My latest column is up at RealMoney.

TTM Technologies (TTMI) manufactures printed circuit boards for the high-end commercial and aerospace/defense markets. The company focuses on a “quick-turn” model that can provide custom-fabricated PCBs to customers within as little as 24 hours. This strategy allows TTM to charge a premium for quick-turn services (which account for 15% of total revenue) and insulates TTM from the extreme cyclicality faced by most electronics manufacturing services (EMS) providers. In the last 10 years, the company reported just one year of net losses (2002).

TTM’s largest original equipment manufacturer customers in 2007 were Cisco (CSCO) , Honeywell (HON) , Juniper Networks (JNPR) , Northrop Grumman (NOC - Annual Report) and Raytheon (RTN) ; these OEMs accounted for a combined 24% of total sales. More than half of total sales were to EMS providers including my favorite, Celestica (CLS - Annual Report) , as well as Flextronics (FLEX) , Jabil (JBL) and Plexus (PLXS) . The diversity of customers and end markets should shield the company from short-term market share fluctuations among customers.

Here’s how the company fares in the Stock Market Beat models:

• Earnings momentum - positive
• Earnings quality - positive
• Price momentum - positive
• Free cash flow - positive
• Return potential - neutral

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

The latest Fortune Magazine has an article titled: Can this man save the grid?

According to the Edison Electric Institute, utilities over the next 20 years will spend hundreds of billions of dollars on infrastructure improvements, including computers, sensors, and networking systems….

One of the players best positioned to capitalize on the rollout of the smart grid is a Silicon Valley entrepreneur named Ray Bell. Bell, 52, a veteran of Oracle (ORCL - Annual Report), Cisco (CSCO), and a network services company he started called SmartPipes, has focused on what may be the most profitable component in the new system: the electric meter that sits in your basement and ticks off the watts as you consume them.

I have been an owner of the market leader in smart meters, Itron (ITRI), for some time. I found the article interesting because it uncovers a potential competitor I hadn’t previously worried about.

It costs roughly $300 apiece to replace them with one of Bell’s so-called smart meters. Southern California Edison will spend $1.7 billion over the next four years to equip 5.3 million homes with smart meters made largely by competitor Itron, based in Liberty Lake, Wash. Bell thinks he has made a better one.

That doesn’t bother me much. Of course Bell thinks his is better, otherwise he wouldn’t have bothered to make it. History is littered with products that are technologically better but fail in the marketplace. More worthy of concern, to me, is his sales force.

He has some important backers. His main partner is the biggest, most dependable name in the business: General Electric (GE - Annual Report).

GE gives instant credibility, clout and power to the product, as well as making it possibly less likely that GE would want to acquire Itron.

There’s probably enough room in the market for both players, but it is worth keeping an eye on the potential competitive effects.

Disclosure: At time of publication, William Trent owns shares of Itron (ITRI).

This article was originally published at RealMoney on September 26, 2007.

My article last week about mining the PPI report for stock ideas was so well received I thought I’d share another of my favorite taxpayer-provided idea generators, the durable goods report. Published by the U.S. Census Bureau, the report has a similar breakdown by industry of durable goods orders, shipments, inventories and backlog.  I came away with 28 potential ideas for further research.

In line with much of the recent economic data, the headline durable goods number was weaker than expected. To quote from the report, “New orders for manufactured durable goods in August decreased $11.3 billion or 4.9 percent to $219.5 billion, the U.S. Census Bureau announced today…. Shipments of manufactured durable goods in August, down two of the last three months, decreased $3.4 billion or 1.6 percent to $216.7 billion.”

But in this case, I think focusing on the forest means you could miss out on some of the more attractive trees. I gathered the data from the Census Bureau and created charts showing the year/year change in durable goods statistics for a variety of industries hoping to find some areas worth further consideration. Keep in mind, this is an initial screen for idea generation, not a full-fledged analysis of any of the names. You wouldn’t want to buy the stocks listed here without further research. That caveat aside, let’s look at some of the better performing industries.

