Cisco shares rose about 8 percent after Chief Executive John Chambers said the company was seeing some good signs in the U.S. and that other parts of the world are “encouraging.”

“We are managing the business to account for a continued slow steady recovery on a global basis,” Chambers said.

Chambers’ commentary is closely watched by investors as Cisco is seen as a strong indicator for the general health of the technology industry because of its broad customer base.

Cisco forecast current-quarter earnings per share of 50 to 52 cents, excluding unusual items, in line with Wall Street expectations. It said revenue would grow in a range of 4 to 7 percent from the year-ago quarter.

This implies revenue of about $12.16 billion to $12.5 billion, compared with analyst expectations for $12.47 billion according to Thomson Reuters I/B/E/S.

RBC Capital analyst Mark Sue said the outlook was much better than expected since several Cisco rivals had much lower forecasts for the current quarter.

“All things considered the guidance was actually decent. The commentary was encouraging considering the mixed environment we’re in,” Sue said.

Recent signs of weakness from companies including Juniper Networks and International Business Machines Corp made investors worry that Cisco would follow suit, due to sluggish spending by customers such as the U.S. government.

“They seem to be bucking the trend and that’s encouraging, said Sue.

While Chambers said that revenue from the U.S. federal government was down 3 percent in the quarter due to spending cutbacks, this was offset by increased state and local government spending which boosted overall U.S. public sector revenue by 5 percent.

Profit for the fiscal third quarter ended on April 27 grew to $2.5 billion, or 46 cents per share, from $2.17 billion, or 40 cents per share, in the year-ago quarter.

Excluding unusual items, earnings per share came in at 51 cents compared with Wall Street expectations for 49 cents according to Thomson Reuters I/B/E/S.

Revenue rose more than 5 percent to $12.2 billion from $11.6 billion and compared with Wall Street expectations for $12.18 billion according to Thomson Reuters I/B/E/S.

Mark McKechnie, an analyst at Evercore was impressed with Cisco’s gross margin of 63 percent, above the company’s target of 61 to 62 percent.

“It will be interesting to see if they can raise the guidance on margins, McKechnie said.

Cisco forecast fourth-quarter gross margins of 61 to 62 percent, matching the prior quarter’s estimate.

Cisco shares rose to $23 in extended trading after closing at $21.21 on Nasdaq.

(Reporting by Sinead Carew and Nicola Leske; Editing by Richard Chang)

(Reuters) – EMC Corp reported slightly weaker-than-expected quarterly results as customers remained cautious about tech spending but the data storage equipment maker reiterated its full-year forecast, sending its shares up nearly 2 percent.

Analysts said investors would be relieved by the outlook, after weak results from IBM Corp and disappointing forecast by Intel Corp and Juniper Networks Inc.

EMC said it expected overall IT spending to increase about 3 percent in 2013 even though its customers were cautious in the face of continuing political and economic uncertainty.

“Most orders are subject to greater scrutiny and many enterprises are now requiring a higher level of executive sign-off before they give final approval,” Chief Executive Joe Tucci said on a conference call with analysts.

Federal spending on everything from defense to schools has been slashed due to automatic spending cuts, or sequestration, that came into effect in March after Congress failed to find an alternative plan to reduce spending.

A range of U.S. companies are warning investors that sequestration is starting to bite.

“There were fears of a disaster at EMC given what we have seen around tech with Oracle and IBM. So overall it was better than feared,” said FBR Capital markets analyst Daniel Ives.

“Would you frame this quarter in your living room? No, but most investors would take this quarter any time of the week,” Ives said.

The company’s publicly traded cloud computing unit, VMware Inc, forecast second-quarter revenue below analysts’ estimates on Tuesday.

‘A LITTLE RESPECT’

EMC said it would buy back $1 billion worth stock this year.

“While IBM rewarded shareholders well in the past five years, it is our view EMC is poised to do the same for investors in the coming years with sustainable robust double-digit earnings growth,” ISI Group analyst Brian Marshall said.

