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?
Dupont ROE weakness?
Late or adjusted filings?
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:
Tangoe, Inc. recent IPO (TNGO)

Monday, April 2, 2012

CrackBerry's RIMM is not dead podcast 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."