News about <![CDATA[Spending;]]> News about en-us <![CDATA[30 Stupid Things The Government Is Spending Money On]]> If you want to get paid for doing something stupid, just turn to the U.S. government.  The U.S. government is paying researchers to play video games, it is paying researchers to study the effects of cocaine on Japanese quail and it has spent millions of dollars to train Chinese prostitutes to drink responsibly.  The amount [...]

]]> <![CDATA[POLL: Where Does Your Money Go?]]> <![CDATA[Debt, Debt, Debt – 15 Facts About U.S. Government Finances That Are Almost Too Crazy To Believe]]> If your family started spending nearly twice as much as it brought in every single year, how long do you think it would be before your family was completely and totally broke?  Well, that is essentially what the federal government is doing.  The U.S. government is so deep in debt at this point that it [...]

]]> <![CDATA[Accenture Wins Electrolux Deal – Analyst Blog]]> Accenture Plc (ACN) recently entered into a global multi-year outsourcing agreement with Electrolux IT Solutions AB.

The tech giant will be shouldering the responsibility of developing and managing a designated portion of Electrolux’s enterprise applications, which consist of JD Edwards, Congos and Lotus Notes. The whole service will be delivered through a global delivery model, and the company expects this to catalyze the information technology restructuring process, resulting in a reduction of cost and enhancing efficiency.

This is the continuation of a series of contract wins that the company has witnessed in recent times. A few days back, Accenture won a five-year application outsourcing contract from Nordea, a leading banking and financial services group. The company did not disclose the monetary value of the contract, which is expected to generate recurring revenue for the company for the next several years.

This apart, in March, Accenture was awarded a $200 million contract by Starwood Hotels & Resorts Worldwide Inc. (HOT). Under the contract, which will span over a number of years, Accenture will provide a range of IT services, including application outsourcing and infrastructure outsourcing. We expect the revival in business activity to help the company improve numbers in the upcoming quarters.

This idea is reinforced by the optimistic IT spending forecast made by Gartner Inc. (IT). The technology research firm recently revealed it’s IT spending forecast for 2010. Gartner is bullish on the revival in sentiment across the globe and expects spending on technology products and services to reach $3.4 trillion, registering a growth rate of 5.3% compared to the year-ago quarter.

After the year-long recession, most of the tech companies are witnessing a revival in business volumes and investor sentiment, and Accenture is no exception. So 2010 is expected to be a sunrise year for this sector, but it will definitely take some time for performance to reach 2008 levels.
Read the full analyst report on "ACN"
Read the full analyst report on "HOT"
Read the full analyst report on "IT"
Zacks Investment Research
]]> <![CDATA[Top 5 Graphs: US Sees Positive Signs, But How Real Are They?]]> <![CDATA[Value Added Tax Will Mean More Government]]> Value Added Tax Will Mean More Government originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." Check out our new special report Invest in Agriculture

]]> <![CDATA[Cooper Acquires Eka Systems – Analyst Blog]]> Normal 0 false false false MicrosoftInternetExplorer4 st1\:*{behavior:url(#ieooui) } /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;}


Cooper Industries plc (CBE) announced the takeover of Germantown , MD -based Eka Systems, Inc., a provider of secure, reliable and adaptive RF wireless networking technologies for smart grid communication applications. Financial details and other terms of the transaction are not available in public domain.
 
Eka Systems, through its EkaNetTM Smart Network technology, provides utilities with an open-standards based wireless Advanced Metering Infrastructure (AMI) having capabilities of automated meter reading, power outage detection, enhanced customer billing options and tracking and analyzing usage data on a real-time basis. Eka Systems’ product offering includes radios, wireless repeaters, meter nodes, gateways and data collection tools and operates over the widely used 900MHz frequency for domestic markets and the 2.4GHz frequency for international markets.

 


Eka Systems will be integrated into the EAS group, the smart grid platform within Cooper’s Power Systems division. This is the fourth acquisition the company has made in its Energy Automation Solutions (EAS) business.


Cooper has several opportunities for additional growth in the current year, including stimulus spending, restructuring benefits and accretive capital allocation in the form of share repurchases or mergers and acquisitions.  If Congress decides to retroactively reverse tax inversion legislation, CBE’s tax rate would be higher than expected, which will affect earnings.  While earnings risk still remains, we believe that the previous year marked the bottom for the earnings cycle.
 
CBE will likely realize an outsized portion of its growth from developing markets in China, the Middle East and Mexico . Industrial, utility and energy markets are expected to rapidly expand, and industrializing economies will help offset some of the declines in already developed regions. This will eventually help support higher growth rates for the current year.
 
Pressures in commercial markets will continue to be a drag on earnings throughout the current year; however, numerous items such as lighting retrofit, government spending, energy efficiency projects and stimulus will help buffer underlying pressure. Residential markets appear to have bottomed out and should experience modest growth. The company is well positioned to capitalize on the potential for renewed spending on transmission and distribution products as utilities begin to open up their spending again.
 
Cooper Industries, Ltd. is a global manufacturer, with 2009 revenues of $5.1 billion, approximately 89% of which were from electrical products. Cooper has manufacturing facilities in 23 countries and currently employs approximately 28,200 people.
 
We currently have a Neutral recommendation on CBE.
Read the full analyst report on "CBE"
Zacks Investment Research
]]> <![CDATA[Krugman Strikes Again]]> Krugman Strikes Again originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." Check out our new special report Invest in Agriculture

]]> <![CDATA[Thursday Tidbits]]> what the hell were we thinking.

Until then the stock market is apparently going to go up every single day, LOL.

IndexIQ has now joined the pantheon of very innovative ETF providers along with EG Shares, GlobalX and Market Vectors. There is plenty of utility in funds from the big boys too but the smaller companies don't have as deep pockets, are taking a lot of entrepreneurial risk and bringing some great products.

The latest fund from IndexIQ is the South Korea Small Cap ETF (SKOR). I have to say I've never been a fan of South Korea as an investment destination, there are consumer debt problems (probably not as bad as in the US) and companies like Samsung and LG rely in large part on discretionary spending of the US consumer. However it is possible that similar to Japan the story with small caps could be different than the large caps (in Japan DJP policy is supposed to favor domestic companies that are mostly small cap over the big exporters), this is something to learn about. SKOR is 19% financials which could be an issue.

Coming next from IndexIQ is the Taiwan Small Cap ETF (TWON). TWON is 30%, tech which is a lot less than the iShares Taiwan ETF (EWT), 27% industrials and 18% materials. I think the fund is due to come April 28 but whether that is correct or not it is not out yet.

According to IndexUniverse IndexIQ has also filed for small cap ETFs for Thailand, Malaysia, Hong Kong, Singapore and Indonesia. Realistically no one is going to own all these funds but it would be very reasonable to learn a country and draw a conclusion about preferring small over large in one or two of them.

IndexIQ has also filed for a small cap global agribusiness and several other small cap resource industry funds. As I repeat often, more innovation like this allows non-stock pickers to capture very narrow effects which I think is a good thing.

Speaking of sectors iShares has a page on its website titled Explore Sectors. iShares has "over 50" sectors funds. This sort of study is time well spent.
]]> <![CDATA[Top 5 Graphs: China Grows But Faces Challenges]]> <![CDATA[Semiconductor Outlook and Review – Apr. 2010 – Industry Outlook]]>
As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.

The industry has come a long way since the last downturn, when most of the players streamlined operations and transferred more routine production to low-cost locations. This led to the development of the Asian market, where most memory production and backend operations have shifted.

Lesson Learned in the Industry

Past experience has been put to good use this time around. When the recession hit in late 2008, semiconductor manufacturers cut production drastically instead of running the fabs at full capacity to maintain margins and hoping that the recession would blow over. As a result, there was no excess inventory that had to be burned off when demand started returning. There was instead a shortage in some cases, which led to stronger pricing.

As a result, the industry performed much better in 2009 than was originally anticipated. According to the Semiconductor Industry Association (SIA), worldwide sales of semiconductors were $226.3 billion in 2009, significantly better than the $219.7 billion forecasted for the year. This was a 9% decline from 2008.

The SIA estimates that around 52% of revenue came from the Asia/Pacific region (excluding Japan), followed by Japan and the Americas with a 17% share each, and the balance from Europe. The sales by geography were similar to 2008, indicating that the recession did not result in any major change in market dynamics.

The SIA attributed the better-than-expected performance to much superior inventory management than in the prior downturn, new product launches and strength in the consumer and PC markets toward the end of the year. These two end-markets together consume around 60% of total semiconductors sold.

