Apple Loses Kodak Claim At ITC, Says Bloomberg

Bloomberg’s Susan Decker is reporting this evening that that Apple (AAPL) received an adverse ruling in a patent suit it filed against Eastman Kodak (EK) before the International Trade Commission, with a judge finding Kodak did not violate two patents held by Apple on digital imaging.

The ITC Judge’s decision still must be approved by the ITC’s six-member commission. The judge’s ruling follows an ITC decision in March to review a rejection of Kodak’s claim that Apple and Reseach in Motion (RIMM) infringed on Kodak’s digital camera patents. Apple filed its claim after Kodak made its original accusation of infringement.

Kodak said it was pleased and looked forward to the commission’s decision, expected in June, Decker writes.

Apple shares are down 49 cents in late trading at $346.08. Kodak shares are up 10 cents, or 3.5%, at $2.95 in late trading.

First Solar: The Funding Debate

Shares of First Solar (FSLR) closed up $7.77, or 6%, at $132.07 today after the company posted a notice on its Web site saying its applications for funding from the U.S. Department of Energy are proceeding through the Department’s funding process.

That notice was written up by Bloomberg‘s Christopher Martin as an indication that First Solar has improving prospects to get the subsidies it needs to proceed with three large solar panel projects in the U.S.

And yet, some debate persists today between bulls and bears as to what is being indicated and what’s likely.

Gordon Johnson with Axiom Capital and Timothy Arcuri with Citigroup both believe the letters to First Solar from the DoE mean less than would appear, and that First Solar’s projects are still at risk of not getting funded.

Keith Bachmann with Auriga Securities, on the other hand, says the letters are positive news for First Solar and a genuine sign of progress.

The bear case, in a nutshell, runs along the lines of what Johnson wrote about yesterday, namely that the emerging budget deal between the White House and Congress has led to a curtailment of funds for DoE loans, and that there simply isn’t enough money left in the DoE’s program to fund First Solar’s three projects awaiting approval, AV Solar Ranch, Topaz, and Desert Sunlight.

Johnson bases his analysis on the fact that Agua Caliente, a 290 megawatt project that First Solar sold to NRG Energy (NRG), which did get approval, received almost a billion in loans, suggesting that funding is being apportioned on a dollar basis at about three times the total wattage of the project. He thinks AV Solar Ranch alone demands funding of $800 million.

Johnson points to correspondence with the DoE showing that the main loan program, “Title XVII, Section 1705,” has only about $800 million in total funds available. Thus, it would appear, by his reasoning, that AV Solar alone would suck up most if not all of the available funds.

Johnson also contends that Topaz and Desert Solar can’t possibly receive clearance for their environmental impact assessment (EIS) in time to meet a June 16 deadline when paperwork must be filed with the DoE in advance of a September financial closing. June 16 is when all applications are supposed to receive “conditional” approval by the DoE.

“I am 90% certain AV Solar Ranch will not get the full roughly $800M loan guarantee that has been applied for, and I am 95% certain that Desert Sunlight and Topaz will not get any funding.”

Citigroup’s Arcuri also thinks the First Solar projects would exhaust the money remaining in 1705, and to him it, “seems unlikely they [the DoE] would give one large public company with a very strong balance sheet all the money” in the program.

There is an additional program, “Section 1703,” but Arcuri points out that no one is interested in 1703 because, as he puts it, “1705 credit subsidy cost are paid through funds appropriated by Congress, rather than the applying company, thus it is free money. That’s why nobody is using 1703.”

Auriga’s Bachman disagrees. While he’s not sure what the total funds are that are available in the DoE programs, he contends that the DoE would not have sent out letters to First Solar and other recipients — 9 applications in total — if there were not sufficient funds to meet the requests.

He also contends that Topaz and Desert are about “midway” through there environmental impact studies and he thinks they still have time to get that approval and to meet the June deadline.

Dan Ries, who follows First Solar for Collins Stewart, stakes out a position somewhere in the middle of the debate, neither upholding nor refuting First Solar’s prospects. Today he wrote in a report, “These are the projects for which the DoE believe a loan guarantee “remains possible”, though there is no assurance these projects will ultimately get a guarantee, as the process has several more steps before approval.”

