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After the devastating profit news from Ericsson, which is made doubly bad by the company's having raised the bar just last month and signaling upside surprise, it is time to consider an Ericsson-Motorola tie-up.
Both of these companies are getting their heads handed to them by Nokia (NYSE: NOK) (Cramer's Take). Both have complementary businesses: Motorola for handsets and cable systems; Ericsson for network equipment needed for next generation wireless. (Ericsson has a joint venture with Sony (NYSE: SNE) (Cramer's Take) that could be part of this business.)
Either way something must happen after last night's fiasco of an Ericsson quarter and Motorola's quarter tomorrow that could be the trough. It would not surprise me if Carl Icahn makes this happen, the way he put so much pressure on BEA Systems (NASDAQ: BEAS) (Cramer's Take) that it had to happen.
Now that we have seen the awful results from Ericsson it is time to add a fourth, a merger with that company to create a new company that can, at last, challenge Nokia's dominance.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in stocks mentioned.
Shares of Motorola, Inc. (NYSE: MOT) ticked up today, perhaps on reports that shareholder Carl Icahn will launch another attack on the company's management if its results don't improve. He told the Financial Times that "There is value there, and if that value doesn't manifest itself I, as an activist, would think very seriously about coming back."
Back in May, Icahn was rebuffed in his quest for a seat on the company's board of directors. Icahn still owns about 3% of the company and remains displeased with CEO Ed Zander -- the two traded barbs in the media earlier this year.
In the wake of a disappointing investment in WCI Communities, Inc. (NYSE: WCI), Icahn may be getting some swagger back with the success of his investment in BEA Systems, Inc. (NASDAQ: BEAS).
Icahn's last battle with Zander was fun to watch, even if it didn't lead to the desired results. I'd love to see a reprise.
TechCrunch reports that Greenpeace is chiding Apple Inc. (NASDAQ: AAPL) for the iPhone's toxic chemical ingredients. Moreover, Greenpeace's analysis suggests that the iPhone is losing "green ground" to other mobile phone competitors which are in the process of eliminating the iPhone's toxic chemicals.
According to Greenpeace, the iPhone contains toxic brominated compounds (indicating the presence of brominated flame retardants (BFRs)) and hazardous PVCs. Two of the "phthalate plasticisers" found at high levels in the iPhone headphone cable are classified in Europe as 'toxic to reproduction, category 2′ and are banned from use in all toys or childcare articles sold in Europe.
Greenpeace's analysis of competitors is most interesting: Nokia Corp. (NYSE: NOK) is totally PVC free while Motorola Inc. (NYSE: MOT) and Sony Ericsson already have products on the market with BFR free components. I am in Greenpeace's camp on this one. I also think that if Apple cleaned up the iPhone, it would find that green means green -- particularly in Europe.
That's something that Apple shareholders and Greenpeace would both celebrate.
In an interview with the Financial Times (subscription required), Carl Icahn said of Motorola (NYSE: MOT): "There is value there, and if that value doesn't manifest itself, I as an activist, would think very seriously about coming back."
OTHER PAPERS:
Universal Music is in talks with Sony Corporation's (NYSE: SNE) Sony BMG and Warner Music Group (NYSE: WMG) over launching a music subscription service to be called Total Music, which would be free on certain devices, reported the Telegraph.
While Emerging Memory Technologies CEO Sreedhar Natarajan would not confirm the deal, stating "I'm under a non-disclosure agreement," it is clear that EMT has been acquired by Taiwan Semiconductor Manufacturing Company (NYSE: TSM), the Ottawa Citizen reported.
Lehman Brothers analyst Douglas Anmuth believes Google (NASDAQ: GOOG) will launch a mobile phone similar to that of Apple's (NASDAQ: AAPL) iPhone in February, reported the Independent.
The Associated Press reported that Nomura Holdings (NYSE: NMR) announced that it will close its mortgage-backed securities business in the U.S., and expects a group pretax loss of between $240M and $510M for the quarter ended in September.
WEBSITES:
According to Unstrung.com's sources in the finance community, Cisco Systems (NASDAQ: CSCO) is expected to enter the WiMax arena before the end of the month, and Navini Networks is Cisco's preferred target.