In a research note titled “Investors need to start respecting the family … or else,” Marshall said investor sentiment on EMC has been very negative lately, hurt partly by fears that IT budgets will continue to be weak, but EMC had performed well in a tough climate.

EMC and VMware announced a joint venture, Pivotal Inc, with a $1 billion revenue target in March to cash in on an expected jump in demand for data analytics software as telecom service providers look for better tools to analyze the mass of data from different technology platforms.

Pivotal said on Wednesday GE planned to make a strategic investment of about $105 million, representing a 10 percent equity stake in the company.

EMC’s adjusted earnings rose 5 percent to 39 cents per share in the first quarter but missed analysts’ estimates by 1 cent.

Revenue increased 6 percent to $5.39 billion, below expectations of $5.42 billion.

EMC shares rose to $22.76 in morning trading on the New York Stock Exchange on Wednesday.

(Editing by Maureen Bavdek and Don Sebastian)

(Reuters) – Printer and copier maker Xerox Corp forecast current-quarter earnings below estimates as it accelerates efforts to transform itself into a technology services provider.

Xerox, whose shares were little changed at midday, also offers services such as managing toll systems and healthcare programs to counter sluggish growth in its printers and copiers business, which accounts for about 40 percent of its revenue.

Services is now the larger part of the company’s business and lower margins in IT and business process outsourcing is dragging overall margins.

The company said it expects second-quarter revenue from its document technology business, which includes printers and copiers, to decline in the mid-single digits. Revenue fell 9 percent to $2.14 billion in the business in the first quarter.

Based in Norwalk, Connecticut, Xerox moved into business services with its purchase of Affiliated Computer Services Inc (ACS) for $5.5 billion in 2009 – the company’s biggest deal in its 106-year history.

Xerox said it plans to quicken the pace of a restructuring plan kicked off in the last quarter of 2012 and included a 2-cent restructuring charge in its second-quarter forecast.

Xerox said it expects flattish revenue for the full year, compared with previous expectations of up to a 2 percent growth, it said on a conference call with analysts.

The company said it was on track to reach its target of adjusted EPS of $1.09 to $1.15 for the full year and to generate operating cash flow of $2.1 billion to $2.4 billion.

“Europe remains weak. US remains stable, but weak. We have not seen a pickup in the US,” Xerox CEO Ursula Burns said on a conference call with analysts.

“We did see a slowdown, a bit of a slowdown, in some developing market economies. But our business model is fairly resilient in the developing markets,” she said.

Smaller rival Lexmark International Inc’s first-quarter revenue beat expectations and the company forecast second-quarter revenue largely above estimates, sending its shares up 12 percent.

For the second quarter, Xerox forecast earnings, excluding items, of 23 cents to 25 cents per share. Analysts on average were expecting 26 cents per share, according to Thomson Reuters I/B/E/S.

The company had forecast the same EPS range for the first quarter but reported higher adjusted earnings of 27 cents per share due to a benefit of 2 cents after reducing its reserve for recent litigation. It beat analyst estimate of 24 cents.

“The key driver in the litigation reserve benefit is a positive ruling by a judge on our securities litigation dating back to early 2000s,” a spokesman said.

Revenue in the first quarter fell 3 percent to $5.36 billion, below analyst expectations of $5.5 billion. Revenue from the company’s services business rose 4 percent.

(Editing by Jeffrey Benkoe and Maureen Bavdek; Editing by Don Sebastian)

(Reuters) – IBM Corp (IBM.N: Quote, Profile, Research, Stock Buzz) posted a rare quarterly earnings miss as the technology services company struggled with the depreciation of the Japanese yen and a failure to close a number of major deals, especially in Europe and the United States.

Much like Oracle Corp (ORCL.O: Quote, Profile, Research, Stock Buzz) last month, IBM blamed a poor performance by its sales force for some of the shortfall. But analysts said it was not just one quarter – the company’s sales have been weakening consistently, dragging down results with or without the changes in the yen.

“Their revenue has been declining for basically many quarters in a row. You can’t have revenue declines and consistently expect your earnings to beat. That is catching up with them,” said ISI Group analyst Brian Marshall.

