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Monday, November 14, 2005

Len-ny! Len-ny! Len-ny! (SYMC, MVSN)

I've been reading Lenny Dykstra's articles (posts?) over at TheStreet.com in order to entertain myself. I mean, hey, what could a former pro ball player possibly know about stocks? Well, today I'm his fan because he just became a fan of my goose egg, Symantec. He points out that information is, like, really valuable and the world leader in enterprise data security just happens to be Symantec. He doesn't really opine on the impending threat from Microsoft, so I hope he realizes that it's out there and that's sort of the reason why the stock has been going down faster than Bush's polling numbers. You do know that Microsoft has announced that they're giving away anti-virus software for free, right Lenny? It wasn't clear that he realizes that the bet is a bit more complex than just the CFO leaving town recently.
Interestingly, he also pointed Macrovision as a possible investment. This company is a sphinx in the world of tech stocks. It should be really valuable because of its DRM position but it has a little problem. Namely, it can't get any of the studios to use its DRM software! Sure there are some here and there and they've been getting decent volume, but not a lot of action has been seen in the music world. Interestingly, Macrovision has had pretty good success with its software licensing management system (Flexvision?). As I've mentioned earlier, with two completely different end markets, the company may want to consider splitting itself it two. Or at least selling the DRM part to a company that can make better headway in Hollywood.
I'm not sure Macrovision has the wind at its back, but the price is looking awfully tempting here. And you know how I feel about cash flow!

Maybe Private Capital Management should be sold (KRI)

The latest on the saga of Knight-Ridder v. Private Capital Management. KRI succumbs to the pressure and is reportedly seeking a sale. With Goldman Sachs no less. Great, go to market with the Refco/NYSE firm. Not like Goldman doesn't have a few of their own problems at the moment.
Although, the question that I asked earlier and I have to ask again: Who are these Private Capital Management people to throw stones at KRI? The article states that they have significant holdings in other newspaper stocks. Nice going guys. And why would KRI shareholders want to have representatives from your firm on their board? It's not like you've nailed the industry with your stock picks lately... And now you're agitating for a sale at a point in time where everyone is bearish on the newspaper industry?
Don't you understand the concept of selling into a hot market? Selling a newspaper now is like selling GM now -- who exactly is your buyer? Here is a copy of PCM's letter to KRI's Board of Directors. It states that they think there is a financial buyer who is willing to pay "fair value". Let me clue you in, PCM. Financial buyers never pay fair value. These guys are the smartest in the business (most of the time) and their whole raison d'etre is about paying less than fair value. So, that eliminates 50% of your potential buyer population right there.
Let's examine the other 50%: other newspaper companies. You might have an out there. But if I'm a competing newspaper company and I know that close to 40% of a competitor's shareholders are forcing a sale on my competitor, do you think I'm going bid up? Oh, and throw in the fact that almost everyone in the industry is facing circulation revisions, margin pressures and stock price pressures as well. Think they're going to be in a buying mood for the #2 player? Actually, they probably will be. Executives love to grow regardless of whether it's a good idea or not. So maybe KRI does have an out here.

Friday, November 11, 2005

Henry Blodget clues in (GOOG)

Henry Blodget expounds on the fact that Google is not a tech stock. Hmm...where have we heard before (almost a year ago)? Welcome to the party, Henry. (Wait until he finds out that Yahoo! and eBay aren't tech companies either!)
Loyal readers have been clued into this little anomaly for awhile now. Right, Salomon?

Newspaper decline fully known in market

I found a post that clearly and succinctly illustrates my bearish newspaper theme from the last year. Media Stock Blog has it here. Basically, it illustrates how newspapers will suffer a long, painful decline as they try to ignore the rapid erosion of their core business model and the rise of digital media channels (Newspapers = Vinyl Record Companies). Clearly the former editor of the British-based FT had a run-in with a senior executive who doesn't understand the enormity and inevitability of this trend.
I think some papers get it and will try to make the leap. However, this leap will not be easy and only a subset of those who "get it" will cross the chasm.
My challenge is that this investment thesis is now crossing its own chasm and I need to be onto the next phase of this industry transformation. I think it comes in the form of television devolving from bundled channels to a world where we assemble our own channels show-by-show much like I assemble a MyYahoo! homepage.

Wednesday, November 09, 2005

More indications that the sea around MSFT is changing...

Interesting post by an experienced programmer that asserts .NET/C# is more efficient language than Java. The implication? Experienced programmers can create custom enterprise applications more efficiently on Microsoft's platform than the Java/Unix platform. Granted, they're not there yet, but trend is Microsoft's friend right now. It will be interesting to see how the World That Hates Microsoft (TM) reacts as it realizes that Microsoft might have interesting technology now. I'm sure they'll throw a lot of rocks and try to create a superior OpenSource alternative. I'll be watching this race closely.
Right now, I'm betting on Microsoft.

