Zacks Analyst Blog Highlights: Titanium Metals, Boeing, Hewlett-Packard, IBM and Cisco Systems - Press Releases

For Immediate Release

Chicago, IL – June 16, 2010 – Zacks.com Analyst Blog features: Titanium Metals Corporation (TIE), Boeing Company (BA), Hewlett-Packard Company (HPQ), International Business Machines (IBM) and Cisco Systems Inc. (CSCO).

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Here are highlights from Tuesday’s Analyst Blog:

Titanium Metals Downgraded

We are downgrading Delaware-based Titanium Metals Corporation (TIE) from Outperform to Neutral.

Titanium Metals is the world's largest supplier of high quality titanium metal products. All of the company’s revenues are generated from titanium operations, mainly in the US and Europe. The company has three sub-segments: Mill Products (billet, bar, plate, sheet and strip), Melted Products (ingot, electrodes and slab) and Other Titanium Products.

In the first quarter of 2010, Titanium Metals’ net earnings of 9 cents per share were significantly higher than the Zacks Consensus Estimate of 3 cents. We expect a strong pick-up in titanium demand in the long term, driven by higher defense spending from the government. The aerospace sector, Titanium’s key consumer market, has started showing signs of recovery. After a two-year delay, the Boeing 787 model from Boeing Company (BA) completed its first flight in December 2009, which should drive demand for Titanium’s products.

Additionally, Titanium Metals’ products are finding new areas of growth in commercial aerospace, defense, energy and several other industries. Titanium is also being adopted in geothermal energy extraction and oil & natural gas production. Chemical processing, consumer and sporting goods are some of the other areas of growth.

Geographically, the rapid growth of China and other Southeast Asian economies has brought with it an unprecedented demand for titanium-intensive industrial equipment. We believe the aggregate demand from emerging markets could grow at a double-digit rate in the long term.

However, Titanium Metals’ margins remain under pressure due to low capacity utilization levels and downward price pressures. In 2009, the company’s major production facilities operated at less than 50% of its installed capacities. These plants operated at around 88% of capacity in 2006 and 2007 and 81% in 2008. The cyclical nature of the commercial aerospace industry, which represents a significant portion of Titanium Metals’ business, creates uncertainty regarding its future profitability.

HP Grabs Phoenix Technologies

Right after making headlines for a lawsuit against New Jersey-based Turbon International Inc., the largest personal computer (PC) manufacturer Hewlett-Packard Company (HPQ) has hit the headlines again for acquiring three virtualization software lines from software maker Phoenix Technologies Ltd.

The deal is valued at $12.0 million and will give Phoenix the opportunity to focus on the core systems software market. We believe that, in keeping with the revival in demand for software and IT products, the demand for virtualization software will increase in an attempt to improve the productivity of each server. The software lines that will be acquired by HP include HyperSpace, HyperCore and Phoenix Flip products.

HP has always grown through strategic acquisitions. During fiscal 2008, the company acquired nine companies, the largest of which was Electronic Data Systems (“EDS") for approximately $13.9 billion. The company’s Technology Solutions Group (“TSG") segment shifted its outsourcing services operations and a part of its consulting and integration activities to EDS. We believe the EDS acquisition will give the services portion of the TSG business a stronger foothold to compete against its largest rival, International Business Machines (IBM).

This apart, in November 2009, the company declared that it will be acquiring networking major 3Com. This $2.7 billion acquisition has put HP in open competition with networking leader Cisco Systems Inc. (CSCO). It also strengthened its position in the Chinese market, as 3Com has good exposure to China, both in terms of manufacturing and sales.

After overtaking all its competitors in the PC market, the tech major’s aggressive measures have now enabled it to capture the top slot in the server business. As per the recent report published by the technology research firm Gartner, HP generated $3.4 billion in server revenues during the first three months of the current year, up 16.0% compared with the year-ago period.

On the other hand, during the same period, the server revenues of IBM dipped 2.1% to $3.05 billion. The performances of the two companies in the last quarter put HP in the leadership position, with a 31.5% market share, exceeding IBM’s market share of 28.4%. The virtualization software acquired from Phoenix may further enhance the potential of HP’s server segment, as the company may strategically bundle these software with its servers, which may offer better value to end customers.

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