IBM is known for keeping a tight rein on costs and focusing on high-margin software, allowing it to generally exceed Wall Street expectations, even in a tough economic environment.

But Chief Financial Officer Mark Loughridge blamed poor sales execution for the failed closing of a number of deals, as well as the Easter holiday at the end of March. Around $400 million worth of deals expected to close in the first quarter had been moved into the second, IBM said.

On a conference call with analysts, Loughridge also said it was unclear whether the sequester – a series of automatic U.S. federal budget cuts – had an effect.

“It’s hard to measure. I can tell you that our U.S. federal business was down 13 percent, which was certainly a drag on the U.S. performance,” he said.

MAINTAINS TARGET

The yen was at least something of an issue in the quarter as well. The deterioration in the Japanese currency since mid-January reduced earnings by 7 cents per share, a spokesman said.

Loughridge said IBM was “clearly not immune from changes in the global economy,” noting the weak yen and the difficulty IBM has had in hedging that currency.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said recently that nearly two dozen top U.S. companies – including IBM – derive 10 percent or more of their sales in Japan. He expects those companies to quickly see the impact of the weakening currency.

But analysts said the yen issue was not foremost for them among IBM’s other problems.

“This is really a combination of several factors,” Macquarie Research analyst Brad Zelnick said. “At the end of the day it’s the environment and demand for the products (companies) have to offer. Execution is another word for ‘we’re facing some challenges here.’”

IBM’s first quarter non-GAAP income rose 3 percent to $3.4 billion, or $3 per share, but missed analyst estimates of $3.05 a share, according to Thomson Reuters I/B/E/S. It was the first time it at least nine quarters that IBM missed estimates.

Quarterly revenue dropped 5 percent to $23.4 billion, compared with estimates of $24.6 billion. Revenues fell 3 percent adjusted for currency.

For the current quarter, IBM is anticipating a restructuring charge of almost $1 billion and EPS in a similar range to the first quarter. Analysts expected earnings of $3.95 per share in the second quarter.

However, Loughridge expected EPS to improve in the second half of the year, allowing IBM to reach its full year target of at least $16.70 per share.

IBM shares lost 3.4 percent from a closing price of $207.15 in extended trading following results.

Forrester Research’s Andrew Bartels said the results showed IBM was somewhat impacted by the sequester, but that Microsoft’s results showed tech spending was not generally down.

“What we’re getting from these two results are somewhat different perspectives on how the macroeconomic environment is impacting tech spending,” he added.

(Reporting by Nicola Leske.; Additional reporting by Jennifer Saba in New York and Malathi Nayak in San Francisco; Editing by Andre Grenon)

The world’s No. 2 networking gear maker is mulling options
that could include acquisitions to bolster the security and
enterprise business, with a longer-term view of a sale or
spin-off, two of the sources said. For acquisition financing it
could decide to raise cash through a private sale of equity, the
sources familiar with the company’s thinking said.

From summer to fall of 2012, San Jose, California-based
Juniper discreetly contacted about half a dozen competitors to
test the appetite for its assets that handle networking for
enterprise clients, two sources close to the matter said.

At the time, rumors were rife that major storage provider
EMC Corp (EMC.N: Quote, Profile, Research) was also in talks to buy Juniper. Since then,
EMC CEO Joe Tucci has said the company is not interested in
buying a networking company.

Investment banks have not been hired by Juniper to assist in
the review, the sources said. Goldman Sachs has helped the
company on prior deals.

A spokesman for Goldman declined to comment.

Among the assets pitched last fall was NetScreen, a maker of
firewall technology that Juniper bought in 2004 for $4 billion.
But the interest was underwhelming, the sources said, with
parties walking away after concluding that Juniper’s
enterprise-oriented assets lacked innovation and growth.

The company, which in October announced a 5 percent cut in
its workforce, declined to comment on what a spokeswoman called
rumors and speculation.

Asked at Mobile World Congress in Barcelona on Tuesday
whether the company has plans to sell NetScreen or other parts
of the business, Chief Executive Kevin Johnson said: “No, if you
look at the acquisitions we have done, we’re a buyer not a
seller.”

