Tesla: Driving toward an IPO?

Tesla Motors, the Valley-based maker of electric sports cars, plans to go public soon, according to Reuters, which cites “two people familiar with the situation.” The story said an IPO filing is expected any day. The company declined to comment on speculation.

The company’s Roadster (pictured at right) sells for $109,000.

Investors in Tesla include Daimler AG, Valor Equity Partners, Technology Partners, Draper Fisher Jurvetson, DBL, The Westly Group and Compass Venture Partners. Among the individual investors in Tesla are CEO and founder Elon Musk (who also was a co-founder of PayPal and also runs the rocket start-up SpaceX), Jeff Skoll (a former eBay exec who now produces movies) ,  Hyatt hotels magnate Nick Pritzker, Google founders Larry Page and Sergey Brin, and Elon’s brother Kimbal Musk, the CEO of real-time search engine OneRiot, among others.

Something very peculiar is going on with a small-cap storage products company called Netlist Inc. (NLST).

A 100-person memory products company based in Irvine, California, Netlist had been bumping along in low-price, low-trading-volume obscurity until late October. Consider this progression, which is illustrated in the 1-month chart at left.

• On October 28, the stock closed at 58 cents, trading a whopping 20,900 shares, or total turnover of $12,122, barely enough capital to buy a decent used car.
• Volume started picking up a few days later, and so did the price. November 2, the stock traded 228,600 shares, and moved up to 71 cents. The next day, 128,700 shares, and 75 cents. Volume slowed the next few days, but by November 6 the stock had hit 83 cents.
• Over the subsequent three days, volume ratcheted up, hitting 626,900 shares on November 11, as the stock jumped 51% to $1.34.
• And then the stock kind of went nuts, with volume soaring into the millions of shares.
• Today, the stock is up $1.94, or 34.2%, to $7.61. Volume today is getting close to 28 million shares. The company has a little under 20 million shares outstanding
• Ergo, in 17 trading days, the stock has increased more than 1,200%.  Over the six trading days through today, volume is more than 100 million shares, or more than 5x total shares outstanding.

On Monday, the company announced that at the Supercomputing ‘09 trade show, it demonstrated - severe jargon ahead! - “the world’s first 16 GB 2 virtual rank double-data-rate three, registered dual in-line memory module,” which it calls HyperCloud. The company asserted that the company’s technology on industry standard servers “increases server memory capacity and bandwidth to enhance application performance in converged infrastructures.”

That’s all very impressive sounding, but is it really so astonishing that the company’s true value is now 10x or more higher than it was a month ago?

I would note that earlier this month the company posted Q3 sales of $6.5 million, down from $28.9 million a year ago, with a loss of $2.1 million. For the nine months, sales were $11.8 million, down from $60.4 million, resulting in a loss of $9.9 million. Netlist blamed the miserable numbers on “a reduction in demand from the company’s customer base mainly due to the commoditization of certain product offerings.” The company added that it continues to invest heavily in R&D “as it executes on the planned technology transition to its next-generation memory subsystems.”

I’ve got calls into the company’s spokespeople; once I get a response, I will pass along an update.

“Although the economy is improving, we think the recovery will be gradual,” he writes. “We are concerned about weak consumer spending, especially for electronic devices this Christmas shopping season. We believe IT spending in the semiconductor industry will be muted in the first half of 2010, because part of the sequential growth in that industry is driven by inventory restocking.”

Yin trims his October 2010 fiscal year revenue estimate by $56 million to $1.37 billion, cutting his EPS forecast to $1.36, from $1.42.

SNPS today is down 22 cents, or 1%, to $22.60.

Carroll’s downgrade is in connection with his latest monthly survey of the U.S. smart phone market, in which he talked to 100 service reps at the four larges U.S. cellular operators. He RIMM was the best selling vendor, with about 44% market share in October, but notes that was down 10 percentage points from September. The falloff, he says, reflects a flurry of new entrants to the market. “Although we expected the company to see some pressure in our survey, the magnitude of the drop was greater than we originally thought,” he writes. “We feel that some high-end estimates may come down” in the months ahead.

Meanwhile, Pacific Crest analyst James Faucette writes today that there are mounting risks to his current forecast for RIMM’s February quarter of 10 million units and 4.2 million net net subscriber ads for RIMM. He thinks the company is on track to hit his target for the November quarter of 9.6 million units, he worries that net sub adds could fall short of his 4.1 million forecast, “as new Android devices have hurt sell-through at Verizon and Sprint, and because sales have been heavily skewed toward upgrades from older BlackBerry models.”

Faucette adds that his checks find Storm 2 sales at Verizon “continue to disappoint.”

RIMM today is up $1.06, or 1.8%, to $59.90.

Piecyk even proposes terms: he thinks MetroPCS should issue 3 of its shares for each LEAP share.

