Monday, June 25, 2012

Hot Market or Sitting on Your Hands?

This market sucks.  And that's why I love the markets so much...sometimes they encourage you to go read a long non-business book, play a PopCap.com game, or take a long hike with your kids.

For reading, I've been reading J. M. Barrie's Peter Pan to the kids for bedtime reading.  It's free via the iBook store, and it's a cool un-adapted-for-new-audiences story. For PopCap I'm stuck on Plants vs. Zombies, a delightfully maddening title which can be a source of wasted hours...or a rapid training ground for young minds eager to unknowingly learn the military arts of asset allocation, supply logistics and battlefield strategy (that's how I explain it to the boy's Mom... ;-).  And finally, hiking, well heck, its Summer!

Personally, with the markets, I'm finally in a holding pattern.  No buying, no selling...and it's about time too.  I've been way too "day trader" (though, not really), and not enough Berkshire Hathaway buy-and-hold.  All my options have months before expiration (hopefully that's good), and stocks are locked down to the bare essentials: FB -- I bought in a 43, but kept buying down, so that I'm about even now -- and CROX, which I've considered a long-term holding in a fairly sound globally-based retail gamble.

Now, having said that, I asked my friend what he thought of things - here's what he said:
me:  What's the hottest game in this market? new housing? or sitting on one's hands? :-)
he:  companies that are mainly in u.s. markets that provide dividends.
me:  may I quote you on that for this hot little finance blog I'm helping with? (I won't use names...)
he:  sure
he:  what's the link?
me:  you may have heard of it:  http://swansandcrows.blogspot.com
he:  hmm
he:  i've heard about them somewhere.....
What do you think - are American dividend plays where all the actions at, or housing (as new home sales were up a bit for May), or AAPL (not RIMM), or nothing at all, sitting on your hands? Leave a comment, let us know.

..TS.


Thursday, May 10, 2012

LuxeYard (LUXR)

Some three weekends ago I got a glossy 8-page penny stock advertisement "newsletter" via snail-mail.  Before chucking it into the trash, I decided to give it a once-over, realizing that my slate of investing ideas had fallen somewhat lackluster of late.  Touted in the center of the infomercial newsletter was an article about up-and-coming ecommerce site Luxeyard (LUXR.PK).  On a whim, I decided to research the company a bit, and found this initial description on Yahoo! Finance:
Luxeyard, Inc., through its subsidiaries, operates as a member-based online marketplace for luxury home and other consumer products at a discount to retail prices. It offers its products to the members of its Website via a "flash sale" or "daily deal".
Well, the following Monday (this must've been April 16th, as the price was still below $1.00) I decided to nibble abit, picking up several K shares.  Over the ensuing weeks, the stock in this no-as-yet-reported-revenues ecommerce "flash sale" site of "luxury" goods has zoomed up 100%.  Is this destined to last?  Will this company, building itself through acquisitions of similar sites (just bought LeatherGroups.com site earlier this week, and pumped up its authorized share count to 550M), really grow into an ecommerce powerhouse, or will this growth-by-website-gobbling land it in the pennystock trash heap with MobilePro, a failed wi-fi telecom company which I followed into the stratosphere and back to earth 5+ years ago?  What do you think?

..TS.

[Note: okay, I'm wrong about revs - in their 10-K they reported some $2,038 in revs for fiscal year ending 12/31/2011.  But that's close to none...]

[5/15/2012 - I followed my normal sell rule (sell only when you need funds for another venture), and got out of LUXR at about $2.00/sh. In hindsight, since it has sagged 25% in the intervening days, I may reconsider and move back in should the price approach $1.00 again. Otherwise, I'm watching my long-time fave penny, LSCG, which has been gapping higher due to exposure at an annual lighting convention, coupled with a 10-Q filing.  ..TS.]

Monday, May 7, 2012

Petabyte the Hand that Feeds

Several interesting quotes can be found in Kevin Davies' "Dagdigian's Trends in IT Highlight Bio-IT World Expo" at bio-itworld.com, as he describes Chris Dagdigian's review of the Bio-IT World Expo:
"Petabyte-capable storage is trivial to acquire in 2012".
"The [science] is changing faster than we can refresh datacenters and research IT infrastructure." 
Dagdigian was excited about new NGS compression techniques, such as CRAM. "We need order-of-magnitude changes in compression,” he said. “Be glad you are not Broad/Sanger/BGI/NCBI." 
"...storage offerings from vendors such as DDN, Panasas, Isilon and BlueArc all run Unix on standard architectures." 
"I would not deploy a private cloud solution … that does not have Amazon API compatibility." 
Dagdigian said he was bullish about the Siri voice control ... [h]e predicted growing popularity for ... pNFS as well as smart storage systems from Drobo and DataDirect.  

The local private Pittsburgh HPC company I follow in the news (as I know the CTO, Garth Gibson) is Panasas.  While terabyte-scaling-to-petabyte storage has long been the domain of supercomputing initiatives, businesses and governments globally are quickly snapping up storage systems to support research across many disciplines: biosciences, energy, finance, manufacturing, etc. While "apps" currently control home lighting systems,  drone aircraft and smartphone-based gaming, why not data-gathering tools such as space-based telescopes, deepsea submersibles, etc?  Computing giants EMC, IBM, Hitachi, HP, and Dell all have their HPC components (and both Isilon and BlueArc are now divisions of two of these), but for start-up potential, watch the bleeding edge of this industry and see what shakes out - despite the 100 million smartphones/tablets out there, HPC is the stealth user of both SSD and platter technology.

