Month: September 2011

Who’s Next in Semiconductor M&A?

by Justin Dove, Investment U Research
Tuesday, September 20, 2011

If you can’t beat ‘em, just buy ‘em…

Broadcom’s (Nasdaq: BRCM) acquisition last week of NetLogic (Nasdaq: NETL) is likely to set off a chain reaction as larger, older semiconductor companies try not to get left in the dust. Valued at 3.7 billion, it’s the largest semiconductor industry acquisition in seven years. The willingness of Broadcom to pay such a high premium represents the degree of paradigm shift in the industry.

Semiconductor stocks across the board rose due to an overall market rally last week. But according to The Street, “The chip rally is notable because several stocks in the sector climbed on heavier volume – a sign that institutions are piling into the stocks.”

This institutional pickup could signal anticipation of a wave of consolidation within the industry.

The Nitty Gritty on the Semiconductor Industry

While Broadcom supplies chips that are used in many end products, such as wireless devices and iPods, NetLogic chips are key players in network processors. NetLogic’s innovation in networking processors fills a hole in Broadcom’s product line. Considering the deluge of network-connected devices entering the market, network processing will be a very important sector of the industry going forward.

“Broadcom is now better positioned to meet growing customer demand for integrated, end-to-end communications and processing platforms for network infrastructure,” said Broadcom CEO Scott McGregor.

In return, NetLogic shareholders stand to make a quick 57-percent gain over the stock’s previous Friday closing price if the deal holds up.

However, the premium Broadcom is paying is actually just 15.5 percent greater than NetLogic stock’s 52-week high closing price of $43.28 on May 2. Broadcom’s timing represents two current opportunities for buyers in the semiconductor industry.

• The troubles in the broad market represent good values for stocks across the board.

• The very cyclical nature of the semiconductor industry is currently in a downturn due to oversupply and lack of demand. This creates opportunities for bigger companies to take advantage of smaller, weaker companies and consolidate the industry.

NetLogic vs. Cavium

Many analysts and pundits have labeled Cavium Networks (Nasdaq: CAVM) as the most obvious choice for the next takeover target. That makes sense, considering Cavium and NetLogic are similar. Both companies play to roughly the same markets and before the deal was announced, were trading within $1 of each other.

So why did Broadcom select NetLogic?

Despite similarity in stock price, NetLogic has almost 20 million more shares outstanding. NetLogic also reported $100 million in net cash in Q2, compared to $70 million for Cavium. Since Broadcom now has access to that cash, it acts as a rebate. Broadcom selected a more valuable company. It’s also important to note that NetLogic recently entered the market of physical layer chips – one of Broadcom’s core strengths. So this move was defensive, as well.

Additionally, Piper Jaffray analyst Gus Richard calls Cavium’s chips “long in the tooth.”

“BRCM is not buying CAVM and this confirms our view on the relative positioning of the two companies,” writes Richard. “While CAVM will likely get a bounce due to the acquisition of NETL, we do not believe [Broadcom’s competitors] would be interested in buying the company and do not believe there is a natural buyer.”

Ouch. Obviously, Broadcom was able to get the pick of the litter, but the move could still force the hand of a Broadcom competitor trying to keep up.

Using a $50-per-share premium and considering the cash on the books, Cavium would likely cost under $3 billion. Considering QUALCOMM (Nasdaq: QCOM) reported $5.7 billion in net cash last quarter, it doesn’t seem out of the realm of possibility, but only time will tell.

If Not Cavium, Who?

Another possible takeover target is EZchip Semiconductors (Nasdaq: EZCH). While EZchip also specializes in networking processors, it has a less-diversified product offering than NetLogic and Cavium. It’s also relatively expensive, with a P/E of 65 and just about $30 million in cash on the books.

PMC-Sierra (Nasdaq: PMCS) may be another attractive target. PMC-Sierra’s stock price is similar to Ezchip’s, but with 234 million shares, its market cap is closer to Cavium. The P/E is also in line with Cavium, but the kicker is the whopping $170 million cash on the books last quarter.

