Well, Lenovo is entering the tablet space, and at least one product will have an MSFT operating system.
Granted this space is getting crowded, fast, but it looks like MSFT will at least play. I am still looking to see how the Skype acquisition fits into the overall picture, but it does mean that MSFT will handle many of the calls going over competitive handsets .... including the iPhone.
I do see where expectations are for an earnings miss from Intel, based on margin compression as they work to bring new chips into market. It seems that the bigger issue will be the outlook for the PC market, which Intel has estimated to grow double digits. This seems unlikely given the strength of tablet sales and slowness in hiring, so actually, Q2 earnings will probably not be the determining factor in the price movement, but rather INTC ability to sustain any sort of top line growth. This was the same discussion in Q1, however, which turned out to be pretty good and let to a dividend increase.
Wednesday, July 20, 2011
Speaking of CSCO
I see that CSCO is trying to remind everyone of how much bigger the internet is getting, and at what speed.
Not sure I believe that 20 households will generate enough traffic to exceed the entire internet of 2008, but still, I admit, we are getting more interconnected by the day.
It is a cool graphic (scroll down) after you click.
Not sure I believe that 20 households will generate enough traffic to exceed the entire internet of 2008, but still, I admit, we are getting more interconnected by the day.
It is a cool graphic (scroll down) after you click.
What AAPL Earnings Imply for Tech
Yesterday was a big day on the stock markets. The Dow, not a great indicator, was up by 202, on the strength of earnings from IBM and Coca-Cola. (The Dow is price weighted, so stocks with the highest prices have the most impact. IBM trades at $185, by far the most important Dow component).
IBM's big upside earning surprise helped tech rally sharply, with the Nasdaq up over 2% on the day. Among those that saw big rallies were INTC and MSFT, which report today and tomorrow, up 3.5% ahead of earnings. AAPL was also up about 3.5% at the close.
And then AAPL reported. It was, at least from the headline number, a monster quarter, and the stock was quickly up another 17 points (4.5%) on top of the strong gain booked at the close.
While IBM led to a huge surge in other tech stocks, which encouraged optimism on IBM's good results, all other tech stocks dropped in after-hours trading (INTC did recover to book a very small gain).
Now, admittedly, stocks that have good days tend to have weaker performance in after-hours as savvy traders try to book some profits before markets open, so some downward movement might be expected - but against continued strong performance of tech companies, I would expect that strong results in the tech sector would bolster expectations for MSFT and INTC. I believe they will report above average (or "consensus" - a most [intentionally] misused term in earnings jargon).
Apple's success, in other words, did not provide further enthusiasm for stocks of PCs and laptops. No, they saw Apple's sales of tablets and concluded that the PC is dying faster than anyone thinks. I guess this is what everyone believes - that Apple will kill the PC and with it the great franchises in tech.
I should point out that expectations are for INTC to report the same $0.51 per share it reported last year (on a similar number of shares outstanding) and for MSFT to report $0.58 per share - an increase of 7 cents, or nearly 14%. I have to ask how it can be that a stock projected to grow earnings 14% per year with mountains of cash and a tremendous franchise can continue to trade at 10x earnings. What am I missing?
I can accept that INTC and MSFT's franchises may be less valuable going forward than they were in the past. And yet, at MSFT sales and profits continue to rise. MSFT continues to produce the most valuable productivity software in the universe. It may be a laggard in online games (though Xbox is competitive) - but is entertainment really where the big market for tech spending is going to be, or is it just a small market segement currently experiencing rapid growth (and therefore loved by the people who kibbitz markets - investment banks and the like?).
Ditto Intel. They still produce the best chips. Sure, Apple wants to use its own stuff, and it's market share has grown to the point where that may be feasible, so everyone is afraid that Intel's share will drop (which in a high operating leverage environment could hurt profitability). But how many times have we watched AMD go through near death experiences when there is a downturn and it cannot match Intel's cost structure? The fact is, Intel has the know how to build chips for phones, and competitors to Apple have an incentive to work with Intel to avoid ARM and the Apple ecosystem, for fear of feeding the beast. Plus, Intel has the strength to buy it's way into the market, if need be.