..TS.
(note, the title is just silly - couldn't pass up the potential for punning... ;-)

Thursday, May 3, 2012

RIMMworld

There has been no more pivotal point for RIMM than it faces today.  Way too cliche to even say anything about being on the "rim", Research in Motion stands atop a pile of subscribers, scrambling to retain them with edgy products that're merely playing catchup.  Similarly, I've been in and out of near-term 2012 RIMM Puts trying to play catchup with a market that's been pushing the company down from Mt. Olympus since July of 2008, not allowing the global recovery to (barely) affect RIMM's Belerophonesque plunge.  My catchup plays have been about as eventful as RIMM's ability to combat the AAPL/iOS juggernaut.

As Tamara Rutter reports on Fool.com in "What Blackberry 10 Really Means for RIM" the introduction of the Blackberry 10 at the company's annual partner conference is met with mixed emotions: those stuck in the Triassic with their love of a physical keyboard (guess you can figure the colors I fly) dissed the keyboard-less demon, while AAPL, Samsung and Motorola licked their chops, ready to attack via their respective IP law firms a competitor who may or may not have paid for the relevant technology licenses.  Ms. Rutter points up the historical nature of RIM as "innovative", yet it took them 3 years to produce this tablet phone.  While we can all see the mass of Microsoft's ocean liner that gives seasoned captains the world over the willies in figuring out how to steer the behemoth, RIM's relative tiny size seems like a PT-boat pulling a submerged iceberg (which is probably the combination of their installed base with their proprietary network).

I closed out my Puts today, figuring I'd just take the friggin loss and stop trying to guess what this silly company was gonna do next--therefore didn't jump on the potentially cheap Calls that beckon if the 10 is RIMM's savior.  The touch-screen 10 may save them, but are there content and apps ready to wow the public?  Does their tablet phone have a halo device, ready to serve the function of AAPL's iPhone vis-a-vis the Mac computers?  I truly think that RIMM has bit the dust, is beyond the event horizon, but there are far easier ways to make money than trying to be a Phillip Falcone with RIMM.

..TS.

Tuesday, May 1, 2012

The Developing Story of Crocs - You Have an Option

Like any other growth company that started life as a fad, Crocs has its share of detractors and supporters.  The detractors are sure that the company is still just a fad, based on the sales of their fad product, and the next quarter holds certain ruin, so "Sell, Sell, Sell!".  The supporters may wear the shoes, have read and understand the company's financial documents, and see tons of potential in all those Croslite-shod feet worldwide.

I've undeniably thrown in with the latter crowd, with both equity and several different OTM calls (Jun12 at $21, Jan13 at $35 and $45). I've been long Crocs since mid-2008 when the freefall was still in effect, and have been reading positive things from the quarterly & annual reports all the way back up from the depths. Matt Andrejczak has good points from the recent quarterly report in his article "Crocs should quit quarterly outlooks: Hodges Capital", and he soberly points up some of the reasons why the equity tanked immediately following the report.

Ideally, you know, people should just sit on an equity position, like CROX, through thick and thin while Mr. Market sorts out just when the reality of an increasingly valuable company should be priced per it's value.  But we're all impatient for the quick profit, which is why I'm sure options were created.  While the underlying equity goes up or down a couple of percent, the options can move much faster, netting a profit (or loss) for the cautious, wary options fisherperson.

But Rocco Pendola, writing at TheStreet.com, really sums up the option strategy (game) in the title of his article "You Can Lose It All With Apple Options".  If you're truly not equal to losing your entire investment very quickly--as Call holders found with both CROX and AAPL over the past week--then you need to re-evaluate your use of options.  If people are messaging you asking when the best time is to exit a position, then they're no better situated than Croesus, king of Lydia, when he got the prognostication from the Oracle of Delphi "If you cross the river, a great empire will be destroyed."

..TS.

Thursday, April 26, 2012

So what if I called the earnings release

So I called the earnings release.....Yea..Wow....Great....
But, the most important thing is can I repeat that call. It was a mixture of knowing the sentiment and knowing what to ignore. [ or maybe ignorant of what I was suppose to know] Anyways, coming from a left-brained analytical background, I usually want to know everything about a stock before I jump in.

What others' don't know
My approach has always been to figure out what other traders don't know about a stock or special situation. But the lesson here is that traders, at all levels of experience, were watching what they were suppose to be watching. They were following the rules of prudent day/swing trading like they were suppose to.

Don't get me wrong. I'm not advocating that you don't use safe guidelines or rules. But there are different levels of how deeply a trader gets engaged in data and facts. Each level has a self-interest and motivation. Each level has a standard set of best practices learned through experience and knowledge.

Invert the Process
I will paraphrase the adage made famous by Howard Marks, What do I know that other trader don't?
Invert the thinking process into the following. What knowledge do others have that they should be ignoring?

At a different level, what knowledge exists that other trader's are totally ignorant of?

Regardless of experience, the other half of the world that is right-brained and guided by intuition may be looking at something from a completely different point of view.

Tuesday, April 24, 2012

OmniVision action today

I think OmniVision (OVTI) is going to pop today, after Apple reports its quarterly earnings report.

I will write more after tonight's market close.

Saturday, April 21, 2012

How do you quantify qualitative data? part deux

What are some qualitative question you can ask about company?

In a earlier piece I was trying to come up with a way to  quantify the qualitative data?
I have tried to compile a list of questions and make each line a binary YES/NO or TRUE/FALSE answer format. These can be put in an excel spreadsheet and counted in a column.

Frankly, I have partially answered all these question on a valuation but never in a systematic and controlled  methodology. This is an on-going exercise. It is not a comprehensive survey.

