Filed under: Forecasts, Launches, Industry, Competitive strategy, Intel (INTC), Advanced Micro Dev (AMD)

Intel (NASDAQ: INTC) knows that the market for basic server and Personal computer chips will not grow as fast over the next five years as it did over the last five. The economy plus high market penetration will see to that.

So, Intel is looking to new markets to save its bacon. It has already entered the segment for relatively low-powered chips for handheld “computers.” Whether that business will ultimately be huge is anyone’s guess.

According to The Wall Street Journal, the world’s largest chip company “is providing the first details of a chip technology that is designed to help break into new markets, starting with high-end graphics used for computer games and animation.” This technology will help higher end Personal computers run games and video content.

With Intel’s balance sheet and large share of the current Personal computer market, the announcement could spell gigantic trouble for AMD (NYSE: AMD) and Nvidia (NASDAQ: NVDA). A tiny over two years ago AMD purchased graphics chip company ATI. So far, the deal has been a bust.

Concerns that the graphics chip market could get crowded and that margins could be under pressure have already driven AMD and Nvidia to recent 52-week lows. Over the last year, Intel shares are off about 5%. Shares in the other two companies are down over 60%. With Intel coming into the market, that could actually get worse.

Douglas A. McIntyre is an editor at 247wallst.com

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Filed under: Competitive strategy, Microsoft (MSFT), Sony Corp ADR (SNE)

Nintendo already has the upper hand in the video game console market. Its Wii outsells the Microsoft (NASDAQ: MSFT) Xbox 360 and Sony (NYSE: SNE) PS3. But with its market penetration so high, the hyper-growth has to start slowing.

According to The Wall Street Journal, “After overseeing several years of rapid growth at Nintendo Co., President Satoru Iwata faces new challenges: how to keep players of the company’s videogames interested, and how to cultivate a new wave of customers.”

Nintendo’s problems may be beyond its ability to solve. It can bring out new consoles and games for its current products, but the industry as a whole may be facing a slow period.

The newest game platforms are now a couple of years old. That means most of the ready buyers probably own one. Going after the market of people only modestly interest in the products will be harder, especially when compounded by a weak economy.

It may be easy to focus on Nintendo because it has such a massive market share, but the entire industry might have problems until the next generation of consoles brings a massive number of buyers into the market again.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Competitive strategy, Yahoo! (YHOO), Time Warner (TWX)

The Wall Street Journal (subscription required) reports that BloggingStocks’ parent — Time Warner (NYSE: TWX) — is nearly done with the work of separating AOL’s 8.7 million subscriber dial-up business from its advertising one. And Earthlink (NASDAQ: ELNK), with 3.3 million subscribers, appears to be the logical partner — particularly if it’s willing to pay more than the $2 billion to $3 billion the Journal estimates its worth.

When AOL announced two years ago that it was going to get out of the Internet access business and focus on advertising, I wondered how it would come up with the roughly $2 billion it would lose from the plan to give away all of AOL’s content and services to subscribers who don’t use AOL for dial-up access. The plan was to replace that cash flow with advertising sales. But the most recently available comparison shows that AOL’s revenue has declined 43% from $1.981 billion in Q1 2006 to $1.128 billion in Q1 2008. A 64% drop in subscription revenues to $559 million was not offset by the 41% increase in advertising revenues to $552 million.

Still, I think the idea of combining AOL’s shrinking dial-up business unit with Earthlink could benefit Time Warner and yield some cost savings that would boost Earthlink’s cash flow.

But the bigger matter is Time Warner’s plan to sell off the rest of AOL’s business. For that, the Journal advocates that discussions are under way to sell the advertising part of AOL to Yahoo (NASDAQ: YHOO) for $10 billion, excluding the dial-up business. That sounds like a high price if the Journal’s estimate is correct that “Time Warner’s current stock price — around $14 — advocates a value [between] $3 billion [and] $4 billion for the ad-sales and content businesses.”

If Time Warner can sell the pieces of AOL for, say, $15 billion, it will be 9% of the $166 billion merger that put AOL and Time Warner together back in 2001. This could be the final chapter in what must surely be one of history’s most pricey mergers.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Competitive strategy, General Motors (GM), Comfort Zone Investing

Ted Allrich is the founder of The On the internet Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he’ll offer advice to investors who are just getting started.

Preferred stocks are much like squirrels. They don’t live on the ground. They don’t fly in the air. They’re always somewhere in between. A preferred is like that. It’s not equity in a company. It’s not debt of a company. It’s always somewhere in between.

