Technology Weekly Options Event Watch

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SUMMARY AND HIGHLIGHTS
Technology volatility, as measured by the VXN, decreased 5.1% week-over-week, compared to a 15.0% increase in the VIX. Events next week include earnings results from 3COM Corp (COMS), Adobe Systems (ADBE), Jabil Circuit (JBL), Oracle (ORCL), and Palm Inc (PALM).

This week, we highlight bearish activity in Open Text Corporation (OTEX) consisting of mainly May put buyers. We also outline seemingly bullish activity in Dell Inc. (DELL) and Corning Inc. (GLW). Additionally, we highlight volatility buying in EMC Corp (EMC) with an emphasis on the April and July options. Also worth noting is the increased volatility buying we observed this past Wednesday in the PHLX Semi Index (SOX), Semi Holdrs Trust (SMH), and the Technology SPDR (XLK).

TECH STRATEGIES
Consistent with company practice, we expect RFMD to report 4Q07 earnings during the week of April 23. NOK is scheduled to report results on April 19, 2007, while MOT is estimated to report results that same week. Following NOK’s earnings report, RFMD shares have moved on average 3.3%, with the greatest move of 7.7% (MOT reported the same day) and the smallest move of 0.9%. After MOT’s earnings report, RFMD shares have moved on average 3.9%, with the greatest move of 7.7% (NOK reported the same day) and the smallest move of 0.6%. We have excluded dates when RFMD has reported before MOT or NOK, or dates when MOT or NOK had already pre-released.

Additionally, we note that RFMD will be attending the CTIA Wireless 2007 tradeshow in Orlando , March 27-29. Similar to 3GSM World Congress, CTIA Wireless is a major wireless industry tradeshow that can generate newsflow as exhibiting companies demo new products, announce design wins, and new partnerships.

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VOLATILITY AHEAD OF EARNINGS
Given the recent volatility in the market and commiserate increase in implied volatility levels (the VIX is up roughly 47% since February 26), it is not that surprising to see that the implied earnings moves tend be on the higher end of the range of prior moves. Within the context of this higher volatility, we do highlight Nortel Networks (NT), as the implied earnings move falls on the very low end of past moves. The market appears to be implying little additional volatility surrounding the report. Clearly, the company’s pre-release on February 7 likely removed some volatility from this event. That being said, any forward-looking comments provided during the company’s March 19 earnings conference call could result in volatility for the shares. The conference call will follow the filing of its 2006 Form 10-K, which NT expects to submit on March 16.

While the implied move for Adobe Systems Inc. (ADBE) appears essentially in-line with past moves, we point out that the inclusion of additional catalysts within the April timeframe may lead to additional volatility (see Upcoming Catalysts section below for additional color) in the near-term.

RFMD VOLATILITY
The current April implied volatility for RFMD is approximately 34%. This compares to an average 30-day realized volatility during the past two years of 45%, with a high of 66% and a low of 26%. Additionally, this compares to an average 30-day implied volatility over the past two years of high 40s%, with a high of low 70s%, and a low of current levels of low 30s%.

UPCOMING TECHNOLOGY CATALYST EVENTS
Adobe Systems Inc. (ADBE) is scheduled to release 1Q07 financial results on March 20 after the market close. The Street is expecting earnings of $0.29 per share on sales of $655 million. All eyes are squarely focused on the launch of Creative Suite 3 (CS3). ADBE confirmed the launch of CS3 (pre-orders) would occur on March 27, the day before its scheduled Analyst Day. During the call, investors will be focused on guidance for the coming fiscal year with the exact CS3 ship date likely influencing 2Q guidance. Shares of ADBE have averaged a +/-5.5% move around its last two years of earnings announcements. Current at-the-money implied volatility appears to imply a 1-day earnings related move around +/-5%, essentially in-line with recent moves.

Palm Inc (PALM) will report 3Q07 results on Thursday, March 22, aftermarket. A conference call is scheduled for 4:30pm, dial-in: 800-819-9193. In late December, PALM guided for non-GAAP EPS of $0.11-$0.13 on revenue of $400 mln-$410 mln and non-GAAP gross margin of 36%-36.5%. The Street is expecting an in-line quarter with consensus at $0.12 on revenue $403.6 mln. For 4Q07, the EPS consensus is $0.15 on revenue of $416 mln. On average, the Street is looking for 3Q07 Treo shipments of approximately 720,000 units. Among other things, the Street will likely look for commentary regarding the impact of competition on smartphone ASPs and Treo sales trends, particularly with respect to the Treo 750, which was launched in the US market at Cingular Wireless in early January. The company’s CY07 product portfolio will likely also garner investor attention.

Brighthand.com recently suggested that Sprint (S) may launch a new Treo smartphone, the Treo 755p, on May 14. While PALM’s 3Q07 earnings results, its outlook, and product pipeline will be primary areas of investor focus, we expect many on the Street will want insight from management regarding the recent takeover speculation. Most recently, the Wall Street Journal reported that PALM had hired Morgan Stanley to advise the company in exploring strategic options, including a potential sale of the company or a purchase of its own. PALM is hosting an analyst day on April 10, 2007.

NOTABLE TRADING
Open Text Corporation (OTEX). With the stock down approximately 8.5% during the past four weeks, investors continue to buy puts reflecting a further downside bias. On Thursday of this week, opening investors bought 2,500 May 25 (.80d) puts with the stock trading at roughly $21.25. Participants are still long roughly 1,500 of these same puts from late last month (2/28/07) and approximately 3,000 March 20 puts and 1,500 May 20 puts from trading over the past two months. These bearish investors will profit in the event of significant downside move in the stock possibly in reaction to Q3 earnings estimated for 5/4/07.

Corning Inc. (GLW). Recent activity has consisted of primarily call buyers or put sellers across multiple months, indicating an overall bullish sentiment. In some of the more notable order flow, investors this past Monday bought calls and sold puts in an August 20p/22.50c risk reversal 7,000 times. On Thursday with the stock trading at roughly the same level, investors enacted a large upside call spread where they sold 20,000 January08 30 (.22d) calls to finance the purchase of 20,000 January08 20 (.70d) calls, and separately bought May 22.50 (.44d) calls in smaller size.

Dell Inc. (DELL). On Wednesday of this week, trading appeared particularly bullish in the options market with investors synthetically buying stock through the 22.50 strike calls across the board. In separate trading throughout the day participants bought approximately 6,000 March 22.50 calls, 10,000 April 22.50 calls, and 4,500 May 22.50/25 call spreads.

EMC Corp. (EMC). Volatility in both the April and July cycles was bid this week in both the calls and puts in separate trading. Specifically, on Wednesday opening investors bought 20,000 July 13 (.55d) calls and in separate trading investors also bought 15,000 April 12 (.20d) puts. Overall the order flow suggests investors are positioning for increased movement in the stock in either direction over the coming months. Q1 earnings are expected on 4/17/07.
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