First Solar responded to questions I sent them in email. The company says they believe there is adequate funding in place, and that Topaz and Desert are on schedule to receive environmental impact assessment within a timeframe adequate for the DoE process.

Here is First Solar’s response in its entirety:

We have been given no reason by the DOE to believe that there isn’t sufficient funding capacity for our projects. That is our understanding of the point of the letters we received.

As for environmental permitting, Desert Sunlight expects to receive a Record of Decision from the BLM [Bureau of Land Management] in early June. Topaz expects a decision on its Conditional Use Permit from San Luis Obispo County, perhaps as soon as today.We expect both projects will accommodate deadlines required by DOE.

I have a request in to the Department of Energy for clarification of all these issues, and I’ll update if I get any response from them.

Bear in mind that the entire matter is complicated by the fact that there is no official statement by First Solar — or any other company applying — about how much money they’re seeking, meaning analysts can only estimate what they think that request might be. It could be more, it could be less.

I should add that the debate today is over public funding, which lowers the financing costs for projects, thus boosting return on Investment. It is possible that projects of First Solar might or might not get private financing sufficient to make up for any shortfall in DoE loans, and so a DoE rejection wouldn’t necessarily imperil the projects, only make them more costly.

But that is an entirely separate discussion for another day.

Nvidia Up 4% On FYQ1 Beat; Q2 Rev View Beats

Nvidia (NVDA) this afternoon reported fiscal Q1 revenue and earnings ahead of analysts’ estimates and forecast the current quarter’s revenue above consensus.

Q1 revenue was down 4%, year over year, but up 8.5% from Q4′s level, at $962 million, yielding EPS of 27 cents, on an adjusted basis.

The street had been modeling $948 million and 23 cents per share.

For the current quarter, the company expects revenue growth of 4% to 6% compared to Q1, which would be on the order of $1 billion to $1.02 billion, ahead of the average $992 million estimate.

Nvidia shares are up 83 cents, or 4%, at $21.33 in late trading.

Chief financial officer Karen Burns remarked in a separate release that the company’s GPU business “remained strong throughout the first quarter,” rising 8.5% from Q4, on strength in “discrete GPU” sales. Desktop GPU sales were down quarter to quarter but beat the company’s expectations.

SunPower Q1 In Line With Pre-Announce; Q2 Rev View Misses

Solar energy technology provider SunPower (SPWRA) this afternoon reported Q1 results below Street estimates, a Q2 revenue view below expectations, and said it would adjust its year revenue outlook later this quarter to accommodate a changing subsidy regime in Italy.

Q1 revenue rose 30%, year over year, to $451.4 million, yielding EPS of 15 cents, on an adjusted basis.

The Street had been looking for $477 million and 17 cents in EPS.

The miss on revenue was not unexpected, as the company had said back on April 28th, at the time it announced energy giant Total (TOT) would take a stake in the company, that revenue would come in around $450 million, below expectations, because of Italy project delays. Street estimates had shifted down somewhat since that announcement, but were still above the figure the company offered.

The company reiterated a forecast for 825 megawatts to 920 megawatts for the full year.

For the current quarter, the company sees $500 million to $550 million in revenue on shipments of 160 megawatts to 190 megawatts, below the $596 million the Street has been modeling.  There is, however, a wide disparity in Q2 numbers: I’ve seen $511 million, but I’ve also seen $625 million.

SunPower shares are down 18 cents, or 0.8%, at $21.20 in late trading.

SunPower’s CFO, Dennis Arriola, said, “Revenues and inventory levels in the first quarter were impacted by the pause in business activity in Italy, as several projects awaited clarity on the new tariffs. Italy’s new feed-in-tariff, announced earlier this month, follows the trend across Europe of favoring rooftop solar investment.”

Arriola said the company’s technology and its dealer network would help it in the rooftop market. “As a result, we are in the process of optimizing our portfolio allocation geographically and across our downstream channels for the remainder of 2011. We expect to complete this process in the near future and plan to revise our 2011 guidance before the end of the second quarter to reflect the recent changes in Italy.”