Expanding Reach in Computing and Consumer Markets

The computing market is characterized by commoditization and corresponding pricing pressures that have made it a lower-margin business. As a result, a number of chip companies have shifted focus to other areas.

However, while it is true that the market is relatively mature and recession-impacted, there are some encouraging signs for 2010. The first is a revival in enterprise spending, which is being driven by new product cycles and some pent-up demand. The second is the server refresh cycle, growth of cloud computing and virtualization, and changes in data center operations. The third is the strength in mobile computing platforms (although some of the latest models of netbooks, tablets and MIDs are treated as consumer items).

The consumer electronics market is growing in importance, especially gadgets such as LCD TVs, Blu-ray players, smartphones and netbooks. The problem with this segment being a major driver of revenue is its inherently low margins. Competition is fierce and aggressive pricing is the rule of the day. Since semiconductors made for consumer goods are in the nature of components, there is ever-increasing pressure on their prices that correspondingly squeeze margins.

According to the Consumer Electronics Association (CEA), the 7.8% revenue decline in consumer electronic goods for 2009 was entirely on account of weaker pricing, as unit volumes of consumer goods increased around 10%.

However, the CEA is optimistic about slight growth in 2010 to $165 billion. The primary driver will be smartphones, which are expected to generate $17 billion in shipment revenue and 52 million in units. Notebooks will be the second largest driver, with shipment revenue of $14 billion and units of 30 million.

Blu-ray player units, which increased 155% in 2009, are expected to grow to more than 7 million units and generate $1.4 billion in shipment revenue. And finally TVs, which grew significantly in 2009, are expected to grow again in 2010 to 37 million units, driven by high definition, FPD and other advanced technologies. However, shipment revenue is expected to decline to $22 billion due to weaker pricing.

Other Markets

Communications infrastructure spending is currently being driven by China and India and the SIA expects infrastructure spending in these geographies to remain the major driver of semiconductor sales into the market. The domestic market will be driven by increasing data volumes. Medical Devices is an upcoming area and some chipmakers have started developing products targeted at this market as well.

The recovery in the automobile market is slow, with several of the large companies facing temporary issues and growing inventories. The longer-term prospects remain bright, since design activity is strengthening. Moreover, semiconductor manufacturers serving this market have a few advantages. The most important is the growing electronic content per vehicle, driven by the need for fuel efficiency, entertainment and automated navigation.

As a result, semiconductors serving this market should grow stronger than the industry over the next few years. The fact that an automobile model has a significantly longer life than a consumer device model is an added bonus, as once a semiconductor has been designed in, it continues to generate revenue for a number of years.

The aerospace and defense markets are dependent on government spending and policy making and current trends indicate that the strength in defense spending will continue. However, current spending continues to be targeted at terrorist activity, so spending on intelligence systems and basic weaponry is stronger.

Companies offering sophisticated weapons are not doing as well. Commercial aerospace remains affected by tight lending conditions, although the situation has started improving. So semiconductor manufacturers serving these markets are seeing mixed results, depending on the customers served.

Given the end-markets driving the current strength in the industry, we believe that manufacturers of DRAM and flash (both NAND and NOR) will continue to see strong demand. The transition from DDR2 to DDR3 will add to growth in this segment.

Ever Smaller & More Powerful

The demand for greater functionality in smaller and more power efficient gadgets is leading to greater integration within the semiconductor device. This is leading to increased demand for the system-on-a-chip (SoC), which is a single device incorporating a microprocessor, digital signal processor or graphics core, as well as memory and logic.

Within SoCs, both application-specific integrated circuits (ASICs) and application specific standard products are expected to do well. ASICs are usually customized for a single buyer, while ASSPs may have multiple buyers.

Major Players

The major players in the industry may be categorized into chipmakers (OEMs -- whether fabless or otherwise), equipment and material suppliers, and foundries.

According to Gartner Dataquest and iSuppli Corp, Intel Corp (INTC), Samsung and Toshiba Corp were the top three semiconductor suppliers in 2009. Texas Instruments (TXN) remained in the fourth position, as the company continued to phase off its wireless baseband business. STMicroelectronics (STM) was in fifth position, followed by Qualcomm (QCOM), which rose from the eighth position in 2008. Hynix also gained, moving from the ninth position in 2008 to the seventh position in 2009. Japan’s Renesas slipped a couple of places to number eight. Applied Micro Devices (AMD) re-entered the top ten at number nine, followed by Sony (SNE), which slipped a few places to end at number ten.

VLSI Research estimates that semiconductor equipment sales by the top ten suppliers declined 38.2% in 2009, following a 26% decline in 2008. Therefore, the segment has shrunk by over 50% over the past two years. North American suppliers declined 36.9%, Japanese suppliers declined 35.6%, while European suppliers declined 44.5%.

However, despite the difficulties related to the recession and the new trend of equipping fabs with used materials, Applied Materials (AMAT) easily maintained its number one position in 2009. Tokyo Electron Ltd moved from the third to the second position, exchanging places with ASML Holdings N.V. (ASML). Nikon Corporation was at number four, followed by KLA-Tencor (KLAC) and Lam Research Corp (LRCX). The other players in the top ten included Dainippon, ASM International N.V. (ASMI), Novellus Systems, Inc. (NVLS) and Teradyne, Inc. (TER), in that order.

The Foundry segment has undergone a major change in 2009, according to recently-announced research from IC Insights. Although Taiwan Semiconductor Manufacturing Company (TSM) remains the leader by far, followed by Taiwan-based United Microelectronics Corp (UMC) and Singapore-based Chartered Semiconductor Manufacturing (CHRT), the fourth position has gone to GlobalFoundries, which commenced business in March last year. Semiconductor Manufacturing International Corp (SMI) of China was pushed to the fifth position.

OPPORTUNITIES

Manufacturing digital ICs is expensive, as it requires state-of-the-art technology and processes. On the other hand, digital products are cheaper, so cost recovery is more difficult. This has led to specialization in the industry and a greater contribution from Asian manufacturers. However, a large portion of the intellectual property remains with the domestic companies.

We believe equipment suppliers will be big beneficiaries of the ongoing recovery and we are bullish on the sector. All the companies here had been severely impacted by the recession, as foundries, memory and logic makers decided to cut capex. However, both Gartner and IC Insights have projected a 45-55% increase in semiconductor capex spending in 2010.

We are, however likely to see increased use of old and refurbished equipment. Among the equipment suppliers, we particularly like Applied Materials (AMAT), not just because it is one of the largest equipment makers, but also because of its position in the solar device equipment market, as well as its existing refurbished tools business. We are also optimistic about KLA-Tencor (KLAC) and Novellus Systems (NVLS) and believe they will do well both in terms of revenue and profit growth in 2010.

The analog and mixed-signal market is dependent on innovation. Consequently, these products generate higher margins than digital products. They are also more customized and have longer life cycles. These advantages are not lost on U.S. players, so the number of companies entering the market is on the rise.

Our favorites in this area include Texas Instruments (TXN), Linear Technology (LLTC), Analog Devices (ADI), Semtech Corp (SMTC), Intersil Corp (ISIL) and Maxim Integrated Products (MXIM), which are seeing very strong demand. Although some of these companies could see a faster recovery than others, they are, for the most part, highly diversified, high-margin businesses. Hence, the sector should do very well in 2010.

Microprocessors are a big market dominated by a few players. We are positive about Intel Corp. (INTC) because of its market position, superior innovation, effective strategies and strong cash generating ability. We remain a little concerned about the legal tussles with NVIDIA Corp. (NVDA), which could come to a head in September.

Advanced Micro Devices (AMD), on the other hand, is low on cash and market position, although the company’s new product roadmap, aggressive pricing, recent market share gains, the foundry spin-off and promise of positive cash flow in 2010 indicate upside for the stock.

It is hard to ignore ARM Holdings (ARMH) in this space, whose power-efficient low-performance chips dominate the growing cell phone market, or NVIDIA, which continues to make waves in graphics processing chips.

WEAKNESSES

The Asian foundries will operate at full capacity this year, but order fulfillment could still be a challenge due to low investment in capex during the recessionary environment. Consequently, we believe that foundries, such as Taiwan Semiconductor (TSM), United Microelectronics Corp (UMC) and Semiconductor Manufacturing Int'l (SMI), will see limited upside this year despite very strong demand. Similar will be the position at memory manufacturers, such as Micron Technology (MU) and Hynix.

We remain extremely positive on the semiconductor sector in 2010 and do not really see any great weaknesses. However, we would caution investors about companies with relatively weak financials, such as Exar Corp (EXAR) and FormFactor (FORM). For instance, FORM continues to burn cash despite strong demand for its specialized probe cards. It also has significant customer and market concentration that increase execution risks.