Does the Company sell a destructive innovation?
Industry increasing/stable in growth?
Industry increasing/stable in margin?
Management compensation excessive?
Management and shareholders interest align?
How does the company make money?
What percentage of company makes money?
What is the market share rank/place?(1st=5,2=4,3=3,4=2,5=1,6+=0)
Do they have market share in more than one area?
Is the innovation pipeline full?
Who are the top competitor and their profile?
Who is the rogue competitor and their profile?
Value Line sector rank position in top 20? Below the mean (enter the number)?
Financial competitive advantage?
Strategic/business/branding model competitive advantage?
Technology competitive advantage?
Do you know the industry metric and how they rank?

3rd party synergies?
R&D in growth sector?
R&D% compared to rivals?
Did you like it before it went out of favor?
Company culture, ethics, financials transparency?
Future catalysts?
Political / social problems?
Unfavorable legal problems?
Regulation catalysts or problems?

Can others not compete directly with this company {how big is the moat}?
Customer based on large small accounts? { 0/1 }
Am I emotionally attached (both negative or positive)
Company part of an index/ETF?
What Morningstar style?
Not followed by analysts? { more than 20 and less than 5 good? }
Not followed by institutions?

Have read letter from CEO
Have read annual report
Have visited company website
Is the company engineer based?
Is the company marketing based?
Is it an excellent company or an excellent investment?
Is original entrepreneur still CEO?
CEO changed in last 3 years?
Top-tier financial auditors?
Reverse Merger?
Recent IPO?
History of disappointments on earnings or revenue?
Any undervalued fixed assets?
Chairman is also CEO or handpicked CEO
Expense recognition valid?
Revenue recognition valid?
Intangible assets look valid?
Abnormal change in employee count drop=0, inc=1
Pension liability large?
Valuation allowances?

Deferred revenue?
What is replacement cost for a customer?
What is the Total Applicable (or Available) Market?
What is the Served Available Market?
What is the geographic reach?
What are the primary channels of distribution within that reach
Who are the key partners for sales and marketing within those channels(scalability)
What will it cost for the company to capture 10 to 20 percent of that market?
Divestiture?
Dupont ROE weakness?
Late or adjusted filings?
Restructuring?
Is accounting  ranked very aggressive=0, aggressive=1,average=2,conservative=3,very conservative=4

Demand feed
Supply feed
Innovation feed
CEO background and interests
Patents content or non-disclosure agreements
Trademarks and copyrights
Don't make up your mind until you've read the last 2-3 conference calls

Have you written a SWOT or exit plan?

Capital intensive, fixed assets or inventory?
Life cycle stage of product?
Social media feed-back
Analyst upgrades/downgrades Insider's SEC forms 3, 4, 5
Read SEC 10K, 10Q
Get Google news feed
Stock splits/ reverse splits adjusted price in historical context

Study a person who agrees with you and say why they are wrong
Study a person who disagrees with you
Go through list of analyst buy/sell comments
Standard industry/fanboy magazine i.e. Crackberry, Techcrunch
Management style fit company situation? {RIMM}

Roger Martin Video






About this video

Roger Martin, a leading proponent of design thinking in business, makes the case that we can understand innovation through a new model of how businesses advance knowledge over time, and that businesses fail to innovate when they show greater concern for producing reliable (predictable and reproducible) outcomes than valid ones that actually meet objectives. Martin argues that businesses can do a better job at innovating—and advancing knowledge—if they embrace design thinking. Using examples such as Procter & Gamble, RIM (BlackBerry) and Cirque du Soleil, he examines how companies transform themselves into successful design-thinking organizations.

Thursday, April 19, 2012

Research in Motion's services and software revenue


The new CEO Hines is banking on the success of its next BlackBerry 10 operating system platform to boost smartphone, mobile app development and tablet sales. What happens if it doesn't prompt a massive response? What if it's not a technological break-through. What if it only gets Research In Motion(RIMM) back to where other competitors' products match-up?

Is there a way to break-down how much RIM's business relies on the hardware? Let's begin totaling a dollar value with Research In Motion's patents. In September 2011, one estimate was that they are worth $1B counting $1.5B net cash and $21 per share.
Analyst Peter Misek believes RIM's patents are " relatively weak," with most in security rather than in wireless.

"We believe the liquidation value of RIM's patents is only ~$2.5B. We believe the security patents are worth approximately $500M, RIM’s wireless patents are worth approximately $1.2B ($400M LTE plus 3G, etc.), and we add the $770M worth of patents acquired from Nortel. Combining the various patents, we arrive at the patent portfolio value of approximately $2.5B."

Misek notes that even though the patents may be worth $2.5 billion, keeping an on-going handset business, RIM's patent monetization likely caps out at approximately $1 billion.

The firm sees a "cash cow salvage value" of $21 per share. Calculation: net cash ~$1.5B + patents ~$1B - restructuring ~$700M + subscription business.

Today the earnings and market price has gone down since September, but the cash & equivalent has gone up. I have not seen how much revenue is generated by the Enterprise portion of their products; However, if you eliminated the whole Hardware Division, RIM receives $3.5B in Services and Software revenue.  Caution: There may be some dependencies in those Services & Software dollars not accounted for. This is just a back-of-the-envelope calculation.

Add in $0 total debt and even stripped down, RIM seems undervalued. This morning RIM's market cap was ~$6.95B and the price hovers around $13.00 per share.

Tuesday, April 17, 2012

RIMM seeking advise on strategic options

There are reports out of Bloomberg News  that Research in Motion is seeking help from a International Bank and a Canadian Bank on what are its viable strategic options.

