinese Internet search. The growth rate of Chinese Internet users is faster and also has a greater potential than that of the U.S. market. While the U.S. already has 200 million Internet users, there are only 110 million users in China, a number that is expected to more than double by 2010. Naturally, the company that would manage to capture that market would do well.

For Google, this would be weird. Back in June, Google has sold its 2.6% stake in Baidu. Don't get me wrong, Google could buy Baidu, it's got the resources (market cap and cash reserves) even after the purchase of YouTube for $1.6 billion. Buying Baidu would immediately increase Google's Chinese market share from 23% (and falling) to a stronghold in this growing market.

For Yahoo!, the acquisition would make a lot more sense. After its latest financial results, Yahoo! needs to re-accelerate growth and fast. Yahoo!'s current share in China is less than 12% so with Baidu it would make it over 70%. Very attractive. However, Yahoo!'s market cap and cash reserves are much lower than that of Google's and should there be a bidding war, this might present a problem for Yahoo!.

The question is the price that would (should) be paid for Baidu. Baidu's current market cap is $2.8 billion but I would assume that despite the current high P/E ratio, a premium might still be attached given Baidu's growth rate and potential.

Symbol Lookup
IndexesChangePrice
DJIA+72.8112,874.04
NASDAQ+27.512,931.39
S&P 500+9.131,351.77

Last updated: February 13, 2012: 06:13 PM

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