SIA Forecast 2010

The Semiconductor Industry Association expects semiconductor sales to increase 10.2% in 2010 and 8.4% in 2011. January and February sales data as published by the SIA shows very strong double-digit growth from the corresponding year-ago periods.Zacks Investment Research
]]> <![CDATA[US Deficit Spending: A Tough Pill to Swallow]]> US Deficit Spending: A Tough Pill to Swallow originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." Check out our new special report Invest in Agriculture

]]> <![CDATA[Zacks Analyst Blog Highlights: Gartner Inc., Hewlett-Packard Company, Dell Inc., Salesforce.com and McAfee Inc. – Press Releases]]> For Immediate Release

Chicago, IL – April 14, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Gartner Inc. (IT), Hewlett-Packard Company (HPQ), Dell Inc. (DELL), Salesforce.com (CRM) and McAfee Inc. (MFE).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

Gartner Positive on IT Spending

Renowned technology research firm Gartner Inc. (IT) recently revealed its IT spending forecast for 2010. The firm is bullish on the revival in sentiment across the globe, and expects that spending on technology products and services will reach $3.4 trillion, registering a growth rate of 5.3% compared to the year-ago quarter.

Gartner has projected the highest growth rate in IT spending among the research firms that have come out with projections recently. Gartner’s method includes telecom spending projections, which the firm expects to be around $2.0 trillion in 2010. Forrester Research has also made a projection: tech spending will grow at the rate of 7.7% to reach at $1.6 trillion in 2010.

We believe this will have a significant positive impact on revenue of the frontline tech companies. The companies have already started experiencing the positive impact of such revival, with the largest computer manufacturer Hewlett-Packard Company (HPQ) delivering strong first quarter 2010 numbers.

H-P reported first quarter EPS of $1.10, exceeding the Zacks Consensus Estimate by 4 cents. Revenue increased substantially, growing 8.0% for the prior year, to reach a level of $31.2 billion. The company witnessed revenue growth and increase in business activity across all its geographic and business segments, with highest growth rate in the Asia-Pacific region.

Based on a revival in macroeconomic fundamentals, H-P has also increased its fiscal year revenue guidance, expecting revenue of approximately $121.5 billion to $122.5 billion in 2010, up from its previous estimate of $118.0 billion to $119.0 billion.

Another tech major Dell Inc. (DELL) also witnessed the positive impact of this improved tech spending, which is reflected in its last quarterly earnings announcement. Revenue for the quarter improved 11.0% year over year to reach $14.9 billion, while improving 16.0% sequentially.

The company’s fourth quarter revenue growth can be attributed to revenue improvement in all business segments, especially due to growth in the commercial business, fueled by growth in Enterprise Technology and also due to an increase in product shipments, as the company reported its first consolidated results after the Perot acquisition.

Gartner is of the opinion that spending by large businesses will resume growth in 2010, although they are unlikely to reach 2008 levels in the near future.

Apart from the tech giants, other tech companies are also expected to benefit from the upsurge in IT spending. These include enterprise cloud computing company Salesforce.com (CRM), as well as other Internet security companies like McAfee Inc. (MFE).


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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Zacks Investment Research
]]> <![CDATA[Gartner Optimistic on IT Spending – Analyst Blog]]> Gartner Inc. (IT) recently revealed its IT spending forecast for 2010. The firm is bullish on the revival in sentiment across the globe, and expects that spending on technology products and services will reach $3.4 trillion, registering a growth rate of 5.3% compared to the year-ago quarter.

Gartner has projected the highest growth rate in IT spending among the research firms that have come out with projections recently. Gartner’s method includes telecom spending projections, which the firm expects to be around $2.0 trillion in 2010. Forrester Research has also made a projection: tech spending will grow at the rate of 7.7% to reach at $1.6 trillion in 2010.

We believe this will have a significant positive impact on revenue of the frontline tech companies. The companies have already started experiencing the positive impact of such revival, with the largest computer manufacturer Hewlett-Packard Company (HPQ) delivering strong first quarter 2010 numbers.

H-P reported first quarter EPS of $1.10, exceeding the Zacks Consensus Estimate by 4 cents. Revenue increased substantially, growing 8.0% for the prior year, to reach a level of $31.2 billion. The company witnessed revenue growth and increase in business activity across all its geographic and business segments, with highest growth rate in the Asia-Pacific region.

Based on a revival in macroeconomic fundamentals, H-P has also increased its fiscal year revenue guidance, expecting revenue of approximately $121.5 billion to $122.5 billion in 2010, up from its previous estimate of $118.0 billion to $119.0 billion.

Another tech major Dell Inc. (DELL) also witnessed the positive impact of this improved tech spending, which is reflected in its last quarterly earnings announcement. Revenue for the quarter improved 11.0% year over year to reach $14.9 billion, while improving 16.0% sequentially.

The company’s fourth quarter revenue growth can be attributed to revenue improvement in all business segments, especially due to growth in the commercial business, fueled by growth in Enterprise Technology and also due to an increase in product shipments, as the company reported its first consolidated results after the Perot acquisition.

Gartner is of the opinion that spending by large businesses will resume growth in 2010, although they are unlikely to reach 2008 levels in the near future.

Apart from the tech giants, other tech companies are also expected to benefit from the upsurge in IT spending. These include enterprise cloud computing company Salesforce.com (CRM), as well as other Internet security companies like McAfee Inc (MFE) and Symantec Corporation (SYMC).
Read the full analyst report on "IT"
Read the full analyst report on "HPQ"
Read the full analyst report on "DELL"
Read the full analyst report on "CRM"
Read the full analyst report on "MFE"
Read the full analyst report on "SYMC"
Zacks Investment Research
]]> <![CDATA[Zacks Analyst Blog Highlights: Bank of America, Goldman Sachs, NetApp Inc., International Business Machines and EMC Corporation – Press Releases]]> For Immediate Release

Chicago, IL – April 13, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (BAC), Goldman Sachs (GS), NetApp Inc. (NTAP), International Business Machines (IBM) and EMC Corporation (EMC).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Monday’s Analyst Blog:

Federal Budget Deficit Soars

T he improvement in the year-to-date spending comes even in the face of a 19.8% increase in the interest on the national debt to $201.929 billion. Off-budget spending (Social Security benefits) rose by 8.54% to $269.10 billion. Thus, Social Security is still running a surplus so far this year, but it is much smaller -- only $36.074 billion rather than the $71.379 billion surplus in the first half of 2009.

This report is very welcome news, but it probably will not last. Much of the year-to-date improvement has come from the big banks like Bank of America (BAC) and Goldman Sachs (GS) paying back the TARP, and that is not going to last forever. However, much of the spending is fixed, most notably the interest on the debt.

Federal salaries make up a very small portion of the overall expenditures, especially if you are only looking at civilian salaries. Declining tax revenues have played a bigger role in the expansion of the deficit over the past few years than has increased spending. Some of that was deliberate -- for example, about one-third of the ARRA (the Stimulus Bill) was in the form of tax cuts.

However, most of it was simply due to lower overall economic activity. People out of work are not paying as much in income taxes, and small businesses earning less and thus having less income to tax. This would not be a great time to increase taxes or cut spending, since either would impose a drag on the economy when it is still very weak. However, we do need a plan to bring down the deficit sharply in the future, and to do so will require both tax increases and spending cuts.

NetApp Grabs Bycast

Leading storage and data management solutions company NetApp Inc. (NTAP), recently disclosed that it will be acquiring a privately held object-based storage software developer Bycast Inc. Bycast was a rival company of NetApp, which will be acquired in an all-cash transaction, although the amount involved in the deal was not disclosed.

We believe that this deal will be beneficial for NetApp, as the Bycast acquisition is expected to augment NetApp's leadership position by enhancing its product portfolio with an object-based storage software offering. The company believes that this acquisition, will enable it to expand its customer base to new markets including digital media, cloud service providers, healthcare and Web 2.0.

The Object-based storage software incorporates a new method of storage and access of data by using object names and also helps to retrieve rich metadata that provides a detailed description of the content, which also facilitates the process of storing large objects, at the same time improving the search speed.

The company is already facing stiff competition from technical behemoths like International Business Machines (IBM) and EMC Corporation (EMC) in the data storage and management software space and we believe this acquisition will give it a much-needed competitive edge to create its own space in this domain.

NetApp has rolled out encouraging third quarter 2010 numbers, with EPS of 40 cents, exceeding the Consensus estimate of 38 cents per share. This apart, revenue grew substantially during the third quarter to reach $1.01 billion, improving by a staggering 35.5% compared to the year-ago period, attributable to the revival in all business segments after facing a year-long recession.


Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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]]> <![CDATA[Federal Budget Deficit Falls – Analyst Blog]]>
We are now halfway through the fiscal year. Fiscal year to date, the budget deficit is showing an improvement over a year ago, totaling $716,990 billion, an 8.24% reduction from the $781,391 billion worth of red ink in the first half of fiscal 2009. That is a step in the right direction, but the deficit is still far too high for the long term. Given the depth of the recession, it is a necessary evil right now.

For the month, we saw an increase in revenues of 18.95% year over year to $158.358 billion. Most of the improvement from a year ago came from much lower outlays. At $218.745 billion, they were 31.8% lower than a year ago. Most of the reduction in outlays was due to less money being spent on the Wall Street Rescue (TARP) than a year ago. Fiscal year to date, tax collections are down 3.62% to $953.896 billion, while spending is down 5.66% to $1,670.885 billion.

The Treasury "budget" includes things that are "on-budget" and "off-budget," with the latter being mostly Social Security. For years, a surplus in Social Security has helped to hide the true size of the operating budget deficits the country is running. This is still true today, although much less so than in years gone by. The on-budget recepts are the ones that are on everyone's mind this week with tax day approaching. Those are down 3.23% so far this year to $648.716 billion.

The off-budget receipts, which are mostly the Social Security taxes that are taken out of your paycheck (and matched by your employer, so the real rate is double what shows on your pay stub) are down 4.43% to $305.179 billion. If you are unemployed, neither you nor your employer will be paying payroll taxes.

On the spending side, on budget outlays fell by 7.97% to $1,401.708 billion. Those are the expenses that one normally associates with governement spending, including the military, the salaries of federal employees from Obama on down, interest on the Federal debt, and most of the transfer payments with the exception of Social Security and Medicare.

The improvement in the year-to-date spending comes even in the face of a 19.8% increase in the interest on the national debt to $201.929 billion. Off-budget spending (Social Security benefits) rose by 8.54% to $269.10 billion. Thus, Social Security is still running a surplus so far this year, but it is much smaller -- only $36.074 billion rather than the $71.379 billion surplus in the first half of 2009.

This report is very welcome news, but it probably will not last. Much of the year-to-date improvement has come from the big banks like Bank of America (BAC) and Goldman Sachs (GS) paying back the TARP, and that is not going to last forever. However, much of the spending is fixed, most notably the interest on the debt.

Federal salaries make up a very small portion of the overall expenditures, especially if you are only looking at civilian salaries. Declining tax revenues have played a bigger role in the expansion of the deficit over the past few years than has increased spending. Some of that was deliberate --  for example, about one-third of the ARRA (the Stimulus Bill) was in the form of tax cuts.

However, most of it was simply due to lower overall economic activity. People out of work are not paying as much in income taxes, and small businesses earning less and thus having less income to tax. This would not be a great time to increase taxes or cut spending, since either would impose a drag on the economy when it is still very weak. However, we do need a plan to bring down the deficit sharply in the future, and to do so will require both tax increases and spending cuts.
Read the full analyst report on "BAC"
Read the full analyst report on "GS"
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]]> <![CDATA[Will Sovereign Debt Tsunami Drown All the PIIIGS and Then the US and UK?]]> <![CDATA[Volcker: Tax Hikes Likely Needed to Tame Deficit]]> <![CDATA[A Space Oddity]]> A Space Oddity originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." Check out our new special report Invest in Agriculture

]]> <![CDATA[Retailers Post Increase in March Sales, but Analysts Aren’t Celebrating Yet]]> <![CDATA[Question of the Week: Is it Too Late to Stage an Intervention for Our Government’s Spending Addiction?]]>
The Obama administration's 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years - $1.2 trillion more than the administration predicted and enough to bring the federal debt to 90% of U.S. gross domestic product (GDP) by 2020, the Congressional Budget Office reported two weeks ago.

U.S. public debt was $6.3 trillion, or $56,000 per household, when President Barack Obama took office in the middle of the worst financial crisis since the Great Depression. It's now at $8.2 trillion ($72,000 per household) and if the present course continues, federal debt will hit $20.3 trillion (in excess of $170,000 per household) in 2020, the CBO predicts.

U.S. debt hasn't been that high since the end of World War II, when the debt-to-GDP ratio hit 109%. Greece - the focus of global default fears - currently has debt that's at 115% of GDP.

Money Morning Question of the Week: Are you worried about U.S. debt levels? Are we headed down the road to ruin? Why or why not? Would you favor tax increases and/or budget cuts if it meant the country would get this debt under control?

What follows are some of the most-well-thought-out and articulate answers to this question that we've received to date.

]]> <![CDATA[Cooper Industries, Danaher Form JV – Analyst Blog]]> Cooper Industries plc (CBE) and Danaher Corporation (DHR) announced the formation of a joint venture combining Cooper’s Tools business with certain tools businesses from Danaher Corporation’s Tools and Components segment. 

Cooper and Danaher each will own a 50% stake in the new company. This joint venture will combine two highly complementary tools businesses with well known brands, experienced management teams and global customer bases. 

Danaher and Cooper will have equal representation on the joint venture’s Board of Directors and the transaction is expected to close after securing the necessary regulatory approvals. 

This JV will create a focused, global tools business with revenues in excess of $1.2 billion and significant sales in North America, South America, Europe, China, and Australia, a global manufacturing footprint, a more comprehensive product offering and a significantly improved cost position. 

Cooper has several opportunities for additional growth in the current year, including stimulus spending, restructuring benefits and accretive capital allocation in the form of share repurchases or mergers and acquisitions. If Congress decides to retroactively reverse tax inversion legislation, CBE’s tax rate would be higher than expected, which will affect earnings. While earnings risk still remains, we believe that the previous year marked the bottom for the earnings cycle. 

CBE will likely realize an outsized portion of its growth from developing markets in China, the Middle East and Mexico. Industrial, utility and energy markets are expected to rapidly expand, and industrializing economies will help offset some of the declines in already developed regions. This will eventually help support higher growth rates for the current year. 

Pressures in commercial markets will continue to be a drag on earnings throughout the current year; however, numerous items such as lighting retrofit, government spending, energy efficiency projects and stimulus will help buffer underlying pressure. Residential markets appear to have bottomed out and should experience modest growth. The company is well positioned to capitalize on the potential for renewed spending on transmission and distribution products as utilities begin to open up their spending again. 

Cooper Industries, Ltd. is a global manufacturer, with 2009 revenues of $5.1 billion, approximately 89% of which were from electrical products. Cooper has manufacturing facilities in 23 countries and currently employs approximately 28,200 people. 

We currently have a Neutral recommendation on CBE.
Read the full analyst report on "DHR"
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]]> <![CDATA[The Economic Recovery is Real Investors Should Get on Board…Now]]> <![CDATA[Apr 1: Construction Spending – Economic Highlights]]>
Construction Spending fell by 1.3% to $846.2 billion during February, beating the expected decrease of 1.1%, after falling by 1.4% in January. Year over year, construction spending had declined by 12.8% from the February 2009 estimate of $970.4 billion.

The ISM Manufacturing Index increased to 59.6 in March, following a decrease to 56.5 in February from the 58.4 level in January. The index indicated growth for the 11th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the eighth consecutive month.
 
Upcoming Releases
Unemployment Rate (04/02 at 8:30 AM EST)
Pending Home Sales (04/05 at 10:00 AM EST)
ISM Services Index (04/05 at 10:00 AM EST)
FOMC Minutes (04/06 at 2:00 PM EST)
Zacks Investment Research
]]> <![CDATA[Apr 1: Initial Claims Fall – Economic Highlights]]>
Initial Claims decreased to 439,000, for the week ending 03/27, beating the expected decrease to 444,000, after decreasing to 445,000, the revised level for the previous week. The 4-week moving average decreased to 447,250, from the previous week’s revised average of 454,000. Seasonally adjusted insured unemployment from the prior week, ending on 03/20, was 4,662,000, a decrease of 6,000 from the preceding week's revised level of 4,668,000. Seasonally adjusted insured unemployment rate from the week ending on 03/20, was 3.6%, unchanged from the previous week’s unrevised figure of 3.6%. Tomorrow, the monthly employment situation is scheduled for release by the Bureau of Labor Statistics at 8:30 AM EST and the unemployment rate is expected to remain unchanged at 9.7% for March from 9.7% recorded in February.
 