That say of being, being in between, sometimes pays handsomely to investors. Other times, it leaves them completely isolated, with nothing to show for their investments. Here’s how preferred stocks work, and why they’re really for institutions, not individuals. Still, individuals may find them irresistible when they see some of the yields these hybrids offer.

Preferred stock usually carries a rate of payment, stated as if it were a bond. For example, General Motors (NYSE: GM) has a 6.25% preferred stock, as well as others. Most preferred stock is issued at $25 a share and pays semi-annually. That payment isn’t guaranteed. But most of the time it is cumulative, meaning that if a payment is missed, it will be made up when the company has the funds. One source of reassurance for investors when it comes to a dividend payment: the preferred stock has priority over the common shares for dividends. So common dividends will be gone before preferred stocks’ dividends are.

And those payments are dividends, not income, as from a bond. That distinction is important because institutions exempt 85% of the dividend for tax purposes. That same tax treatment isn’t granted for individuals. Furthermore most preferred stock is negotiated between the company and institutional investors, setting a payment rate that is acceptable for both sides at the time of pricing.

When companies have more than one preferred stock outstanding, each issue is designated by a Series. The first series is usually Series A, then Series B, etc. Sometimes a new series will have priority over the older ones. Most of the time, they trade on equal terms, meaning that each series will receive its dividend or none will. However, this is an important consideration when it comes to preferred stock: investors need to know if there are preferred shares with a higher ranking than the issue they’re considering. That higher ranking won’t only affect the payment schedule but also the preference in case of liquidation.

Liquidation occurs when a company goes out of business. As assets are sold, the first funds go to pay off creditors. They’ve the highest priority in the money chain. Once creditors are paid, the preferred shareholders receive the remaining distributions. If there is anything left after preferred shareholders receive their payments, then the equity holders get the rest.

Preferred shares come in two forms: straight and convertible. The straight issues receive payments and have no participation in the equity growth of the company. Convertible preferreds have a conversion factor that allows the preferred to be converted into common stock. While convertible owners wait for the conversion price to occur, they’re paid a dividend, usually smaller than a straight preferred dividend.

There are many caveats about preferred stock. The first and foremost is that it’s very, very difficult to find out much about them. They don’t trade very much, except the more massive issues which are listed on an exchange. But getting good details on any preferred issue nearly requires an investor to call the company and get specific information on it. Information such as the Call Price and when it is in effect.

The Call Price is the price at which the company can take the preferred back from investors. Companies do this when interest rates are lower, and the outstanding issue can be refinanced with a lower cost of borrowing. As a preferred holder, this is exactly what investors don’t want. Usually, the call price is at a premium to the issue price after the call price protection period is over. Call price protection is simply the length of time granted before the company can call the preferred from holders. But the premium decreases each year beyond the protection period. Eventually the company has the right to call the preferred at the issue price.

If you’ve followed the thread of this piece, you realize that preferred shareholders don’t have a lot of advantages (at least straight preferred holders). They simply receive a dividend, one that isn’t guaranteed but does have priority over common dividends. They don’t participate in any upside in the stock appreciation. To top it off, they don’t have protection against having their investment taken away (other than the initial period of protection) if rates become more attractive to the company.

That’s why individual investors need to tread carefully into the preferred markets. They are really meant for institutions. They’re extremely difficult to research. They have no voting rights attached. They have several unpleasant features that work against the investor. But they oftentimes have returns that are just too attractive to resist. That GM issue mentioned above currently yields over 12%.

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Filed under: Deals, Competitive strategy, Google (GOOG), Intel (INTC)

Back in the day when internet companies ruled the rolls of the Nasdaq, a number of online and tech companies had venture capital arms. Intel (NASDAQ: INTC) has kept its to this day. The tech collapse of 2000 and 2001 eliminated most of those funds.

Now Google (NASDAQ: GOOG) has decided to revive the tradition of massive tech companies spreading money around. According to The Wall Street Journal, “The group will be lead by David Drummond, Google’s senior vice president of corporate development and chief legal officer.”

The move is a bad idea because it could alienate current and future Google partners. There’s still an abundance of venture capital, so it isn’t as if the search company is filling a hole in the market.

The trouble is that Google could put money into a wireless broadband company only to find down the road it wants to form a partnership with one of that company’s competitors. Should a firm risk doing business with Google when the giant world wide web company owns a piece of its nemesis?

