When Seagate Technology (NYSE: STX) made the claim recently that it holds a decent amount of patents related to the solid-state drive (SSD), there were probably some global tech firms cautiously fidgeting in their collective chairs. You see, Seagate is the world's largest hard drive company. Hard drives enable, well, everything from that laptop PC to the TiVo box at home to the classic iPod.
The deal is this, though: most hard drives use spinning platters that really do become a bottleneck in performance within the products those drives are located in. Samsung and other companies have been championing SSDs as a way to remove slower hard drives from products and replace them with computer chip storage devices that have no moving parts, don't heat up as much, use less power and are much faster in performance. That is, unless Seagate has patent claims to much of this platform, which is what it's claiming after buying a patent portfolio from Hewlett-Packard Corp. (NYSE: HPQ) years ago.
The first company under the gun is STEC, a manufacturer of SSDs. But the question of the hour is this: can one company actually patent the concept of an SSD, now that the technology itself is poised to start competing more heavily with traditional hard drive in everything from laptop PCs to set-top digital video recorders? Hard drives enable the growth of the PC market every quarter as well as a whole slew of other devices consumer snap up like hotcakes. Could Seagate own this universe shortly? It's being mum on its intentions, but if the company wants to become nasty about protecting its patents, it could become an even more powerful force in the storage industry than it already is.
MOST NOTEWORTHY: Seagate, Nortel Networks and Ann Taylor were today's noteworthy downgrades:
Thomas Weisel downgraded Seagate (NYSE: STX) to Market Weight from Overweight as they believe the company's growth will be more muted given high existing market share and overall industry growth.
Baird downgraded Nortel (NYSE: NT) to Neutral from Outperform citing checks that indicate deteriorating US Enterprise sales in the last few weeks of Q1. The firm now expects companies to guide flat QoQ instead of up and to make cautious 2H08 comments.
Ann Taylor (NYSE: ANN) was cut to Neutral from Buy at Piper to reflect concerns over the LOFT division as well as consumer spending.
OTHER DOWNGRADES:
Citigroup lowered TJX Cos (NYSE: TJX) to Hold from Buy.
WestLB downgraded to Hold from Add Novartis (NYSE: NVS).
MOST NOTEWORTHY: Motorola, California Pizza, and Seagate were today's noteworthy downgrades:
Banc of America downgraded shares of Motorola (NYSE: MOT) to Neutral from Buy, despite believing the split into two businesses could ultimately unlock value, as they see few catalysts over the next year to lift shares. Banc of America also sees risk to Q1 earnings and lowered their target to $11 from $15.
Friedman Billings lowered California Pizza Kitchen (NASDAQ: CPKI) to Market Perform from Outperform citing sluggish trends in its core markets.
Seagate (NYSE: STX) was cut to Neutral from Outperform at Baird, citing weakening industry conditions throughout the month of March.
OTHER DOWNGRADES:
Goldman lowered the Communications Tech sector to Neutral from Attractive, and also downgraded Juniper Networks (NASDAQ: JNPR) and Starent Networks (NASDAQ: STAR) to Neutral from Buy, and Aruba Networks (NASDAQ: ARUN) to Sell from Neutral.
Seagate Technology (NYSE: STX) has begun shipping the first of its hybrid hard drives for notebook computers and smaller computing devices needing high-performance storage at reasonable cost. Hard drives are inside almost every desktop and laptop PC these days, and although they have advanced technologically with processor speeds and other performance metrics, they are still the performance bottlenecks in almost every computer. Why? At the root, hard drives are still where they were decades ago -- reading and writing data from spinning magnetic platters. Many tricks have upped performance since 2001 or so, but hard drives still look to be aging for the computing needs which always require more performance year after year.
Now, for pure storage needs, like for iPods or TiVo boxes, hard drives are fine. As laptop computers replace desktops, more performance is becoming crucial to these systems. As a result, the hybrid hard drive was born. Newer units from Seagate contain 256 Megabytes of RAM (solid-state storage) to augment those spinning magnetic platters. Here's the only wrinkle: there is a cost premium to that. Will consumers accept that? Highly doubtful, and so we have a conundrum.
Seagate's newer hybrid hard drive products may make their way to higher-end laptop computers soon, and the early adopter consumer and technologically minded will pay the expected 30% premium just to get the added performance (well, hopefully added performance). After a while, volume and economics will drive that premium down to where there is none. If Seagate really wants to become the premier supplier of new-generation hybrid drives above where it already sits with existing market share, that premium needs to come down to 10% to 15% at the most. That may crimp margin a little, but competitive laurels won't ever rest when it comes to the hard drive industry.