Sina: Morgan Stanley, Stifel Split On Appeal Of ‘Weibo’ Microblog

Morgan Stanley Asia Internet analyst Richard Ji today cut his rating on shares of Sina (SINA) to Equalweight from Overweight,  after the company last night beat analysts’ Q1 revenue estimate but missed EPS estimates, and offered a disappointing Q2 outlook.

The debate today is all about how the Street views “Weibo,” the company’s microblogging service.

To recap: The company saw Q1 revenue rise 18%, year over year, to $100.2 million, beating the average $95.4 million estimate, yielding EPS of 25 cents per share, two cents worse than expected. CEO Charles Chao said the quarter’s results were “strong” and noted that Weibo has surpassed 140 million registered users.

For the current quarter, the company forecast revenue of $112 million to $115 million, below the average $116 million estimate.

In his note today, Ji is concerned about the escalating costs to promote Weibo: the company’s operating profit was down 57% from the prior quarter, and down 21% from a year earlier, despite the increase in revenue. The soft revenue outlook for the current quarter suggests to him that the revenue payoff from Weibo is uncertain, even as costs escalate, with the company spending perhaps $100 million on it this year.

In contrast to Ji, Stifel Nicolaus analyst George Askew reiterated a Buy recommendation today, and actually raised his target price to $140 from $130, writing, “Sina is increasing its investment in Sina Weibo — and it is working. The company’s microblog service has 140 million-plus users (100 million just 60 days ago),” and the company is adding 667,000 users to Weibo per day.

“We believe the value creation within Sina Weibo, the “Twitter Of China,” is significant, and the primary reason to own shares of Sina.

Sina shares today are down $3.74, or 3%, at $116.06. I would note that other China investments are also under pressure, with Sohu.com (SOHU) down $4.91, or 5%, at $87.43, Baidu (BIDU) down 92 cents, or 0.7%, at $137.98, and Youku (YOKU), sometimes called the “YouTube of China,” down $2.23, or 4.4%, at $48.95.

Cisco: Despite Downgrades, Hope Springs Eternal

As I wrote earlier, Cisco Systems (CSCO) was the subject of two downgrades this morning as the Street mulls the difficult work the company has ahead of it to fix its business.

The stock is currently down 93 cents, or 5%, at $16.85.

But it’s not all glum: there are some upbeat notes out there as well. In particular, I would note that folks are raising their EPS estimates this morning on cost-cutting expectations even as they take down their revenue numbers for Cisco for this year and next.

Brent Bracelin, Pacific Crest: Reiterates an Outperform rating and lowers his price target to $22 from $25. “Simplifying and streamlining Cisco’s operating model are now under way […] If 30% to 50% of these savings fall to the bottom line, EPS could be $0.04 to $0.07 higher.” And he raised his EPS estimates for this fiscal year to $1.61 from $1.59, and for next year to $1.75 from $1.72.

Brian White, Ticonderoga Securities: Reiterates a Buy rating and a $28 price target. “The combination of axing unrealistic financial targets and taking full responsibility for Cisco’s challenges over the past year, while outlining actions to simplify the company […] was a refreshing tone that we believe is setting up the early stages of a turnaround at Cisco,” writes White. “Given the combination of these steps taken by Cisco and a bottoming out in the company’s sales cycle, we believe value investors should now begin buying the shares.” White raised his full-year EPS target to $1.61 from $1.55, and for 2012, he raised his estimate to $1.74 from $1.70.

John Marchetti, Cowen & Co.: Reiterates an Outperform rating, though he thinks the shares are likely to be merely in line with the market “near-term” because last night’s remarks from the company “do little to answer questions on growth and margins.” “investors are unlikely to view the stock as cheap until visibility on growth improves and the company can outline a path to more stable gross margins.” He raised his EPS estimate for this year to $1.60 from $1.59, and to $1.78 from $1.75 for next year.