Friday, November 04, 2005

Amazon's Mechanical Turk could revolutionize work (AMZN)

Amazon has launched (or at least released) it's Mechanical Turk! What is the Mechanical Turk? I'm not a 100% sure, but it looks like a platform that allows for the atomization of work that can't adequately be performed by machines to be done by humans. What I mean is that it takes tasks that require qualitative human input, parses them out on its system, gets the results and pays whomever does the task. The amount paid per task is small but can be aggregated and transfered into a person's personal checking account.
It looks like an ingenious system and illustrates that Amazon's investment in R&D may be paying off with innovative services. It was likely developed to help Amazon with their initiative to photograph almost every business establishment in the U.S. as part of the business directory. Apparently taking the pictures was a feat they were able to easily engineer. Understanding what was in each picture appears to be a bit more difficult.
This continues a trend started by Google's AdSense in that it creates a work and compensation system tied closely to the exact value of each unit of work. This has HUGE implications when it comes to our (or any) society's concept of work, employment and making a living. You are going to hear a lot more about this over the next couple of years...trust me.

Thursday, November 03, 2005

Oh, so THAT's why they hired Ray Ozzie! (MSFT)

From the "What Do You Mean, Microsoft's Not A Bunch Of Idiots?!?" Department: Interesting news article from ZDNet talking about the market's sudden realization that Microsoft may get the whole "Web2.0" thing after all. Good read...and get your orders in.

Microsoft's cultural shift becomes oddly, swiftly evident by ZDNet's Dana Gardner -- The real race between Microsoft and Google may boil down to which can truly change itself best and fastest.

Wow, the Hammers are out for Knight-Ridder! (KRI)

Another big institutional holder of Knight-Ridder called for a sale of the company today. Harris, which holds 8%, added it's voice to Private Capital's. This means that 27% of the shareholder base wants out. Bad.
Is this a sign of increased shareholder activism? I've seen lots of funds being raised lately using this investment style, so this would make sense. The thing I don't get is why KRI and why now? Sure, it's sector is in a squeeze, but all the papers are now. Do the agitators think they'll get a higher price by being the first head on the chopping block? Maybe they have a point. There's bound to be a paper group that still believes, would like to bulk up and is willing to pay synergy premiums. I'm assuming that Harris and Private know there are bidders in the water, otherwise, why would go so vocal so quickly?
I'm just wondering who at Harris and Private was stupid enough to buy into this clearly declining sector? (Not that I have much to say considering my recent Symantec call...)

Wednesday, November 02, 2005

Knight-Ridder's Investor Woes to be Expected (KR)

I've banged on the established media channels being slow to realize that the Yahoo!s and Googles of the world are going to eat their lunch. Knight-Ridder's largest shareholder, Private Capital (Legg Mason), is agitating for a sale of the company. However, KR has been one paper company that has moved fairly aggressively into the on-line space. This link to an interview with Hilary Schneider, SVP of Knight-Ridder Digital, illustrates that they've been moving aggressively through acquisitions into the space. KRD's Topix.net acquisition was a great one. The comment that interests me is where she discusses recent acquisitions of Classified Ventures:

Q: How do the acquisitions by Classified Ventures work for KR?

A: The last two acquisitions made by Classified Ventures (NewCars.com and HomeGain) gave KR a foothold in the lead generation business, which is a high-growth sector of the online classified market. Lead generation is somewhat different than a pure listings business, since it focuses on building a portfolio of products that will draw advertisers to our markets.

"Lead generation" is the new PPC. It's all about leading horses to water... It seems to me that a lot of advertising industry standards are being broken down and the pricing is inevitably moving towards payment-per-qualified-likely-buyer.

Symantec Stumbles Big-Time (SYMC)

Symantec severely disappoints with guidance. JT indicates that it is looking for $1.26B in revenue when the Street was looking for $1.35B. While normally this would be A Very Bad Thing(tm), I think more homework is needed. This flies in the face of the storage refresh cycle theme I've been working on here. Could this "refresh cycle" really be a "Everyone Takes Veritas' Customers While They're In Acquisition Integration Mode" cycle? I don't think so.
Good news: Symantec signed 67 deals worth >$1MM; good progress towards becoming the enterprise standard.

Tuesday, November 01, 2005

More Sun...storage refresh is on!

StorageTek had a "significant and immediate" impact on Sun's storage revenues, which were down 6% ex-StorageTek.
Sun's earnings preso (PDF) here. Ignore the hippy-dippy "participation age" slides. That's the stuff that makes me think they're just a little too far out there to really be an investable story.

Sun Microsystems continues to wallow (SUNW)

How much longer are investors going to put up with McNealy and his new pony-tailed sidekick "The Schwartz!"? Sun is still in a bad place. Earnings disappoint.
The bright spots? They made over $250MM in operating cash flow. I like cash flow. They also have over $4.5 billion in cash. Cash is my second favorite thing. Deferred revenue was up as well.
Software smells like it is gaining momentum and so does hardware, but my gut tells me that Sun has a huge beta to infrastructure technology cycles and I don't know how durable this rebound is. I'm seeing more moderate growth ahead with a lot of it going to newer technologies with much lower costs.
They say that results were helped by acquisitions. I'm going to guess that StorageTek contributed a good bit this quarter. Networked storage products did well but there's some distortion from the StorageTek integration. We're all about the storage refresh cycle here at TechTrader world HQ.
I guess all in all, I think the company has a hard time figuring out its hardware v. software strategy and winds up spending too much time chasing too many rabbits. If more start-ups like Fabric7 keep coming out and leveraging lower cost and OpenSource opportunities, Sun's will continue to have a hard road to hoe.

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