Seagate Technology (NYSE: STX) has had an interesting seven years. The company was taken private by a group of investment firms led by Silver Lake Partners and Texas Pacific Group and then returned to the public markets a mere two years later for some odd reason. Wait: that reason was to give a payoff to the investors, as going off the market for 24 months gave the global company a chance to sneer at Wall Street's quarterly, paranoid expectations and focus on long-term strategy. The hard drive company you may have rarely heard of, though, is recording billions in revenue each quarter and is in fine shape financially. CEO Bill Watkins trumpets this fact all the time, but the Street rarely listens.
So, with Watkins alluding to $3 billion quarters in the near future and growing profits these days, is the market listening? Maybe not yet, but maybe your portfolio should. The never-slowing demand for storage is everywhere these days, hiding in plain site. Have a full-size iPod, Tivo box or other DVR, Xbox 360 or a computer in the home? Each one of those probably has some kind of hard drive in size, and according to Watkins, more consumers are buying all that storage than businesses these days. We have an insatiable need to store movies, music, files, taxes and everything else digitally, so this makes sense.
Ratan Tata, chairman of the Tata Group of India, has confirmed his interest in the Jaguar and Land Rover units of Ford Motor Company (NYSE: F), according to the Wall Street Journal.
OTHER PAPERS:
The Washington Post reported that Home Depot Inc (NYSE: HD) has made a deal to sell its supply arm, HD Supply, for $8.5B, down from the original price of $10.3B, to a consortium of private equity firms headed by Carlyle Group, inside sources say.
According to a sources with knowledge of the discussions, Altria Group Inc (NYSE: MO) is considering spinning off its Philip Morris International division as part of a restructuring plan to increase shareholder value, reported the New York Times.
MOST NOTEWORTHY: CACI Int'l (CAI), Abercrombie & Fitch (ANF), Kohl's (KSS) and the software sector were today's most noteworthy upgrades:
JP Morgan upgraded CACI Int'l (NASDAQ: CAI) to Overweight from Underweight, considering the company an attractive, defensive stock and a "safe haven" based on the government exposure.
Friedman Billings upgraded Abercrombie & Fitch (NYSE: ANF) to Outperform from Market Perform citing ongoing cost-cutting and MG&A lines.
Deutsche Bank upgraded Kohl's (NYSE: KSS) to Buy from Neutral citing valuation and successful execution of its marketing, merchandising and store expansion plans.
Bear Stearns upgraded the software sector to Market Weight from Underweight on valuation...
OTHER UPGRADES:
UBS upgraded Home Depot (NYSE: HD) to Neutral from Sell.
JP Morgan raised Blockbuster (NYSE: BBI) to Overweight from Neutral.
FTN Midwest upgraded to Seagate (NYSE: STX) to Buy from Neutral.
MOST NOTEWORTHY: Red Lion Hotels (RLH), Constellation Energy (CEP), Brinker Int'l (EAT), Nvidia (NVDA) and InfoSpace (INSP) were today's noteworthy upgrades:
Baird upgraded Red Lion Hotels (NYSE: RLH) to Outperform from Neutral based on valuation, brand expansion progress and takeover potential.
Constellation Energy (NYSE: CEP) was upgraded to Buy from Hold at Citigroup based on higher cash flow expectations and valuation.
JP Morgan upgraded Brinker (NYSE: EAT) to Overweight from Neutral, and sees potential upside from slower unit development and a possible Mac Grill sale.
BMO Capital upgraded Nvidia (NASDAQ: NVDA) to Outperform from Market Perform following a strong second quarter.
Stanford upgraded InfoSpace (NASDAQ: INSP) to Hold from Sell on valuation; They consider the core online segments looks to be priced into the stock and downside support is given with tax credits and the cash balance...
OTHER UPGRADES:
Citigroup raised Cox Radio (NYSE: CXR) to Hold from Sell.
JP Morgan upgraded shares of PepsiAmericas (NYSE: PAS) to Neutral from Underweight.
Friedman Billings upgraded shares of Emulex (NYSE: ELX) to Outperform from Market Perform.
DirecTV (NYSE: DTV) was raised to Buy from Hold at Gabelli.
Seagate (NYSE: STX) was upgraded to Buy from Neutral at Goldman.