A sleeper, and possibly an attractive investment regardless of takeover, is Mindspeed Technologies, Inc. (Nasdaq: MSPD). Mindspeed also deals in networking processors, but has a relatively tiny market cap of approximately $200 million. Mindspeed also has a tiny P/E, 13.18, relative to other technology and semiconductor companies. Its low P/E and $40 million in cash in the books make Mindspeed look like a real bargain for potential buyers and investors alike.

Watch Insider Options Activity

While guessing who will be acquired next is all speculation at this point, most signs are pointing to further consolidation.

Although stocks such as Cavium and EZchip have experienced slight run-ups following the NetLogic move, it’s not too late to capitalize. Broadcom set the market premium around 50 percent, which may be too much to expect from an inferior company. But somewhere in the realm of 30 or 40 percent may be within reason.

Investors should keep an ear out for rumors and keep an eye on options activity for some of the proposed targets. While it’s not always foolproof, it can be a short-term indicator that a deal will soon go down. As insiders and speculators gain confidence in a deal, they’ll purchase call options to take advantage of the deal without needing the large up-front investment of buying shares of the stock.

Good investing,

Justin Dove

Article by Investment U

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By ForexYard

The U.S. dollar fell against most of its major currency rivals on speculation the Federal Open Market Committee will announce further easing in order to support the U.S. economy; Crude oil prices gained on optimism that the stimulus will aid the slowing economy and increase demand for fuel and energy.

Economic News

USD – Dollar Falls to 8-Month Low vs. Pound Ahead of FOMC Statement

The U.S. dollar tumbled against most of its major currency rivals during Tuesday’s trading session due to expectations that the Federal Reserve will announce further quantitative easing in an attempt to stimulate the slowing economy.

The dollar saw a 120 pip drop against the euro and the EUR/USD was traded at a weekly high of 1.3740. The dollar fell about 100 pips against the British pound as well, and the GBP/USD reached an 8-month low of 1.3632 as a result.

The Federal Open Market Committee (FOMC) will end its two-day meeting today, most likely with a decision to expend the quantitative easing, and meaning that the Fed will continue to purchase government bonds. This is expected to assist the government with its attempt to avoid yet another recession.

Today, traders are advised to follow the FOMC statement, expected at 18:15 GMT. The market is expected to react with immediate volatility to the statement. The American interest rates for the following month will be declared at this time as well, yet it is almost certain that the FED will leave rates at around 0.25%.

EUR – Euro Recovers From Italy’s Credit Downgrade on Expectations Fed Will Expend Quantitative Easing

The euro rallied against most of the major currencies during yesterday’s trading, recovering from Italy’s ratings downgrade. The euro was also strengthened following expectations the Federal Reserve will expend the quantitative easing.

The euro strengthened against its major rivals after losing ground following Italy’s surprising ratings downgrade. Standard & Poor’s cut Italy’s rating by one notch to A/A-1 due to poor growth prospects and political instability. The downgrade has further emphasized the European debt-crisis.

Nevertheless, the euro recovered most of its losses on expectations that the Fed will finish its two-day meeting with a decision to take further measurements in order to aid the slowing economy.

The shared currency gained about 120 pips against the U.S. dollar as a result, and the EUR/USD pair reached as high as the 1.3740 level. The euro also saw a 100 pips appreciation against the Japanese yen, taking the EUR/JPY cross to the 105.05 level.

JPY – Yen Sees Mixed Results vs. Majors

The Japanese yen continued to strengthen against the U.S. dollar on Tuesday’s trading session amid concern global growth is slowing. On the other hand the Japanese currency slid against the euro on speculation Greece will manage to evade default

The yen climbed to a one-month high vs. the dollar as investors expect the Federal Open Market Committee (FOMC) to end its two-day meeting with a decision to expend quantitative easing, in an attempt to stimulate the sluggish economy. As a result, the USD/JPY pair dropped as low as the 76.10 level.

