We’re three weeks into the New Year and you know what that means — another round of earnings announcements. Earnings season for tech companies officially started after the close on Tuesday with Intel reporting and then Apple following suit on Wednesday.

Intel’s “positive” announcement said that net income plunged 39% in the December quarter, on a 5% drop in sales, despite shipping a record number of chips. I say “positive” because they beat revenue and earnings expectations by a penny. The strategy of using pricing power to get market share back from Advanced Micro Devices seems to be working. Their new 65 nanometer chips are lowering overall costs, but costs associated with their next generation 45 nanometer chips, now in test production and scheduled to ship in the second half of 2007, will depress profit margins for a while. So their guidance for the March quarter worried Wall Street, and the stock sold off.

After the close Wednesday, Apple reported blowout iPod sales in their December second quarter, but fell 300,000 units short of expectations for Macintosh sales. The whispers and surveys were suggesting that they would beat Mac sale guidance, so this was enough of a disappointment to take the stock down $5.88 today.

Macintosh sales gained market share for the fourth calendar quarter and full year. Last year, I said that I expected worldwide PC sales to fall 10% in 2006, but I was wrong. U.S. shipments fell 3.2% in the December quarter and increased only 1.2% for the year, but continued strong sales in Asia and Latin America took worldwide shipments up 9.5% for the year to 239 million units from 2005′s 219 million. Dell and Hewlett-Packard finished in a tie for 2006 market share at 15.9% each, followed by Lenovo (who bought IBM’s PC business) at 7.0%, Acer at 5.8% and Toshiba at 3.8%. Dozens of companies shared the other 51.6%.

I’d expected a big snap back in PC sales in 2007, but since 2006 didn’t go down, I’m now thinking 10% growth would be a good year. Intel said 8% to 10% was the consensus range, and they had no major disagreement with that even though Windows Vista for consumers will finally start shipping on January 30.

Mobile phone sales also did better than I expected in 2006. I was looking for a flat year at 750 million units, but the wireless revolution rolled on and sales hit nearly 900 million units. Most of the growth came from new users in developing countries and prepaid services that let someone with poor credit get a phone. But there’s no doubt that the gadget consumers in the U.S. fulfilled their share as well, by tossing their perfectly functional old phones to buy new ones. The replacement handset market was larger than the new handset market in 2006 for the first time ever.

The In-Stat market research firm thinks growth in mobile phones will continue in the 10% to 15% range for the next five years, driven by the rollout of higher speed data networks. Today, there are about 3.2 billion phones in service worldwide, and by 2011 In-Stat thinks that 50% of the world population will have a mobile phone. In dollars, the handset market will grow from $144 billion to $200 billion by 2011 — good news for UTStarcom (UTSI).

The strength in PCs and cellphones helped semiconductor sales also come in better than my “flat” expectation. That will cause this year to look less robust. At the annual SEMI conference this week in Half Moon Bay, sponsored by the Semiconductor Equipment & Materials International trade association, the expectation was that the final data will show 2006 worldwide semiconductor sales up about 10% to $250 billion. Growth will slow this year to a gain of 5% to 7%, or $262.5 million to $267.5 million.

Putting it all together, 2007 looks like an OK year for technology fundamentals. It won’t be a whole lot better than 2006, but 2006 was surprisingly strong. By the second half of the year, Windows Vista will be shipping in volume and help to finish the year on a strong note. But as we’ve already seen from Intel, Apple and Lam Research, companies are likely to guide cautiously for the March quarter (and probably also for June). The market will have to overcome that to keep moving up in the two-year bull move that I have been forecasting.

Biotech MegaShift

The FDA approved only 18 new drugs in 2006, at the low end of the range for the last 10 years. This isn’t completely the FDA’s fault, because the big pharmaceutical companies aren’t bringing many new drugs forward — their pipelines are empty. Therefore, biotech companies should benefit this year, because they have lots of new products coming along. The FDA will have time to deal with them expeditiously and (one hopes) fairly, and some big pharmas may decide it’s time to make more biotech acquisitions to restock the research cupboard. Which brings us to…

Dendreon (DNDN) took a nice hop when they announced that the FDA would complete their Fast Track review by May 15. We already knew the FDA would do this, on top of letting DNDN file a “rolling” BLA (Biologics Licensing Application) all during 2006. So while no one should have been surprised, the jump in the stock tells me there are plenty of investors ready to jump on a biotech stock that seems to be making progress. The stock should rise towards the $7.50 level between now and May 15 and then roughly double over a few months following FDA approval. Remember that Dendreon could sign a partnership deal at any time if they make it conditional on approval. That would get the stock close to double digits. DNDN remains a Top Buy up to $7 for my $14 target.

Content on Demand

Comcast (CMCSA) will be facing competition earlier from Verizon and other phone companies going into cable TV distribution, as state and Federal governments are making it easier for the phone companies to deploy new services without getting a franchise from local governments. However, it won’t be a problem in 2007, and Comcast is one of the best examples of a content distributor with a huge user base leveraging new technology, both to make its customers happier and to increase its own revenues. Comcast will report earnings on February 1 before the open, and should have decent guidance relative to more cyclical or seasonal product companies. Hold CMCSA for my $62 target.

Telkonet (TKO) barely responded to the news that I covered in last week’s report about them beginning deployment of the Department of Defense Navy and Marine base contract. Christopher’s comment was typical: “I notice today there is a major announcement to deploy BPL in DoN, a $6.9 billion deal. Why did the market totally discount it? In fact, TKO dropped 3 cents on the day.”