First up is technology – computers and electronic products. Although 3.3% order growth year/year and essentially flat shipments may not be the type of growth investors typically look for from tech, it is a clear improvement from recent months. Inventories are starting to be drawn down and backlog remains strong.

But there are areas of strength and weakness within tech. Specifically, computers (and related products) themselves are starting to look strong, with backlog headed through the roof and inventories in check.

The fairly obvious stock ideas from this industry include Apple (AAPL), IBM (IBM - Annual Report) and Hewlett Packard (HPQ - Annual Report). If things keep getting better (and the company figures out how to file its required regulatory reports) Dell (DELL) might even look interesting again. Stretching a bit further, Sun Microsystems (a href="http://stockmarketbeat.com/blog1/category/tech/sunw/">SUNW - Annual Report) and Lexmark (LXK) come to mind. And don’t forget the storage plays, which also showed up on the PPI hotlist. The names I mentioned then were Brocade (BRCD), EMC (EMC - Annual Report), Iomega (IOM), Hutchinson (HTCH), Quantum (QTM), SanDisk (SNDK - Annual Report), Seagate (STX - Annual Report) and Western Digital (WDC).

Communications equipment is also showing some signs of strength. Though the latest month was down, the trend seems to be up.

I have actually analyzed Motorola (MOT - Annual Report), so that would be a play to include here. Cisco (CSCO), Research in Motion (RIMM), 3Com (COMS), Nokia (NOK) and Corning (GLW - Annual Report) also come to mind.

And finally, turning away from technology, I hope you didn’t think the aircraft boom was over. If anything, it looks to be picking up steam.

Ways to play this include Boeing (BA - Annual Report), Embraer (ERJ), General Dynamics (GD - Annual Report), United Industrial (UIC) and Cessna parent Textron (TXT). Parts suppliers include Rockwell Collins (COL), Curtiss Wright (CW - Annual Report), and LMI Aerospace (LMIA).

So there you have it: 28 potential stock ideas from what looked at first glance to be a negative report on durable goods.

Disclosure: Long RIMM put options at time of publication.

Cisco’s (CSCO) latest quarter was the talk of the town, and looking at the recent PPI data on telecom equipment (switchboard and switchgear apparatus) it should be no surprise.

The next fair question for any skeptical investor, of course, is whether the best ever pricing environment means things can only get worse. To gauge the market, I looked at some recent calls from a variety of telecom equipment makers.

Cisco doesn’t seem worried.

Although competition remains robust, we believe we are gaining market share versus almost all of our major competitors in most product categories. But we also believe we are getting a larger share of our customers’ total spend on communications and IT.

(Excerpt from full CSCO conference call transcript)

Nortel (NT) isn’t raising prices, but doesn’t seem to feel pressured.

I am very pleased we’re delivering measurable progress on margins. This is evidence of our processes and productivity improvements and, but also pricing discipline. And we’re bringing value with a great level of discussions. We’re improving productivity. Obviously we’re not increasing prices but there is a disciplined process and I think we’re demonstrating we’re able to deliver strong.

(Excerpt from full NT conference call transcript)

Juniper (JNPR), however, voiced some concern over competitors with “nothing but price to offer.”

Certainly demand is — as long as people continue to value their networks equal to or beyond what they have, which we believe they are, and then on top of that, they use them more than they did before. Every time something like the iPhone comes out, making it easier to put YouTube videos up and for people that demand higher bandwidth applications, that only adds to the demand curve. So there’s a lot of innovation going on in that space and all of it makes positive contribution to the infrastructure market.

Pricing is at it has always been — it’s always a challenge in a given case and clearly some of our competitors have nothing but price to offer. So we’re aware of that but I wouldn’t say that’s changed in the last couple of years, so probably not a big difference that I would note.

I do think what people can most easily judge the success of the company by is do we continue to gain in the markets that we serve? Do we continue to gain the market share and continue to improve the operating model of the company in the process and continue to grow the generation of our cash and the kind of things that we think make the business healthy and healthier today than it was yesterday and healthier tomorrow than it is today, so we’ll continue to push all those metrics.