Brian Marshall, Gleacher & Co.: Reiterates a Neutral rating on the stock. “The company is a tanker ship that will require multiple quarters to fix its long-term financial model. Cisco continues to face margin pressure from smaller competitors […] such as Juniper Networks (JNPR), Check Point Software Technologies (CHKP), Riverbed Networks (RVBD), F5 Networks (FFIV), Acme Packet (APKT), Aruba Networks (ARUN), Fortinet (FTNT), Brocade (BRCD), etc.” Marshall raised his 2011 EPS estimate to $1.60 from $1.58, but cut his 2012 estimate to $1.68 to $1.71. On the plus side, Marshall notes that Cisco has “some of the most attractive secular growth opportunities in the information technology industry” in front of it, and that its “penetration” of its potential addressable market of perhaps $150 billion is just 30% based on revenue of $42 billion a year. He thinks Cisco’s “ace in the hole” are “vblocks,” data center capacity delivered as a “utility” through an “IT-as-a-service” model.

Yahoo: Alibaba Says Had To Make Alipay Change, Says WSJ

After Yahoo’s (YHOO) shares dropped sharply yesterday following word that there was a restructuring of Chinese e-commerce venture Alibaba Group Ltd., in which Yahoo holds a stake, The Wall Street Journal’s Loretta Chao this morning reports that Alibaba executives are seeking to clarify the change.

Yahoo! Tuesday said that ownership of “Alipay,” a transactions unit of Alibaba, was switched to 100% ownership by a separate company owned by Alibaba’s CEO, Jack Ma.

Chao reports that Alibaba spokesman John Spelich said the change to Alipay ownership “was done last year in order to comply with rules issued by the People’s Bank of China called ‘administrative measures for the payment services provided by nonfinancial institutions’.”

Those rules require that “absolute controlling stakes of nonfinancial institutions must be domestically held,” Chao reports. Chao writes that it’s unclear if Yahoo!, and the other major investor in Alibaba, Japan’s Softbank, knew of the changeover of ownership last year. She notes that both investors are “in talks” with Alibaba about the matter.

Yahoo! shares today are up 32 cents, or 1.9%, at $17.52.

Dell, Intevac, WDC, STX Top Picks At Auriga

Auriga Securities analyst Kevin Hunt today took up coverage of computer hardware names, starting off with Buy ratings on Dell (DELL), Seagate (STX), Intevac (IVAC), and Western Digital (WDC), and Hold ratings on EMC (EMC), NetApp (NTAP), and Hewlett-Packard (HPQ).

Hunt joined Auriga recently from Hapoalim Securities, and was for a long time with Thomas Weisel before that.

On Dell versus HP, Hunt argues HP has “headwinds in 80% of its businesses,” including PCs, printers, and services. That’s going to offset the payoff from servers, networking, and storage product sales. He sees the company’s revenue growth being bounded by the overall 3% to 6% range of global IT spending, and perhaps being as little as 2% to 4% over the next three to five years.

Dell will also be constrained in that respect. However, in their case, Dell can continue to improve its operating margin this year, which will help it increase EPS 10% to 15% versus a muted revenue growth outlook. From 4.9% in fiscal 2010 that ended a year-ago January, the company improved that to 8% in Q4 of fiscal 2011 that ended in January. “Our sense is things took a modest seasonal step back in F1Q12, and that the majority of investors still don’t care all that much,” he writes,

“But it does seem very clear to us that Dell has things moving in the right direction, on a steady uptrend, and that the steady OM improvement outcome does not appear to be fully reflected in Dell’s share price due to fears over tablets, etc.” Hunt’s betting Dell can reach a steady-state operating margin of 7.5% this full fiscal year.

Hunt has a $25 price target on Dell and a $46 target on Hewlett-Packard.

Both Western Digital and Seagate should fare better than people expect because the whole tablet-computer-versus-PCs argument is overblown, he thinks. “merger. Yes, tablets are an issue, but even with very modest HDD unit growth going forward, Seagate should be able to deliver expanding margins and very attractive ROIC,” writes Hunt, and the same goes for Western. Given recent consolidation in the drive industry, both Western and Seagate can see expanding margins and profit based on unit growth of 4.6%, compounded annually, over the next 2 years.

He has a $29 price target on Seagate, and a $51 target on Western.

Continued share gains are already priced into EMC’s stock, at 19 times projected 2011 EPS, he thinks. NetApp has top-notch management, but they will be tested like never before with the recent purchase of Engenio. (See RBC’s upgrade yesterday on positive views about the Engenio deal.) The company’s probably not going to have the kind of growth going forward that it had in the past ten years, “partly due to the great success NetApp has had in expanding its business,” implying there’s not as much to gobble up.