From the Bloomberg News Report:
"A decision to work with at least one bank could come in the next few days, said one of the people, who asked to remain anonymous because the deliberations are private. RIM would prefer an agreement to license its mobile-phone software, and its next choice is a strategic investment, one person said. RIM doesn’t plan to sell itself, the person said.

RIM spokeswoman Tenille Kennedy declined to comment, citing company policy."

"RIM will redouble efforts to attract business customers while reviewing options, such as licensing, partnerships, joint ventures and other ways to “leverage” assets. Other options include finding ways to wring more money from its messaging service and patents portfolio, which are its most valuable assets, the people said."

The Toronto Star reports :

But analyst Kevin Dede of Auriga USA didn’t expect a firm step toward a sale until much later this year at the earliest.

“It surprises me, because I really thought they’d wait and see how the BB10 devices did before they seriously considered a sale. I think some people had overplayed Heins’ remarks about a sale,” said Dede referring to BlackBerry phones using RIM’s long-awaited new operating system. RIM has said that BB10 devices are expected to launch late in the second quarter.
The second quarter ends around the last week in August. Either way, this is a long deliberate process. The stock price will be affected by many rumors and set backs.

Saturday, April 14, 2012

Research in Motion's Inventory Adjustments

Research in Motion(RIMM) has at least one more adjustment to make to their inventory. The average earnings consensus is .45 cents for the current quarter ending in May. The whisper number as of 4/14/2012 is .43 cents. No official guidance was given by the company.

No adjustments to estimates have been made in the last 30 days.
However, I don't know if all the news is priced into that estimate. There is  news that the Playbook is finally selling better since the 2.0 OS upgrade and price cuts.  RIMM has finally settled with the Indian Government over security issues. It cut prices in India in a move to boost sales in the world's second-biggest mobile phone market.

The adjustment to inventory will hinge on how much inventory needs to be written-off with the reduction of phones from the existing 7 brands to the proposed 3 or 4 brands. I am hoping we find out which models at the BlackBerry World Event starting May 1st.

[Edit: Wait,just found it - 3 families - Bold, Torch & Curve ]

BlackBerry Bold 9900 and 9930 
BlackBerry Bold 9790
BlackBerry Torch 9810
All-Touch BlackBerry Torch 9850 and 9860
BlackBerry Curve 9350/9360/9370
All-Touch BlackBerry Curve 9380 Smartphone 

Monday, April 9, 2012

Rubicon just got a big contract deal

Rubicon Technology(RBCN) entered into an agreement with a major LED chip manufacturer which begins April 1, 2012 and calls for the Company to provide six inch polished substrates from June 2012 through December 2012. The total value of the Agreement is approximately $20 million.

Compare that with the last quarter's revenue of  19.36 million for the entire company. It has an approximate fair value of 97% upside potential at the current $9.60 price.

There are a large number of shorts at this time.

 First Quarter 2012 Guidance from the CEO Mr. Parvez
Commenting on the outlook for the first quarter of 2012, Mr. Parvez said, “We are seeing signs of improvement in the LED market in the first quarter. Orders for two-inch through four-inch cores have begun to recover somewhat but, given that it is early in the recovery, prices remain low. Our LED customers have substantial inventory of 6 inch polished wafers, and we expect few orders from that market segment in the quarter. In the Silicon on Sapphire (SoS) market, demand for large-diameter wafers continues to grow, but this is a smaller market. As a result, we expect that total revenue for the first quarter of 2012 will be between $8 and $12 million. At this level of revenue, and with further reduced utilization in our fabrication and polishing operations this quarter, we anticipate a loss of between $0.10 and $0.14 per share in the first quarter. I believe that as pricing and utilization improve we will gradually move back to our targeted gross margin of over 40 percent.”

“We expect capacity utilization among the LED chip makers to continue to improve throughout the first half of this year,” Mr. Parvez said. “Looking beyond the first half of 2012, the outlook for sapphire substrates is for very strong growth, as LEDs gain momentum in the general lighting market, where LED penetration presently is only in the single digits, and as LED penetration into the auto market continues and the backlighting market strengthens. Rubicon continues to be the market leader in terms of capability and cost, and we are well positioned for the market rebound,” he concluded.

The first quarter ends March 31, 2012 and the unconfirmed release date is May 24th, 2012.

Wednesday, April 4, 2012

Research in Motion Mobile Fusion

Research in Motion(RIMM) is well known in the Enterprise segment of the smartphone mobile device segment.  Their flagship BlackBerry brand uses a  proprietary browser and operating system to insure a secure, unfragmented code. However, the smartphone segment is changing.

Research in Motion(RIMM) has just released a product that is in response to the new trend in the smartphone industry.  This allows IT personnel, in conjunction with the Enterprise Business Server (BES), to provide messaging, email, virtual network and browsing for any enterprise. { No more IT banning of browser software or apps }. Ever since the rise in Android and iPhone devices, the user has not been tied to a platform or operating system, and can pick and choose the features she wants. The customers and users in this industry have evolved into the "bring-your-own-device"  or "BYOD" movement.

The newly released product is the Mobile Fusion device management product. Mobile Fusion is described on the Blackberry website as:
BlackBerry® Mobile Fusion helps make managing mobile devices faster, easier and more organized than ever before. From a single, web-based interface, provision, audit and protect mobile devices, including BlackBerry smartphones1, BlackBerry® PlayBook™ tablets and devices that use iOS®2 and Android™3 operating systems.

With this product customers can buy any phone they want and it can be managed by the  enterprise. An estimate of enterprises global spending on fixed and mobile communications services approach $425 billion annually.


The new barrier to entry is now the carrier and its associated sales channel.  
Now prime real-estate shelf space and exclusivity in the channel outlet will determine success of a phone device.