(Excerpt from full JNPR conference call transcript)

Alcatel/Lucent (ALU) is already seeing pressure.

Our Q2, 2007 gross margin suggest difficult pricing environment, one that has been impacted in the short-term and not only our need to withstand some level of collective efforts by our competitors to unseed us our customers but, as well they — need occasionally to support some product migrations. Additionally for this transition year of 2007, we are strategically reinvesting the gross margin savings in selective markets to position the company for the long-term, while achieving most of our operating expense savings on a comparable basis.

In the second quarter gross margin was negatively effected by or negatively impacted by an unfavourable product in geographic mix, continued investments as I described and the impact of some product transitions cost as customers migrate their networks.

(Excerpt from full ALU conference call transcript)

All in all, it seems like a very company-specific environment, one in which it makes sense to stick with the leaders.

I recently looked at some of the enterprise software calls to get a check on tech spending. Today I take a look at hardware. The big (and most recent) news came from Cisco (CSCO):

Our balanced product momentum across our core technologies and advanced technologies continues to be the best I have seen in a number of quarters….
Let me approach it from a broad perspective. First is what we are seeing is the importance of balance on a global basis. I have been in this business for 30 years — Jim, I think you have been there that long or maybe a hair longer. It’s the strongest global economy I have been a part of.

(Excerpt from full CSCO conference call transcript)

It was funny that nobody challenged him on this, as anyone who has been in the business for long must surely remember Chambers’ comments in 2000. According to a CIO Magazine case study called “What Went Wrong at Cisco:”

Xilinx’s Wall Street warning came two months before Cisco Chief Strategy Officer Mike Volpi told The Wall Street Journal in November, “We haven’t seen any sign of a slowdown.” Volpi told The Journal that Cisco hadn’t changed its internal plans since the beginning of its fiscal year in August. “We have guided [Wall Street] accurately, and we can execute to plan.”
On Dec. 4, CEO Chambers crowed to analysts, “I have never been more optimistic about the future of our industry as a whole or of Cisco.”
Eleven days later, CIO Solvik says, the company saw the problem for the first time.

In case you were wondering, Xilinx (XLNX) lowered its guidance in June, then missed the lower estimate. However, they didn’t pin the blame on Cisco. On their call, they said:

During last quarters’ call, we forecasted that all geographies extension plan would be up sequentially. Japan was down sequentially as planned, but so was Europe, which turned out to be surprise. This quarter our top 10 European accounts, which represent 45% of total European sales were up 16%, but the main remaining channel accounts were down 19%. The weakness was mainly in the distribution channel across a few end markets including industrial, audio and video broadcast and data processing.

(Excerpt from full XLNX conference call transcript)

Turning to some other companies, EMC (EMC - Annual Report) is certainly having no trouble.

Looking quickly at the IT spending outlook for 2007, we see a positive environment in all major geographies and we believe there is opportunity for us to beat our annual financial targets for revenue, earnings per share and cash flow. EMC’s positive results and momentum are obviously only possible because customers are embracing our strategy, our leading products, our services and our solution sets at each of our four businesses — storage, content management and archiving, RSA security and VMware.

(Excerpt from full EMC conference call transcript)

Other tech companies aren’t so lucky. Sun (a href="http://stockmarketbeat.com/blog1/category/tech/sunw/">SUNW - Annual Report) said:

Sun’s total revenues for the fourth quarter of fiscal year 2007 were $3.835 billion, an increase of 0.2% as compared with $3.828 billion in revenue reported for the fourth quarter of fiscal year 2006.

(Excerpt from full SUNW conference call transcript)

The largest technology distributor, Ingram Micro (IM) had a mixed quarter - overall sales were reasonably strong but currency fluctuations played a big role:

On a regional basis, North America sales where $3.3 billion, essentially, flat versus the prior year or 40% of total revenues. As we described at last quarter warranty sales on behalf of our vendors are now recognized as net fees rather than gross revenues in cost of sales as reported in the prior year period. We saw a negative impact on year-over-year sales comparisons of approximately 5%. European sales were $2.78 billion or 34% of total revenues, an increase of 16% versus a year ago. The translation impact of relatively strong European currencies contributed an 8 percentage point positive impact on comparisons to the prior year.