Carl Icahn is using the press to indicate that he may take another run at getting Motorola (NYSE: MOT) to dump its CEO and increase its dividend or share buyback. At $19, the company's shares may be up a little, but are still well down from their 52-week high of more than $26.
In an interview with the FT, Icahn said "There is value there, and if that value doesn't manifest itself I, as an activist, would think very seriously about coming back." Icahn has had one unsuccessful proxy fight with Motorola already. He attempted to get on the company's board but was pushed back by management and current board members.
Icahn may have picked the perfect time to push for getting the company to change its ways. Motorola handset sales have been sliding sharply and this caused the company to lose money last quarter. Samsung has passed Motorola as the world's No.2 cellphone maker behind Nokia (NYSE: NOK).Recent third quarter results from Samsung and Sony Ericsson show that their unit sales continue to rise sharply.
All of this improvement in the fortunes of Motorola's competitors mean that it could have another bad quarter. That may cause large investors in the company to finally lose their patience. At that point, Mr. Icahn may be viewed at an excellent board member and agent of some radical change.
Carl Icahn is not targeting Motorola Inc. (NYSE: MOT) for any big shareholder action now. He is not trying to put himself on the board. But, yesterday he once again called for the company to break itself up.
Icahn said that "the company's handheld business could be worth about $10 billion," according to Reuters. This means that Icahn's math could be off, at least for current Motorola shareholders. The company has a market cap of $44 billion. It is hard to see how the firm's two smaller divisions would be worth more than $35 million.
Motorola's network and home mobility division has its set-top box operation and the business that sells infrastructure products for telecommunications. The operation had revenue of $2.5 billion last quarter and operating income of $191 million. Given what has happened to the share prices of competing operations like Nortel Networks Corp. (NYSE: NT) and Alcatel-Lucent (NYSE: ALU), it is hard to imagine that this could be sold for more than one time its $10 billion in annual revenue.
This leaves the company's enterprise mobility business, which does business for government and private networks. The division is in good shape. Last quarter, on $1.8 billion in revenue, the operation had $303 million in operating income. In the June quarter, this part of Motorola grew 41%. But, even if it is worth 3x sales, the $30 billion would bring Motorola's entire value to $50 billion.
Motorola (NYSE: MOT) is a long-term holding in the "Deep Discount Portfolio" compiled by Nathan Slaughter. This portfolio from his Half-Priced Stocks newsletter focuses on what he believes are the "most undervalued stocks on the market."
Regarding Motorola, he explains, "When we first added mobile phone and wireless equipment manufacturer Motorola to our Deep-Discount Portfolio back in March, we knew the company was headed for a temporary business slump."
As expected, he states, Motorola has struggled since then, surrendering market share to Nokia (NYSE: NOK) and Samsung and reporting back-to-back quarterly losses.
Furthermore, he adds, Wall Street has been frustrated with the firm's lack of new product development, particularly given the excitement surrounding the successful iPhone launch from Apple (NASDAQ: AAPL).
In recent years, Slaughter contends, Motorola has posted impressive 40% growth in handset unit shipments, tops in the industry. However, he observes, since hitting a homerun with the wildly popular Razr phone, sales have cooled off, and the company now needs to reinvigorate its lineup.
Fortunately, the advisor argues, management has outlined plans to do just that. In fact, the firm is planning to unveil not just one follow-up product, but a whole wave of new phones.
MOST NOTEWORTHY: The technology and services sector, Cognizant, Infosys Technologies and Silicom Ltd were today's noteworthy initiations:
Wachovia initiated shares of Dell (NASDAQ: DELL), Micron (NYSE: MU) and Nokia (NYSE: NOK) with Outperform ratings and IBM (NYSE: IBM), AMD (NYSE: AMD) and Motorola (NYSE: MOT) with Market Perform ratings.
CIBC started shares of Cognizant (NASDAQ: CTSH) and Infosys (NASDAQ: INFY) with Sector Outperformer ratings and a $100 target and $60 target, respectively. The firm views risk/reward as favorable.
Merriman initiated Silicom Ltd (NASDAQ: SILC) with a Neutral rating, citing valuation and low visibility into the quarter.
