This definitely caught me by surprise. Microsoft (NASDAQ: MSFT), up over 6% (as of this writing) on first-quarter results, with huge volume backing the surge. On a Friday. Really?

Believe it, because it's true. Net sales may have declined 14%, and diluted earnings per share, which came in at 40 cents, may have also dipped 17%, but it didn't matter. According to Reuters, the bottom line beat the estimate of 32 cents by a wide margin. Also, it was reported that the top line went beyond the expected number. This was probably even more important than the profit performance. In addition, cash from operations experienced a super boost.

Analyst upgrades:

• Goldman upgraded Gerdau AmeriSteel (NYSE: GNA) to Buy from Neutral and has a $5.50 target on shares. Shares were upgraded due to the potential impact from infrastructure spending. Note that Goldman downgraded Steel Dynamics (NYSE: STLD) and Olympic Steel (NYSE: ZEUS) to Neutral from Buy.
  
• Banc of America/Merrill upgraded Coca-Cola Enterprises (NYSE: CCE) to Buy from Neutral and raised the price target to $18 from $15. The firm the strong Q1 report gives them greater confidence in shares.
  
• Roth Capital upgraded Halozyme (NASDAQ: HALO) to Buy from Hold due to increased clarity into Roche programs, the discontinuation of the chemophase program, and progress on insulin delivery.
• American Movil (NYSE: AMX) was raised to Overweight from Neutral at JP Morgan and to Hold from Sell at Citigroup.
  
• Barclays (NYSE: BCS) and Lloyds TSB Group (NYSE: LYG) were upgraded at HSBC to Overweight from Neutral.

Analyst upgrades:

• UBS upgraded Dollar Tree (NASDAQ: DLTR) to Buy from Neutral but lowered its target to $42 from $45 following the solid Q4 report. The firm expects Dollar Tree's cost containment to continue. JP Morgan upgraded shares to Overweight from Neutral on valuation as it believes the recent pullback is overdone and the company set achievable FY09 guidance. The firm has a $43 target on the stock.
  
• JP Morgan also upgraded Smithfield Foods (NYSE: SFD) to Overweight from Neutral on valuation as they find the stock oversold at current levels.
  
• KeyBanc upgraded Nordson (NASDAQ: NDSN) to Hold from Underweight based on valuation, strong balance sheet and cost reductions, and a solid track record of execution.
• Philips Electronics (NYSE: PHG) was upgraded to Neutral from Underweight at HSBC.
  
• Aeropostale (NYSE: ARO) was raised to Equal Weight from Underweight at Barclays.
  
• Carter's (NYSE: CRI) was upgraded at Goldman to Neutral from Sell.

Monday, November 5

• BorgWarner (NYSE: BWA) to give business update at 10am.
• Burger King (NYSE: BKC) to report Q1 earnings; conference call at 10am.

Tuesday, November 6

• Merrill Lynch to host conference call discussing Focus Media's (NASDAQ: FMCN) secondary offering at 11am.
• Yahoo (NASDAQ: YHOO) CEO Jerry Yang, Senior VP Michael Callahan & General Counsel to testify before the House Foreign Affairs Committee on how their company gave false information to Congress relating to their role in a human rights case in China which resulted in a journalist being sent to jail for 10 years.

Wednesday, November 7

• Symmetry Medical (NYSE: SMA) to give Q3 business update at 8am.
• Fluor (NYSE: FLR) to report Q3 earnings; conference call at 9:30am.
• Hot Topic (NASDAQ: HOTT) to report October sales at 4pm, American Eagle (NASDAQ: AEO) to report Oct. sales at 5pm.

Thursday, November 8

• Disney (NYSE: DIS) to report Q4 earnings; conference call at 4:30pm.
• CyberSource (NASDAQ: CYBS) to give 2007 guidance at 4:30pm.
• Gap (NYSE: GPS) and Wal-Mart Stores (NYSE: WMT) to report Oct. sales at 8am, Abercrombie & Fitch (NYSE: ANF) to report Oct. sales at 8:15am.

Friday, November 9

• Halozyme Therapeutics (NASDAQ: HALO) to give business update at 11am.
• Goldcorp (NYSE: GG) to report Q3 earnings; conference call at 1pm.

MOST NOTEWORTHY: Halozyme Therapeutics (HALO), Rosetta Genomics (ROSG), U.S. Steel (X) and BioFuel Energy (BIOF) were today's noteworthy initiations:

• Halozyme (NASDAQ: HALO) was initiated with a Buy rating and $14 target at Oppenheimer. The firm is positive on Halozyme's prospects for signing additional multi-product Enhanze deals in the next 12 months and the company's expanding internal pipeline.

• Oppenheimer also initiated shares of Rosetta Genomics (NASDAQ: ROSG) with a Buy rating and $11 target, as the firm is positive on Rosetta's intellectual property position in the emerging microRNA field related to the development and commercialization of research, diagnostic and therapeutic products, and other applications.