Asia pacific sales were $1.76 billion, an increase of 31% over the prior year and 22% of our total sales. Finally Latin America sales were up 4% versus last year to $344 million representing 4% of our total sales.

(Excerpt from full IM conference call transcript)

Much like the software conference calls, the outlook appears reasonably positive. However, I’m not ready to break out the champagne and say were past the tech spending doldrums. Results are mixed, the financial sector is very important to tech spending, and Cisco’s forecasting track record doesn’t help my confidence level. While I’d love to see tech spending improve, I’ll have to see it to believe it.

Disclosure: Author is long IShares MSCI Japan Index (EWJ) at time of publication.

I am proud to host this edition of the Festival of Stocks. Since you are here for some stock picks, let’s get to them!

Rock Your Stock rang in first with Callaway (ELY) is Hot. He says the stock is on a tear and has the fundamentals to back it up.

Rick Casterline at Once More Unto the Breach figures he can sleep when he dies. No way is he going to do it during day 3 of the Berkshire Hathaway Annual Meeting.

Average Joe at Investment Jungle weighs in with a review of Small Cap Watch List (Track at Marketocracy) member First Regional Bancorp (FRGB). Joe and I have frequently been on the same investment page.

Project Stocks submitted Beat the Market With Only 15 Minutes of Work Each Year. The idea is to buy each year’s top performing fund and hold it for a year. Seems simplistic, but it actually has some support from recent academic research.

Neural Market Trends wonders about the effect of financial asteroids on market trends.

Fiscal Times tells us the stocks Business Week ranks as most innovative tend to perform better.

Big Cajun Man has found a real lu-lu.

TJP at Investor Trip explains what he missed when he first got Sirius (SIRI).

Trader’s Narrative is calling a bubble… in China.

Self Investors outlines a successful day trade in Force Protection (FRPT).

Silicon Valley Blogger offers 5 tips for evaluating your portfolio.

George at Fat Pitch Financials presents his five favorite ways to hack into the web’s resources for investors. I downloaded the Excel add-in and am looking forward to trying it out.

Sox First outlines what went wrong with the planned private equity takeover of Qantas.

And what the heck? I’ll toot my own horn by presenting my take on United Industrial Corp. (UIC).

Often, a company seeing weakness will cut back on its own purchases. When we previewed earnings for Cisco Systems (CSCO) we said “A major supplier, Altera, (ALTR) looked weak. That makes us nervous.” With Cisco now down nearly 10% in the two days since announcing earnings, we thought it an appropriate opportunity to demonstrate supply chain analysis in action.

We do so by turning to recent comments from management at Cisco as well as some of Cisco’s suppliers.

Paul Silverstein - Credit Suisse

John, if I missed you in the prepared remarks, I apologize. But can you give us some more insight in terms of what you are seeing in the US enterprise market? Whether there are any signs of a pick up in that market sector?

John Chambers

Sure, Paul. The market, it stayed pretty flat in terms of mid-single digits for the quarter. And that to me was actually good that it didn’t spillover into commercial. In fact commercial went up. And I am seeing from the customers, most people feel that they are coming in for a soft landing. They are being conservative on their budgets, which is little bit of surprise.

(Excerpt from full CSCO conference call transcript)

How much of a surprise was it? Or, at least, should it have been? Altera reported earnings on April 23, and said:

Tim Luke - Lehman Brothers

Just on the networking side, it sounds like Cisco is moving back towards the lean inventory. I was under the impression that of the program that they started a while ago, and maybe you could give us some sense of how long that you think that will take to work through in terms of having an impact in your orders, and then when you would expect to see that move upwards again, having been worked through?