The market sees these companies as dead or dying dinosaurs; I always remember that dead dinosaurs are a major source of the energy that powers the world.
In any case, I am looking for earnings beats by MSFT and INTC. Even CSCO may surprise, excluding the costs of restructuring - which in any case may have been booked after the quarter. I am almost starting to think that CSCO could finally revive itself, were it not for the billion shares in phantom equity sitting off balance sheet in the notes.
IBM's big upside earning surprise helped tech rally sharply, with the Nasdaq up over 2% on the day. Among those that saw big rallies were INTC and MSFT, which report today and tomorrow, up 3.5% ahead of earnings. AAPL was also up about 3.5% at the close.
And then AAPL reported. It was, at least from the headline number, a monster quarter, and the stock was quickly up another 17 points (4.5%) on top of the strong gain booked at the close.
While IBM led to a huge surge in other tech stocks, which encouraged optimism on IBM's good results, all other tech stocks dropped in after-hours trading (INTC did recover to book a very small gain).
Now, admittedly, stocks that have good days tend to have weaker performance in after-hours as savvy traders try to book some profits before markets open, so some downward movement might be expected - but against continued strong performance of tech companies, I would expect that strong results in the tech sector would bolster expectations for MSFT and INTC. I believe they will report above average (or "consensus" - a most [intentionally] misused term in earnings jargon).
Apple's success, in other words, did not provide further enthusiasm for stocks of PCs and laptops. No, they saw Apple's sales of tablets and concluded that the PC is dying faster than anyone thinks. I guess this is what everyone believes - that Apple will kill the PC and with it the great franchises in tech.
I should point out that expectations are for INTC to report the same $0.51 per share it reported last year (on a similar number of shares outstanding) and for MSFT to report $0.58 per share - an increase of 7 cents, or nearly 14%. I have to ask how it can be that a stock projected to grow earnings 14% per year with mountains of cash and a tremendous franchise can continue to trade at 10x earnings. What am I missing?
I can accept that INTC and MSFT's franchises may be less valuable going forward than they were in the past. And yet, at MSFT sales and profits continue to rise. MSFT continues to produce the most valuable productivity software in the universe. It may be a laggard in online games (though Xbox is competitive) - but is entertainment really where the big market for tech spending is going to be, or is it just a small market segement currently experiencing rapid growth (and therefore loved by the people who kibbitz markets - investment banks and the like?).
Ditto Intel. They still produce the best chips. Sure, Apple wants to use its own stuff, and it's market share has grown to the point where that may be feasible, so everyone is afraid that Intel's share will drop (which in a high operating leverage environment could hurt profitability). But how many times have we watched AMD go through near death experiences when there is a downturn and it cannot match Intel's cost structure? The fact is, Intel has the know how to build chips for phones, and competitors to Apple have an incentive to work with Intel to avoid ARM and the Apple ecosystem, for fear of feeding the beast. Plus, Intel has the strength to buy it's way into the market, if need be.
The market sees these companies as dead or dying dinosaurs; I always remember that dead dinosaurs are a major source of the energy that powers the world.
In any case, I am looking for earnings beats by MSFT and INTC. Even CSCO may surprise, excluding the costs of restructuring - which in any case may have been booked after the quarter. I am almost starting to think that CSCO could finally revive itself, were it not for the billion shares in phantom equity sitting off balance sheet in the notes.
Tuesday, July 12, 2011
Why Facebook is Worth Much Less than $100 per User
One of the perils of being a very part-time (read: occasional) blogger is that you have lots of ideas that you don't have time to write about. One of my long-held views about "social networking" and Facebook in particular is that it is a fad, and will have much less long term impact than people believe.
I have always believed that as soon as it went mainstream, it's attractiveness to the people who sustain such networks - the young - would evaporate. Youth are the core of any such network, because it is they who adopt new technologies and who invest lots of effort in these kinds of elaborate displays of self-identification and expression, and that once the adults started to invade the party, the cool kids would find somewhere else to decamp.
It turns out that someone in Forbes has written an article that encapsulates my views on the whole exercise: that Facebook's early success was it's exclusivity for youth. When it was launched, it was a platform for communicating with other youth, shielded from the prying (spying) eyes of mom and dad. Now at over 600 million users, the growth is in the older age segments - grandparents looking to keep track of the grandkids, maternity leave moms - desperate for communication beyond gurgling noises - posting the endless photos of their kids and people long out of school trying to stay in touch or to reconnect with their classmates.
