Today's Take is about optimism.

How could it not be with both Hewlett-Packard and Analog Devices turning in good quarterly results and showing some forward-looking momentum? Digital signal processor manufacturers like Analog should stand to gain with consumer electronic spending on the rise, but the personal computer biz has been another story.

With Dell posting strong quarterly earnings last week and now Hewlett-Packard turning in healthy numbers in its Compaq division, could the turnaround be at hand?

In today's Motley Fool Take:

HP Finally Computes

When Dell(Nasdaq: DELL) posted strong quarterly earnings last week, that was just Dell being gravity-defying Dell. But with Hewlett-Packard(NYSE: HPQ) following up with some solid results of its own last night, would we be jinxing it if we admitted that the personal computer market looks to be bouncing back for good?

While HP has consistently produced in its flagship printing business, that segment basically carried the company as it suffered through hardware losses, holding Compaq's baggage claim check at the terminal. But the company closed out its fiscal year in healthy fashion with operating profits coming from all divisions during the fiscal fourth quarter.

With earnings of $0.28 a share and revenue climbing by 10% to $19.9 billion for the quarter, HP is gaining some welcome momentum as it enters a new fiscal year looking to earn roughly $1.42 a share.

This doesn't mean that CEO Carly Fiorina can call last year's controversial merger with Compaq a success just yet. The company's printing business still delivered the lion's share of HP's operating profits, a hearty $1 billion slice of the $1.4 billion pie.

But with Dell and HP providing uplifting news on the revenue and earnings front, that's the kind of news that other tech bellwethers like Intel(Nasdaq: INTC) and Microsoft(Nasdaq: MSFT) were waiting on before popping the champagne cork.

Rivals Gateway(NYSE: GTW) and Apple(Nasdaq: AAPL) are blessed with cash-rich balance sheets to weather the cyclical storm, but it looks like the recovery party might be coming sooner rather than later. For all we know it may have already started and you're just fashionably late.

Discussion Board of the Day: Hewlett-Packard

In retrospect, should HP have merged with Compaq? What will drive the company higher in 2004? Is the stock ready for some Wall Street loving? All this and more -- in the Hewlett-Packard discussion board. Only on

Sirius Stock Offering

Sirius Satellite Radio (Nasdaq: SIRI) lost almost 5.5% yesterday and led the Nasdaq in volume after announcing yet more share dilution. The company will offer 73.17 million shares at $2.10 to boost the asset side of its balance sheet by $150 million.

The provider of pay-by-the-month digital entertainment cheated death a year ago by restructuring and diluting then-current investors 92%. As of Sept. 30, it had a healthy $472 million in cash and equivalents against $256 million in long-term debt. But subscriber growth isn't meeting targets and the cash burn is $300 million a year. That's why the company filed in August to raise up to $500 million through new stock offerings like the one just announced.

Most people consider debt worse than stock sales because debt requires service -- diverting cash to interest payments. Interest can be quite onerous if you don't happen to have today's low-interest rate environment. But would low-interest debt be preferable to diluting Sirius shareholders another 7.3% now and up to 25% if the company follows through? The catch for investors is that it's possible that selling stock at a paltry $2.10 a share is the company's only option -- that they can't find financing at any reasonable price. And meanwhile, management is failing to meet its own subscriber number goals.

Let's look at it this way: Your company issues debt... or its issues equity. Oprah, Uma. What's the difference?

You're a shareholder. The company floats a lot of debt and pays interest with your money. Your share of the equity is smaller because there is less of it. Or, more simply, your investment is worth less. But what if management issues stock -- and not highly valued stock, but heavily diluted cheap stock? Your share of the equity is smaller because... there are more shares sharing it.

Pick your poison.

Quote of Note

"Sirius really isn't that much in the game right now." -- XM Satellite Radio(Nasdaq: XMSR) President and CEO Hugh Panero, on The Motley Fool Radio Show (and here).