• Goldman Sachs resumed coverage of U.S. Steel Group (NYSE: X) with a Neutral rating.

• BioFuel Energy (NASDAQ: BIOF) was initiated with a Neutral rating at Cowen, as the firm sees a lack of catalysts until the company's plants under construction come on line in Q108...

OTHER INITIATIONS:

• Brightpoint (NASDAQ: CELL) was initiated with an Outperform rating and $18 target at Credit Suisse.

• MasterCard (NYSE: MA) was initiated with a Market Perform rating at Wachovia on valuation.

• Citigroup initiated shares of Signature Bank (NASDAQ: SBNY) with a Buy rating and $39 target and shares of Discover Financial Services (NYSE: DFS) with a Sell rating and $24 target.

• Pacific Growth Equities started shares of Altair Nanotechnologies (NASDAQ: ALTI) with a Neutral rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Historically, the Electronic Entertainment Expo, or E3, had been a model of industry excess. But after last year's extravaganza it was announced that the expo would be restructured due to the high costs it imposed on the computer and video game companies involved in the technological bacchanalian. The large trade show that boasted a draw of 60,000 attendees has since been eliminated and replaced with a invitation-only business summit format. Now the new Electronic Entertainment Expo, being held in Santa Monica from July 11 through July 13, will have less fanfare. But will it still hold the same prominent position in the industry? That remains to be seen.

The players are all still here -- Microsoft Corporation (NASDAQ: MSFT), Sony Corporation (NYSE: SNE), Nintendo Ltd (OTC: NTDOY), as well as the top-notch game makers. But their announcements are unlikely to top those of recent years past, due to the point at which we are in the product cycle -- not due to the change in the event's format. There will be no new groundbreaking console announcements this year, but there will still be plenty items of note, and E3 will still be the platform of choice to announce them. The most important news to listen for: What will the industry players be selling this holiday season? Will they announce must-own games, or better yet, games that will push consumers to buy new consoles?

Some rumors for the various consoles include Mario Kart and Super Mario Galaxy being shown for the Wii; Grand Theft Auto IV and Metal Gear Solid 4 shown for the PlayStation 3; Halo Wars, Fable 2 and Grand Theft Auto IV being shown for the Xbox 360, with Gears of War 2 and 3 and Dead Rising 2 being announced. How many of these will come true? Who knows, but it will be an interesting week.

Check back again for an E3 recap after the dust settles.

This morning I was reading some articles where both Universal, an NBC unit of General Electric Company (NSYE: GE) and Fox, a part of News Corp (NYSE: NWS), had pulled the financing for the proposed "Halo" movie. Variety posted the full story last night. Some outsiders are saying this was over cost and profit sharing, and some outsiders are saying that Peter Jackson and his crew were getting too much without much risk. It looks like that in the original deal that the two studios would split 45% of the profits with the rest of the profits going to the filmmakers and to Microsoft (NASDAQ: MSFT).

In truth, it doesn't matter what the dead deal is, nor does it matter who is at fault. It doesn't even matter if Bungie (a Microsoft unit that runs Halo) is hard to work with. And although it is true that video game adaptations that have gone into movies have not done that well, that doesn't matter either. The Halo franchise is simply worth the shot.

So I am going on record here telling Time Warner (NYSE: TWX) to go snag this deal now that Universal and Fox have pulled the plug. You have New Line and you have Warner Bros. that can be used. You worked with Peter Jackson before in the Lord of the Rings trilogy. I do not know if the higher-ups and Peter Jackson got along well during the long process of the Lord of the Rings, or if they did not. That also doesn't matter, at least not from where I sit. The LOTR franchise made a large enough fortune, and this could have a chance of repeating that same shot.

Master Chief is....Peter Jackson?

At the X06 conference in Barcelona, Spain the Xbox team showed many developments, all of which are going to be good for gamers as well as items which should turn Microsoft's Xbox franchise into a net-net profit center for Microsoft Corp (NASDAQ: MSFT). To date, the Xbox unit has been a net money-loser for the company. I have said that the street acronym of Microsoft as "Mister Softie" should be changed to "Master Chief," and that is even more true after looking over today's news and reviews for the Xbox franchise at the X06 conference.

"Lord of the Rings" mega-film series creator Peter Jackson has teamed with Microsoft to launch a development studio and collaborate on a new "Halo" game (Halo is a popular series of science fiction first-person shooter video games).

Jackson is also producing a big screen "Halo" movie. He and Microsoft are set to create Wingnut Interactive to focus exclusively on video games, and its first untitled game will be set in the "Halo" universe. Wingnut will work with Bungie Studios, which created the franchise and is currently working on "Halo 3." Halo 3 is set for release next year, and as a big personal fan of the game franchise hopefully this one won't be delayed like the company's Vista operating system.

Besides Halo 3, Wingnut is supposed to create another game that will focus on attracting non-gamers to gaming. Microsoft-owned Ensemble Studios also revealed it has been working on a game set in that universe, "Halo Wars," which is said to be a real-time strategy game for the Xbox 360.