In short, Facebook is losing it's cool - and with it, it's teen users.
This doesn't mean that it cannot make money, or that it cannot remain a good business, provided it can maintain it's position as the leader in sharing for the older set (who, after all, have larger wallets). The problem is, it is hard to maintain leadership at the forefront of technology if your users are late-adopters. Even if you push them into using new features, you lose that core group of innovative users who see unexpected, but important ways of using feature sets and who ultimately become the arbiters of what features become dominant.
If it loses it's edge in technology, it has little choice but to become a fast-follower. This might be a better position, in some sense, but it means that Facebook may also lose the talent war. It also risks having someone else do to it what it did to myspace.
For investors, what it means is that one has to apply a very substantial discount rate (at least 25%) to the earnings of the business (if it has any), because one must assume a much less than infinite duration of revenue. Even if revenue can grow by 50% per year for the next five years, and earnings presumably faster, the present value of those earnings is less than 30% of its nominal value.
Ironically, by the time Facebook reaches IPO it may already be in decline. At this point in it's lifecycle, MySapce began experiencing a terminal revenue decline. Admittedly, becoming acquired by a big corporation did not help, but it seems ironic that the most enduring legacy of the site is Lily Allen, which only goes to suggest that Zynga might be the big winner in all this (and of course, the investment banks).
But what do I know, I am just a part-time blogger who doesn't get it anyway. While I like technology and can develop MS Access databases and for the record, I do have a Facebook account, I am not a big gadget collector. I have been called a Luddite by friends who are more technophilic). It is why I like to invest in companies that sell toothpaste and hair dryers.
I have always believed that as soon as it went mainstream, it's attractiveness to the people who sustain such networks - the young - would evaporate. Youth are the core of any such network, because it is they who adopt new technologies and who invest lots of effort in these kinds of elaborate displays of self-identification and expression, and that once the adults started to invade the party, the cool kids would find somewhere else to decamp.
It turns out that someone in Forbes has written an article that encapsulates my views on the whole exercise: that Facebook's early success was it's exclusivity for youth. When it was launched, it was a platform for communicating with other youth, shielded from the prying (spying) eyes of mom and dad. Now at over 600 million users, the growth is in the older age segments - grandparents looking to keep track of the grandkids, maternity leave moms - desperate for communication beyond gurgling noises - posting the endless photos of their kids and people long out of school trying to stay in touch or to reconnect with their classmates.
In short, Facebook is losing it's cool - and with it, it's teen users.
This doesn't mean that it cannot make money, or that it cannot remain a good business, provided it can maintain it's position as the leader in sharing for the older set (who, after all, have larger wallets). The problem is, it is hard to maintain leadership at the forefront of technology if your users are late-adopters. Even if you push them into using new features, you lose that core group of innovative users who see unexpected, but important ways of using feature sets and who ultimately become the arbiters of what features become dominant.
If it loses it's edge in technology, it has little choice but to become a fast-follower. This might be a better position, in some sense, but it means that Facebook may also lose the talent war. It also risks having someone else do to it what it did to myspace.
For investors, what it means is that one has to apply a very substantial discount rate (at least 25%) to the earnings of the business (if it has any), because one must assume a much less than infinite duration of revenue. Even if revenue can grow by 50% per year for the next five years, and earnings presumably faster, the present value of those earnings is less than 30% of its nominal value.
Ironically, by the time Facebook reaches IPO it may already be in decline. At this point in it's lifecycle, MySapce began experiencing a terminal revenue decline. Admittedly, becoming acquired by a big corporation did not help, but it seems ironic that the most enduring legacy of the site is Lily Allen, which only goes to suggest that Zynga might be the big winner in all this (and of course, the investment banks).
But what do I know, I am just a part-time blogger who doesn't get it anyway. While I like technology and can develop MS Access databases and for the record, I do have a Facebook account, I am not a big gadget collector. I have been called a Luddite by friends who are more technophilic). It is why I like to invest in companies that sell toothpaste and hair dryers.
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