AMD's Big Week

You can't keep Advanced Micro Devices(NYSE: AMD) down. The distant runner-up to Intel(Nasdaq: INTC) keeps fighting, kicking, and landing punches, launching faster microprocessors than its rival, taking a lead in certain flash memory sales, and today announcing it'll build a $2.4 billion state-of-the-art chip factory in Germany, largely financed by others.

The Dresden manufacturing facility will make microprocessors on 300-mm wafers, the largest available, increasing production capabilities for the popular AMD64 chips. The plant is expected to reach volume production in 2006 in a bid to meet increasing demand for AMD processors.

Of the $2.4 billion price tag, $1.5 billion has been externally financed, including approximately $500 million in German government grants and allowances and $700 million in bank loans, 80% of which is covered by credit guarantees from the state government of Saxony.

The remaining financing -- approximately $900 million -- will come from AMD and future partners. AMD had $1.1 billion in cash and long-term investments as of June 29, and $1.58 billion in long-term debt.

Dresden, where AMD and Infineon(NYSE: IFX) already have operations, won the factory bid over competitor East Fishkill, NY. (A name like that makes even Dresden sound sunny.) A new plant built largely on someone else's dime is the second boost to AMD this week, the first being a new partnership with Sun Microsystems(Nasdaq: SUNW). And there's a third.

In separate but related news, according to iSuppli, Intel was surpassed as the number one seller of flash memory chips for the first time. Samsung and Toshiba took the market-share lead on strong sales of removable flash for digital cameras and other small products. Intel fell to fourth place. In third? Advanced Micro Devices and Fijitsu joint venture, FASL.

Intel did, however, maintain the top spot for NOR flash memory, which is used in mobile handsets, and in its analyst meeting today, Intel's CEO celebrated increased business demand for microprocessors, projecting double-digit sales and earnings growth in quarter four. Industry-wide flash sales rose 27% in the third quarter to $3.1 billion.

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Analog Devices' Cheery Outlook

You would have to figure that the recent boom in consumer electronic spending would benefit the folks that make the guts for the PDAs, laptops, cell phones, MP3 players, and so on. Analog Devices(NYSE: ADI) is no exception, having turned in earnings on Tuesday of $0.23 per share compared to $0.09 a year ago. The company -- one of the largest and most important suppliers of digital signal processors (DSPs) -- also announced it would pay a dividend of $0.04 per share.

Most importantly, however, it projected that revenues for the first fiscal quarter would be 5% higher than those in the just-ended quarter, implying that it would sell about $585 million of goods, well higher than estimates.

Analog Devices investors were plenty cheered by the outlook, sending shares higher by more than 4% to within a hair's breadth of its 52-week high, closing at $46.59 a stub. This means that if we take the most recent quarter's earnings and annualize them, the stock is trading at a P/E exceeding 50. If the company can deliver on some substantial growth, this may not be as high as it seems, particularly as higher capacity utilization at the plants means higher operating margins on the marginal unit. I'm extremely skeptical on the "if" and "growth" part, though.

Analog Devices does not control its own destiny; as a component manufacturer, its sales are only as good as demand goes at the Nokias(NYSE: NOK), Ericssons(Nasdaq: ERICY), Dells(Nasdaq: DELL), Sonys(NYSE: SNE) and myriad other electronic thingy manufacturers. If this Christmas fails to be spectacular, the heavy amount of inventory buildup that comes courtesy of current earnings could savage those in later months. In this case, the large multiples investors give present earnings and cash flows could cause substantial contraction.

We can go on the word of Analog Devices management that things are looking better. But as the Fool's Rick Munarriz pointed out in a Dueling Fools on the company in 2001, management has a history of issuing optimistic guidance and then missing. There's not much room for error here, and error's not something management can control. Fortunately this company has a canary in the coal mine. If Best Buy(NYSE: BBY) starts saying revenues are soft, then look out -- because that's one of the big channels consumer electronics manufacturers are counting on.

More Fool News

For a list of all our stories from today, see Today's Headlines.

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