Freeport McMoRan: Copper Tarnishes Outlook

The collapse of the commodities boom caved in shares of Freeport McMoRan Copper & Gold (FCX) on Wednesday, after the Phoenix-based global mining giant halted its dividend and slashed copper production in a scramble to cut expenses.

"We are responding aggressively to the current market conditions which have weakened dramatically in recent weeks," the company said in a statement from Chairman James Moffett and CEO Richard Adkerson, who said the company needed to preserve cash. "The suspension of our dividend reflects the sharp and rapid decline in copper and molybdenum prices, the dislocation of capital markets and the uncertain economic outlook."

Brian Niemiec, an analyst at Susquehanna Financial Group, said production cuts of 5% in 2009 and 11% in 2010 would result in a $1.2 billion reduction in the company's capital spending, 50% below its previous estimate. Since the July 2 peak of $4.054 a pound, copper prices have dropped more than 60%, and traded around $1.53 a pound recently.

"The move by FCX further illustrates how difficult a time the miners are currently having cutting back on supply as demand dries up and prices turn significantly lower," Niemiec wrote.

Deutsche Bank analyst Jorge Beristain said Freeport's huge slide -- the stock shed 80% of its value in the past year -- wasn't unique.

"Given the pullback in commodity prices, most of the companies in our coverage universe should post significantly lower Ebitda in 2009, down perhaps 30% or more on average vs. 2008E, with the minor exceptions being explained by production volume ramp-up or lag-year price effects," he wrote in a Tuesday sector commentary, correctly calling Freeport's moves. "Lower cash generation and still high capex requirements will likely lead to a deterioration in leverage ratios and could translate into significant dividend cuts for some of the companies in our coverage, notably Alcoa (AA) and Freeport-McMoRan."

The Bottom Line: Hold
The dust of the global commodities boom hasn't settled yet, but selling into weakness plays to fear, not long-term investment goals.

Research in Motion: Souring on BlackBerry?

Research in Motion (RIMM), maker of the Blackberry line of handheld communications devices, issued lower sales and earnings forecasts, triggering a volatile day for its shares. The Waterloo, Ontario, company's stock price was all over the map before finally settling higher along with the rest of the market.

RIM on Tuesday warned that fiscal third-quarter sales and earnings would be lower than expected. It attributed the drop to weak world-wide consumer sentiment, as well as the rise of the U.S. dollar.

"Approximately one-third of the difference between forecasted and preliminary revenue is expected to be a result of the depreciation of certain foreign currencies relative to the U.S. dollar in the quarter," the company said. "The remaining difference is primarily due to lower-than-estimated unit shipments of existing products, which RIM believes is a reflection of general economic weakness in the United States and shifts in product launch dates within the quarter."

Keith Bachman, an analyst at BMO Capital Markets, said the launch of the BlackBerry Storm, a touch-screen product designed to adapt an appealing feature of Apple (AAPL) iPhone, came too late in the quarter to have an impact.

"While the timing of the Storm launch likely contributed to the miss, we believe that weak demand trends will continue to move estimates lower," he wrote Wednesday.

Raymond James analyst Steven Li wrote in a Monday preview note that RIM shipped an estimated 600,000 units from its Nov. 21 launch date.

Bottom Line: Hold
The recession has pushed this stock well past broader market declines, and investors holding these shares will be best served by not reacting to widespread volatility and selling into weakness.

Marvell Tech: No Dip for Chip Maker

Marvell Technology Group (MRVL) swung to a profit when it reported quarterly results Tuesday evening, pushing the chip maker's shares up sharply.

The company also lowered its earlier guidance for its fiscal fourth-quarter estimates, calling for an 8% to 13% sequential sales decline, weaker than prior guidance of a 5% to 10% quarter-over-quarter decline.

"While a portion of the turmoil seen in the semiconductor supply chain is real demand erosion, we also believe a certain amount could be due to overreaction," Chairman and CEO Sehat Sutardja said on a Tuesday conference call. "Our ability to predict when through end market demand will reflect the natural consumption level is therefore limited."

Wall Street analysts on average expect earnings of 17 cents a share, a 16% drop from a year earlier.

Sales rose despite deteriorating economic conditions, which are affecting retail movement of the hard-disk drives, Wi-Fi electronics, networking gear and mobile phones that use Marvell's communications chips. Marvell chips are found in many high-end smartphones, including Apple's iPhone and Research In Motion's BlackBerry devices.

Collins Stewart analyst Ashok Kumar wrote that the good news wasn't all it appeared to be, pointing out that quarterly sales of $791 million were still $70 million below earlier estimates. In November, Marvell cut its own forecast to $792 million, a 6% dip from the previous quarter and an indication that a slide is likely to continue.

Kumar warned in his note that he saw no near-term catalysts, adding that more negative earnings revisions lie ahead. He recommended staying away from the stock until spring.

Quinn Bolton, an analyst at Needham & Co., offered similarly tepid enthusiasm for Marvell's longer-term prospects.

"The best news is things haven't gotten much worse over the last month," he wrote Wednesday.

A more conservative view of the entire sector put Marvell in a relatively good position, Bolton said, adding that "we believe our fiscal year 2010 estimates have now been reduced to appropriately conservative levels as MRVL's valuation multiples remain at historically low levels."

Bottom Line: Hold
Tech-related stocks have been hit harder than the broad market, so while it's tempting to sell off on this jump, long-term shareholders would still take a sizable loss.