Last year the company bought enterprise security software
company Mykonos and software startup Contrail.

Johnson added that the enterprise business, which was only
focused on security five years ago, had since grown into
switching and routing as well.

But networking infrastructure for large corporations or
enterprises can be complex, requiring integration of a multitude
of computer systems and networks.

Juniper, unlike larger rival Cisco Systems Inc (CSCO.O: Quote, Profile, Research), has
historically focused on its core business of wiring service
providers such as mobile carriers.

“They spread themselves too thin and that resulted in them
developing some products that came out late or were buggier than
people thought, or didn’t do everything that customers were
expecting,” a source at one of Juniper’s top shareholders said.

“For now, I would not want them to do major acquisitions in
security,” said the investor source, who opted for anonymity
because he was not authorized to speak publicly about specific
holdings.

Juniper, once celebrated on Wall Street as a fast-growing
player that was grabbing market share from larger rival Cisco
(CSCO.O: Quote, Profile, Research), has lost half its market value since peaking in 2011.
The erstwhile investor darling is now trying to arrest market
share losses in enterprise firewalls with new products — such
as Junos Spotlight Secure, launched this month.

But it still lags competitors such as Check Point Software
Technologies Ltd (CHKP.O: Quote, Profile, Research), Fortinet Inc (FTNT.O: Quote, Profile, Research) and Palo Alto
Networks Inc (PANW.N: Quote, Profile, Research). Analysts say it will be challenging to
stabilize share in that market.

Juniper shares were down 1.8 percent on Tuesday afternoon,
trading at $20.34 on the New York Stock Exchange, less than half
the $44 price the stock hit two years ago.

The board of Juniper is undertaking a “soul-searching”
effort to claw back market share as a pure play vendor for
service providers, the sources said.

“There is nothing imminent. It is early days. They have to
look at options with a lagging share price,” one of the sources
close to the matter added.

What’s clear is something has to be done, as rivals continue
to chip away at its market and investors steer clear.

“To remain relevant and just to survive, they have to take
some aggressive action,” Mizuho Securities analyst Joanna Makris
said.

WEIGHING PROS AND CONS

Juniper’s tale illustrates how fortunes can reverse at the
drop of a hat in Silicon Valley. The company, founded by
electrical engineer and computer scientist Pradeep Sindhu in
1996, was once considered the upstart routing and switching
company.

It took market share from Cisco, which nevertheless still
dominates the enterprise switching and routing field with over
60 percent market share. Hewlett Packard (HPQ.N: Quote, Profile, Research) and Juniper
follow at a distant second and third respectively.

Juniper also competes with European equipment makers
Ericsson (ERICb.ST: Quote, Profile, Research) and Alcatel-Lucent SA (ALUA.PA: Quote, Profile, Research).

The company entered the enterprise market with the
acquisition of NetScreen and the development of its Juniper
J-series router. But its enterprise strategy — meant to balance
slowing service provider growth — never really panned out.

Juniper executives have said they had not concentrated as
much as they should have on that part of the business.

“With our focus on capacity and service providers, we took
our eye off the ball a bit when it came to the enterprise,”
Robert Muglia, executive vice president software solutions said
at the company’s analyst day in June, 2012.

Juniper lost out on an opportunity for growth in 2005, when
one of its top NetScreen executives, Nir Zuk, left to co-found
security startup Palo Alto Networks, which has since taken
market share from larger rivals in the $17 billion network
security market. At Juniper, Zuk had proposed building a
new-generation firewall, but his ideas fell on deaf ears.

In the fourth quarter of 2012, Juniper’s enterprise revenues
were down 10 percent from the prior year as a significant
decline in U.S. federal spending offset growth in Asia-Pacific,
Natarajan Subrahmanyan, an analyst with the Juda Group, said.

Not all Juniper investors believe cutting its losses is the
best option. Some say they are willing to stick it out despite
it having been “a pretty frustrating stock”, the shareholder
source said.