“We believe that Leap and MetroPCS should merge because we estimate it would unlock $2 billion of value from the increased strategic positioning of its combined spectrum position as well as the more than $200 million of annual cost synergies that could be achieved,” he writes.

Investors, he says, should short PCS and go long LEAP in a ratio of Leap’s stock price to that of MetroPCS “because we believe it’s reasonable that these companies will merge at a ratio that is at least 20% more than the current ratio of 2:1.”

The analyst notes that the timing of a transaction could be impacted by one of the companies putting itself up for sale, or the ousting of the existing board members by disgruntled holders.

The concept of combining the two pre-paid wireless service providers has been discussed for years; Piecyk’s piece seems to have spur a resurgence of speculation.

In today’s trading:

• LEAP is up $1.20, or 9.4%, to $13.95.
• PCS is up 48 cents, or 7.8%, to $6.60.

Dell (DELL) shares have dropped 10% after yesterday’s highly disappointing earnings report for the fiscal third quarter ended October. As I noted yesterday, the company missed on both the revenue and EPS lines, posting results that suggest the company is continuing to lose share to its computer hardware rivals.

As noted, the company reported revenue of $12.9 billion, up just 1% sequentially, down 15% from a year ago, and below the consensus at $13.2 billion. Per-share earnings of 23 cents a share missed by a nickel.

There are largely two schools of thinking on Dell right now.

The bulls generally focus on the prospects for a 2010 pick-up in IT spending generally and PCs specifically. Since Dell has higher exposure to corporate PC spending than Hewlett-Packard (HPQ), IBM (IBM), Apple (AAPL) or more or less anyone else you can think of, the theory is that they are the perfect play on the much-discussed, but yet-to-materialize PC refresh cycle.

On the other hand, Dell despite massive cost cutting doesn’t seem to be able to lift gross margins; it is clearly losing share; and  it is under-exposed relative to rivals to a pick-up in consumer spending. Combine that with the integration risks associated with the pending acquisition of Perot Systems, and an expectation that there could be more deals to come, and you have a situation which many analysts suggest avoiding.

Here’s a rundown on some of this morning Street commentary on the stock. Showing them some pity, I’ll run down the bull case first, and then switching over the skeptics:

Bulls:

• David Wong, Wells Fargo: “Dell is in the process of working through many of its recent problems and we expect the company to return to gaining market share in the PC market, perhaps at some point in 2009.”
• Richard Kuegele, Needham: “Like a well-funded baseball team that can’t seem to consistently make the playoffs, Dell seems to be marking time until its star player (the corporate buyer) gets off the disabled list in 2010.” (Wow, that was kind of a be belabored metaphor, eh?)
• Brian Alexander, Raymond James: While he notes that “revenue missed our projection in every product category,” with shortfalls in desktops, software and peripherals, he adds that he “heard nothing” to change his optimistic view, and advises using today’s weakness as a buying opportunity. “We continue to believe that enterprise hardware demand will recover before a major PC refresh, making Dell more of a late cycle play in an IT demand recovery.”
• Dinesh Moorjani, Broadpoint.Amtech: “While Dell is seeing softness in the near-term from continued weakness in the enterprise PC market and component cost pressures, our fundamental thesis remains unchanged. we continue to view Dell as a great way to get exposure to a 2010 corporate PC/server upgrade cycle.”
• Richard Gardner, Citigroup: “We are confident that a significant corporate PC replacement cycle will begin in 2010, and Dell is one of the best ways to take advantage of this cyclical recovery.”
• Toni Sacconaghi, Bernstein Reasearch: “We worry incrementally that we have not seen more progress to date on margin improvement, particularly given that Dell has now redesigned the majority of its PC portfolio to be cost competitive,” he writes. “WE continue to believe that Dell should capture meaningful leverage in an economic recovery, but some of the upside has been blunted by weaker gross margin progress than we had hoped.” (OK, that wasn’t so bullish, but he does keep an Overweight rating on the stock.)

Not bulls:

