All Things Digital

Double-Take Software (DBTK) shares fell sharply after the company earlier today said third quarter results would come in shy of previous guidance.

The company now sees revenue of $23.8 million to $24 million, below its previous view of $25.7 million to $26.3 million. Double-Take sees non-GAAP profits of 14-15 cents a share, down from its previous guidance of 15-16 cents.

“In the latter part of September customers delayed closings on a number of expected deals in both Europe and in the American regions.”

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Adding fuel to the raging fire on which stock valuations are now burning, SAP (SAP) co-CEO Henning Kagermann this morning warned in a statement that market developments of the last few weeks have been “dramatic and worrying to many businesses,” which has triggered a “very sudden and expected drop in business activity” late in the company’s third quarter.

“Throughout the third quarter we felt quite positive about our ability to meet our expectations,” he said. “Unfortunately, SAP was not immune from the economic and financial crisis that has enveloped the markets in the second half of September, causing us to report numbers below our expectations.”

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Isn’t the theory supposed to be that in time of economic stress, Americans hunker down at home and watch more videos? Well, maybe not.

Netflix (NFLX) this morning reduced its guidance on subscriber growth for both the third and fourth quarters, while very slightly adjusting its Q4 financial outlook.

For Q3, the company says EPS will be within its previous guidance range of 26-34 cents a share on a GAAP basis. Excluding a one-time $6.5 million credit related to its August service interruption, the company sees revenue within previous guidance of $343 million to $348 million. But the company also said it finished Q3 with 8.672 million subscribers, just below its previous guidance of 8.675 million to 8.875 million subscribers. Subscriber were up 23 percent year over year, and 3 percent sequentially. The company said August subscriber growth was “unusually weak.” September regained momentum, but with “results slightly below original expectations, likely due to the economic climate.”

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IDG News Service is reporting this afternoon that Microsoft (MSFT) has instituted a hiring freeze, apparently in response to the deteriorating economy. According to IDG, the company started notifying employees of the freeze today. The company has 91,000 employees worldwide, including 54,000 in the U.S.

I’m seeking confirmation from the company, and will update if/when they respond.

Update: Microsoft denied it has set a hiring freeze, but it is reviewing its hiring plans.

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Barclays Capital analyst Ben Reitzes trimmed his EPS estimates and target price today on Apple (AAPL). He now expects EPS for the September 2008 fiscal year of $5.21, down from $5.23; for FY ’09 he sees $5.65, down from $6.05. For FY Q4, he sees $1.11, down from $1.12 previously. Reitzes lowered his target price for the stock to $135, from $180.

He also lowered his Mac and iPod unit forecasts “given checks that indicate slower sales by the day as well as negative checks within the supply chain and prospects for more subdued demand for the upcoming holiday buying season.” He now sees Mac unit sales in the September quarter of 2.76 million, down from 2.96 million; but he increased his estimate on iPhone units to five million from 3.8 million.

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Citing concerns about the softening macro economy and ongoing market volatility, UBS software analyst Heather Bellini cautioned this morning that estimates for the sector “need to come down materially” for the second half and for 2009. She also asks whether software companies that typically provide guidance for the year ahead will continue the practice given the lack of visibility, and she cautions that foreign exchange–which has been a tailwind for the stocks for the last eight quarters–will provide a headwind in the fourth quarter and into next year.

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OK, now what’s wrong?

Just yesterday, the ever-volatile solar stocks staged a nice rally, while investors celebrated as the Senate tacked an eight-year extension of the solar investment tax credit onto the incredibly bloated financial bailout bill, which passed last night by a wide margin. The bill now goes over to the House. If approved in its current form, the bill would extend the current 30 percent tax credit for solar panel installations through 2016. That would be a relief for the domestic solar industry, which has been fretting for months about the possibility that the credit might not be renewed when the current credit expires at the end of this year.