John P. Daane

Tim, I will start with the networking side. As you probably are familiar with us, we tend, or we really do not want to talk about specific customers, so I am going to stay generic here. We have seen customers move to sort of a lean model over time where they are moving to a VMI program, if you will, vendor management inventory essentially or a program where they are having ultimately the contract manufacturer hold their inventory for them, in which case you are basically removing one of the buffer spots in the chain where there used to be inventory before.

Typically, if you think about it, customers only keep a small amount of inventory, so you would expect at any particular time that there may be an impact of about a quarter, so a month to three months, and then you should see a return to the normal buying pattern.

This is specific to one customer this quarter. That’s a major customer in the networking space. I would note that we have had this effect over the last several years from other large customers, particularly in the communications area, that have also been doing this.

(Excerpt from full ALTR conference call transcript)

So we know for a fact that Cisco was reducing orders - either to trim inventory (the official story) or to reflect slower orders. Yet Cisco’s major competitor Juniper (JNPR) was seeing blowout sales when it reported (also on April 23.)

And now moving to the enterprise business. We continue to make progress in this marketplace with approximately one third of our business coming from enterprises, where we today served over 20,000 enterprise customers worldwide. Our enterprise business in total grew 25% in Q1 as compared to the same period a year ago.

(Excerpt from full JNPR conference call transcript)

Based on Juniper’s results, even keeping shifting toward a leaner inventory presumably would be overwhelmed by such strong growth. The official story starts sounding less plausible.

So how can one figure out which companies are exposed to others as either customers or suppliers if you don’t already know? We went to Edgar full text search and typed in [Cisco NEAR10 “major customer”]. It gave us 32 results, including PMC Sierra (PMCS) and Avanex (AVNX). While PMC Sierra’s transcript wasn’t available, we were able to get one for Avanex, which reported on May 3.

John Harmon - Needham & Company

And congratulation on getting the divestiture done. Just a couple of questions. One just the obvious question. Given what one of your competitors said last night, have you felt the effect of these supply chain shortenings, and secondly the Lucent-Alcatel merger, what effect has that had on your business?

Jo Major

I will help people understand if they didn’t read the other scripts. Both last quarter and this quarter, there has been some discussion of the fact that companies like Nortel and Cisco have publicly announced manufacturing initiatives along the line of lean.

And lean is simply a look at how you can remove inventory from your system. So you look to your suppliers to provide shorter lead times and again that’s a real fundamental attribute of the new amplifiers suite, it’s a really fundamental attribute of the idea of bringing tunable dispersion compensation out to manage inventory.

But the lean initiatives had met in some areas. You’ve seen some pull backs on purchasing, because they would have had 15 weeks of inventory and they want to move that down to 5.

(Excerpt from full AVNX conference call transcript)

From 15 weeks to 5? That sounds preposterous. If Cisco was able to operate on 5 weeks of inventory instead of 15 why didn’t it make the switch years ago? Comments like these are why investors need to think about what is being said rather than take it at face value.

When we previewed earnings for Cisco Systems (CSCO) we said “A major supplier, Altera, (ALTR) looked weak. That makes us nervous.” Had we thought things through a little further we would have added on the slowing business spending on equipment and software to have a full-blown red flag.

Cisco Reports Third Quarter Earnings:

Cisco reported third quarter net sales of $8.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.30 per share, and non-GAAP net income of $2.1 billion or $0.34 per share. Scientific-Atlanta, Inc., acquired on February 24, 2006, contributed net sales of $752 million during the third quarter of fiscal 2007, compared with $407 million during the third quarter of fiscal 2006.

Analysts were expecting the company to earn $0.33 on $8.8 billion in sales for the quarter. The company also guided in line, which seems like an impressive feat given the worrying signs noted above. Yet despite these signals it appears many were counting on an unlikely blowout. According to a Reuters article:

“Expectations are definitely going up. Some people were looking for a bigger beat,” said Tim Daubenspeck, an analyst at Pacific Crest Securities.

Those expectations appear wildly off base. At this point we question whether the company can even pull of the in-line guidance cleanly.

The Economic Calendar starts off light but gets busy toward the end of the week.