Existing Competitors in the Mobile Device Management (MDM)
Other than BlackBerry's BES suite there are others in this space.
Read MDM wiki for more or do a search on Mobile Device Management

Two examples are highlighted below:
MobileIron
Tangoe, Inc. recent IPO (TNGO)

Monday, April 2, 2012

CrackBerry's RIMM is not dead podcast

CrackBerry.com has their view of the most recent Conference Call from Research in Motion(RIMM). The first ~35 minutes are a great discussion of what is going on in the industry now and where RIM should be....

"As promised, we recorded a CrackBerry podcast today to discuss all of the news and fallout surrounding yesterday's Q4 earnings announcement by RIM. We've seen a lot of straight up bad news reporting over the last 24 hours since CEO Thorsten Heins spoke on the investors call which took a lot of statements at partial value (no, RIM is not abandoning the consumer market and no, the company is not getting sold off tomorrow - reporters need to learn to wait until a call is done before writing their stories). We've also seen a mix of reactions on the blogosphere today at both extremes, with titles ranging from RIM is Dead to It's Time to Believe in RIM Again. Fun stuff. On CrackBerry we gave a straight up assessment of RIM's weak results, and appreciated Heins' matter of fact way in speaking about them and the challenges ahead.

We spend the first half of the show talking about why RIM isn't dead just yet. Between yesterday and today nothing has really changed for RIM. The challenges and work to be done are the same as they have been for the past several months. They need to keep the RIM boat afloat on BlackBerry 7 and service revenue streams for a couple more wavy quarters while they bring BlackBerry 10 to market. With cash in the bank, despite slowing sales they still have time to execute on their already in motion plans. BlackBerry 10 phones are going to need rock solid hardware, software, apps and some carrier love to make a splash and set things up for a comeback, but even if things don't go quite to plan we think RIM's Plan B can keep them fighting in the mobile space. You'll definitely want to listen in."






Saturday, March 31, 2012

Fake it till you Make it

As a value investor we are always looking for a reflection  of the quality of management. Do the executives have the shareholders' interest in mind when they make decisions? I am really intrigued by what is happening at Research in Motion (RIMM). A new CEO, Thorsten Heins, has recently taken the reins after being hand-picked by the two original co-founders of the technology company. The two co-founders, originally acting as co-CEO, moved to the board of directors.

The new directive from Mr. Heins seems confusing. If you listen to the latest conference call, the audience can seek whatever message their viewpoint supports. Of course, Mr. Heins has only been on the job for 10 weeks now. So his insistence that he is reviewing everything that would be in the best interest of the company has wisdom. He does seem to have cleaned house and forced several top executive to depart. One of the co-founders, Jim Balsillie will retire, either by force or design.
I hope Mr. Heins has the fortitude to carry-through the needed changes.

Research in Motion new directive in his words are {or at least my interpretation, and call me on it if I'm wrong}
  • BlackBerry Enterprise Service Business - Enterprise services
  • Prosumer market - which is characterized by users who use the device for personal and business
  • Consumer market - "bring your own device/phone" end user market
No, can't differentiate their new strategy from that..... Let's try to differentiate by revenue then:
  • Services
  • Software
  • Hardware
  • Other
{my interpretation, and call me on it if I'm wrong}
Mr Heins was talking about reducing the broad array of phones from the 7 new BlackBerry Smartphones to 3 or 4. He was talking about a possibility of licensing the software,  reducing or eliminating the hardware & accessories, repair, maintenance and warranty programs to a strategic partner. Maybe a joint venture? That's a big chunk of the current revenue. It will be interesting to see the evolution in the next 6 months and in the release of BB10.

Here is the elevator speech from the rim website:
RIM is the leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and service that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to information, including email, voice, instant messaging, short message services(SMS), internet and intranet-based application and browsing. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services through software development kits, wireless connectivity to data and third-party support programs.

What are RIM's Competitor's Strategy?
A quick glance at the top competitors strategies in the field:
Apple - Hardware & accessories, Software for the consumer; Just branching out to the Enterprise
Google - Software for the consumer - (Android )
Windows/Nokia - Hardware Partnership and Software (Window 7)

RIM - what is next?
Mr Heins was heard to say in the conference call:
"with BB10 we are getting ready not just for the smartphone, ...getting ready for mobile platform for the next decade"






Wednesday, March 28, 2012

Facebook cash horde

Question
If you were Facebook(FB) with a new pot of cash from your initial public offering (IPO), how would you spend that new found resource? What company would you acquire?

Facebook may want to add
  • a source of revenue from a social networking company
  • a social search engine company
  • an internet security/anti-virus company
  • a mobile advertising company
It's fun to guess.
You could even use the spread analyser from Bigger Capital  to anticipate the perfect risk-less arbitrage strategy in which the stocks of two merging companies are simultaneously bought and sold.

Sunday, March 25, 2012

Disruptive Technology



[originally posted April 2011]
Deb Roy showed a video on the development of language in his 5 year old son. Link here. It showed how we are all hooked up in  a social matrix. A cloud of connections and interactions of people that grows and feeds on itself.

We reinforce our ideas in conversations with our friends, social circle and work. This is a method of confirmation bias based on our thoughts and who we interact with.


The Black Swan Theory is described in this link. These events are considered to have negative consequences. Similar in its rarity and impact, but having a positive powerful outcome, a company or idea that appears without warning and is growing exponentially would be a disruptive technology force.

This made me start to look for disruptive technologies in a couple of search engines. Made me start to look for phrases in Facebook and on Twitter; My conclusion was that it will not be on Twitter or Google Trends that you find these events. It will not be in the social matrix.

