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Friday, October 28, 2005

Six Apart Issues the latest Web 2.0 Boil...

Mena Trott has been at every major Web 2.0 conference since AJAX stopped being laundry detergent. Maybe she should have spent more time running her company and tending to their impending technical issues. This is what happens when businesses become big time. We saw it in the first bubble and we're going to see a lot more of it in this one. For instance, Six Apart is a nice little privately-held company, right? Then why would they have an Executive Vice President of Corporate Development???
I'm not here to pile onto the current Web 2.0=Bubble 2.0 meme, but clearly, lots of lessons that should've been learned in '01 are being disregarded. Most of it is subtle stuff, too. Like why a 25 yo programmer shouldn't be a CEO of a rapidly growing company. Or why an investment in a "new and revolutionary" browser might be a bad idea.
Personally, I think a lot of the VC wannabe's are back and they're funding anything in an attempt to catch a couple of lucky breaks. This all started with OddPost getting acquired by Yahoo! and making the cover of Business2.0. The confirmationary stamps were Blogger being acquired by Google, Flickr being acquired by Yahoo! and MySpace being acquired by NewsCorp. Basically, all of this sound and fury has been ignited by large public Digital Media conglomerates realizing that they're being outpaced by a bunch of start-ups. The penalty is that they've all paid 9 figure prices to stay in the game.
It should be interesting to see where this goes...

Thursday, October 27, 2005

Earnings Notes (RNWK, MSFT)

  • RealNetworks' disappointed the momentum crowd tonight, reporting $82MM and 6 cents, about expectations - guidance not fantastic. However, I think the subscription business shows solid, fundamental, secular growth -- the kind I like. And the business is now starting to mint money ($16MM in EBITDA). If it pulls back too much on this earnings release, I'll be movin' in. Additionally, Yahoo! announced that they'll be doubling the price for their music service today, removing a competitive thorn from Real's side. (Not to mention that MSN is now an ally and not a foe anymore!) Lot's of obstacles falling for Real on the core subscription business. The question now is whether they have the Motts (as in applesauce) to get another leg of growth going...
  • Microsoft also disappointed, but I'm beginning my accumulation here as well. Their server offerings will be big time. Vista will have the same start that XP had -- slow intro, but eventual submission by the user base. All of this will crescendo in 18 months for the gargantua. You have a long time to get in...
  • The storage technology infrastructure refresh theme keeps resonating for me. I need to do more work on complementary technologies...

Thursday, October 20, 2005

Google (GOOG) crushes...

Check it out... when will people learn? The Internet is the new media platform for the future? It's growth, growth and growth! More people coming online every day. More advertisers advertising every day. More content being created every day.

EMC follows Datalink (DTLK) this week

Hope you saw my earlier post commenting on Datalink's earnings results and management comments discussing a potential technology "refresh" at the storage infrastructure level for enterprises. (Translation: Companies are redoing their storage/disk drive set-ups and buying new, more integrated platforms.)
If you did and you bought EMC, you'd be up almost 5% for the week (6% to high this morning).
Don't fret if didn't though, I think this story has legs. Technology "refreshes" last for awhile and given that EMC reported higher earnings and growing will be a good place to be for awhile. I mean really, a $33Billion dollar company showing 17% YoY revenue growth?!? That's like have a big man center with ball-handling skills.
Music from the earnings release:

"EMC said each of its major business segments posted double-digit gains in percentage terms over the comparable quarter a year ago, driven in part by new product additions to its Clariion and Symmetrix networked-storage systems.

"We're in the midst of the most robust wave of new product introductions in our history, and customer response to our new products has been outstanding," Tucci said."

Speaking of might be a good time to pick up some Symantec now that they're a major storage vendor and their valuation is deeply depressed by Microsoft security offering concerns. For the record, ain't no decent enterprise gonna trust Microsoft with security -- trust me on that one! It might be early as Symantec clearly has a lot of integration left on its hands considering they just picked up BindView as well, but I think the Veritas acquisition could serve them very well.

Wednesday, October 19, 2005

Saying hi to the readers....

Prudential Securities, Brahmin Capital, Lehman, Dimensional Fund Advisors (quants!?, what are you doing here???), Motorola, Yahoo!, Cisco, Adobe -- all you guys! Love it...keep coming back!