However, the Japanese currency fell against the euro as talks between Greece, the European Union and the International Monetary Fund have boosted speculation that Greece will manage to pay debts and avoid default.

As for today, the low risk-appetite in the market is expected to put further bullish pressure on the yen. However, traders are advised to follow the FOMC Statement on 18:15 GMT, as the statement is likely to affect all the major currencies.

Crude Oil – Crude Oil Rises to $87.65 a Barrel

Crude oil prices climbed for the first time in three days during yesterday’s session on expectations the Federal Reserve will take further actions in order to assist the slowing U.S. economy.

The Federal Open Market Committee will end its two-day meeting today and is expected to announce another quantitative easing. This is expected to support the U.S. economy, and as a result to increase demand for energy.

Crude oil has gained about 250 pips as a result, and a barrel of oil was traded for as high as $87.65, recovering from a weekly low of $84.90 a barrel.

Looking ahead to today, the U.S. Crude Oil Inventories report is scheduled at 14:30 GMT. Current expectations are that U.S. stockpiles have slipped by 1.6M during the past week. If the end result will be similar, crude oil prices might continue to strengthen today.

Technical News

EUR/USD

The EUR/USD pair has stabilized around the 1.3680 level for the past week, trading between the 1.3580 and the 1.3740 levels. Currently, as a bearish cross takes place on the 4-hour chart’s Slow Stochastic, it seems that a bearish move might be impending. Going short may be the right choice today.

GBP/USD

The cable continues with the free-fall and the GBP/USD has reached as low as the 1.5610 level, falling about 130 pips from last night trading. Bearish signals from both the Slow Stochastic and the MACD on the daily chart indicate that the downtrend has more room to go, with potential to reach the 1.5550 level.

USD/JPY

During the past ten days the USD/JPY pair has been gradually slipping and is currently trading near the 76.30 level. Currently, as all the technical oscillators on the 1-day chart are providing bearish signals, it seems that falling-trend will extend today. Going short with tight stop seems to be the right strategy today.

USD/CHF

The USD/CHF pair gained about 300 pips since the beginning of the week, and is currently trading near the 0.8930 level. Nevertheless, as the daily chart’s RSI is pointing down and as a bearish cross takes place on the 4-hour chart’s Slow Stochastic, it seems that a bearish correction could be imminent, with a key-target price of 0.8800.

The Wild Card

Silver

Silver prices have dropped quite significantly over the past month. During the past three weeks silver fell from $43.40 an ounce to as low as the $39.00 level. However, since the beginning of the week silver is seeing a bullish correction that took it up to the $40.30 level. Currently, silver seems to have potential to reach the next resistance level of $41.50. This might be a great opportunity for forex traders to join a very popular trend.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

The Magyar Nemzeti Bank maintained its benchmark base rate steady at 6.00% as inflation drifted down towards its target.  The Bank said: “In the Council’s judgement, Hungarian economic growth is likely to remain subdued over the next two years, with the level of output remaining below its potential throughout the period. Medium-term upside risks to inflation have fallen due to weak domestic demand. Inflation may fall back to 3% by the beginning of 2013, as the effects of cost shocks and increases in indirect taxes wear off.”

The Magyar Nemzeti Bank also kept the interest rate at 6.00% during its August meeting, after raising it 25 basis points in January this year.  Hungary reported annual inflation of 3.6% in August, compared to 3.1% in July, 3.5% in June, 3.9% in May, and 4.7% in April.  Hungary’s Central Bank has a medium term inflation target of 3%, while the Bank expects inflation to average 3.9% this year.