ISM Manufacturing Index figures are expected today at 10:00 AM EST. The ISM Manufacturing Index decreased to 56.5 in February, following an increase to 58.4 in January from the 55.9 level in December.
 
Construction Spending figures are expected today at 10:00 AM EST. Construction Spending fell by 0.6% to $884.1 billion during January. Year over year, construction spending had declined by 9.3% from the January 2009 estimate of $974.3 billion.
 
Upcoming Releases

Construction Spending (04/01 at 10:00 AM EST)
ISM Manufacturing Index (04/01 at 10:00 AM EST)
Unemployment Rate (04/02 at 8:30 AM EST)
Pending Home Sales (04/05 at 10:00 AM EST)
 
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]]> <![CDATA[Tax Refunds: The Gifts that Keep the US Spending]]> Tax Refunds: The Gifts that Keep the US Spending originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[US Consumer Spending Helps the Peso]]> US Consumer Spending Helps the Peso originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Robert Samuelson on Economics]]> And on unavoidable spending, and debt crises, and on budget accounting...

From the Washington Post: comes this headline:

With health bill, Obama has sown the seeds of a budget crisis

Here's a choice excerpt:

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.

Kinda wierd -- I thought that Obama was inaugurated in January 20, 2009, which is somewhat less than two years ago, by my count. Aside from time dilation, I thought it interesting that Mr. Samuelson neglected to mention how much of the upward jump in the debt-to-GDP ratio occurred before January 2009, as shown in this graph.

feddebt2.gif
Figure 1: Federal debt held by the public as a share of GDP, from FREDII (red square), from Treasury (blue line). NBER defined recessions shaded gray; assumes last recession ended 09M06. Solid line at 2009M01. Sources: Series FYGFDPUN from St. Louis Fed FREDII, from December 2009 Treasury Bulletin, and Macroeconomic Advisers (Jan. 15 2010 release), NBER, and author's calculations.

Here is where Mr. Samuelson dismisses the entire budgeting process in Washington:

But the CBO estimate is misleading, because it must embody the law's many unrealistic assumptions and gimmicks. Benefits are phased in "so that the first 10 years of [higher] revenue would be used to pay for only six years of spending" increases, a former CBO director, Douglas Holtz-Eakin, wrote in the New York Times on March 20. Holtz-Eakin also noted the $70 billion of premiums for a new program of long-term care that reduce present deficits but will be paid out in benefits later. Then there's the "doc fix" -- higher Medicare reimbursements under separate legislation that would cost about $200 billion over a decade.

The logical implication based upon this argument: Might as well close up CBO.

Interestingly, he doesn't mention Dr. Holtz-Eakin's other former role as Senator McCain's economic adviser. While this observation does not in itself invalidate the Holtz-Eakin critique, it does cast it in a different light. However, see [0]

I also like how Mr. Samuelson conveniently lumps certain spending as avoidable, and some unavoidable. I find in particular this passage from a 2006 WaPo article highly amusing (to say the least): "Some of Bush's spending increases (defense, homeland security) were unavoidable."

Here is a graph to put things in perspective.

sam0.gif
Figure 2: Impact on budget balance, in billions of FY2010$, for EGTRRA; for JGTRRA; for Patient Protection and Affordable Care Act; and cumulative budget authorization for operations in Iraq through FY2010, in billions of FY2010$, deflated using CPI. Source: CBO, Budget and Economic Outlook: An Update (August. 2001), Table 1-4; CBO, Budget and Economic Outlook: An Update (August 2003), Table 1-8 (revenue implications only); and CBO, "H.R. 4872, Reconciliation Act of 2010: Estimate of direct spending and revenue effects for the amendment in the nature of a substitute released on March 18, 2010," (March 18, 2010), Table 1; and Iraq costs from A. Belasco, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11, Congressional Research Services (Sep 09), Table 3: budget authorization for DoD, State, and VA Medical; for CPI, historical from FREDII, and forecasts/projections from CBO (January 2010).

So even taking Mr. Samuelson's misgivings about the implausibility of assumptions at face value, PPACA looks like a real paragon of fiscal rectitude by comparison with what preceded it in the previous Administration. And I haven't even mentioned the way in which Medicare Part D was funded (which to his credit, he did criticize elsewhere -- although not in this particular article).

Nonetheless, overarching all this is a simple question. Why do we ascribe any credibility to a person with an undergraduate degree in political science (what is called Government at Harvard) in the area of economics (let alone accounting)? (The question is inspired by watching the debate between Professor Krugman and Mr. Samuelson on Fareed Zakaria GPS yesterday...)

]]> <![CDATA[Confident Investors Move Dollar Lower]]> Confident Investors Move Dollar Lower originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Final Q4 GDP Revised Down to 5.6% – Analyst Blog]]> Where the Growth Came From

This is essentially the same report as was posted when the first and second cuts at the 4th Quarter GDP numbers came out, but with the revised contributions to growth shown, the numbers from the first two releases are in parentheses, with the second revisions numbers first and in italics. The final numbers are outside the parentheses and are in bold. This will allow you to quickly assess what has changed in this report relative to the first and second iterations, and also assess how the fourth quarter was different from the earlier quarters of 2009.

When looking at the GDP report and trying to look at what is driving growth, it is important to keep in mind that now all parts of GDP are of equal size, and thus importance. Furthermore, some parts of GDP tend to be very stable, while others can swing wildly.

It is those volatile parts of GDP that generally make the difference between boom and bust. Thus in this post I will look at how much each part of the economy contributed to the overall 5.6% (5.9, 5.7) growth rate. The discussion will be framed in point contributions.

For example, the biggest part of the economy, the consumer, also known as Personal Consumption Expenditures or PCE, increased by 2.0%, that contributed 1.16 (1.23, 1.44) points to the 5.6% (5.9, 5.7) growth rate, while Gross Private Domestic Investment is a much smaller and more volatile part of the economy. It grew by 39.3%, but since it was a much smaller part of the total economy, it only contributed 4.39 (4.63, 3.82) points to the total growth of 5.6% (5.9, 5.7).

Each major component has several sub-components that I will discuss and compare to previous quarters. I will follow the familiar GDP = C + I + G + (X – M) framework.

Overall Growth 5.6%, Not 5.9%

Overall GDP grew by 5.6% (5.9, 5.7) in the fourth quarter, a major acceleration from the 2.2% growth rate in the third quarter, which in turn was far better than the 0.7% decline in the second quarter and the 6.4% implosion that was the disastrous first quarter.

The expectation was that the numbers in this revision would be unchanged from the second cut, so this is a minor negative surprise. Personal Consumption Expenditures (PCE) contributed 1.16 (1.23, 1.44) points to growth, down from 1.96% in the 3Q when the Cash for Clunkers program was in full swing.

PCE is far and away the biggest part of the economy, accounting for 70.8% of the total. In the 2Q, PCE subtracted 0.62 points from growth, or in other words, it was responsible for 88.5% (0.62, 0.70) of the total decline in GDP in that quarter, while in the 4Q PCE was responsible for 20.7% of total growth (1.16, 5.6). Of that 1.16 (1.23, 1.44) PCE growth, 0.63 (0.66, 0.61) points came from Goods, and 0.49 (0.57, 0.83) came from Services.

In Goods, Non-Durables Were Good

In the 3Q, Goods contributed 1.59 points to growth while Services only contributed 0.37 points. Within Goods, there was a huge negative swing in durable goods, which added just 0.03 (0.02, -0.06) points to growth, after adding 1.36 points in the 3Q.

Non-durable goods, though, contributed 0.63 (0.64, 0.67) points -- up sharply from the 0.37 point contribution in the 3Q. Looking further back, Goods PCE pretty much explained the entire decline in the 2Q, with a 0.71 point subtraction from growth (everything else cancelled each other out).

In the first quarter, Goods PCE actually was a net positive contribution of 0.56 points, partially mitigating the absolute collapse of the rest of the economy. Non-durable goods manufacturing subtracted 0.29 points in the 2Q after adding 0.29 points in the 1Q, while durable goods subtracted 0.41 points in the 2Q but added 0.28 points in the 1Q.

Services added 0.09 points in the 2Q and subtracted 0.13 points in the 1Q. Of the three components of PCE, Services is by far the largest (67.4% of total PCE), but it also tends to be the most stable. Durable goods, on the other hand, is a relatively small part of the total, just 10.3% of total PCE in the 4Q, but it can really swing.

Inventory Investment Biggest Contributor

Gross Private Domestic Investment (GPDI) contributed 4.39 (4.63, 3.82) points to growth, or 78.4% of the total growth, even though it represented just 11.8% of the total economy in the 4Q. In what I consider very good news, that is up from 10.9% of the economy in the 3Q.