Yahoo (YHOO) is cheap.

But you probably already knew that. If not, let me give you the run-down on why Yahoo! will be a great stock to own for the next decade. Yahoo! is establishing itself as one of the premier global Internet media brands. Wow, does that sound like say-nothing business double-talk! But, in this case, it's simply true. Same can be said of Google, maaaaaybe of eBay (jury is still out on that one).
Yahoo! is and will continue to be a leading provider of all services broadband for the foreseeable future. Only roadblock that I can see at the moment is that they're acquiring a bunch of companies right now and sucking up a bunch of people who were good at making a cool Web 2.0 app but are not likely to be good managers within a publicly-traded multinational Internet media company. The types of skills and characteristics required for each world are completely different (worlds apart?). If any of these Dot-commer 2.0 types are given real responsibility inside Google, uh...I mean Yahoo!, bad stuff will happen. Regardless, Yahoo! will be a great stock to own for the long-term.

Sunday, October 16, 2005

Doh! Apple (AAPL) - Samsung NAND partnership breaks down

Apparently, Apple pulled out of a potential $4billion(ish) deal with Samsung for NAND flash memory because of a potential investigation by South Korea's Fair Trade Commission. Wha...? Apparently, the buzz is that Apple was getting their memory at a substantial discount. So, why exactly would Apple pull out of this deal? Apple could open weakly on this news.
Hmm... I wonder if the recently confirmed settlement between Toshiba and Lexar (LEXR) had anything to do with this? Anyone know if Samsung already has a license from Lexar?
Even if the nanopod will crush Christmas like a jelly bean.

Thoughts going into Monday, Oct. 17th

The market acted interestingly last week. I noticed that the Volatility Index spike Friday morning and then reversed course - broadly lifting many stocks. I suspect that we're seeing the effects of a number of bad events work their way through the market:
  • Hedge Fund collapses: Bayou, Wood River, some to be named soon I'm sure...
  • Refco: Hey, guess what? SOX hasn't cured executive malfeasance! Who'da thunk?
  • Katrina, Rita, The Next Big One: What global warming?
Considering how well the market has held up, I can only surmise that it will power up when the skies begin to clear. One area that I think will brighten up things is the Christmas retail season. I've been a strong proponent of the housing sector because I feel that the "overleveraged consumer" story is a red herring (is that the right term?). Consumers aren't overleveraged, they're "right leveraged". In other words, *most* people have a good idea of what their monthly income is and what they can afford to pay out. When they do hit the heavy end of the meter, they scale back accordingly and work it off. The scare tactics are (once again) the product of a financial media that needs a story that will garner attention.
But I digress. I'll take a bid that this Christmas season will be okay. Not great, just okay. Which considering the gnashing of teeth in the market lately, will be just fine for stocks.
So, given that I'm looking for upside, here are other ideas that I'm working through:
  • Datalink's earnings call brought up the idea of a technology refresh for storage (and back-end infrastructure, I suspect) technology. Need to figure out if EMC or the other biggies are seeing this as well. HPQ could get a lift from this.
  • GE just got dinged by their NBC subsidiary. Revenues fell 4% (Olympics adjusted), reflecting a lack of ratings for hit shows. Is this another "ad dollars to Internet" data-point? Eh, I'm thinking it's just piss-poor show development. However, I can see GE working with NBC on an Internet related acquisition soon. iVillage? I need to figure out what is going on with the whole MSNBC alliance/branding...thing.
  • Palm & RIMM announce a Blackberry/Treo phone. Is RIMM reacting to the competitive threat posed by Microsoft's impending delivery RIMM like access to email through the new Exchange 2003 update? Is this a signal of future weakness for RIMM or will getting on the Treo add enough momentum to keep the good times going?
  • Lexar finally gets the $465MM verdict against Toshiba confirmed. Unfortunately, it looks like this would more than wipe out Toshiba's $350MM+ operating profit expected (or unexpected) for this quarter. The reason for the strong quarter? Yep, strong NAND flash memory sales. Ouch.
More to come! Enjoy your Monday morning. Invest well...and remember, it's only money.