The Hungarian economy grew at an annual rate of 1.5% in the June quarter, compared to 2.4% in the march quarter, and 1.9% GDP growth recorded in the December quarter last year.  The Hungarian forint (HUF) is roughly flat against the US dollar this year, the HUFUSD exchange rate last traded around 212.25

www.CentralBankNews.info

The Central Bank of the Republic of Turkey held its benchmark 1-week repo rate at 5.75%.  The Bank also held the overnight borrowing rate at 5.00% and kept the lending rate unchanged at 9.00%.  The Bank said: “The Committee has noted that core inflation may continue to rise in the short-term. However, due to the slowdown in economic activity, it is expected that the second round effects of exchange rate movements would be limited, and thus the increase in inflation would be temporary. Accordingly, the Committee has indicated that inflation outlook for the end of 2012 is consistent with the 5 percent target.”

The Turkish central bank cut the benchmark rate by 50 basis points when it held an emergency meeting in early August, the bank also cut its benchmark interest rate by 25 basis points to 6.25% in January this year.  The Turkish central bank also adjusted required reserves in late July.  Turkey reported annual consumer price inflation of 6.7% in August, compared to 6.3% in July, 6.2% in June, off from 7.2% in May, but up from 4.26% in April, and 3.99% in March, and above the Bank’s full year inflation target of 5.5%.  The Turkish Lira (TRY) has weakened by about 16.5 percent against the USD, and last traded around 1.795 against the US dollar.

www.CentralBankNews.info

By Cedric Welsch

Investing your money can be a trick game, even long time investors sometimes have trouble seeing through the haze and making intelligent decisions. For a new investor it may seem almost impossible to get a firm grasp of the stock market. With so many stocks to invest in, often new investors get confused, make decisions without fully researching them and often lose money. One way to cut through the clutter is to invest in easier to understand markets, such as the futures market and the foreign exchange market. In these markets goods and currency are exchanged, investors are basically wagering that certain crops or minerals will become more valuable, and buy low to sell high later. While both markets can include trading in currency, only the foreign exchange market deals with trading currency in real time. There are even forex news sources that only report on the foreign exchange market.

In a nut shell, the foreign exchange market (often referred to as “forex” or “fx”) deals in the buying and selling of foreign currencies. These are bought and sold on the assumption that the exchange rate fluctuations will be more favorable to one form than another. While there is a variety of factors that influence these changes, you can generally keep track of them with various fx news sources. However, it is possible to do it using other sources, after all you are investing in a country rather than a company at this point.

The forex market has a lot of advantages over traditional stock markets. With considerably fewer currencies it is a lot easier for a new investor to begin with forex than any other investment. In addition currency is extremely liquid which makes forex an attractive option for day traders. Finally, currency isn’t too terrible volatile, while a bad quarter can sink a stock, often times it takes considerably longer to really hurt a currency, allowing you a chance to get out before any major losses happen. The markets are also open nearly 24 hours a day, 7 days a week. Meaning you can constantly be trading and making money.

That’s not to say however that they aren’t disadvantages to forex trading. Since the stocks are not volatile they often will not rise quickly. In other words, little risk, little reward. The markets being open 24 hours can also be seen as a disadvantage, some may find it addicting and with no real “closing bell” it can become an obsession.

So what’s the best way to get started? Simple, begin by reading forex trading news and look for some online simulators. Investing with simulators is a great way to help prevent losses from early mistakes. After a few weeks you should have a good handle on it and begin investing real money. While there are many strategies out there, only you can decide which ones you are comfortable with.

With such little risk, and few disadvantages the foreign exchange market is a great place for new investors to begin their career. It may even be a great place to get young children interested in making their money work for them. So what are you waiting for? Get out there and start investing.

About the Author

There may seem to be inconsistencies with the various currency trading news that you often listen to. No wonder, there is unlimited number of forex reviews supporting different kinds of opinions.

The Bank al-Maghrib of Morocco held its main policy rate unchanged at 3.25%.  The Bank said: “Nationally, despite the slowdown in the global economic activity, domestic demand continued to hold up well…. In this context where the central inflation forecast is permanently consistent with the price stability objective and the balance of risks is tilted to the downside, the Board decided to keep the key rate unchanged at 3.25 percent.”  The Bank also said: “In view of the sustained liquidity shortage on the money market and considering the outlook for liquidity factors, Bank Al-Maghrib will carry out longer term repo transactions, as part of its operations to regulate the money market.”