Reading from the Black Swan Theory wiki:
The theory was developed by Nassim Nicholas Taleb to explain:
  1. The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology
  2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
  3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

The best we can do is to try to find the trends that are least prevalent. Maybe we should reverse the order of  a popular idea or item in a search, starting at the least relevant criteria.  Rethink trusted assumptions. The people who know that the disruptive event is coming are not going to tell you it's coming.

Do you have any comments or ideas on where to find these events?

Saturday, March 24, 2012

Benjamin Graham Fair Value Calculator

Hi guys. I'm frantically working on a Benjamin Graham Fair Value Calculator so you guys can evaluate your stocks using the bottom-line and the top-line figures.

Try what I have so far

Tuesday, March 20, 2012

A second look at Research in Motion

With all the apple news lately, what has Research In Motion (RIMM) been up to?

Here is the latest ComScore Report for the last 3 months. It shows that RIMM is still losing market share in subscribers but as an OEM device manufacturer has stabilized.

Maybe they have already ceded a segment of the Smartphone platform market share. Maybe they know what they're doing with the QNX acquisition. How big is the QNX CAR Application Platform market segment?

A quick tour of the QNX CAR 2 application platform

from the QNX community blog:



If year-over-year earnings could stabilize the bleeding and bad press would cease.
Research in Motion(RIMM) will announce year-end and fourth quarter fiscal 2012 results on March 29, 2012.

Monday, March 19, 2012

L-3 Communication's New spin-off

Check out L-3 Communications (NYSE:LLL). They are in the middle of executing a publicly traded spin-off called Engility. Since L-3 considers itself a 1st-tier defense contractor and has an investment grade rating, it will spin-off a subsidiary that is to be a 2nd/3rd tier company. Therefore the new spin-off will carry a debt rating equivalent to a BB+ enterprise. A lot of debt & goodwill will be transferred to the resultant subsidiary.


In contrast, the parent company will retain all the revenues, dividends and cash-flow. It will reduce capital expenditures, and possibly R&D. Long term debt will be spun-off as L-3 will maintain its excellent credit ratings. The margins are expected to grow in the parent company and decrease in the spin-off. However, the synergies and cost savings are expected to help both companies. How will all the re-alignments of business units wash-out? 


L-3 Annual meeting is April 24th. If everything goes according to plan, the deal is to be finished by June 30th, 2012.


Engility website: http://www.engilitycorp.com//news/

Saturday, March 17, 2012

OmniVision OV5650 & OV297AA - $OVTI $AAPL confirmed on new iPad

It was confirmed on two teardown assessments sites that the camera used on the new iPad (iPad 3) is OmniVision's.

On the  www.chipworks.com site:
"....says that the 5 Mp back illuminated CMOS image sensor in the new iPad is the same, it is the Omnivision OV5650 (die markings OV290BF). Yet again, Apple is recycling as many devices as they can to produce this new iPad."
"The secondary CMOS image sensor inside the new iPad is also a design win for Omnivision. This camera, the OV297AA, is a 0.3 Mp, 3.0 ┬Ám pixel pitch CMOS image sensor. Chipworks has seen this on the iPod Nano and the iPad 2."


On the iSuppli teardown site:

"The new iPad camera module design and cost is the same as in the iPhone 4 camera module. The two camera modules cost a combined $12.35, representing 3.4 percent of the BOM."

Wednesday, March 14, 2012

Fair Value Measures

There are many ways to be a "Value Investor". There are people who uses deep quantitative statistical methods. There are people who use qualitative methods only. There are people who use a mixture of both.

Using a Relative Analysis
I use fair value as a way to feel more confident about the selection I have made. It is an arbitrary, relative measure best looked at as a range of price values; Not a line in the sand, hard black or white number used to trigger actions, but as an estimation of relative value to the sector. I use Benjamin Graham's Number to measure the bottom-line. The P/E is the current S&P average P/E and the P/Bv is the top 20% percentile. Currently that's an average P/E of 14.8. Other metric can be employed. You can experiment. For example, use Shiller's 10 year historical average P/E as the average metric.

Problems
Stocks that have no earnings or that have negative book value are not measurable. You can take a historic 5 year average earnings. The negative book value is hard to get around. Skip down to the next experiment below.

Benjamin Graham never intended his formula to be used as a gauge to measure how valuable a stock has become. It was to be a guide, which he actually abandoned later. But the one thing Graham had was an adaptable, flexible outlook that changed with time. He loved to experiment.

Expanding your scope
What if you wanted to expand this small universe of stocks.
How does your stock stand-up compared to its peers in revenues? Does your company not have any earnings for the last few years?

Let's use the same principle on the top-line figure. Using P/S and P/Bv. I am using the top 20% percentile of both P/S & P/Bv as the top-line fair value figure.

Now you have the bottom-line and  top-line figures covered.

No revenues? What about EBITDA? EBIT? enterprise value?

Sometimes the Value is Still Unknown
OK. Take the housing sector. The earnings are terrible and the book values have been decimated. But you know there is value there because the housing market volume is at historical 50 year lows.
OK. Back to the other value analysis methods. Statistically, the relative financial values don't stack up with the potential value.

Monday, March 12, 2012

Housing is finally receiving love again

PulteGroup (NYSE:PHM) was upgraded recently. Several home builders are at their 52-week highs.
Maybe its time to start looking in the housing market again.

Sunday, March 11, 2012

L-3 and the coming Budget Sequester

L-3 Communications (NYSE:LLL) stands out among pure defense players by virtue of its non-platform focus on shorter-cycle contracts. It has prospered the last few years because of the discretionary non-platform emphasis. Now with the looming defense budget cuts it may work against them.

