North American Markets Review – Thursday, August 19th 2010

US Shares Fell Amid Intel & McAfee Deal

Dow Jones Industrial Average settled 1.39% lower at 10,271.21 and S&P 500 index fell 18.53 points to close at 1,075.63. The tech index Nasdaq closed at 2,178.95 or down 1.66%. The stock market declined after the jobless claims were reportedly hitting 500K, coupled with the decline in the Philly Fed Index in August to -7.7 from +5.1 in July, suggesting the weakening manufacturing activity. The final piece of the economic data, Conference Board’s leading economic index rose 0.1% in July, short of the consensus of 0.2%. The coincident economic index was up 0.2% in July. Jobless claims, which is one of the sub-indexes supporting the LEI has worsened recently, pointing at potential slip in the next LEI.

Amid the worsening economic data, Intel Corp. announced its acquisition of McAfee Inc. for a price tag of $7.68 billion, as the chip maker giant aimed at integrating its semiconductors with security features, especially for smartphones, cars, TVs, and other devices. McAfee investors will get $48/share, about 60% premium over the current share price. While McAfee’s shares jumped 57% to $47.01, Intel shares slumped 3.5% to close at $18.90.

After the closing bell two tech companies reported their earnings. Dell announced earnings of $545 million or 28 cents per share, up from $472 million or 24 cents per share in the 2Q a year ago. Excluding one-time items, earnings were $629 million or 32 cents per share. The results were below consensus of 30 cents per share. Revenue was $15.5 billion, slightly above consensus of $15.2 billion and above prior year’s $12.8 billion. Main contributor of Dell’s results were the sales of commercial, or business computer products and services which showed networking revenue up 35% from last year, services revenue increased 57% and storage sales were 13% higher than last year. Mobility products increased 21% while desktop sales increased 17% from previous year. Looking ahead, the third quarter is seen to rise 14% to 19% from 3Q 2009’s sales of $12.9 billion.

From Palo Alto, California, Hewlett-Packard said that its quarterly profit increased 6%. Fiscal third quarter recorded a profit of $1.8 billion or 75 cents per share, against $1.7 billion or 69 cents per share last year. Revenue was up from $27.6 billion to $30.7 billion. Consensus was $1.07 per share with sales of $30.1 billion. Enterprise storage and server business led the earnings with 19% increase from the same quarter last year. Personal systems, which include PCs were up 17%, while imaging and printing contributed 9% increase in sales. On its future outlook, adjusted earnings are seen between $1.25/share to $1.27/share, with revenue in the range between $32.5 billion to $32.7 billion.

Dell ended the day at $12.04 or -1.23%, but slipped further during the after-hours to $11.70 or another 2.82%. HP also fell during extended hours to $40.35 or -1.01% from the closing price of $40.76 when it shed 1.45%.

Upgrades / Downgrades

Google at OUTPERFORM with $550 as target, according to Southridge. Strong balance sheet and internet ads should be beneficial.