“We need to give Bob Muglia a little more time,” he said,
adding that the company’s security product for service providers
had done relatively well, but less so with enterprise customers.
“It has been tough, and a blemish on their performance.”

(Reporting By Nadia Damouni and Nicola Leske; Additional
reporting Paul Sandle in Barcelona; Editing by Edwin Chan,
Edward Tobin and David Gregorio)

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Messaging: nadia.damouni.reuters.com@reuters.net))
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The world’s No. 2 networking gear maker is mulling options that could include acquisitions to bolster the security and enterprise business, with a longer-term view of a sale or spin-off, two of the sources said. For acquisition financing it could decide to raise cash through a private sale of equity, the sources familiar with the company’s thinking said.

From summer to fall of 2012, San Jose, California-based Juniper discreetly contacted about half a dozen competitors to test the appetite for its assets that handle networking for enterprise clients, two sources close to the matter said.

At the time, rumors were rife that major storage provider EMC Corp was also in talks to buy Juniper, though EMC CEO Joe Tucci has since dismissed any interest in buying a networking company.

Investment banks have not been hired by Juniper to assist in the review, the sources said. Goldman Sachs has helped the company on prior deals.

A spokesman for Goldman declined to comment.

Among the assets pitched last fall was NetScreen, a maker of firewall technology that Juniper bought in 2004 for $4 billion. But the interest was underwhelming, with parties walking away after concluding that Juniper’s enterprise-oriented assets lacked innovation and growth, the sources said.

The company, which in October announced a 5 percent cut in its workforce, declined to comment on what a spokeswoman called rumors and speculation.

Asked at Mobile World Congress in Barcelona on Tuesday whether the company has plans to sell NetScreen or other parts of the business, Chief Executive Kevin Johnson said: “No, if you look at the acquisitions we have done, we’re a buyer not a seller.”

(Reporting By Nadia Damouni and Nicola Leske; Additional reporting Paul Sandle; Editing by Edwin Chan, Edward Tobin and David Gregorio)

(Reuters) – Yahoo Inc is overhauling its website to incorporate features familiar to Facebook users such as a newsfeed and people’s “likes,” in CEO Marissa Mayer’s biggest product revamp since taking the helm of the ailing company last year.

Mayer, who took over in July after a procession of CEOs was shown the door, said in a blog post on Wednesday that Yahoo’s redesigned website will let users log in with their Facebook IDs to gain access to content and information shared by friends – from articles and videos to birthdays.

Yahoo is one of the world’s most-visited online properties, but revenue has declined in recent years amid competition from Google Inc and Facebook Inc.

The changes to Yahoo’s Internet shop window, which include a more streamlined mobile application for smartphones and tablets, will be rolled out over coming days. The makeover follows a new version of Yahoo mail, one of its most popular applications, introduced in December.

Analysts say the move marks a strengthening of Yahoo’s ties with Facebook, employing some of the social network’s growing data on its billion-plus users to battle Google for Web users’ attention. It remains to be seen whether the initial makeover and tweaks expected over time will win back its Internet audience.

“This is definitely an important step. The Yahoo home page is one of the most important things because it is the first interface,” said B. Riley Caris analyst Sameet Sinha. “It’s familiar in terms of layout, the newsfeed is interesting, and it will be interesting to see how it develops over time.

“The key will be how data is aggregated within Yahoo and Facebook.”

TUMULT, TRANSITION

Seven months into her tenure, former Google executive Mayer has arrested the decline of the Internet portal and won favor on Wall Street with stock buybacks among other things. But Yahoo’s forecast of a modest revenue uptick this year still pales in comparison with the growth of rivals like Google and Facebook, which are eating into its advertising market share.

“We wanted it to be familiar but also wanted it to embrace some of the modern paradigms of the Web,” Mayer said of the product revamp on NBC’s “Today” show on Wednesday.

“One thing that I really like is this very personalized newsfeed; it’s infinite and you can go on scrolling forever,” she said.