Lastly, Intevac, which provides tools to disk drive makers, also has some opportunities in photonics and solar that are underappreciated, he thinks. Although the company has had some stumbles in these emerging areas, Hunt says they could have $3 billion out of a total $10 billion to $12 billion in new addressable markets by 2014. In particular, things such as tools for “traditional silicon based solar processes” could start to yield “substantial revenue” next year. Hunt has an $18 target on the stock.

Today the shares are performing as follows:

Dell is down 8 cents, or half a percent, at $16.65; HP is down a penny at $41.05; IVAC is up 56 cents, or 5%, at $11.63; Western is up 18 cents, half a percent, at $38.62; Seagate is up 4 cents at $17.47; EMC is up 22 cents, or 0.8%, at $27.52; and NetApp is up 66 cents, or 1%, at $54.63.

iPad, Tablets Not Killing PCs, Says NPD

Is Apple’s (AAPL) iPad, and is the tablet market more broadly, killing PCs?

It’s a popular notion, but research firm NPD doubts it: The personal computer market “isn’t floundering because of the iPad, in fact, the rate of cannibalization is actually declining among more recent purchasers,” the firm reports this morning, based on an online survey of U.S. iPad owners conducted in March.

14% of iPad adopters who bought in early — meaning have owned for six months or longer — abandoned a PC purchase for the tablet, NPD finds. For those who bought over the holiday season last year, the rate was just 12%. In fact, most of the iPad sales appear to have been “incremental” purchases, adding “billions of dollars to the industry’s coffers,” NPD Stephen Baker contends.

What actually ails the PC industry at the moment, Baker argues, is that it’s coming off of an “explosion of computer sales when [Microsoft's (MSFT)] Windows 7 launched, as well as the huge increase in netbook sales at that time.”

And contrary to popular belief, namely that Acer’s troubles of late are indicative that tablets are eating the lunch of low-cost PCs, Baker thinks any cannibalization is coming at the higher end of the PC market, the over-$500 Windows notebook, where sales fell 25% from October of last year through March of this year.

Cisco: Baird, Canaccord, S&P Cut To Hold; Long Way Back

Shares of Cisco Systems (CSCO) this morning are down 86 cents, or almost 5%, at $16.92, extending the losses it suffered last night after the company beat fiscal Q3 estimates but offered a disappointing Q4 outlook and said it faced lots of hard work to get its business back on track.

I see three downgrades this morning:

Canaccord Genuity analyst Paul Mansky cut his rating to Hold from Buy and cut his price target to $20 from $24.

We applaud the bold corrective initiatives recently announced and can see wheels in motion that may have our prior Value/GARP thesis ultimately coming to fruition in 2012. However, the next two quarters (at minimum) will be execution heavy and catalyst light – exacerbated by switch segment scrutiny and anniversary of difficult comparisons. As such, we are stepping to the sidelines on what has been a challenged thesis and looking to re-engage as fundamentals show signs of stabilization – possibly late this (calendar) year.

And Jayson Noland with R.W. Baird cut his rating to Neutral from Outperform, with a $20 price target, down from $22.

The two main threats at the moment, the deterioration of the switching business (sales down 9% last quarter) and the public sector market (sales down 8%) won’t be fixed “in the near to medium term” he thinks.

“We could see some upside to the stock given restructuring activities, but longer-term pricing and gross margin challenges will limit multiple expansion, in our view.”

Noland cut his estimate for this year to $42.98 billion in revenue and $1.60 in EPS, from a prior $43.92 billion and $1.62. For next fiscal year, beginning in August, he sees $45.8 billion in revenue and $1.82 in EPS, down from a prior $49.2 billion and $1.86.

And Standard & Poor’s Ari Bensinger cut the stock to Hold from Buy, writing, “switching demand continues to deteriorate amid product transition issues and pricing pressure is intensifying. We see CSCO benefiting from higher video usage and cloud adoption. Still, we think valuation multiples will remain depressed until CSCO proves it can generate consistent double-digit top line growth.” Bensinger cut his target to $19 from $23.