The bad news is that historically, GPDI has run about 14 to 15% of the economy. We really need to get GPDI back up to its historical share of investment if the economy is going to be truly healthy over the long haul.

GPDI is divided into non-residential and residential, as well as fixed and inventory investment. Overall fixed investment contributed 0.61 (0.75, 0.43) points to growth, up from a subtraction of 0.15 points in the 3Q. Inventories were the big story, contributing 3.79 (3.98, 3.39) points to growth, up from just 0.69 points in the 3Q.

Inventory investment is the lowest “quality" form of growth, since a big increase in one quarter is generally followed by declines in subsequent quarters. However, in absolute terms, inventories are still declining, just at a much slower rate than earlier in the year. It is the change in the rate of decline that added to the GDP growth.

In the fourth quarter, inventories still fell by $23.6 billion, but that was down from a decline of $156.5 billion in the third quarter. Inventories are not going to continue to decline in absolute terms forever, and Macy’s (M) in New York is not going to start to resemble the G.U.M. department store in Moscow under Brezhnev. Thus there could still be some growth coming from inventories in the first quarter, and perhaps into the second, but probably not as much of a contribution, and it will most likely peter out after that.

Crumbling Structures

Non-residential fixed investment, what we generally think of as "business investment," contributed 0.51 (0.62, 0.29) points to growth, up from subtracting 0.59 points in the 3Q. That segment, though, really was a tale of two cities. Business investment in equipment and software was strong, contributing 1.13 (1.09, 0.81) points to growth, while investment in structures subtracted 0.62 (0.47, 0.52) points.

In the 3Q, equipment and software investment subtracted 0.68 growth points, so it really was a major swing factor. The drag from investment in structures, however, was less than the 0.68 growth point drag in the 3Q.

Residential investment posted its second straight positive contribution to growth, adding 0.10 (0.13, 0.14) points, but that was down from a 0.43 point positive contribution in the 3Q. Prior to that, it had been a drag on growth for 15 straight quarters. Those declines brought Residential investment from record high share of the economy to a record low share.

Given the data so far in the first quarter on housing starts and new home sales, look for residential investment to be a big drag on first-quarter growth. Also, with high and rising vacancy rates in almost every part of commercial real estate, look for non-residential investment in structures to continue to be a drag on growth for the next few quarters.

Normally, residential investment is the big driver of growth coming out of a recession, but that does not seem likely this time around. Given the very low base, one does not have to make very heroic assumptions about the level of new home sales to have a very large percentage growth in residential investment, but for residential investment to really get going, we need to see the rate of household formation increase. And for that to happen, we need jobs. Unfortunately, construction is a big swing factor in job creation. Yesterday I discussed the longer-term implications of a housing rebound here: So When Will Housing Come Back?

Investment (the “I" in the equation) is always going to be the most volatile part of GDP. It is what makes the difference between booms and busts. While the overall 0.61 (0.75, 0.43) contribution from fixed investment was not huge in the 4Q, it is important to keep in mind where it was coming from:

In the 2Q, it subtracted 1.68 growth points and in the 1Q it absolutely collapsed, subtracting 6.62 growth points. Non-residential fixed investment subtracted 1.01 points in the 2Q and 5.29 points in the 1Q. That, from a sector of the economy that only made up 9.4% of the whole economy in the 4Q. In the 2Q, inventory investment (or the lack there of) subtracted 1.42 points from growth, and that was an improvement over the 2.36 point subtraction in the 1Q.

“Government" Not a Major Factor

Government consumption and net investment was essentially a non-factor in the growth of the economy in the 4Q. It had a net drag of just 0.26 (0.23, 0.02) points in the 4Q, after adding 0.55 points to growth in the 3Q. A slight positive contribution from the federal government of 0.01 (0.02, 0.02) points was offset by a slight drag of 0.27 (0.25, 0.04) points from state and local (S&L) governments.

In the 3Q, federal spending contributed 0.62 points to growth (0.45 from defense, 0.17 from non-defense) while state and local governments were a slight 0.08 drag on economic growth. On both counts, though, Government was essentially a rounding error as far as overall growth was concerned in the 4Q.

However, in the national income accounting, transfer payments like Social Security are counted as part of PCE, not Government. Within the federal spending, expenditures on national defense were a 0.20 (0.19, 0.19) point drag on growth, after being a positive contributor of 0.45 points in the 3Q. Non-defense spending added 0.21 (0.21, 0.21) points to growth, up from a 0.17 point contribution in the 3Q. In other words, government spending on the military, and for the stuff it buys for Lockheed Martin (LMT) and General Dynamics (GD) fell a bit relative to what it was spending in the 3Q, but that was offset by increases in spending for things like highway infrastructure and civilian government salaries.

On the surface, those sorts of numbers do not support the claim that all the growth is just a “sugar high" from direct government spending and the stimulus program. However, very big parts of the stimulus package were actually tax cuts and entitlement spending (for example, the extended unemployment benefits show up in PCE as the people getting the checks spend them).

Another big part of the ARRA (aka Stimulus Act) was help for S&L governments. In the absence of that aid, S&L spending would have been a far bigger drag on growth. Since states and municipalities are generally not allowed to run operating deficits, they would have been forced to slash spending and raise taxes even more than they already have been.

Looking further back, overall government added 0.85 points to growth in the 2Q after being a 0.52 point drag in the 1Q. Of that, in the 2Q, the federal government contributed 0.85 points (0.70 Defense, 0.15 non-defense) while S&L governments added 0.28 points. In the 1Q, federal spending was a net drag of 0.33 points (-0.27 Defense, -0.06 non-defense) while S&L government spending was a 0.19 point drag.

Contrary to popular belief, overall Government spending (again excluding transfer payments, which are largely entitlements) is not a particularly huge part of the overall economy, just 20.5%. Federal government spending is just 8.1% of the total, and 67.8% of that is spending on National Defense. Non-defense spending, the running of Justice system, the national parks, the collecting of these economic statistics, the air traffic control system, the interstate highway system, etc. is only 2.6% of GDP combined. To put that in perspective, the expected bonuses (not total comp, but bonuses) of the big Wall Street investment banks were close to 1.0% of GDP.

Imports and Exports Both Rise, Net Small Positive

Net exports contributed 0.27 (0.30, 0.50) points to growth, a very nice turnaround from the 0.81 point drag in the 3Q. In the accounting, an increase in exports increases GDP and an increase in imports subtracts from GDP. As a general rule, we want to see both imports and exports growing. We saw that in the fourth quarter, and even more than in the first look at the numbers. If they are not, it means that world trade is contracting, and that is a very bad thing.

What we want to see though is imports growing faster than exports. In the State of the Union Speech, President Obama called for doubling our exports over the next five years. That would be great if we can do it, but "how" is a very big question. Also, if we double our exports but also double our imports, we will not really have accomplished much. In the 4Q, exports added 2.36 (2.23, 1.90) growth points, up from 1.78 points in the 3Q. Imports subtracted 2.09 (2.02, 1.41) points from growth, but that was a much smaller drag than the 2.59 subtraction from growth in the 3Q. 

Looking further back, in the 2Q, falling exports subtracted 0.45 points from growth, while falling imports added 2.09 growth points. So net exports were a huge offset of 1.65 positive growth points, to the overall contraction of 0.7 points in GDP in the 2Q.

As trade collapsed in the 1Q, the offset was even more extreme. Falling exports subtracted 3.95 points from growth but a collapse in imports added 6.58 points to growth, so net exports actually offset 2.64 points of contraction in the domestic economy. In other words, if imports had not fallen in the 1Q, overall GDP would have fallen by more than 13%! This illustrates the point that falling world trade is a bad thing overall, even if declining imports contribute positively to the GDP accounting.

Looking Forward

This report pretty much confirmed what was in the first two reports on the numbers. Mostly the growth is coming from inventories, which is low-quality growth. However, it is not uncommon for most of the growth very early in an expansion to come from inventories -- they are sort of like the batteries and the starter motor in a car. The big unanswered question is if the engine will turnover and start running on its own after the key is no longer being turned.

The consumer is not yet a major factor in the expansion. The consumer is trying to rebuild his or her balance sheet by paying down debt and adding to savings, not taking the incremental dollar and spending it. Over the long term this is very much needed, but without the consumer, the six cylinder engine that is the US economy will be running with just two spark plugs working.

The most promising bright spot is the higher contribution from business spending on equipment and software. The other side of business investment, building commercial real estate, is likely to remain a drag on growth for the rest of the year, but it is not a huge part of the economy.