"In the past the short-cycle business was favorable because of the constant increases in DoD budget; now with declining budget it works against them."

"So far the Pentagon has not actually reduced spending, but it has terminated programs deemed unnecessary or too costly and shifted the funds elsewhere." L-3's  pipeline of work is full but usually consist of 3 years or longer contracts cycle so the cuts haven’t been fully realized. A shorter cycle works against L-3.

L-3 has anticipated the budget cuts and debt crisis and has done a lot of adjustments last year; However, the  FY 2013 Budget has more cuts as the sequester threat continues.  In September, if the budget is not past again, sequester could make the cuts worse.


Budget cuts are in the Defense Department (DoD), but Homeland (DHS) & CIA/Intelligence Agencies monies have increased or remain the same.

Cyber and C3ISR  are divisions expected to prosper.

Spin-off  to be completed June 30th 2012.

L-3 is a good company in a bad sector.

L-3 is a serial acquirer with BIG goodwill - will probably be written-off next quarter or at spin-off?
p/e=7.52,p/bv=1.02, cash intensive in fixed asset, spin-off to reduce debt?, div increased
not favored by analysts - only 1 buy out 17 brokers in current month
10K - price=68.19, eps=9.07, fair value=201.89, long term potential 195%, bv=67.03
est earnings 1.88 vs 1.85 → eps=9.10, rev will go down, spin-off will break even?, earnings will break even?

Thursday, March 8, 2012

L-3 spinoff

From the L-3 Communications Holdings (LLL) 10K filed 2/29/2012
On July 28, 2011, the Company announced that its Board of Directors approved a plan to spin-off a new, independent government services company that will be publicly traded. The new public company will be named Engility Holdings, Inc. (Engility). The spin-off, which is intended to be tax-free to L-3 and its shareholders, is expected to be completed in the first half of 2012. Upon completion, L-3 shareholders will own 100% of the shares of both L-3 and Engility. The spin-off is not subject to a shareholder vote.

Monday, March 5, 2012

OmniVision and OV8830

From the latest 10Q from OmniVision (OVTI)
In February 2011, we also introduced the OV8830, our most advanced 8-megapixel image sensor to date, and the first to use our second generation OmniBSI-2 pixel architecture. Implementing the latest developments in BSI pixel technology, the OV8830 combines low power consumption, small die size and best-in-class pixel performance with advanced image processing features. This combination allows the OV8830 to support enhanced, fast frame rate image capture and 1080p or 720p HD video recording, making it highly suitable for feature rich smart phones. OmniBSI-2 technology is our first pixel architecture built on 300 mm wafers using a copper process with 65 nm design rules, which enables a number of improvements over OmniBSI technology’s performance, including improved pixel layout, better isolation, and reduced crosstalk.

It continues with the following:
We also experienced a recent and unanticipated extension in the product development cycle of our OV8830 product. This delayed the production ramp up of this new sensor. Towards the end of our second quarter of fiscal 2012, we started to ship this product in very limited quantities. 
I feel the OV8830 is a perfect match for the iPhone 5. It would set the tone for the next generation of better quality video in the next couple of product introductions from Apple (AAPL). The iPhone 5 is rumored to be released in September. Even if it is released at the end of the year, with a 5 to 6 month ramp-up, production of the 0V830 line could begin as soon as May.

It could even have been squeezed into the iPad 3 production, rumored due on March 7th.

Thursday, March 1, 2012

How do you know how Capital intensive a company is from the financial statements?

Hi Professor,

Thanks for taking the time to show us how to value a company. I am not a student,
but have used your on-line course and website to learn how to invest. You have blessed
us with great opportunities and a very valuable tool. Thanks so much for your generosity.

First I guess I need to define what I mean by a capital intensive company.
Is it the money required to get into a business?
Is it a mathematical way to measure how large a protective "moat" a company has?
Is it the amount of money required for a company to continue to generate income without putting in additional capital?

Method (1)
From the financial statements I can figure out Capital expenses(CapEx) from the cash flow statement. If depreciation is the maintenance capital expenditures, CapEx - depreciation would be the new capital expense.
The total reported 5 year average CapEx would be the upper bound of reported expenses. Either the depreciation or the maintenance capEx would be the lower bound.

R&D can be considered an expense.
Add in 5 year average R&D.

You don't have to do your own research and development. You can buy it.
Acquisition could be considered "investing in existing R&D".
Add in all acquisitions and minority interests.

Add in change in working capital.
Add in leases, net long-term debt and net buy-backs.

Equivalent to cash-flow calculation and the equity reinvestment rate.

Method (2)
But wait. There are three types of R&D, a)Basic research, b)Applied Research and c)Design and/or prototype. What about capitalizing all the costs associated with designing a new product?
What about fixed assets needed to run the production? What about inventory turn-over?
What about cash levels? What about write-off?

Shouldn't net intangibles be included as reinvestment capital? At least the patents that pertain to the products.

Does the amount of long term debt have to be accounted for? Maybe  a capital debt structure with anything over 40% is too much and should be adjusted for.
Aren't pensions to be included?

Aren't design cost to be included? Should not marketing costs be included in capital expense.

Where do you stop? Aren't all operating expenses part of the cost?
Use total operating expenses and operation margin + cash flow (including acquisitions+minority interest) + intangibles

Method (3)
Use COGS and gross margin + cash flow (including acquisitions+minority interest) + intangibles.

However, service oriented industries would come out ahead of manufacturer industries.