Among other problems, Yahoo has been plagued by internal turmoil that has resulted in a revolving door of CEOs. Mayer, 37, took over after a tumultuous period during which former CEO Scott Thompson resigned after less than six months on the job over a controversy about his academic credentials. Yahoo co-founder Jerry Yang then resigned from the board and cut ties with the company.

Thompson’s predecessor, the controversial and outspoken Carol Bartz, was fired over the phone for failing to deliver on growth. Yahoo’s 2012 revenue was $5 billion. It has been flat year over year, off from some $6.3 billion in 2010.

Yahoo shares were down 0.3 percent at $21.22 at midday on Wednesday on the Nasdaq.

(Reporting by Nicola Leske in New York; writing by Edwin Chan; editing by Maureen Bavdek and Matthew Lewis)

(Reuters) – Cisco Systems Inc’s quarterly results topped Wall Street views on Wednesday amid early signs tech spending was on the mend, but CEO John Chambers warned the picture was mixed and parts of Europe remained challenging.

The company’s shares were down 1.7 pct in after hours trading after Cisco reported that revenue growth in Europe – which accounts for a quarter of its business – was down 5 percent. Revenue in the Americas was up 9 percent and was 8.3 percent higher in the Asia-Pacific region.

Chambers pointed out that business in Germany and Northern Europe was beginning to give reason for cautious optimism, but Southern Europe remained tough in economic terms.

“We are seeing early signs of stabilization in government spending and also in probably a little bit over two thirds of Europe,” CEO John Chambers told analysts on a conference call after the results were announced.

“But I want to watch that for at least another quarter before I get really excited about it.”

Chambers comments on economic development are generally watched closely because Cisco is considered a sector bellwether due to its global scale and diverse client base.

For the current quarter, which runs until the end of April, Cisco expects revenue to grow 4 percent to 6 percent compared with a year ago.

It forecast earnings per share, excluding items, in a range of 48 cents to 50 cents, in line with average analyst expectations of 49 cents.

JPM Securities analyst Erik Suppiger said revenue was a particular focus for investors.

“People are pretty confident about Cisco’s ability to cut costs and maintain gross margins,” Suppiger said.

“The metric people don’t have as much confidence in is revenue,” he said. “There was upside to consensus in the second quarter, but it was fairly modest.”

Suppiger said Cisco’s stock had been trading higher before the results and investors had been hoping for more comments on recovery.

“He certainly said positive things about the federal sector and positive signs in Europe, but there is not a lot of tangible evidence that we have turned the corner,” Suppiger said.

For its fiscal second quarter that ended on January 26, Cisco reported that revenue rose 5 percent to $12.1 billion versus a year ago. Analysts, on average, were expecting $12.06 billion, as compiled by Thomson Reuters I/B/E/S.

Income, excluding items, rose 6.2 percent to $2.7 billion, or 51 cents per share, 3 cents above analysts’ average estimate of 48 cents a share.

Chief Financial Officer Frank Calderoni said demand for equipment to enable data centers and cloud computing were the main drivers in Cisco’s results, as well as demand for infrastructure for wireless networks, mobility and service provider video.

Cisco’s core business is routers and switches, which direct Internet traffic, but the company has begun to focus on data centers, enabling and providing cloud computing technology and video platforms, as well in its goal to become the No. 1 Information Technology company.

Its data center business showed 65 percent growth compared with the previous year, while its wireless business and service provider video offerings grew 27 percent and 20 percent, respectively.

“They did say they got a benefit from taxes,” Shaw Wu, an analyst at Sterne Agee, said of the second quarter result. “When you (take) that out, it’s 50 cents. That still beat by 2 cents.”

(Additional reporting by Sinead Carew. Editing by Tim Dobbyn, Leslie Adler and Andre Grenon)

(Reuters) – IBM’s Watson supercomputer has beaten expert “Jeopardy” quiz show contestants, and its predecessor defeated a world chess champion. Now, doctors hope it can help them outsmart cancer.

Oncologists at two medical groups have started to test IBM’s Watson’s supercomputer system in an effort to improve speed and efficacy of treatments, the company said on Friday.