• Kathryn Huberty, Morgan Stanley: “Dell remains under-exposed to key market drivers - consumer, emerging markets and channel build - which will continue to pressure near-term results relative to peers.”
• Doug Reid, Thomas Weisel Partners: “Current valuation largely reflects a healthy recovery in PC and broader IT spending in CY 2010. Separately, we believe that Dell faces a growing long-term competitive threat from HPQ, IBM and CIsco.”
• Scott Craig, Bank of America/Merrill Lynch: “While we expect Dell to be well leveraged to a recovery in corporate IT spending and the Perot acquisition makes strategic sense, we continue to believe Dell has much work to do to post consistent, improving results.”
• Ben Reitzes, Barclays Capital: “This earnings report will raise some concerns with investors, given Dell’s revenue trends are tracking well behind competitors.”
• Amit Daryanani, RBC Capital: “Dell’s team is doing the right things to position the company ahead of a recovery, but we are cautious on the stock given multiple moving pieces.”
• Mark Moskowitz, J.P. Morgan: “Dell’s high exposure to enterprise PCs continues to weigh as its relative PC unit performance trails the broader market,” he writes. He also thinks Apple and HP are taking incremental share. And he adds that “the combination of rising total inventories and lost market share in PCs is not likely to sit well with investors.”
• Jayson Noland, Baird: “We recommend investors wait to invest in shares given uncertainty around the timing and magnitude of an enterprise PC refresh in addition to integration risks associated with the PER acquisition.”
• Bill Shope, Credit Suisse: “Dell’s results will continue to be disappointing in coming quarters as its market share and profits should remain constrained.”
• Shaw Wu, Kaufman Bros.: He says that the company’s strategy is “nor working,” as it “continues to lose market share and profitability despite multi-year efforts to turn the company around.”
• Bill Fearnley, FTN Equity Capital: “We recommend that investors stay on the sidelines as believe weak end user demand will continue to weigh on rwevenues and EPS growth,” he writes, noting also that he does not believe Windows 7 will drive a near-term spike in PC upgrades.
• Andy Hargreaves, Pacific Crest: “Dells’s margins are under threat from competition and component pricing, and the company is likely to pursue additional acquisitions that could distract from core execution.”

Dell today is down $1.60, or 10.1%, to $14.27.

Possible partners for the business reportedly include MetroPCS (PCS), Clearwire (CLWR) and AT&T (T), as well companies outside the industry. The piece also said that the German company is no longer contemplating a bid for Sprint (S), a possibility which had been rumored earlier this year.

The deal was co-managed by BofA Merrill Lynch and William Blair & Co.

ARCL today is up $2.28, or 13.8%, to $18.78.

The upshot could be an adjustment of the structure of the joint venture which could reduce Real’s stake to below the current 51%, to 50% or slightly less. The company said the discusses are in the preliminary stages.

The Real partnership with MTV in 2007 was supposed to make the two companies a more viable competitor to Apple (AAPL) iTunes and other online music service, but subscription music services still haven’t caught fire.

RNWK today is down 11 cents, or 3.1%, to $3.47; the stock was trading north of $6 at the time it cut the deal with Viacom just over two years ago.

Oracle requested the extension in order to complete its response to the EU’s concerns, which center on Oracle’s acquisition of Sun’s MySQL database software unit.

The new deadline is January 27.

Ye gads, what happened to TheStreet.com (TSCM)?

Earlier this week, the company announced that Nasdaq has granted the company a 180-day exception - until February 8, 2010 - to get back into compliance with listing requirements. In particular, the company has yet to file financial results for the June quarter. (Or for the September quarter, for that matter.)

The delays, the company explained, reflect a previously disclosed discovery of revenue recognition issues at Promotions.com, a business TheStreet acquired in August 2007; it says the issue could result in an earnings restatement. When the review will be finished, the company says it can’t say for sure.

Needham analyst Mark May yesterday decided to abandon ship; he’s dropping coverage of the stock. He notes in his final research piece that the company has not reported financial results since May, when it posted a 26% drop in Q1 revenue to $14 million, along with a pro forma loss for the quarter - the March quarter - of $3 million.

Given the lack of current SEC filings and financial results, the ongoing accounting investigation, recent management changes and expectations that the company will continue to face a “challenging environment” at least for the near-term, May writes, he’s decided to drop coverage, though he does say that the company’s audience, content and brand remain valuable assets.

TSCM today is down 2 cents, at $2.50; the company’s market cap is down to $76.5 million. That’s not much more than the $65 million in cash the company had at the end of March; but that was close to 8 months ago; how much is left, only the CFO knows. (Update: As May points out in an e-mail, the company doesn’t  actually have a permanent CFO at the moment; they’re looking for a new one. So maybe nobody knows.)

NOK today is down 36 cents, or 2.7%, to $13.25.

In an interview with Tech Trader Daily late yesterday, Aruba CEO Dominic Orr said the company expects FY Q2 revenue of $58 million to $60 million, with non-GAAP EPS of 5 cents a share; the Street has been expect $57.3 million and 4 cents.

Orr says the company was “very pleased” with the latest quarter, asserting that the company gained some market share in the quarter against chief rival Cisco (CSCO). He notes that the company has benefited from an accelerated adoption of the 802.11n wireless standard, which accounts for 42% of sales in the latest quarter; he says the transition to the new standard is running a bit ahead of expectations.