Results
Is the concept of equity reinvestment rate the same as how capital intensive a firm is?
If I experiment with the examples above, I end up with industries that appear to be equivalent but that in my gut I know are vastly different in required cash. I still don't see how I can differentiate industries that should be different but are not.

So that leads me back to the original question. If my assumption is to buy a company and not add any additional capital to run it,  what calculations should I use? Where can I find this information on the financial statements?

Thanks you for your time and patience.

Tuesday, February 28, 2012

OmniVision Notes

Feb 28th, 2012 Notes

OmniVision products are used in HTC Corp's (2498.TW) EVO and Motorola Mobility Holdings Inc's (MMI.N) Droid X reported strong third-quarter sales.

At least two brokerages raised their price targets on OmniVision's stock, saying the company was on track to recapture lost market share in the smartphone segment.

OmniVision's 8-mega pixel camera sensors should be a major revenue and earnings drivers, said Canaccord Genuity, which rates the stock "buy."

NeedHam reports that OmniVision has lost the iPad 3 slot.

The following is an alphabetical listing of Apple suppliers in 2011. These suppliers represent 97 percent of Apple’s procurement expenditures for materials, manufacturing, and assembly of Apple’s products worldwide. OmniVision is not included as a supplier. This precludes their presents in the Apple products releasing this year. Maybe they will be in the 2012 list, just in time for the iPhone 5.

Sunday, February 26, 2012

Why did OVTI emphasize the entertainment division?

First, let me crunch the financial numbers.
OmniVision (Nasdaq:OVTI) is a good value right now. It has been on a 60+ day run. After the 3rd quarter earnings came out Friday, the stock price close for the day at 17.13 yielding the following highlights:
  • p/e ~ 10
  • book value ~ 14.31
  • p/b value ~ 1.20.
  • Z-score ~3.67
  • fair value price $39.04, a potential of 127% upwards swing [using 14.8 p/e and 1.5 bv]
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In OmniVision's 2nd quarter 10Q filing it was mentioned that prior guidance was revised down when the company's key customers unexpectedly cutback their orders. This action reduced unit sales of the OmniBSI and OmniPixel3-HS based products and adversely affected their revenues for the 2nd quarter of fiscal 2012.

Apple (Nasdaq:AAPL) is suspected of being one of OmniVision's largest customers. They usually try to get two sources for their manufactured parts. For the iPhone-4/iPhone-4S CMOS image sensors they used Sony (NYSE:SNE) and Omnivision. The Apple  iPhone-4/iPhone-4S  uses the OmniVision's 8-megapixel image sensor based on the new OmniBSI™ technology. There is a rumor that OmniVision lost the deal with Apple on the  iPhone-4S . The iPhone-5 is also rumored to be using Sony and Samsung as CMOS image sensors vendors, replacing OmniVision.

In OmniVision's 2nd quarter 10Q filing I found another sentence which stated the following:
"We also experienced a recent and unanticipated extension in the product development cycle of our OV8830 product. This delayed the production ramp up of this new sensor. Towards the end of our second quarter of fiscal 2012, we started to ship this product in very limited quantities."
The OmniVision OV8830 CMOS Image Sensor  (CIS Technology) is based on their new stacked Back-sided Illumination OmniBSI-2 Technology.
Wait! Extension of product cycle?  I'll explain in the Hard Facts section....

Rumors, rumors, rumors
There is a rumor that OmniVision lost the CIS technology deal with Apple on the iPhone-4S. The iPad-3 is coming out in March and there is no OmniVision production ramp-up for that.

[Edit: I could be wrong. - Robert W. Baird & Co, said Apple's iPad could boost OmniVision revenue by 30 percent over the revenue from iPhone last year. ]

The iTV successor may be release soon and could possibly use OmniVision; However, there seems to be no production ramp-up for that either. The iPhone-5, which is to be released later, is a possibility and the new OmniBSI-2 Technology 4mm width would fit into the new slimmer design. However, that is all speculation. But in the short run, where could the decreasing revenues be generated?


This quarter's earnings
Ok, back to last night's 3rd quarter earnings conference call from OmniVision. Everybody was asking or trying to confirm who the large customer that cancelled their orders was. Everybody was trying to confirm if the rumor about Apple was true. I don't think that is the take-away from the call. When asked what division will increase the most in the near future, the answer was the "entertainment business".

Ray Cisneros, VP of Worldwide Sales explained the product mix as follows:
"In terms of product markets, our mobile phone sales represented approximately 52% of our revenues in the third quarter as compared to 60% in our prior quarter. Our entertainment segment represented 28% of sales as compared to 20% in the prior quarter. Our sales of sensors into the notebook and webcam segment were approximately 8% of sales as compared to 9% in our prior quarter."

Hard Facts
OmniVision has signed a deal with Nintendo (NTDOY.PK) on their new Wii successor, Wii U. It is to be released after March 31, 2012.
OmniVision started mass production of the 0V10630/OV10635 based on  OmniPixel3-HS technology for the auto industry.
OmniVision is in mass production of the best-in-class 720p HD video performance chip.
OmniVision is in a deal with ASUS Transformer Prime Tablet which uses the OV8830 OmniBSI-2 Technology and is considered the most advanced Tablet out in the market at this time.
OmniVision and Sony signed a deal for a Video Camera using the CameraCubeChip design.

Conclusion
OmniVision seems to have other deals which will lessen the risk of revenue declines if Apple changes its mind. It has a very broad range of products. I haven't even scratched the surface of all their competitive advantages.

I have no stake in OVTI.

Thursday, February 23, 2012

OVTI is under appreciated

Watch OVTI today, its earnings are released after the market closes today.

I'll give you the results & more on the next blogger post.
More to come...