Packeteer (PKTR) reported earnings recently. It was a put-up-or-shut-up quarter for CEO Dave Cote, and he put up. Packeteer beat the consensus expectation for $38 million and breakeven, reporting $40.9 million in revenues, up 12% from the September quarter, and one cent in proforma earnings. Elliot Associates, the large dissident shareholder that wants the company sold, probably will not be happy, but Dave has earned himself another quarter to get this train moving.

In the press release, Dave said: "We turned the corner in the third quarter, and in the fourth quarter have continued our improvement with a sequential increase in revenue of 12%, resulting in the second largest revenue quarter in our history. In addition, we were gratified to produce another quarter of improving non-GAAP operating income. Our outlook for 2008 is very positive. We expect to accelerate our revenue growth and return to profitability in 2008." Sounds great to me.

Harmonic (HLIT) blew the doors off with their recent quarterly earnings and, even better, I think Wall Street is beginning to understand what we have been talking about for over a year. Sales rose 17% to a record $88.4 million, and they reported their sixth straight profitable quarter under the new CEO, hitting 19 cents a share pro forma, and 15 cents under GAAP. The consensus was at $83.6 million and 15 cents pro forma. Harmonic provides a rolling six-month forecast instead of quarterly guidance, and said first half sales would be $165 million to $175 million, bracketing the consensus outlook for $171 million. They are sandbagging a little, and I expect them to do close to $400 million in 2008, with earnings over 50 cents a share.

The stock rose about $1.50 on the news. It may just have been a knee-jerk reaction to beating their numbers, but the questions on the conference call made me think that analysts are beginning to understand that:

• The cable TV business remains strong as cable companies fight back against telephone company VVD (voice-video-data) offerings;
• Harmonic has diversified away from U.S. cable in a dramatic way, and they are now an important supplier to the telephone companies as well;
• Harmonic has regained its #1 position with the satellite companies, and they in turn are fighting tooth-and-nail against both cable and phone companies (or partnering with them to provide the second V in VVD);
• Harmonic has a substantial non-U.S. business growing even faster than their U.S. operations;
• In addition to their traditional lead in video encoders, as shown by recent satellite contract wins, Harmonic is in numerous new, fast-growing areas like switched digital video, Internet Protocol TV and cable modem termination systems;
• Even the traditional video infrastructure markets are growing a very respectable 15% to 20% per year;
• The emerging video markets are growing 40% per year or more;
• Very strong orders in the December quarter, when much other capital spending weakened, show that the video infrastructure buildout is stronger and growing faster than ever before;
• Harmonic will report about $500 million in sales in 2009, up 60% from 2007.

There were a number of larger brokerage firms on the conference call asking questions that do not currently publish a recommendation on HLIT. I suspect we will see some new research soon.

The Capitalist Miracle took a hit the other week as the Chinese government reverted to its pre-market reform era and froze electricity prices after earlier capping coal prices. The recent freak snowstorms in China, where one inch of snow brought many cities to their knees, also caught the utility companies with low coal stocks, in part because mines shut down rather than continue to sell coal at regulated prices. The idea that Beijing can regulate prices in major sectors of the economy and not cause shortages is absurd, but they seem determined to try in order to hold down inflation. I have a better suggestion for holding down inflation: Stop printing money at 18% per year! I understand why they want to weaken the yuan as fast as Bernanke is weakening the dollar, but it isn't going to work. Their inflation spike is mostly in food and utilities, which affects the poor most severely, so they'll freeze food prices and shift the pain to farmers, who will then cut output or switch to freely-traded crops. Ah, the command economy...such a hard idea to keep under the rock where it belongs.

To cope with the electricity shortages, thousands of trainloads of coal were rushed to utility power stations. Hundreds of mines were told to continue operating even through the Lunar New Year holiday. But the price of coal is expected to as much as double in 2008, and the government hasn't said how the power companies are expected to cope. Huaneng Power (HNP) is down $14 or 28% from where we sold it in July 2007, yet I have no desire to lead you back into this stock in the current environment.

I assume that in a strong U.S. stock rally, Chinese stocks will participate. But I am glad that we are out of harm's way for now, as they grapple with their inflation and political problems, while still keeping a good face on everything at least through the Summer Olympics. The government keeps gasoline and diesel prices low, and consequently fuel consumption is growing at 20% a year, and they import almost all of it. As crude oil prices went up, refineries were squeezed and stopped expanding capacity. Result: A diesel shortage in October that had truckers lined up at filling stations like a Mad Max movie, and a 10% price increase in November.

I would not be surprised if the government's intervention and energy price caps cause power shortages and general disruption that ultimately increase inflation. Can political crackdowns be far behind?

Intel (INTC) unveiled their new phase change memory technology at the International Solid State Circuits Conference in San Francisco. This is the Ovonic Memory technology that is owned in part by Energy Conversion Devices (ENER). Intel has figured out a way to double the capacity of the memory. Phase change will replace NOR flash memory in cell phones and computers, and it may eventually replace NAND flash memory for digital cameras and MP3 players. But I won't hold my breath on the NAND flash market, as I've been through too many of these "fabulous new memory" technologies that never could catch up to the existing technologies as they marched down the cost curve following Moore's Law. I do think that Intel will make phase change a success, and the market currently values it at zero for ENER (or maybe a little less, since it uses some cash).

Well, with gold at an all-time high of $952, platinum skyrocketing and soybeans at record levels, you can say that $100 oil either shows how big the petroleum imbalance is or you can say it's just the dollar hitting new lows. Given that oil is priced in dollars, it's tempting to conclude that this is just more fallout from the Bernanke-led death of the dollar, but I think it goes deeper than that. With the Tata Motors unleashing their $2,500 Nano car on India's 700 million would-be drivers, it's hard to imagine that the demand for petroleum products is going to go down much, even in a real U.S. recession.

We will see regular unleaded prices in the $3.50 to $3.75 range in April and May, and $4 in the San Francisco Bay Area. That should set off another round of stock price escalation in the alternative energy sector.

American Science & Engineering (ASEI) recently reported another lumpy quarter, with revenues down 11% to $42.6 million and 43 cents per share -- that's half of last year's 86 cents and well under the consensus for 62 cents. So, the stock traded up the next day! Why? Because business is good. ASEI saw $45.8 million in orders for the quarter, with 71% of those from international customers, and their backlog hit another record high at $125.5 million. Inventories were up because they have installed systems that are sitting at customers and awaiting acceptance. New programs are coming along and getting funded, and as long as there are terrorists, this company will continue to do just fine.

There was a 12-cent-per-share write-off this quarter, so the earnings miss was not as big as it looked. Their main problem is that their fastest-growing product lines still have lower gross profit margins, because they have not yet moved far enough along the manufacturing learning curve to get significant cost reductions. They are not "slashing prices to move new products" as one off-base commentator suggested. They are simply forward pricing to be competitive, and working on bringing down costs to improve profitability.