The Maine Center for Cancer Medicine and Westmed Medical Group will begin testing an application based on Watson’s cognitive computing to help diagnose lung cancer and recommend treatment, IBM said.

“Access to comprehensive care can be difficult in rural areas such as southern Maine,” said Tracey Weisberg, medical oncology president at Maine Center for Cancer Medicine and Blood Disorders.

“This allows the most comprehensive evidence based treatment we could have only dreamed of in the past,” she added.

Watson is an artificial intelligence super computer system named after legendary International Business Machines President Thomas Watson.

Thanks to its computing power Watson can sift through 1.5 million patient records and histories to provide treatment options in a matter of seconds based on previous treatment outcomes and patient histories.

It has been fed with more than 600,000 pieces of medical evidence, 2 million pages of text from 42 medical journals and clinical trials in the area of oncology research, IBM said.

In addition, IBM partnered with clinicians and technology experts from health insurer WellPoint and Memorial Sloan-Kettering Cancer Center who spent thousands of hours to teach Watson how to process, analyze and interpret the meaning of complex clinical information, IBM said.

“Every doctor knows they cannot keep up with hundreds of new articles but every physician wants to be right and this is a way of facilitating that,” said Samuel Nussbaum, chief medical officer at WellPoint.

IBM first showcased Watson’s powers almost two years ago.

The computer beat two human competitors on the popular U.S. quiz show “Jeopardy!” highlighting the progress people have made in making machines able to think like them.

IBM has since further advanced Watson’s linguistic and analytical abilities to develop new products such as medical diagnosis.

(Reporting By Nicola Leske; Editing by David Gregorio)

The hedge fund manager’s Greenlight Capital sued Apple Inc
on Thursday, saying the company should give
stockholders a bigger share of its huge cash pile.

Apple shares, which had fallen 35 percent from mid-September
through Wednesday, were up 0.9 percent at $458.70 in morning
trading.

Einhorn, a well-known short seller, is long on Apple shares.
In a television interview on Thursday, he said that while he
admires the company, it has a “cash problem” that it needs to
fix by giving away perpetual preferred stock with a 4 percent
yield.

“The idea is powerful, and when I have a chance to explain
it to the shareholders, most will see it as an enormous
win-win,” Einhorn told Reuters.

Apple was not immediately available for comment.

One analyst said there were merits to Einhorn’s proposal.

“He’s a huge holder in the stock, the shares are down
and it’s natural for a person like that to try and reverse
that,” said BGC Partners analyst Colin Gillis. “Other
shareholders may join, but whether it will change the tide
remains to be seen.”

Analysts have said stockholder pressure would increase as
Apple’s share price and clout declines, and investors have
persistently called on the company to be more proactive in using
its massive cash and capital hoard.

As recently as last month, Chief Financial Officer Peter
Oppenheimer told analysts on a post-results conference call that
the company, which has the largest cash balance in the tech
industry at more than $100 billion, was considering various ways
to be more active on that front.

Money managers have also said that Apple’s cash pile was
underperforming the results peers had been able to achieve with
their own money.

‘UTTERLY MISVALUED’

Calling Apple shares “utterly misvalued” at current levels
in a CNBC interview, Einhorn said the company no longer needs to
grow at the near-triple digit rates of the past.

For every $50 billion in preferred stock that Apple gives
away to shareholders, it could unlock $32 a share in value for
investors, Einhorn said, without elaborating on how he arrived
at that number.

In a statement, Greenlight said it spent part of 2012 in
discussions with Apple on the idea of perpetual preferred stock,
but that the company rejected it last September.

“We understand that many of our fellow shareholders share
our frustration with Apple’s capital allocation policies,”
Greenlight said in an open letter to other investors. “Apple has
$145 per share of cash on its balance sheet. As a shareholder,
this is your money.”

Greenlight also filed a lawsuit in federal court in New York
on Thursday to force Apple to modify a proposal in its proxy,
which the hedge fund believes does not conform to regulatory
rules.

Greenlight said it is opposed to the proposal, No. 2 on
Apple’s proxy, which the firm said would remove the company’s
ability to issue preferred stock from its charter.