OTHER INITIATIONS:
BMO Capital started shares of Apple (NASDAQ: AAPL) with an Outperform rating.
Solei initiated Lincoln Electric (NASDAQ: LECO) with a Buy rating and $114 target.
American Technology Research said on 9/26 "we see RIMM delivering on high expectations; Stock gains are warranted."
RIMM October option implied volatility is at 71, November is at 59 and December is at 56; above its 26-week average of 43 according to Track Data, suggesting larger risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Lululemon, NaviSite, Research in Motion, Palm and Motorola were today's noteworthy initiations:
Lululemon Athletica (NASDAQ: LULU) was initiated with a Neutral rating and $42 target at Credit Suisse on valuation.
NaviSite Inc (NASDAQ: NAVI) was initiated with a Buy rating at Merriman after reporting solid Q4 results. Merriman expects the company's recent acquisitions to significantly increase margins.
Citigroup believes Research in Motion Limited (NASDAQ: RIMM) is not a pure momentum stock as fundamentals are driving share appreciation. They think the company's subscriber growth is beginning to hit critical mass and expect 15M subscribers within 12 months. The firm started shares with a Buy rating and $115 target.
Citigroup also initiated shares of Palm Inc (NASDAQ: PALM) with a Sell rating and $13.50 target, expecting the company's market share losses to continue to EPS to decline.
Citigroup started Motorola Inc (NYSE: MOT) with a Hold rating and $20 target, as they believe its recovery may take longer than expected, noting its new silicon platform does not come out until 2H08.
MOST NOTEWORTHY: EMC Corporation, Tesco PLC, SL Green Realty, Ariba and Motorola were today's noteworthy upgrades:
EMC Corporation (NYSE: EMC) was upgraded to Outperform from Peer Perform at Bear Stearns on valuation. Shares were also upgraded to Buy from Hold at Citigroup after coming off restriction to reflect the long-term benefits of virtualization and valuation.
Tesco (OTC: TSCDY) was upgraded to Buy from Hold at Citigroup on valuation and the company's growth prospects.
SL Green Realty Corporation (NYSE: SLG) was upgraded to Buy from Hold at Keybanc based on valuation. The firm views concerns regarding NYC office demand as overblown.
Cowen expects FY07 to be a tough year for Ariba Inc (NASDAQ: ARBA) as benefits from the on-demand subscription model are realized. The firm upgraded shares to Outperform from Market Perform.
Motorola Inc (NYSE: MOT) was upgraded to Outperform from Sector Perform at RBC Capital citing firming trends in its handset division.
U.S. stock futures were mildly higher this morning, indicating a similar higher start for stocks as bulls aim to extend the rally that started last week following the Federal Reserve's half point rate cut. However, the dollar fell to another record low against the euro ahead of tomorrow's consumer confidence and housing reports as traders speculate U.S. economic growth is slowing. Inflation and economic growth concern will likely cause investors to be more cautious today.
On Friday, U.S. stocks ended higher after Oracle and Nike reported positive earnings results. The Dow industrials ended 0.39% higher, the Nasdaq Composite 0.64% and the S&P 500 0.59% higher. For the week, the Dow Jones industrial average rose 2.9% last week, the S&P 500 2.8% and the Nasdaq composite 2.7%.
While today there are no economic reports due, this week will be full of them and investors, who put pressure on the Fed to lower rates, will scrutinize the reports to see if there's indication of inflation or if it is under control. Concern about the U.S. economy and where it is headed continues and this week will bring forth some data that could help determine if the economy isn't heading for recession. While indication of inflationary pressures may not allow the Fed to lower rates again, bond traders predict that the Federal Reserve will lower interest rates again before the end of the year as the economy comes to a standstill.
Overseas, Asian stocks finished mostly higher in the markets that were open today. European stocks are mixed.
In corporate news, General Motors (NYSE: GM) is facing a strike deadline set for 11 a.m. EDT today. The UAW, which set the deadline, represents 73,000 GM workers. Talks are ongoing.
Staying in the auto industry, Ford's (NYSE: F) CEO Mulalli said the automaker is in talks with potential buyers of the company's Jaguar and Land Rover brands.