• On Wednesday the Federal Reserve will announce that it has not raised rates and issue a statement indicating that it may or may not either raise or lower them in the future. However, their statement will be less scrutable than the preceding.
• On Thursday we’ll find out exactly how much more we have been spending on foreign goods than foreigners have been spending on ours. The general consensus is that it will be $60.1 billion more, give or take a few billion.
• On Friday we’ll get PPI. While the headline figures are estimated to be 0.7% higher for all goods and 0.2% higher excluding food and energy, as usual we’ll focus more on the implications for individual companies and industries.
• Also on Friday is the retail sales report, with the consensus expecting a 0.4% rise for the month.

Earnings season also winds down this week. Nearly all the reports we track are on Tuesday.

• Clearwire (CLWR) - expected to lose money for the foreseeable future, earnings are less important than indications it is not the next Vonage.
• Cisco (CSCO) - A major supplier, Altera, (ALTR) looked weak. That makes us nervous.
• Nvidia (NVDA) - reports on Thursday, with the consensus expecting $0.39 in EPS both this quarter and next.

We look forward to the opportunity to start catching up on some things we had to put aside during earnings season.

Apple’s (AAPL) iPhone managed to impress most industry watchers despite the relentless hype buildup, which is quite an accomplishment in and of itself. Enough has been said on this that we thought we would present some of the best of it from around the web.

The iPhone’s amazing margins (Business Week):

I called David Carey, president of Portelligent, which does competitive technical intelligence–another way of saying it tears down products and then advises clients on their costs and likely gross margins. He says the iPhone is looking like a major money maker, on a per unit basis. “It will have very good margins,” says Carey, who has yet to try to come up with an exact figure. “They’ll end up being among the best in the [cell-phone] business.”That’s despite paying up for some of the most expensive components. He says Apple will have likely pay $50 or so for that slick new display–quite a bit more than lower-res screens, that don’t have the touchscreen controller that will set the iPhone apart from keypad-based phones. And all the storage in the iPhone will cost money, too. The storage will cost $30-35 for the 4-gig unit, or $60-70 for the 8-gig model, he figures.

But then, there’s plenty of costs the iPhone won’t have. Apple has already amortized the Mac software on which it runs, and that software interface means there’s no need for a keypad or on-off buttons and such.

TheStreet.com also thinks the iPhone will be good news for Adobe (ADBE):

The new device is likely to kick off a mobile-content arms race among carriers, and Adobe is well-positioned to supply some of the ammo. Here’s why:

Adobe, which snapped up Macromedia at the end of 2005, has already established a strong beachhead in the telephony world via a deal with Japanese telco giant NTT DoCoMo (DCM). A compact version of Macromedia’s flash multimedia player, called Flash Light, is now on millions of phones in Japan. What’s more, DoCoMo is using a server version of the player, called FlashCast, to push content to the company’s “ichannels,” which include news, sports, weather and so on.

Every time a Japanese consumer hits an ichannel, Adobe collects a bit of revenue.

PBS Commentator Robert Cringely thinks the Cisco (CSCO) suit over the name was a clever trap designed for publicity.

Cisco’s trademark infringement lawsuit, as well as its recent introduction of new iPhone models, shows the company has no intention of giving up the iPhone trademark to Apple. And since Cisco has a prior claim, just as many lawyers, and more money than Apple, one can only guess that Cisco will prevail. So why did Apple start this fight in the first place? Publicity.

Apple already has a fallback position created by the iTV-to-Apple TV transformation, so I’m guessing that sometime soon Apple will either pay Cisco a LOT of money for the name or Apple’s iPhone will be transformed into the Apple Phone. Either way, every mobile phone user on Earth will have heard that Apple is now in the mobile phone business. Very clever.

Finally, Digit Online tells us hackers are salivating over the iPhone too.

Technology fetishists aren’t the only people itching to get their hands on an iPhone. Hackers want to play with Apple’s new toy, too.

With the anticipated shortages, hopefully it will be a while before the hackers get their hands on one.

Disclosure: Author is long IShares MSCI Japan Index (EWJ) at time of publication.