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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Wednesday, April 22, 2009
Summary
Morgan Stanley did its part to revive concerns
regarding the banking sector on Wednesday after it posted its second
straight quarterly loss and slashed its dividend. The result was that
both the Dow Jones industrial average and the S&P 500 closed out the day
in negative territory. Morgan Stanley slid 9 percent to $22.44 after it
posted its third loss in six quarters on real estate losses and a charge
wiped out fees and trading profits. Banks have been a key component in
leading the six-week rally that drove the broad S&P 500 up nearly 25
percent from March's bear market lows. The Nasdaq, however, managed to eke out a gain after
AT&T reported earnings that managed to exceed expectations. At the same
time an analyst wrote that AT&T’s iPhone partnership with Apple is
beginning to add to AT&T’s profits rather than hurt them, with the
result that the entire tech sector benefitted. AT&T ended the day up 1.8
percent to close at $25.74 The market, which had been up much of the day as Wall
Street began to take to heart comments suggesting that corporate profits
were stabilizing, has been sensitive to the outlook for banks ahead of
the government's "stress test" results expected in the days ahead.
Before the sell-off in the last hour, the stock indexes had been driven
higher by brighter outlooks from companies reporting quarterly results. JPMorgan recommended that Caterpillar should make up
a larger part of investors' portfolios, and Caterpillar's stock rose 3.4
percent to $32.45, making it the Dow's biggest gainer of the day. After the closing bell, Apple posted
stronger-than-expected quarterly results and gave a typically
conservative outlook for the current quarter, sending its shares up 2.4
percent to $124.40. Shares of EBay rose 6.2 percent to $15.70 in
extended-hours trading after the online auctioneer reported lower
quarterly earnings, sales and profit margins.
Nonetheless, the company said it
was still able to exceed Street expectations. Qualcomm said that it was rescheduling its quarterly
results due to advanced settlement discussions with Broadcom over legal
disputes, but it also said second-quarter revenue and operating income
met or exceeded prior guidance. Qualcomm's stock rose 7.4 percent to
$24.28 in extended-hours trading. During the regular session, Gilead Sciences rose 5.7
percent to $46.22 and contributed the most to the Nasdaq's gain after
its quarterly earnings number exceeded estimates on increased sales of
its drugs to treat the virus that causes Aids. Semiconductor stocks were a bright spot following
strong quarterly results from SanDisk. Boeing rose 1.8 percent to $37.30 after the aircraft
manufacturer lowered its full-year outlook, but remained ahead of
expectations. GM Plans To
Default On Bond Payment General Motors is unlikely to make a $1 billion debt
payment due June 1 because it expects to be in the process of
restructuring its debt through a voluntary exchange or bankruptcy court
by that point, a spokeswoman for the automaker said on Wednesday. GM has been given until June 1 to win sweeping
concessions from creditors, including bondholders and the United Auto
Workers union, under the terms of its U.S. government supervised
restructuring. Spokeswoman Renee Rashid-Merem said GM was working to
offer a bond exchange that would reduce the $28 billion in debt owed to
bondholders. Such an exchange could still be in progress as of June 1,
precluding the bond payment, she said. "Should we be required to finish our restructuring
within the court process, the June 1 bond payment would be unlikely as
well," Rashid-Merem was quoted as saying. GM Chief Financial Officer Ray Young earlier was
quoted as telling the Wall Street Journal that the company was not
planning on making its June 1 bond payment. Qualcomm May
Finally Settle With Broadcom Qualcomm said on Wednesday that it was in advanced
settlement talks with Broadcom over their legal disputes and that its
quarterly results would meet or beat estimates, sending both companies
shares up. Qualcomm also rescheduled its quarterly earnings
announcement to April 27 at the last minute on Wednesday saying that if
the companies did reach a global settlement it would impact results for
its second fiscal quarter ended in March. The companies have been involved in legal battles,
spanning several years and three continents, related to allegations of
technology patent infringement and anti-competitive behavior. While
Broadcom has won many of the recent court battles, it ahs been expected
that the two companies would come to some kind of an agreement. Shares
of Qualcomm rose 4 percent after the news and Broadcom shares rose 7
percent. Qualcomm, which would not comment on the talks, said
that there was no assurance it would be able to reach a final agreement
with Broadcom over their disputes. After Broadcom's earnings report on Tuesday, its
Chief Executive Scott McGregor indicated that he was still interested in
reaching an agreement with Qualcomm but that there was no news
suggesting they were any closer to a deal. "I've said all along that our hope is to eventually
find a way to settle with Qualcomm. Someday I hope that happens, but I
certainly don't have any news that would suggest we're closer," McGregor
said. Broadcom had said on Tuesday that it was filing a
lawsuit against Emulex, a company for which it made an unsolicited
acquisition bid. Legal battles between Qualcomm and Broadcom include
cases brought before US trade regulators, European regulators and Korean
regulators as well as the California courts. Last year Qualcomm settled a long-standing dispute
with Nokia after they reached an agreement about patent royalties.
