Bad news for EDS (EDS): spin-out trouble
Just saw some bad news for EDS
; mainly they're cutting off plans to spin-out AT Kearney
to the partners of the consultancy and are looking to sell it to a 3rd party. Why is this news negative? Because services businesses are fragile business models and in situations like their value can be destroyed quickly. In this case, it's clear that there were negotiations with ATK managing partners. These managing partners wanted to take the brand as their own and spin out of EDS. But now EDS is going to try and extract more value from a 3rd party. Did the discussions between EDS and the ATK managing partners deteriorate? If so, how motivated are these partners to stick around and be compliant under another firm?
Here's the rub: The value of ATK lies in the consulting firms partners and employees. It will be very difficult for EDS to sell this value to another firm and keep that value for themselves. Why? Because it will be likely that the existing partners and employees of ATK will leave for other firms and/or start their own consultancy.
In other words, the value of ATK lies within the employees that compose ATK, not EDS. This is the paradox of services businesses; they don't scale well and the owner never really owns all of the value -- the consultants do.
I noticed that EDS' stock is declining on the news.
IP Network Stock Movement - Savvis (SVVS) & VitalStreams (VSTH.OB)
Interestingly, two stocks that I follow in IP Networks, Savvis and VitaStreams Holdings, both spiked +10% today. I'm not sure what's going on as I've just had these stocks on "watch" for awhile. I think recent deals are illustrating undervaluation on these neglected stocks.
Watch out below....Arbinet revises downward (ARBX)
I don't follow Arbinet
, but based upon this news release
, I would watch out for this one tomorrow morning. Watch out below!
The release also wins the award for: "Longest Explanation To Finally Make the Point That We're Actually Lowering Our Guidance By A Significant Amount".
**Oops, looks like it's already down $2 in after-hours trading
***More on Arbinet: Check out their stock price since IPO
More on Adobe (ADBE) + Macromedia (MACR) = Microsoft (MSFT)
CNet talks about
the impending competitive aspects of a combined Adobe and Macromedia versus Microsoft. There's an interesting quote saying that the idea is ridiculous as Adobe and Macromedia aren't operating systems. It ain't about the OS, it's about the applications managing and distribution data.
The investment thesis I'm working:
Old way: Microsoft Word & PowerPoint
New way: Adobe PDF (with editing capabilities) combined with Macromedia that extracts data directly from documents and sends to enterprise applications/ERP systems/Oracle databases.
I haven't reached a conclusion, but that's my thought process at this moment...
Register.com rejects buy-out offer (RCOM) and implications for InfoUSA (IUSA)
Register.com's board rejected the buy-out offer of $7.10 a share
as inadequate. Apparently, the independent board members felt the offer is too low. Huzzah for independent directors! Finally, a situation where board members appear to be exercising their fiduciary duty and muscle. A review of the board member biographies
shows lots of VC and Private Equity experience -- in other words, people who know about value and how to extract value in a transaction.
It will be interesting to see if InfoUSA's board follows the same process. IUSA has traded above it's buy-out offer of $11.75 recently (as predicted).
People are starting to figure it out: Symantec + Veritas makes sense
in the NYTimes illustrates why storage and security are, in fact, intimately related and should be sold as a system. Go Symantec. Other players in the market are starting to figure it out: NetApp bought a security company (Decru).
Google (GOOG) starting epayment service?
WSJ Online just issued an article
stating that Google
might start an electronic payments service similar to eBay's PayPal
. This could be a catalyst for the stock. Why?
ePayment systems are seen as inevitable as people look for convenient alternatives to credit card accounts in paying for on-line goods. As more products (especially media) move onto the internet, ePayment systems become an alternative to traditional banking and credit accounts. Credit cards don't handle micropayments
well and smaller transaction sizes seem logical based upon the migration of discrete Digital Media content.
Interestingly, this news is in the rumor stage. Upon reading the article, however, it seems like it has enough credible buzz to be true. I'm not sure that Google will verify the rumor anytime soon as they've indicated they're not trying to manage to Wall Street's expectations and the rumor seems like they're in the beginning stages of such an effort. However, if more information validates the service it will move stock as people realize that Google has a lot of skunk-works projects and the stock isn't just a one-trick pony.
Hussman throws rocks at Google (GOOG)
Interesting Weekly Market Update
from John Hussman, the founder of Hussman Funds (I'm assuming), regarding valuation and some specific comments regarding Google. It's actually a very intelligent discussion, so I recommend you read it if you get a chance. The first paragraph discussion of "fair" and "over" valuation is very well put and I recommend any serious investor try to understand those concepts.
The second paragraph gets into a topic that I warned you would become very hotly debated
for GOOG; namely, what will be the growth over the next few years? Is it 50%, 30%, 10%? No one knows, but this is where the market begins to gamble. I liken this situation to poker where you have to decide whether to call the pot with a 9-10 suited. If the pot is small, I like to make that bet because I have a chance to make a flush which is a great hand and a straight which is also a good hand
. Both hands beat three of a kind but lose to a full house. So, at GOOG's IPO I felt like I was calling a very low pot ($85) to see the flop, and guess what? It came up Jack, Queen, Four -- same suit. So now I know I'm sitting on a flush, which is a very good hand and a likely winner, but the possibility remains that I may see a suited King or Eight somewhere on the turn or the river! A straight flush is a very rare bird indeed and you will win with that hand.