The answer is simple: Nobody is looking. Or, to be more accurate, only we are looking. The company only has a $160 million market capitalization and isn’t followed by traditional Wall Street sources. This was a very important step in a life-changing contract for the company. In situations like this, I think getting the stock under $3 is a gift. The next announcement should be the long-delayed investment by a strategic partner, and maybe that will finally get investors’ attention. Buy TKO up to $5 for my $15 target.

New Energy Technology MegaShift

It’s a bit strange to see ice storms in the Midwest, multi-car crashes on icy roads in upstate New York, tens of thousands of people without power for days on end — and oil hitting two-year lows. Natural gas was hit even harder as the futures dropped 6% just yesterday. Oil briefly dropped below $50 a barrel today. After a few moments, it traded back up over $50 mark, but it could take a spike down another three or four dollars on any specific day. Yet, I think we are essentially at the lows, as the hedge funds have bailed out and gone short, while the weather is getting colder and worldwide growth looks like it is continuing. China and India should be snapping up futures contracts at these prices to lock in the oil that they will need as their economies strengthen in the second half of the year. So, I still think this is an excellent time to add to energy positions.

Connacher Oil & Gas (T.CLL) updated their operational activities, which have benefited from favorable weather and good planning. Subscriber Barry and others have asked for an update on the company, and the news is good. The Great Divide oil sands project construction is well underway, and the first five horizontal well pairs are being drilled at Pad 102. After those are completed, 10 more well pairs will be drilled at Pad 101, and by June, production can begin in the neighborhood of 10,000 barrels a day of bitumen. That will be refined at their Great Falls, Montana facility, which is being upgraded with enough storage to run continuously.

Additional core drilling to prove reserves was completed by yearend and will be counted in the next reserves update by their independent consultants, to be released on March 23. Additional drilling will get them to about 70 core holes in the spring. They picked up another 7,360 acres of oil sands rights at the January 10 Crown Sale in Alberta, and now have total oil sands lease holdings of approximately 90,000 acres.

Connacher also owns a 26% interest in Petrolifera Petroleum Limited (PDP on the Toronto Exchange). They invested $2 million, and it is now worth about $120 million, or roughly $1.00 per Connacher share.

The oil sands are profitable at $50 oil, so unless you think oil prices will stay this depressed, you must own Connacher at these levels — especially considering the $1 a share in Petrolifera stock. T.CLL is a Top Buy up to $4.50 for my $7 target this year — and much higher levels later.

Rentech (RTK) named Richard Penning as Executive Vice President of Commercial Affairs. I normally don’t comment much on appointments below the CEO level, but I suspect he will be the next CEO. He has a great background, mostly at UOP, an energy technology division of Honeywell. He’s been there 28 years, most recently as VP and general manager of the Venture & Business Development division.

Like our other recommendations, Rentech can still make money at $50 oil, and they will make a lot of money at $70 oil, which is where we are headed this year. RTK remains a Top Buy up to $5 for my $11 target.

WiMAX MegaShift

Alvarion (ALVR) and a Taiwan company are going to develop mass-market consumer electronics devices based on mobile WiMAX. While this is complimentary to Alvarion’s WiMAX backbone equipment, there’s no way ALVR can enter the consumer market with these products. So, I expect them to license intellectual property and reference designs to others, with Accton Technology, their Taiwanese partner, one of the first to actually produce handsets and other devices.

ALVR said that market research predicts the worldwide WiMAX backbone and customer equipment market will hit $3.7 billion in 2012, up from $490 million last year. Taiwan’s government has an initiative to blanket the island with fixed and mobile WiMAX, which gives Accton an incentive to make the handsets and Alvarion an incentive to find a partner who might facilitate future sales of backbone equipment into that market. 2007 is the real Year of WiMAX, and ALVR remains a Top Buy all the way up to $9 for my $18 target.

Market Outlook

The S&P 500 tried twice to push up to my 1440 ultimate target, but no cigar. I still think that can happen off one strong day of earnings reports that are not accompanied by weak guidance for the March quarter. But time is getting short, and right now, I would say a break below 1428 would be a real warning, and a break below 1414 would signal a meaningful decline to 1320 or so. There have been six 100-point declines in the S&P 500 in the last few years, and each has been followed by a run up to new recovery highs. From 1320, the S&P could make a decent run at all-time highs. Or it might retrace all the way to 1236 before blasting off.

I recently answered a poll for 2007 market and stock forecasts, and I thought you’d like to see my answers:

• High and low for the Dow and S&P 500 in 2007: Dow High 15753, Low 11197; S&P High 1836, Low 1236.
• Year-end close for the Dow and S&P 500 for 2007: Dow 15753 (closes the year on its high); S&P 1836 (closes the year on its high).
• Favorite Stock for 2007 (or top two): Telkonet (TKO) and eResearch (ERES)

I will have a lot more comments next week on two issues: Fed Chairman Bernanke’s warning today that the U.S. faces a possible “fiscal crisis,” and my recent rants on the growth in the money supply. These are related, as the solution to the “fiscal crisis” caused by the budget deficit, the trade deficit, foreign holdings of U.S. debt, the truly disastrous outlook for Social Security and Medicare, and the overleveraged consumer/homeowner is simply to print money. Rampant inflation makes these problems much smaller. The good news is a Social Security retiree will still be able to buy that latte at Starbucks, while the bad news is that it will take their entire $1,100 Social Security check.

Speaking of the money supply, Charles, Ron and many others asked me where I am getting my growth estimates for the money supply, and as it is a complicated answer (the real numbers are somewhat hidden), I will get to that next week, too. I’m planning to do a presentation with charts on this topic at the Orlando Money Show, but of course you will see the info first, here. Right now, I am off to catch the CREE (CREE) conference call in hopes that they can see the LED at the end of the tunnel.