EMC Corp. (NYSE: EMC) was upgraded to Buy from Hold by Citigroup and to Outperform from Peer Perform at Bear Sterns due to VMWare. Stock is up nearly 2% in premarket action.
Motorola (NYSE: MOT) shares are also up about 1.2% in premarket trading (7:09 a.m.) after being upgraded by RBC Capital Markets to Outperform from Sector Perform as trends improve in its handset division.
I am very pleased to have been given the opportunity to interview Dave Chalmers, Chief Operating Officer of Validas Inc. Validas is a startup company that is assertively carving out a niche for itself in the realm of wireless telecommunications billing processes. Mr Chalmers explained that Validas is built by a team that hails from companies such as Research In Motion (NASDAQ: RIMM) and Verizon (NYSE: VZ) Wireless, and he made clear that Validas presents its offerings supported upon the following premise: "Simplicity defines our service and detail defines our mission." In reflection of his company's declared intent, I found Mr. Chalmers to be both to the point and clearly definitive with his answers.
Dave Chalmers revealed to me that there's an extremely unique quality to the service offering that Validas puts forward in that Validas is thoughtfully positioned to benefit both wireless service consumers and wireless communications providers alike. Simply put, the focus of Validas is to save each and every wireless customer time and money by providing them with nearly instant clarity of their wireless communications bills, and then by giving the customer clear and concise input on how to best tailor their wireless service usage to more closely suit their particular needs and budget. The customer may then approach their service provider with a clearer definition of their needs and expectations, and the information needed to follow through on those expectations. Dave summed it up by telling me that above all else, "we are 100% focused on how we can help consumers and small businesses with our service."
Motorola Inc. (NYSE: MOT) shares are trading higher today after a Cowen & Co. analyst upgraded his ratings on both MOT and rival Nokia (NYSE: NOK) from Neutral to Outperform. He points to a severe fourth-quarter shortage in units as good news for the handset industry, compared to anticipated demand, which was originally expected to slow. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MOT.
After hitting a one-year high of $26.30 in October, the stock fell to a year-low of $15.61 in August. MOT opened this morning at $17.55. So far today the stock has hit a low of $17.35 and a high of $17.95. As of 10:55, MOT is trading at $17.81, up $0.46 (2.7%). The chart for MOT looks neutral but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $16 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade, we will make an 11.1% return in just 4 months as long as MOT is above $16 at January expiration. Motorola would have to fall by more than 10% before we would start to lose money.
MOT hasn't been below $16 for more than a day or two in the past year and has shown support around $16.75 recently. This trade could be risky if the company continues to hold diminishing market share, but even if that happens, this position could be protected by the strong support the stock formed around $16 over the past two months.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in NOK. He does own and control bullish hedged trades on MOT.
MOST NOTEWORTHY: Motorola, Nokia, General Mills, AudioCodes and OceanFreight were today's noteworthy upgrades:
Cowen upgraded shares of Motorola Inc (NYSE: MOT) and Nokia Corporation (NYSE: NOK) to Outperform from Neutral. The firm expects Motorola to benefit as the mobile phone market in North America improves as market supply tightens in Q4 and results in better unit pricing, while Nokia's new phones put it in a position to realize higher unit sales.
Credit Suisse upgraded shares of General Mills Inc (NYSE: GIS) to Outperform from Neutral citing management's improved execution and openness, and well as valuation.
Cantor raised shares of AudioCodes (NASDAQ: AUDC) to Buy from Hold after channel checks suggested that Q3 business is tracking well.
OceanFreight Inc (NASDAQ: OCNF) was upgraded to Buy from Neutral at Oppenheimer on valuation and strong dry-bulk fundamentals.
OTHER UPGRADES:
Lehman upgraded shares of Roche Holding (OTC: RHHBY) to Overweight from Equal Weight.
TheStreet.com's Jim Cramer says it's time to consider a tie-up between these two companies after the terrible results from Ericsson.
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Carl Icahn is using the press to indicate that he may take another run at getting 
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U.S. stock futures were mildly higher this morning, indicating a similar higher start for stocks as bulls aim to extend the rally that started last week following the Federal Reserve's half point rate cut. However, the 
I am very pleased to have been given the opportunity to interview Dave Chalmers, Chief Operating Officer of 
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