MOST NOTEWORTHY: Ingram Micro (IM), SYNNEX Corp (SNX), Yahoo! (YHOO), Macquarie Infrastructure (MIC) and Polypore International (PPO) were today's noteworthy initiations:
Banc of America assumed coverage of Ingram Micro (NYSE: IM) with a Buy rating and $23 target, as the firm is positive on the company's balanced growth and margin expansion.
Banc of America also initiated shares of SYNNEX Corp (NYSE: SNX) with a Buy rating and $24 target, as they believe cost synergies and mix in 2007 will drive 2008 leverage and share appreciation.
ThinkEquity transferred coverage of Yahoo! (NASDAQ: YHOO) with an Accumulate rating and cut its target to $27. ThinkEquity believes Yahoo!'s challenges, which include employee turnover risk, slower user growth, competitive pressures and limited upside in search, are unlikely to be fixed near-term by the new team of management.
Macquarie Infrastructure (NYSE: MIC) was initiated with a Buy rating and $51 target at Citigroup, as the firm believes management fee concerns are priced into shares and that the recent acquisition of Mercury Air and San Jose Jet Center will drive a 6% increase in dividend by the end of 2007.
MOST NOTEWORTHY: Seagate Technology (STX), SAP AG (SAP), Western Digital (WDC), BAE Systems (BAESY) and Manpower (MAN) are today's noteworthy upgrades:
Hambrecht upgraded shares of Seagate Tech (NYSE: STX) on improving demand and second half of 2007 prospects. Bear Stearns upgraded shares to Outperform from Peer Perform based on stabilizing industry conditions.
ING upgraded shares of SAP AG (NYSE: SAP) to Buy from Hold shares to reflect the migration within the company's large installed base and growing opportunities in the small business market.
Hambrecht upgraded Western Digital (NYSE: WDC) to Buy from Hold on improving demand for 2H07 growth prospects.
HSBC raised BAE Systems (OTC: BAESY) off the ground, upgrading shares to Neutral from Underweight.
Banc of America upgraded Manpower (NYSE: MAN) to Buy from Neutral to reflect the change in French payroll tax subsidies, which they view as a positive change to the company's ongoing margin structure.
OTHER UPGRADES:
First Albany upgraded ATMI Inc (NASDAQ: ATMI) to Buy from Hold.
The Medicines Co (NASDAQ: MDCO) was raised to Sector Perform from Underperform at RBC Capital.
MOST NOTEWORTHY: Today's noteworthy upgrades included Lockheed Martin (LMT), Raytheon (RTN), Hartford Financial (HIG), Seagate Technology (STX) and CommScope (CTV):
JP Morgan upgraded two defense stocks today: Lockheed Martin (NYSE: LMT) was upgraded to Neutral from Underweight on valuation;
Raytheon (NYSE: RTN) was raised to Overweight from Neutral, with expectations for the company to post above average organic growth driven by strong bookings. The firm also raised Raytheon's 2008 EPS estimate to $3.80 from $3.60, well above the consensus estimate.
AG Edwards believes Hartford Financial's (NYSE: HIG) recent weakness has created a buying opportunity and upgraded shares to Buy from Hold.
Seagate (NYSE: STX) was upgraded to Buy from Hold at Brean Murray as checks indicate a healthy seasonal uptick in demand for drives and PCs in 2H07.
CommScope (NYSE: CTV) was Upgraded to Outperform from Market Perform at Morgan Keegan based on higher 2007 and 2008 expectations along with accretion from the Andrew acquisition...
OTHER UPGRADES:
BMC Software (NYSE: BMC) was upgraded to Neutral from Underperform at Credit Suisse.
Friedman Billings raised Kimco Realty (NYSE: KIM) to Outperform from Market Perform.
Merck (NYSE: MRK) was upgraded to Buy from Hold at AG Edwards.
Even as the housing boom fades, there's an argument to be made that people will get more interested in fixing up the house they have now that they are less obsessed with flipping condos in Florida.
Of course, that may not apply to the homeowners who are having trouble making payments on their hiked-up adjustable rate mortgages. But since the rich only get richer these days, it stands to reason that there would be more people willing and able to spend thousands on the sort of home appliance you could just as easily pay a few hundred for at Sears.
That makes investing in the companies that make high-tech home gadgets (see AOL slide show of some of the latest gear) an interesting proposition. If the housing market really tanks (it hasn't yet, I'd argue), these stocks would be somewhat insulated since none of them are direct plays on real estate. But if the housing market shakes its current limp and picks up steam, companies that make expensive gear for the digital home could do quite well. Meantime, some of these stocks are much cheaper than they were a short while ago.