Thursday, October 13, 2005

Google helps clarify non-GAAP earnings (GOOG)

Google posts a relatively cogent missive about non-GAAP earnings. They're bending to the stupidity of the sell-side and trying to make sure that the Street adds, subtracts and tax-effects correctly. Interesting that they're pandering to the Street like this. I wonder if they're running into the "Our stock price isn't going straight up anymore and we might lose all of the 30 bazillionaires that we minted in our IPO"-syndrome. Microsoft has been dealing with that issue for awhile now.

Meet your new boss... Looks a lot like the old boss...

Wednesday, October 12, 2005

Datalink (DTLK) hints at a storage technology "refresh cycle"

Datalink (DTLK): Earnings came in a bit short as the enterprise storage solution company announced strong YoY and sequential quarterly earnings growth. They revenues for the quarter, rose 22 percent to $31MM from $25MM YoY and grew 9 percent sequentially from Q2 revenues of $29MM. Backlog for Q4 ended at $19MM, including $8MM of the new big fish customer. Gross profits increased to 25%(ish) and mgmt expects GM to continue to increase. Operating profits have improved because of lower fixed costs (rent at HQ – subleased saving $950K a year). Net loss included a $3.5MM non-cash charge because of subleasing costs. However, net income got hit due to “variable incentive compensation” related to performance and new customer attainment incentives, but the timing peaked in Q3 and are expected to decline. An analyst asked where leverage in the model would come from; the company’s response was that two incentive programs will phase out and others will proceed at a lower rate. Also, Datalink used more 3rd-party contractors to fulfill professional services contracts, which is expected to decline. Tax benefits are no longer recorded due to consistent profitability. Co has $11.3MM in cash; +$2MM.

Q3 Outlook: revenue - $27-31MM, net income 2 – 10 cents per diluted share.

Interesting quote: “They are also increasingly looking for e-mail management and archiving solutions which more effectively address their regulatory compliance and data growth requirements.” – good news for wiki companies like and SocialText. Wikis allow for collaborative work without passing numerous excel spreadsheets, powerpoints and word documents around that clog up a company’s servers and storage.

Another interesting comment: “Customers have storage technology infrastructures that are fully depreciated and are now looking to refresh their storage technology infrastructures.” Management furthered commented that companies are moving away from single-tier architectures and towards lower-cost infrastructures. They expect this “refresh cycle” to go on for some time as customers look to simplify heterogeneous storage structures.

Technology trends that Datalink is investing in:

  • ILM Technology: The ability to search all emails by sender, receiver, time and subject. Helps with regulatory compliance (SOX) and litigation discovery costs.
  • Server consolidation: Putting several NAS appliances on one server, saving time and money.
  • Tape virtualization: integration of disk-based back-up with tape environments. Benefits: higher reliability, faster single file back up, etc…

So, overall it appears that the market is spooked by the fact that while revenues grew, most of it came from a single customer that amounted for $8MM. Clearly their analyzing this company’s performance excluding this one big customer. Which, hey, I get that, but given a $37MM market cap, this company is doing pretty well when looking at total revenue growth. Plus management sounds pretty confident in future backlog and investment trends. I believe management when they say that there are lot of enterprises that have hairball storage infrastructures and are looking to consolidate and optimize accordingly. However, it begs the question that if this is true, then there are lot of players who will see a bump from this. Hello EMC, Symantec (SYMC) and even, gasp, Sun (SUNW). Hmm...

Apple's Video iPod - good for video blogging?

Apple (AAPL): Announces their new video iPod to less than enthusiastic reception. The viPod will come in two sizes and prices – 30gb for $300 and 60gb for $400. (Yes, I love to round up X99 prices – let’s get real people.) The interesting part of this announcement for me is videos for $1.99 a piece. While I think it’s somewhat interesting, I’m certainly not going to go out and buy any videos for this thing. I’m sure there are people that the music videos will appeal to, I just don’t know any. I think the real play here is video blogging. People will be able to share video snippets and blogs over iTunes (I’m assuming) (vidcasts?), which will drive sales of video recorders and editing software. Sonic Solutions (SNIC) anyone?