So, back to the original point of this post: Google's valuation. I think that there is an 8 or a King of my suit coming on the turn
or the river
. Why? Because I believe that Google is part of a new breed of Internet-enabled business models that combine Media and Business.
This statement is very important because of the Media component. I believe that the media business is much different than normal consumer or widget businesses and is subject to different rules and strategies. Media businesses create defensible advantages by creating an emotional attachment to their consumer that continues to attract their attention over time. It's this attention that makes money. The fact that someone can create another search engine with different algorithms doesn't scare me because I believe that Google is creating attachments with consumers with their focus on giving users what they want (and doing no evil). It's clear that Google understands how to give people what they want when it comes to Internet products. Isn't Google Maps
head and shoulders above MapQuest.com
? The satellite thing
? Freaking amazing! The interface? Much better and more usable than Yahoo! Maps
? Another great email program with much less clutter and more direct access than Yahoo! Mail
(I have accounts with both). Google Answers
? Basically a very simple Gurunet.com
. I've used it and it actually works great. This understanding of the customer, this prescience, will result in Google doing what eBay has been doing for the last five years
-- namely, continually outperforming expectations.
So, while Mr. Hussman can argue that the business model is indefensible and growth rates are not extrapolatable, I'm betting against him. I think the current consolidation in the stock is a great opportunity to build a position before the next earnings report.
Apple (APPL) rises today on strong PC forecasts
Apple is up today, as it should be, on news of strong PC sales
. Actually, that's a bit of a misnomer as it's actually not PCs that are strong, but notebooks that are selling well. This is better for Apple than the average investor might believe because Apple is the "highest Beta" play on strong notebook sales.
Why? The Apple iPod is successful in boosting laptop sales because iPod users are being drawn to the Apple platform in search of simplicity, style and grace. Once they step inside an Apple store, they're faced with laptops (and desktops) that blow away PCs on the aforementioned dimensions. Microsoft's issues with viruses and spyware have made buyers realize that there is a case to paying a price for a "better" system platform. The last factor is digital media production. If you're a pro or hobbyist, the Mac platform is preferred for a whole bunch of reasons which reduce down to: the Mac platform dominates for Digital Media production.
So, if "PC" sales are stronger than expected, then Apple sales should be much stronger than expected.
The caveat? The announced Intel chip switch has got the loyalists crying foul
and newbies who look to this community will likely be scared off by the hysterics surrounding this. I obviously disagree with predictions of armageddon here, but this is political, and politics has nothing to do with rationality.
The kicker? Best Buy announced that mp3 player sales helped drive their killer quarter
. Good for iPod sales -- they will likely exceed the Street's determined forecast of a drastic iPod slowdown. Even if Apple doesn't have any more shortages...
This is going to be a bare-knuckled brawl over the next couple of quarters. Keep a close eye on Apple.
PartyGaming pending FTSE IPO illustrates the power of internet IPOs
There is a new breed of businesses popping up that are demonstrating the power of distributed consumer applications. One we've already seen blow investors' minds is Google. You can read my previous ponderings them elsewhere in this blog. One you may not have seen yet, but you will be hearing a lot about in the near future is PartyGaming, the company that runs PartyPoker.com
. This article
illustrates the speed and profitability that these companies spring up. PartyGaming recently set its IPO price
on the FTSE.
It's clear that the Internet represents a new medium which is just now beginning to be appreciated and companies like PartyGaming and Google have come from nowhere within a few years to rival the biggest old economy companies in terms of valuation.
This is a big deal and represents a seachange for equity investment opportunities. Staying in front of this trend will help an investor tremendously.
Key observations from the article:
- Growth Metrics: In three years PartyGaming's pre-tax profits have jumped from $5.8m to $89.2m to $372m. In the first three months of this year it made $125m. Huge and real growth. Like Google, everyone will trash-talk this IPO until it continually beats their expectations over the next year.
- Poker as a trend: PartyGaming and its rivals make their money by taking a small slice - the "rake" - from each hand of poker they host for real money. The rake is typically only 1% or 2% of the pot, but a dollar here and a dollar there add up. More than 70,000 people regularly play simultaneously at PartyPoker and the site has captured half the market.
- Globalization: PartyGaming's head office is in Gibraltar; its computer servers run from there and from Kahnawake, a Mohawk Indian reserve within Canada; its marketing office is in London but most of its 1,000 staff work in a call centre and software development site in Hyderabad, southern India.
- Future market opportunity: China, with a significant gambling population remains untapped.
IUSA - That was fast! CEO's buyout offer gives 20%!
I was taking a hard look at IUSA after it was knocked down 20% when it reduced guidance last week
. Well, it appers that I should've moved sooner because the CEO, Vin Gupta came out with a buy-out offer today
that put the price of the company back right up to where it was before the hit. By the way, CSFB looks like idiots here
. "Well, we thought there might be a bid that would make our downgrade look stupid and...uh...there was." Smooth move, dorks.