Seagate (NYSE: STX) -- July calls active at Elevated volatility on renewed Speculation. STX designs, manufactures and markets rigid disc drives. STX is up $0.09 cents to $20.94 on renewed LBO chatter. STX has a market cap of $11.2 billion and long-term debt of $1.7 billion. STX reported annual 2006 revenue of $9.2 billion. Brean Murray has a Hold rating on STX. STX call option volume of 17,889 contracts compares to put volume of 2,862 contracts. STX July option implied volatility of 41 is above its 26-week average of 34 according to Track Data, suggesting larger price risks.
Neurochem (NASDAQ: NRMX) option implied volatility suggests Risk into Data. NRMX is recently down $0.13 to $6.68. PIPR lowered its price target to $4.00 from $6.50. NRMX first phase three study of its Alzheimer treatment drug, Alzhemed is expected to be release between now and the end of the quarter. NRMX July option implied volatility is above 215 according to Track Data, indicating large price fluctuations. NRMX puts are more expensive than calls because NRMX is difficult to borrow.
Microsoft Corporation (NASDAQ: MSFT) might finally be on the verge of seeing the adoption of Vista, wrote Arnie Berman, chief technology strategist, at Cowen & Company late last week.
Berman surveyed 283 corporate IT buyers and found 47% of small- and medium-sized businesses will begin deploying Vista by December 31, this is up from 43% in a similar survey completed in February. 31% of larger enterprises plan to start rolling out Vista by December 31, up from 25% in the previous survey.
In our past Intel blogs, the Fly has suggested Intel has capacity in place to start ramping 64 megabyte processors big time, on a scale Advanced Micro Devices Inc (NYSE: AMD) does not possess. Berman points out that Intel's enterprise value/sales ratio relative to AMD is close to an all-time low, meaning Intel is cheap relative to AMD despite AMD's recent poor stock performance.
Nvidia at 19x consensus calendar 2007 results has shown the ability to deliver favorable financial surprises and could provide the solution to the greatest potential bottleneck for Vista adoption, the graphic processors.
Micron is selling close to its $10.91 book value which historically has supported the stock and memory demand will increase with the new operating system.
In following the hard drive industry these days, leaders of those companies (Seagate, Western Digital, Hitachi) seem to think that there will always be a place for the standard spinning hard drive in most desktop computers, servers and laptop systems. If this statement were true in 2004, is it still true today? Sure -- but the tide is changing, albeit slowly.
Dell Inc. (NASDAQ: DELL) needs fast access times, less power consumption and no moving parts. The speed and moving parts differences are huge. Although SSD capacities (32 Gigabyte for now) are not near the capacity of a standard 80 or 120 Gigabyte traditional hard drives, there are quite a few advantages.
One is not cost, though, as these smallish 32 Gigabyte drives run off the shelf for $350 (Dell charges $549). But, the signal Dell is giving here is that some customers may prefer these drives, regardless of cost. With more and more laptop computers being sold as "desktop replacements," the only thing not keeping up is the traditional hard drive.
Is Dell poised to one-up the competition with newer (and faster) laptop computer storage devices? Heck, it needs something to kick start sales again after being pummeled by Hewlett-Packard recently. Perhaps this is part of the solution. Now, if Dell can only justify the higher prices of its systems that contain these SSDs, the company may be onto something, eh? Its stock price needs a lift, and to get there, so do its sales.
Platters spinning at 5,400 RPM don't cut the mustard with newer dual-core computer processors and fast RAM. Customers demand more, and if traditional hard drives are lagging, SSD will enter the picture quite rapidly, As it does, prices will fall and companies like Seagate and Western Digital may find themselves a bit surprised.
When Seagate Technology (NYSE: STX) made the claim recently that it holds a decent amount of patents related to the solid-state drive (SSD), there were probably some global tech firms cautiously fidgeting in their collective chairs. You see, Seagate is the world's largest hard drive company. Hard drives enable, well, everything from that laptop PC to the TiVo box at home to the classic iPod. .gif){kind=logo}
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In following the hard drive industry these days, leaders of those companies (Seagate, Western Digital, Hitachi) seem to think that there will always be a place for the standard spinning hard drive in most desktop computers, servers and laptop systems. If this statement were true in 2004, is it still true today? Sure -- but the tide is changing, albeit slowly.
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