Google may like the idea of supporting startups that are aligned with its goals. But it is cutting off the option of doing business with companies that don’t have Google backing but do have services Google wants.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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Filed under: Competitive strategy, eBay (EBAY)

When eBay, Inc. (NASDAQ: EBAY) recently began focusing on being more of a retail storefront than an on the internet auction site, many saw it as the nail in the coffin of what was once an internet darling. Higher fees, angry sellers and a multitude of changes at eBay in recent years have many writing the company off as progress peaked in 2004 and has been falling ever since. Even former CEO Meg Whitman didn’t waste a chance on going over her self-imposed 10-year stint as the company’s leader, having now left the company as of last year.

To add insult to injury, free classified listings are popping up all over the internet to take over for what made eBay so powerful: connecting buyers and sellers for a transaction outside of the normal retail landscape. This grassroots commerce is what made eBay what it is. Its customers — buyers and sellers — did not want a normal retail transaction; they wanted a flea market and that is what eBay became. Except, that “flea” became an 800-pound gorilla.

Free classified providers like Oodle are winning business all over the internet for niche audiences like those at MySpace.com and Walmart.com, two of Oodle’s bigger customers. Even localized free classified websites like Oklahoma City’s OK4Free.com are getting in on the action. These are free websites to list items on — unlike eBay. And they could be eating eBay’s lunch soon if not already. To some who think eBay is turning into an also-ran in the on the web classified business, the welcome (albeit, smaller) competition is a good thing. Now, if someone could build a directory of all these free classified sites, customer defection from eBay could be quite a bit more rapid.

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Filed under: Earnings reports, Press releases, Competitive strategy, AT and T (T), Comcast Cl’A’ (CMCSA), Verizon Communications (VZ)

Until recently, I believed that shares of Comcast Corp. (NASDAQ: CMCSA) had been unfairly punished by investors who were too skeptical about the company’s prospects. Now, I am changing my tune because I’ve come to realize that the future of the company will be filled with endless pricing battles, which will force the Philadelphia-based cable giant to sacrifice the needs of shareholder to retain customers.

To be fair, Comcast reported a decent quarter Wednesday and was able to hold the line on capital expenditures. Net income was $632 million, or 21 cents a share, versus $588 million, or 19 cents, a year earlier. Sales jumped 11% to $8.55 billion. Results were short of the 23-cent forecast of analysts surveyed by Bloomberg but beat the $8.57 billion sales forecast.

Now, ordinarily missing the profit forecast would cause the shares to tank. Instead, they’re trading up slightly because investors found much about the earnings report to care about. For one thing, Comcast’s free cash flow was $1.17 billion, more than triple from a year earlier. This beat the forecast of veteran cable industry watchers such as Craig Moffett of Sanford C. Bernstein. It also reaffirmed its earnings guidance for the year, countering worries that it would be hurt by cash-strapped customers falling behind in their bills.

Even so, Comcast has plenty of problems. Advertising sales fell 2% to $399 million amid softness in the economy. Average monthly revenue per customer fell in the phone and high-speed Internet businesses, though the overall rate rose slightly. The company also is embroiled in a dispute with the FCC over its policy of slowing some World wide web traffic of people using BitTorrent and other file-sharing sites. It continues to bleed basic cable subscribers, losing 138,000 in the quarter. That rate has increased from 101,000 a year earlier.

Moreover, Comcast will continue to face tough sledding for years to come as customers - including me - will show the company tiny brand loyalty and base decisions on regarding telecom services on price alone. Verizon (NYSE: VZ) added 187,00 new FiOS Internet customers and 176,000 FiOS Television ones, while AT&T (NYSE: T) gained 170,000 clients for its U-Verse Television service. That’s a recipe for great deals for Comcast consumers and lousy ones for shareholders.

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Filed under: Launches, Industry, Competitive strategy, Apple Inc (AAPL), Dell (DELL), Wal-Mart (WMT)

Dell (NASDAQ: DELL) may join the parade of companies that have taken a shot at taking multimedia player market share away from the Apple (NASDAQ: AAPL) iPod. The Personal computer company might have a better chance than most.

According to The Wall Street Journal, “Launching the player — along with an online download service and related software — would be part of a strategy that Dell Chief Executive Michael Dell hopes will move the company into a broader range of consumer markets than it has served before.”