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Shutterfly (SFLY) shares are down sharply today after Cowen’s Jim Friedland started coverage of the online photo services company with a Neutral rating. Friedland writes that he sees 17 percent compounded growth over the next five years, but that he expects the company “to continue to experience lower demand and returns in the near-term.” Friedland sees the company hurt by the weak macro economy, growing price competition and increasing R&D spending to develop new printing products, design features and a photo-sharing service.

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Microchip (MCHP) and ON Semiconductor (ONNN) made a joint unsolicited bid to acquire Atmel (ATML) today for $5 a share in cash. The deal values Atmel at $2.3 billion.

In a letter to Atmel yesterday–which was released today by Microchip and ON Semi–the two companies say they were “deeply disappointed” that Atmel’s board “appears unwilling to consider a transaction at this time under any circumstances.”

The letter notes that the acquisition would be led by Microchip, and financed in part by the sale of Atmel’s nonvolatile memory, RF and automotive businesses to ON Semi. The rest of the financing would come from Microchips cash position.

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There’s new selling pressure on eBay (EBAY) this morning, after Morgan Stanley’s David Joseph cut his rating on the stock to Equal Weight from Overweight.

“Seller checks and proprietary data indicate that trends deteriorated more than expected in Q3 amid eBay’s ongoing transition in its core marketplace, greater economic sensitivity and poor demand,” he writes in a research note today. Joseph writes that he now expects greater deceleration in global gross merchandise volume in Q3 than previously expected, with a possible year-over-year decline in the U.S. And he also cautions that eBay faces a “challenging holiday season.”

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Micron (MU) posted worse-than-expected results this afternoon for its fiscal fourth quarter ended Aug. 28.

The memory chip company posted revenue of $1.45 billion, below the Street consensus at $1.54 billion. The company lost $344 million in the quarter, including a $205 million write-down of inventory and work in progress, offset by a gain of $70 million for price adjustments for NAND products purchased from other suppliers in prior periods. Before those items, the company lost $209 million, or 27 cents a share; the Street had expected a loss of 23 cents a share.

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There’s troubling brewing at eBay (EBAY).
In a research note late yesterday, Merrill Lynch Internet analyst Justin Post said checks with the Professional eBay Sellers Association indicate that eBay’s gross merchandise value growth in the U.S. “turned negative” in September. Post says “channel checks remain troubling,” and that the slowdown reflects a demotion of eBay listings in Google (GOOG) search results as well as an influx of listings that are less attractive to buyers.

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Citigroup’s Brent Thill today chopped estimates and/or target prices on 11 of the 22 software companies he covers to reflect–you guessed it–the softening macro economy. Thill writes in a research note this morning that he expects negative Street revisions across the group over the next few quarters. The analyst reports that checks on current demand in the enterprise software sector “are not encouraging.” He writes “a full budget flush this year sounds less likely, and visibility is diminishing.” Thill is not that concerned about Q3 results, but he does worry about Q4 guidance–and the possibility of “a more pronounced” Q1 slowdown.

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American Tower (AMT) shares are on the rise after Goldman Sachs analyst Jason Armstrong upped his rating on the cellular tower operator to Buy from Neutral, adding the stock to the firm’s Conviction List with a $53 price target.

In a research note, Armstrong points out that the stock lately has been under significant pressure as tower stocks have underperformed due to “leverage characteristics and perceived risks around ownership concentrations.” Armstrong notes that AMT replaces rival Crown Castle (CCI) on Goldman’s Conviction List; while CCI remains Buy rated, he writes that his preference is for “the defensive balance sheet name” in AMT.

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Solar industry shares are off to a rousing start this morning on news that the Senate plans to add the stalled “tax extender” legislation, which includes an eight-year extension to the solar investment tax credit to the pending bailout bill for the financial sector.

In a research note this morning, Cowen’s Robert Stone notes that the Senate will add the tax extenders to the bill, which the Senate is expected to vote on later today. Vishal Shah, solar analyst at Barclays, asserts in a note this morning that Senate approval of the bill could be followed by a House vote on the measure as soon as tomorrow.

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