Although Qualcomm has suffered along with its rivals from weak chip
demand because of the recession, the company had been widely expected to
meet quarterly targets. On average, the Street had been expecting Qualcomm to
report a second-quarter earnings of 41 cents per share on revenue of
$2.35 billion. AT&T Benefits
From Apple AT&T posted a smaller-than-expected drop in quarterly
earnings on improved margins for its wireless service, helped by the
iPhone, and strong growth for its video and high-speed Internet service.
Subsidies for Apple's iPhone was a drag on earnings in recent quarters,
but the partnership is now starting to help rather than hurt earnings as
users of the touch-screen phone purchase increased amounts of data
services. AT&T's first-quarter profit fell to $3.13 billion, or
53 cents per share, from $3.46 billion, or 57 cents per share, a year
earlier. AT&T reported a wireless profit margin of 40.9 percent.
According to the company, 1.6 million Apple iPhone customers had
activated services on the AT&T network during the quarter, more than 40
percent of whom were new to the telephone operator. AT&T added 1.2 million net cell phone customers in
the quarter. However, it still trails Verizon Wireless and Vodafone in
mobile phone customers. There is also some concern that AT&T, the
exclusive U.S. provider for the iPhone, depends too heavily on one
device. It is estimated that three-quarters of AT&T’s net new monthly
bill-paying customers are iPhone users. AT&T has lost 155,000 prepaid customers who pay for
calls in advance in the quarter, likely the result of pressure from a
new $50 per month plan for unlimited services from Sprint Nextel. Chief
Financial Officer Richard Lindner told analysts on a conference call
that AT&T was testing new options for prepaid services including a $3 a
day option for unlimited calls. AT&T's revenue fell 0.6 percent to $30.57 billion, a
number that was below forecasts of $31.06 billion. Lindner told analysts
that wired voice services were putting pressure on revenue because
business clients are paring back costs and some consumers continue to
disconnect home phones. "As we go forward in the year we will continue to see
some pressure as we see reductions primarily in wire line voice
revenues, but we're going to stay focused on costs," he said. Lindner said he saw no significant change in his view
of the economy from the fourth quarter to the first quarter. During the
recession, AT&T will continue to focus on growth areas, both in the
United States and abroad, he noted. Aside from wireless data services AT&T is also
pitting its U-verse video service against cable TV providers like
Comcast and DirecTV. It added 284,000 U-verse subscribers in the first
quarter, giving it a total subscriber base of 1.3 million. U-verse
additions were ahead of three analysts' estimates that ranged from
240,000 to 281,500, and above the service's fourth-quarter additions of
264,000 subscribers. AT&T added 359,000 broadband Internet subscribers in
the first quarter.
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MarketView for April 22
MarketView for Wednesday, April 22