AUDUSD may be forming a cycle bottom at 1.0148 on 4-hour chart. Further rally to test 1.0398 key resistance would likely be seen, a break above this level will indicate that the fall from 1.0764 has completed at 1.0148 already, then the following upward movement could bring price to 1.0800-1.0900 area. However, as long as 1.0398 resistance holds, one more fall towards 0.9927 is still possible.

Daily Forex Analysis

How $1-million can disappear

By Elliott Wave International

The bursting of the “debt bubble” which started in 2008 is far from over.

It’s the financial story of our age and it’s happening before our eyes. The full scope is hard to keep up with because it’s unfolding at various levels.

The top level is the sovereign debt crisis:

• National governments: Several in Europe and even the U.S.

• State and local governments: services slashed; vendors waiting to get paid.

• Corporations: financial institutions at home and abroad remain in questionable health. PIMCO Chief tells Bloomberg (9/13) “We’re getting close to a full-blown banking crisis in Europe.” And CNBC reports (9/14) “Moody’s Investors Service said…it downgraded the credit ratings of Societe Generale and Credit Agricole.”

• Individual Households: “under-water” mortgages; “new conservatism” toward spending.

As the credit bubble continues to deflate, the evaporation of vast wealth may follow on a historic scale. Please read this excerpt from the second edition of Conquer the Crash (pp. 94-95):

“…a lender starts with a million dollars and the borrower starts with zero. Upon extending the loan, the borrower possesses the million dollars, yet the lender feels that he still owns the million dollars that he lent out. If anyone asks the lender what he is worth, he says, ‘a million dollars,’ and shows the note to prove it. Because of this conviction, there is, in the minds of the debtor and the creditor combined, two million dollars worth of value where before there was only one. When the lender calls in the debt and the borrower pays it, he gets back his million dollars. If the borrower can’t pay it, the value of the note goes to zero. Either way, the extra value disappears…

“The dynamics of value expansion and contraction explain why a bear market can bankrupt millions of people. At the peak of a credit expansion or a bull market, assets have been valued upward, and all participants are wealthy — both the people who sold the assets and the people who hold the assets. The latter group is far larger than the former, because the total supply of money has been relatively stable while the total value of financial assets has ballooned. When the market turns down, the dynamic goes into reverse. Only a very few owners of a collapsing financial asset trade it for money at 90 percent of peak value. Some others may get out at 80 percent, 50 percent or 30 percent of peak value. In each case, sellers are simply transforming the remaining future value losses to someone else. In a bear market, the vast, vast majority does nothing and gets stuck holding assets with low or non-existent valuations. The ‘million dollars’ that a wealthy investor might have thought he had in his bond portfolio or at a stock’s peak value can quite rapidly become $50,000 or $5000 or $50. The rest of it just disappears. You see, he never really had a million dollars; all he had was IOUs or stock certificates. The idea that it had a certain financial value was in his head and the heads of others who agreed. When the point of agreement changed, so did the value. Poof! Gone in a flash of aggregated neurons. This is exactly what happens to most investment assets in a period of deflation.”

Now is the time to prepare for a deflationary depression by reading the 90-page Free Report titled Deflation Survival Guide. This eBook is now updatedwith Robert Prechter’s most important analysis and forecasts regarding deflation.You can read this free financial guide right away as a Club EWI Member (membership is free). Joining Club EWI is easy and just takes moments. See the Deflation Survival Guide on your screen by following this link>>

Sept. 20 (Bloomberg) — Adrian Schmidt, a foreign-exchange strategist at Lloyds Bank Corporate Markets, discusses the prospects for the Swedish krona and the pound. Schmidt also discusses the outlook for the euro and dollar amid fiscal uncertainty in the U.S. and Europe with Maryam Nemazee on Bloomberg Television’s “The Pulse.”