The expansion of trade shown by the increasing absolute contributions of both imports and exports is a good thing, but on the import side is very sensitive to oil prices. Unless we can cut our dependence on foreign oil, it will continue to be a thorn in the side of the economy. Moving to more use of natural gas, which we have very plentiful domestic supplies of (thanks to the new shale plays), would go a long ways in that regard. Longer-term renewable sources like wind and solar will be even more important. Nukes might also play an important role, particularly if we can solve the problem of what to do with the waste. 

Residential investment is normally the biggest locomotive pulling the economy out of recessions, and while it is no longer pulling the economy down (at least in the 4Q), it is not contributing very much. The renewed downturn we have seen in recent months in new home sales is a very troubling development in terms of near term economic growth. With the just plain awful new home sales numbers in January, which got even worse in February and the weak data on housing starts, residential investment will go back to being a drag in the first quarter.

Eventually a bigger population is going to need more housing, but household formation is at extraordinarily low levels. When it picks up, that will drive the demand for housing which will absorb the current inventory overhang (including the big shadow inventory of soon to be foreclosed homes).

However, to see household formation pick up, we need to see actual job growth. How we get that with no real contribution from residential investment is a major conundrum. When the residential investment tide finally turns for good it has the potential to be a huge economic driver, as getting back to the population adjusted normal level of new home sales would imply a near tripling from current levels. That will of course not happen over night, and it really does not look like the process has even started.

A rise in employment will lead to a rise in household formation, which will lead to higher demand for housing, which in turn will lead to more construction jobs, which will lead to higher household formation. Lather, Rinse, Repeat.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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]]> <![CDATA[Hyperinflationists Have it Wrong]]> Hyperinflationists Have it Wrong originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Today in Russian Business – March 24, 2010]]> <![CDATA[Labor costs are key driver of hospital cost growth]]> <![CDATA[Obama Administration Applying Keynesian Economics to ‘Ensure’ America’s Future Prosperity]]> <![CDATA[Ron Paul: Not Long Before the Gov’t is “Borrowing us Further Into Oblivion”]]> Ron Paul: Not Long Before the Gov’t is “Borrowing us Further Into Oblivion” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Defense Spending Topping Out?]]> <![CDATA[A River of Debt]]> A River of Debt originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Zombieland]]> Zombieland originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[School Specialty, Inc. (SCHS) – Bear of the Day]]> School Specialty (SCHS) has been registering a sustained decline in the topline.

Continued softness in demand is witnessed in both curriculum-based products and supplemental materials. The furniture market has been the worst hit by budget cuts, as school construction and modernization projects have been cancelled or postponed.

Further, the intense competition and seasonality of business undermine the company's future growth prospects. As such, we have an Underperform recommendation on the stock.Zacks Investment Research

]]> <![CDATA[Borrow and Spend Economics to Pay for Borrowing and Spending]]> Borrow and Spend Economics to Pay for Borrowing and Spending originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[You Know it’s Bad When the Current System Looks Good]]> You Know it’s Bad When the Current System Looks Good originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Euro Rises on Greek Pledge to Cut Spending]]> <![CDATA[Bank of Canada Maintains 0.25% Lending Rate]]> <![CDATA[Construction Spending Declines – Analyst Blog]]> In January, total construction spending declined by 0.6% to a seasonally adjusted annual rate of 884.1 billion. That is 9.3% below the 974.3 billion rate of a year ago. However, residential construction spending actually rose by 1.1% on the month to an annual rate of $269.2 billion, although it is still 6.0% below the 286.4 pace of a year ago.

Just to make very clear, a year ago was not exactly boom times for the housing industry, which is where the vast bulk of residential construction spending goes. Thus while it is nice to see a 1.1% increase on the month, things are still extremely depressed, and with the weak recent data on new home sales and housing starts, we could easily relapse into declines in the coming months.

However things have been down so far for so long that it is more likely that we bump along at the bottom for awhile rather than face another major down leg in residential construction spending. Non-residential construction spending is a much bigger concern right now. In total it dropped to $615.0 billion annual rate in January, a 1.4% decline from December and 10.6% below a year ago.

Even that does not tell the full story, since construction spending is done both by the private sector and by the government. Almost all (but not all) of the government construction spending is on the non-residential side. Private non-residential construction is just in the early stages of a collapse, with a 2.1% decline from December and down 19.9% year over year. Government spending on things like schools and highways has held up much better, with a 0.7% decline in January relative to December but up 2.1% from a year ago.

All major forms of commercial real estate are facing very high vacancy rates. However the lead times on commercial construction of things like hotels, office buildings and strip malls tend to be fairly long. Thus there are still projects that were started before the credit crunch hit that are still coming on line and adding to the excess supply of space.

Check the Architects

A great leading indicator of commercial construction is the amount of work that architects are getting. Generally there is about a year delay (or slightly less, depending on the size of the project) between when an architect gets the work and when money is actually spent on construction.

The architects index, which is shown in the first graph below, is one of those indexes where any reading above 50 indicates expansion, and anything below means contraction. It has been consistently been below 50 since the recession started way back in December of 2007. But if you look at the second graph (both graphs are from http://www.calculatedriskblog.com/), you can see that the downturn in private non-residential construction really did not start until the fall of 2008, and has picked up steam ever since. By contrast, the decline in residential investment spending started way back in early 2006.

Also note that the current situation where private non-residential construction spending is greater than private residential construction spending is very unusual, and will probably not last. We will probably see a stabilization of residential spending at around current levels, or perhaps even a slight rebound later in the year. Given the current very low levels, it would not take very heroic absolute levels to generate decent percentage gains in residential construction.

We will probably see residential construction back above non-residential construction by the end of the year. However, it will be because of the rapid decline in non-residential spending rather than because of an impressive increase in residential construction. 

I think it is probably still a bit early to be investing in the home builders like D.R. Horton (DHI). The over-building on the residential side early in the decade was truly epic, but the decline in spending has been going on for a very long time now.

The numbers in the second graph are not adjusted for inflation. For a full year now, residential construction spending has been running below $300 billion a year, which is where it was in the late 1990’s. Eventually that low level of investment will cause a good case of pent up demand  The homebuilders are closer to the end of their downturn than are the more commercial-oriented construction firms like the engineering and construction firms such as Fluor (FLR) and Foster Wheeler (FWLT). It is also not good news for firms like United Technologies (UTX), at least not for the elevator (Otis) and Air Conditioning units (Carrier) of the firm.

The report was largely in line with expectations, so it should not have a major impact on the market. However it does remind us that the recovery is going to be long, slow affair.



Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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]]> <![CDATA[The Zombie Economy]]> The Zombie Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[US Spending Increases as Overall Growth Slows]]> <![CDATA[Canadian Economy posts 5% annual growth]]> <![CDATA[Mar 1: Construction Spending – Economic Highlights]]>
Construction Spending fell by 0.6% to $884.1 billion during January, matching expectations. Year over year, construction spending had declined by 9.3% from the January 2009 estimate of $974.3 billion.

The ISM Manufacturing Index decreased to 56.5 in February, following an increase to 58.4 in January from the 54.9 level in December. The index indicated growth for the 10th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the seventh consecutive month.
 
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]]> <![CDATA[Central Planning and the Parasites It Creates]]> Central Planning and the Parasites It Creates originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

]]> <![CDATA[Semiconductor Update & Stock Review – Industry Outlook]]> The Semiconductor Industry serves as a driver, enabler and indicator of technological progress. Developments in the industry determine the way we work, transport ourselves, communicate, entertain ourselves and respond to our environment. The PCs we work on, the cars we drive, the phones we communicate with, the electronic gadgets on which we watch movies, listen to music and play games on, and the planes and weapons used to transport or protect us use semiconductor devices.

As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.

The industry has come a long way since the last downturn, when most of the players streamlined operations and transferred more routine production to low-cost locations. This led to the development of the Asian market, where most memory production and backend operations have shifted.

Lesson Learned in the Industry

Past experience has been put to good use this time around. When the recession hit in late 2008, semiconductor manufacturers cut production drastically instead of running the fabs at full capacity to maintain margins and hoping that the recession would blow over. As a result, there was no excess inventory that had to be burnt off when demand started returning. There was instead a shortage in some cases, which led to stronger pricing.

As a result, the industry performed much better in 2009 than was originally anticipated. According to the Semiconductor Industry Association (SIA), worldwide sales of semiconductors were $226.3 billion in 2009, significantly better than the $219.7 billion forecasted for the year. This was a 9% decline from 2008.

The SIA estimates that around 52% of revenue came from the Asia/Pacific region (excluding Japan), followed by Japan and the Americas with a 17% share each and the balance from Europe. The sales by geography were similar to 2008, indicating that the recession did not result in any major change in market dynamics.