The conventional argument is that Apple has over 150 million iPods sold and that its iTunes franchise might be the largest music download service in the world. By some measures, iTunes has 70% of the on the web digital music market.

Dell has one significant advantage over past challengers: it is already one of the largest online consumer electronics marketers in the world due to its prowess in the PC industry. In terms of revenue, Dell is over twice Apple’s size and has an unusually strong balance sheet. It can afford to make a long-term push into digital music.

Dell will have to create its own music store, but based on the number of participants in the field, that should not be a high hurdle. Dell may also be able to use the large on the internet sites of some of its retail partners like Wal-Mart (NYSE: WMT) to market its new products.

Dell has long odds for picking up business from Apple, but not nearly as long as some other firms that have tried to move into the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Competitive strategy, General Electric (GE), News Corp’B’ (NWS), Media World

Fox Business Network is a flop — for now.

The News Corp. (NYSE: NWS)-owned cable channel is averaging just 8,000 viewers during the day and 20,000 during prime time, well under the 284,000 viewers who watch CNBC during the day and 191,000 who watch the General Electric Co. (NYSE: GE) network during prime time, according to The Washington Post.

Basically, Fox could attract as huge of an audience yelling the news through a megaphone in the middle of New York City’s Time Square. The poor performance is not a shock. CNBC has a large advantage in terms of brand recognition and getting people to change their media habits is difficult even under the best of circumstances. Moreover, during periods of economic uncertainty people want to stick with tried and true sources of information rather than something new.

By the way, I am rooting for Fox to succeed. CNBC could use a kick in the pants. The network is so full of itself sometimes that it’s painful to watch. Fox, though, has yet to knock CNBC off its high horse.

The launch of Fox Business Network came last year just as confidence in the underlying economy began to buckle. Advertisers, particularly those in financial services, are likely going to cut back on their advertising spending. They probably are reducing their spending on CNBC and shifting their resources on the internet. If you want proof of this, check out some of the cheesy spots that run on the network during the daytime.

“The Fox numbers are a modest improvement over the ratings that leaked late last fall, which had the network averaging 6,000 daytime viewers and 15,000 at night,” the paper stated.

CNBC management, though, should not get too cocky. News Corp honcho Rupert Murdoch is a patient man. He is willing to spend millions of dollars and wait years to get a return on his investment in Fox Business Network. The channel, like the New York Post newspaper, exists for Murdoch to prove that he can stick it to the mainstream media.

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Filed under: Major movement, Earnings reports, Analyst reports, Analyst upgrades and downgrades, Forecasts, Consumer experience, Competitive strategy, Amgen Inc (AMGN)

Amgen Inc. (NASDAQ: AMGN) is having a really good day this day. Its shares closed up 12.17% to $60.48 (on a day markets were down in the neighborhood of 2%) after it stated late Friday a study on denosumab, a bone-strengthening drug, met its desired results and showed statistically significant improvements over a placebo.

Amgen shares rocketed 17% at some point as denosumab has the potential to become a blockbuster drug, especially with women with postmenopausal osteoporosis, a market that could represent $8 billion and $10 billion by 2010. The strong study results also improve the drug’s chances with FDA approval. Analysts just loved the results of the study (although the details won’t be out until September), upgrading the shares and their target prices.

To top it off, Amgen reported second-quarter financial results after the close, beating analyst estimates. The biotechnology giant recorded net income of $941 million, or 87 cents a share, lower than last year’s period, but excluding acquisition-related and stock-compensation costs, earnings rose to $1.14 a share from $1.13. Revenue rose 1% to $3.76 billion. Analysts forecast profit of $1.02 per share on revenue of $3.58 billion, according to a survey by Thomson Financial. Looking ahead, Amgen raised both its earnings and revenue guidance higher than what Wall Street expected. Analysts, in general, liked these results too.

Not all has been rosy with Amgen lately, as the sales of Aranesp, its anemia treatment and what is considered Amgen’s most important product, show. Aranesp sales declined 13% on safety concerns. Sales of Epogen, the older treatment, also declined somewhat. Still the sales of both beat estimates.

Amgen’s stock has already been punished for the Aranesp concerns throughout 2007, and has been recovering since, today hitting a 52-week high. Amgen showed better-than-expected sales across all products, even its under-scrutiny anemia drugs; it showed it’s not resting and that it can and will recover. Combine that with the strong clinical trial results for denosumab, and the potential is great.

Amgen shares are up about 2.8% in after-hours trading to $62.15.

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