Thursday, October 06, 2005

YATOW2.0 - Yet Another Take On Web 2.0

People are lazy. Analysts are lazy. The Media is lazy. Everyone likes to have a "magic bullet" and right now that bullet is "Web 2.0" (large timpani beats here). Everyone seems to have an opinion on what Web 2.0 is and what it isn't. And now we're starting to hear the "Yeah, but is it a business model?" chatter as well. I've been following this meme for awhile now and I think I have a take which is sufficiently differentiated enough to share. (Hallmark of bloggers: Narcissistic view of the importance and desireability of their opinions. I am no exception.)
What the Web 2.0 means to me:
  • Web 2.0 refers to a set of characteristics embodied by the recent spate of innovative Internet services that are coining big money being sold to Google, Yahoo! and Barry Diller. Those characteristics are:
    • Social Web Interaction: As more and more people take to the web and adopt its capabilities to communicate outward (rather than inward-only with other media forms), Web 2.0 Internet services enable, neigh - empower, those voices. Oh, and further it enables these voices to interact and communicate with each other eventually building virtual communities.
      • Prime Mover:
      • Special Credit: Ross Mayfield - "Web 2.0 is made of people! - people!"
      • Unspoken implication: Who we are will be less defined by our immediate physical community and more by our chosen Internet communities. Where is your Internet playground?
      • Founding dominant clique: The OpenSource/Free Media crowd.
      • The Bourgeoisie: Start-up flippers.
    • Open API's - let other bright people take an Internet service's results, features and capabilities and futz/remix them for their own purposes.
    • Preferred Technology Framework: AJAX
      • Translation: We need real, fat, ubiquitous broadband as this is a hack to make web applications feel real-time over spotty DSL and latency-prone servers.
      • Underappreciated Evangelists: Adaptive Path - You go Janice!
  • Some cynical observations regarding Web 2.0:
    • Biggest misconception: Web 2.0 is a business model! No man, it's just a set of guidelines that will make an Internet service/application become more widely adopted in the current early-adopter cultural/commercial/technological milieu.
    • Most likely concept to be ignored as the bubble grows: The underlying application has to have its own value.
    • Boomerangs: Wacky, visionary, executives that have been hiding since blew up. Oh, and those wacky "strategy" consultants/incubators/coaches/etc... Oh, and technology that no one really understands what the hell it's good for but will likely get a huge valuation - Ning.
    • The new Industry Standard: AlwaysOn
    • Unavoidable Crash: More VC money looking for the next Google run into start-ups that don't need (or want) their capital.
So, why in the hell am I writing about this? Because of all of the M&As that are occuring in the sector. Yahoo! just bought Great, but why couldn't Yahoo! create this on their own. More importantly: why didn't they

Snarky, yes. Entertaining, maybe. Informative, hopefully...

Tuesday, October 04, 2005

Google (GOOG) and Sun (SUNW) p4wn Microsoft (MSFT)

Google and Sun's anticipated announcement today and the impact on Microsoft's price will demonstrate the pitfall of trying to go it alone in a market where global access and standards are tearing apart proprietary ownership defenses. Microsoft's biggest defense against OpenSource office suites is that it's been relatively difficult for the average consumer to get their hands on a copy and try it out. The general public isn't really interested in going to download site, downloading the install kit, putting it on their computer and taking an office suite for a spin.
But what happens if Google decides to take one of the robust offerings that is supported by one of the major players in the market and make it widely available as a net offering? And what happens if Google decides to do this over a proprietary and robust Internet access network that they make almost universally available?
Answer: Nothing good for Microsoft (or companies that have economics related to offering Internet access for that matter).
Microsoft is a perfect example of the difficulty of managing complexity in today's rapidly innovating and evolving world. They're trying to control everything about the PC platform and the irony is that they're rapidly losing control of even their base - the Office suite. This is happening because they're still a 'command and control' type of organization in an era where collaborative innovation and ecosystem development rules.
Google will eventually wind up in the same situation, but it will probably take 10-20 years to get there. It's the ol' Innovator's Dilemma issue. Happens to every company that has economic turf to defend. Luckily, the process if continual renewal allows for upstarts to capture the flag every once in awhile.
Consider Microsoft p4wNed.

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