The SIA attributed the better-than-expected performance to much superior inventory management than in the prior downturn, new product launches and strength in the consumer and PC markets toward the end of the year. These two end markets together consume around 60% of total semiconductors sold.

Expanding Reach

The computing market is characterized by commoditization and corresponding pricing pressures that have made it a lower-margin business. As a result, a number of chip companies have shifted focus to other areas.

However, while it is true that the market is relatively mature and recession-impacted, there are some encouraging signs for 2010. The first is a revival in enterprise spending, which is being driven by new product cycles and some pent-up demand. The second is the server refresh cycles, growth of cloud computing and changes in data center operations. The third is the strength in mobile computing platforms (although some of the latest models of netbooks, tablets and MIDs are treated as consumer items).

The consumer electronics market is growing in importance, especially gadgets such as LCD TVs, Blu-ray players, smartphones and netbooks. The problem with this segment being a major driver of revenue is its inherently low margins. Competition is fierce and aggressive pricing is the rule of the day.

Since semiconductors made for consumer goods are in the nature of components, there is ever-increasing pressure on their prices that correspondingly squeeze margins. According to the Consumer Electronics Association (CEA), the 7.8% revenue decline in 2009 was entirely on account of weaker pricing, as unit volumes of consumer goods increased around 10%. However, the CEA is optimistic about slight growth in 2010 to $165 billion.

The primary driver will be smartphones, which are expected to generate $17 billion in shipment revenue and 52 million in units. Notebooks will be the second largest driver, with shipment revenue of $14 billion and units of 30 million. Blu-ray player units, which increased 155% in 2009, are expected to grow to more than 7 million units and generate $1.4 billion in shipment revenue. And finally TVs, which grew significantly in 2009, are expected to grow again in 2010 to 37 million units, driven by high definition, FPD and other advanced technologies. However, shipment revenue is expected to decline to $22 billion due to weaker pricing.

Other Markets

Communications infrastructure spending is currently being driven by China and India and the SIA expects infrastructure spending in these geographies to remain the major driver of semiconductor sales into the market. The domestic market will be driven by increasing data volumes. Medical Devices is an upcoming area and some IC (integrated chip) makers have started developing products targeted at this market as well.

The recovery in the automobile market is slow, with several of the large companies facing temporary issues and growing inventories. The longer-term prospects remain bright, since design activity is strengthening. Moreover, semiconductor manufacturers serving this market have a few advantages. The most important is the growing electronic content per vehicle, driven by the need for fuel efficiency, entertainment and automated navigation.

The fact that an automobile model has a significantly longer life than a consumer device model is an added bonus, as once a semiconductor has been designed in, it continues to generate revenue for a number of years. This leads to a stable business model.

The aerospace and defense markets are dependent on government spending and policy making and current trends indicate that the strength in defense spending will continue. However, current spending continues to be targeted at terrorist activity, so spending on intelligence systems and less sophisticated weaponry is stronger.

Companies offering sophisticated weapons are not doing as well. Commercial aerospace remains affected by tight lending conditions, although the situation has started improving. So semiconductor manufacturers serving these markets are seeing mixed results, depending on the customers served.

Given the end markets driving the current strength in the industry, we believe that manufacturers of DRAM and flash (both NAND and NOR) will continue to see strong demand. The transition from DDR2 to DDR3 will add to growth in this segment.

Ever Smaller & More Powerful

The demand for greater functionality in smaller and more power efficient gadgets is leading to greater integration within the semiconductor device. This is leading to increased demand for the system-on-a-chip (SoC), which is a single device incorporating a microprocessor, digital signal processor or graphics core, as well as memory and logic.

Within SoCs, both application-specific integrated circuits (ASICs) and application specific standard products are expected to do well. ASICs are usually customized for a single buyer, while ASSPs may have multiple buyers.

The major players in the industry may be categorized into chipmakers, equipment and material suppliers, and foundries. Since numbers for 2009 have yet to be released, we present a summary of market positions in 2008. We do not expect significant changes among the top ten, although exact positions may vary depending on how well each company has dealt with the recession and increased competition in 2009.

According to Gartner Dataquest and iSuppli Corp, Intel Corp (INTC), Samsung and Toshiba Corp were the top three semiconductor suppliers in 2008. Texas Instruments (TXN) dropped to the fourth position, as the company decided to phase off its wireless baseband business. STMicroelectronics (STM) was in fifth position, followed by Japan’s Renesas. Sony (SNE), Qualcomm (QCOM) and Hynix stepped into the top ten for the first time, filling the next three positions. Infineon (INFY) stayed at number 10.

The top three equipment suppliers in 2008 according to VLSI Research were Applied Materials (AMAT), ASML Holdings N.V. (ASML) and Tokyo Electron Ltd. KLA-Tencor (KLAC), Lam Research Corp (LRCX), Nikon, Canon (CAJ), Hitachi (HIT), Dainippon and Novellus Systems (NVLS) are the others in the top ten. The research firm estimates that the top fifteen equipment suppliers generated around 70% of 2008 sales. Around 46% of equipment sales were from the U.S., Japan accounted for 36%, while the rest came from Europe.

All of the top five foundries are located in Asia. Taiwan Semiconductor Manufacturing Company (TSM) and United Microelectronics Corp (UMC), the two largest players in 2008, are located in Taiwan. Chartered Semiconductor Manufacturing (CHRT) is located in Singapore, Semiconductor Manufacturing International Corp (SMI) in China and Vanguard again in Taiwan.

OPPORTUNITIES

Manufacturing digital ICs is expensive, as it requires state-of-the-art technology and processes. On the other hand, digital products are cheaper, so cost recovery is more difficult. This has led to specialization in the industry and a greater contribution from Asian manufacturers.

Equipment suppliers will be big beneficiaries of the recovery and we are bullish on the sector. All the companies here had been severely impacted by the recession, as foundries, memory and logic makers decided to cut capex. However, both Gartner and IC Insights have projected a 45-55% increase in semiconductor capex spending in 2010.

We are, however likely to see increased use of old and refurbished equipment. Among the equipment suppliers, we particularly like Applied Materials (AMAT), not just because it is one of the largest equipment makers, but also because of its position in the solar device equipment market, as well as its existing refurbished tools business. We are also optimistic about KLA-Tencor (KLAC) and Novellus Systems (NVLS) and believe they will do well both in terms of revenue and profits in 2010.

The analog market is dependent on innovation. Consequently, these products generate higher margins. They are also more customized and have longer life cycles. These advantages are not lost on U.S. players, so the number of companies entering the market is on the rise.

Our favorites in this area include Texas Instruments (TXN), Analog Devices (ADI), Semtech Corp (SMTC), Intersil Corp (ISIL), Maxim Integrated Products (MXIM) and Linear Technology (LLTC), which are seeing very strong demand. Although some of these companies could see a faster recovery than others, they are, for the most part, highly diversified, high-margin businesses. Hence, the sector should do very well in 2010.

Microprocessors are a big market dominated by a few players. We are positive about Intel (INTC) because of its market position, superior innovation, effective strategies and strong cash position.

However, the company’s dependence on the PC market and legal tussles with competitors are expected to have a continued negative impact on stock prices. Advanced Micro Devices (AMD), on the other hand, is low on cash and market position, although the company’s competitive products, the foundry spin-off and recent agreement with Intel indicate upside for the stock.

It is hard to ignore ARM Holdings (ARMH) in this space, whose power-efficient low-performance chips dominate the growing cell phone market, or NVIDIA Corp (NVDA), which continues to make waves in graphic processing chips.

WEAKNESSES

The Asian foundries will operate at full capacity this year, but order fulfillment could still be a challenge due to low investment in capex during the recessionary environment. Consequently, we believe that foundries, such as Taiwan Semiconductor (TSM), United Microelectronics Corp (UMC) and Semiconductor Manufacturing Int'l (SMI) will see limited upside this year, despite very strong demand. Similar will be the position at memory manufacturers, such as Micron Technology (MU) and Hynix.

We remain extremely positive on the semiconductor sector in 2010 and do not really see any great weaknesses. However, we remain concerned about the ones with very weak financials, such as Exar Corp (EXAR) and FormFactor (FORM). For instance, FORM continues to burn cash despite strong demand for its specialized probe cards. It also has significant customer and market concentration that increase execution risks.

SIA Forecast 2010

The Semiconductor Industry Association has not updated its growth forecast for 2010 and 2011. The previous forecast was for sales increases of 10.2% in 2010 and 8.4% in 2011.

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