Orr says Aruba has been pushing to expand its business from its core market of campus wireless networks - for universities, hospitals, retail warehouses and other applications with mobile users - to two new markets. One opportunity, he says, is Ethernet port replacement: he says companies can save substantially when building out new facilities by relying less on wired network connections and more on 802.11n secure wireless links. Another target: providing secure access for workers outside the office, while at home or traveling.

So why is the stock down? Well, for one thing, the stock is hardly cheap. Needham analyst Greg Mesniaeff writes in a note this morning that the stock’s valuation is “full,” with the stock trading at 44x his CY 2010 EPS estimate of 12 cents.

“Although improving IT spend trends and signs of stabilization point to a more positive near-term outlook for ARUN,” he writes, “we believe the positive news flow surrounding Aruba is largely baked in.”

ARUN today is down 55 cents or 5.7%, to $9.03.

Carbone notes that the stock is up 17% since reporting “stellar” FY Q4 results on October 21, and advises that the time has come to take profits. He keeps his $48 price target; the stock closed yesterday at $48.37.

“We remain constructive that F5’s commanding lead in application delivery controllers is likely to grow, given the velocity of innovation remaining in the market and the company’s ability to increase performance and functionality relative to the competition,” he writes. Carbone adds that “in the intermediate and long term,” revenue will be driven by advances in adjacent technologies, such as virtualization and cloud computing.

Enterprise spending, he says, is rebounding after almost 18 months of constrained budgets.However, he writes that he has concerns about increasing R&D intensity and the corresponding impact on margins. “With the stock trading relatively in-line with its historical five-year median forward 12-month P/E at peak operating margins,”he concludes, “we consider the shares fairly priced.”

FFIV this morning is down 84 cents, or 1.7%, to $47.53.

“Despite a challenging consumer environment, Liberty has successfully growth EBITDA at QVC,” he writes in a research note this morning. Bazinet points out that QVC in Q3 posted modest revenue growth of 1.6%, with strong EBITDA growth of 9.9% - domestic cash flow grew 10.4%, which international was up 8.8% despite currency headwinds.

Meanwhile, Bazinet thinks the John Malone-controlled could enhance its value through one of two transaction scenarios.

One possibility, he says, would be for Liberty to take control of QVC rival HSN (HSNI), in which it already holds a large stake. Another possibility would be to swap Interactive’s passive equity stakes - the company is a repository for Malone’s investments in a variety of companies, including IAC/Interactive (IACI) and its spinoffs - HSN, Interval (IILG), TicketMaster (TKTM), Expedia (EXPE), Lending Tree (TREE) - and GSI Commerce (GSIC) - for cash held by sister company Liberty Capital (LCAPA).

Malone, the ultimate financial engineer, can be counted on to eventually restructure the company; he can’t help himself. That’s what he does.

Yesterday, LINTA fell 30 cents, to $10.74.

For the quarter, Verigy posted revenue of $97 million, up 11% sequentially, and slightly better than the $96.4 million the Street had expected. A non-GAAP loss of 12 cents a share was smaller than the Street projected loss of 20 cents. Orders of $109 million were up 17% sequentially.

For FY Q1 ending in January, the company ses revenue of $105 million to $115 million, with a non-GAAP loss of 2-9 cents a share; the Street had been looking for $105.6 million and a loss of 14 cents.

In late trading, VRGY is up $1, or 11.1%, to $10.

The company did not give a specific fiscal 2010 forecast, but it did say total license revenue should be higher than the $22.5 million posted in FY 2009. The company expects to return to non-GAAP profitability, and to generate positive operating cash flow.

In late trading, CHRD is off 4 cents, at $3.18.

In late trading, ARUN is down 43 cents, or 4.5%, to $9.15.

ADCT recently switched to a September 30 fiscal year end, from an October 31 year. For the two-month stub Q4 ended September, the company posted revenue of $183.9 million and a non-GAAP profit of 6 cents a share. For the pro forma three month period ended September, the company had revenue of $293.6 million, and an adjusted profit of 17 cents.

For the December quarter, the company sees sales of $250 million to $275 million, which implies a sequential decline of up to 15%. The company sees a GAAP loss of 5-15 cents a share, including a nickel-a-share charge for amortization expense, and excludes other restructuring charges that at this point aren’t known.

ADC said that this is normally a seasonally soft period, but that “in the current quarter, a larger sequential decline is anticipated due to expectations that major carrier spending, in aggregate, will be down considerably more in the December quarter than in the past.”

ADCT in late trading is down 90 cents, or 13.6%, to $5.74.

For Q2, however, the company sees revenue of $800 million to $835 million, with non-GAAP EPS of 29-32 cents; the Street has been expecting $833 million and 37 cents. For the full year, the company affirmed its previous forecast of $3.3 billion to $3.43 billion in revenue, with non-GAAP operating income of $985 million to $1.025 billion.

In late trading, INTU is down 65 cents, or 2.2%, to $29.62.