FYI - I think there's a good buy-out arb here as the first offer in a buy-out is likely not the highest/best offer...
- $11.75 cash per share (25% premium to price immediately prior to offer)
- Vin currently already holds 38% of the company.
- Transactions funds solely from acquistion debt financing
- Anticipated closing timeline: within 90 days
- Advisor: Rick Massey of Stephens, Inc. (Let's hear for those backwater Little Rock boys! They seem to have some staying power down there...)
- Other offers will not be supported by Vin
Damn, I wish I would've bought yesterday. Lesson learned.
Earningscast.com - a great idea
I found this site called Earningscast.com
which allows you to subscribe to earnings call by podcast - a great f'ing idea. Finding and linking to earnings calls can be a pain. Having them aggregated so that you can listen to the call and hear first-hand how executives address issues and answer questions is invaluable.
The Overreaction to Apple's IBM-Intel Switch
It amazes me how much the blogiverse is overreacting to the Apple's decision to switch to Intel. The speculation (and that's all that it is) that I've read so far is so ludicrous that I seriously wonder about the state of mind of 80% of the people out there that are supposed technology industry experts. It's clear to me that a lot of people out there who use technology and know technology don't understand a lot about business; which is scary. I've worked in a public tech company before and I can support this assertion first-hand. Otherwise intelligent professionals make insane decisions because they can't think economically. Some of the hysteria surrounding Apple's move also supports my feelings as well.
- Robert X. Cringeley speculates that Apple and Intel are going to merge. Clearly this is tongue in cheek analysis, but interestingly it seems to be getting traction in the blog and slashdot set. This idea is absurd. Apple's switching to Intel because it realizes that IBM will never be able to address its needs as well. Clearly, Intel has been wooing Apple for some time now and IBM's recent inability to make Apple feel wanted precipitated the move. Jobs is smart enough to know that Intel will more aggressively help it innovate in certain areas. IBM has other designs.
- Now the idea that does have a basis for merit is the idea that Apple is switching in order to provide stronger DRM. The copyleftists hate this, but I think it makes a lot of sense. Intel is clearly developing chips that will enable stronger DRM; at least strong enough to deter most users from doing it. Apple clearly loves being the premier provider of media-savvy computing technology to the market and having stronger DRM capabilities will go a long way in keeping content owners happy.
Is this bad for Apple? Not really. Are they going to Osborne
themselves because of the preannounce? I don't think so. Apparently, Adam Osborne himself agrees. I'd buy a Mac tomorrow if I had to. I never buy v.1 of anything (especially cars and computers). The next generation of PowerPC Macs are going to be kick-ass machines and have very mature applications already on them. It's not clear that you'll need the new Macintels for awhile.
So what does this mean? It means that the hysteria is punishing Apple's stock price. Which means that I think it will trade down for a few weeks - months.
But I'll be watching for the turn-around when everyone figures out that it's not that big of a deal.
**Update: I found a short, but good summary of someone in the blogiverse that is positive on the switch here
Some perspective on HPQ
Just to put into perspective how much value I think HPQ
is destroying, read this article
on how much money HPQ
just spent on severance (short answer: $236 million). Those kinds of figures boggle my mind. Think about the alternative uses for $236 million other than compensating all of the people who are deemed unworthy to continue to move HP forward. For instance, you could give 10 small, growth technology companies $23.6 million a piece for development and growth initiatives. Heck, structure it as equity and you'd like get over a 50% stake in each one. Think about it, HPQ could have bought vast majority stakes in 10 companies that have technology that is currently viable but just needs growth capital. One could go even further and say that HPQ could seed fund
100 companies with $2.36 million a piece. HPQ could've created a portfolio of 100 small start-ups that could be creating the next big thing 10 years from now.
But no, they spent $236 million firing people they hired. I don't think HPQ investors realize just how painful (or how long) an extensive, fundamental turnaround
is. However, the more HPQ spends on severance, the more they'll find that out.
CA's acquisition of Niku (NIKU) - Good Deal
is a great deal for both companies. I know a lot about this space (Project & Portfolio Management
or IT Governance) from previous experience. This is a hot market need. Sarbanes
is forcing pubcos to account and control
for internal operations and finance. One area of internal expenditures which has become a large part of G&A for companies is IT. However, the rise of this organization has not been accompanied with standard management and control activities, which makes it very difficult to sign off on the internal auditing requirements now required by public companies. So, that's the bad news.
The good news is that companies are now trying to prioritize spending within IT
and align it with business objectives
. A lot of companies are trying to ensure that the money spent on IT delivers the intended objectives and moves the business forward. A very difficult task to do when IT people show up and spout gibberish about needing X dollars or the whole system will blow up. PPM systems allow for accountability in IT spending.
That's where Niku comes in. Niku provides a platform for PPM
control by tracking spending and resulting delivery of business deliverables. Their platform also allows for a way to wholistically look at IT spending and prioritize spending on those activities which are strategically important -- you know, the whole "Important But Not Urgent" quadrant that we all pay lip service too.
So, how does this make sense to CA? Well, CA sells a lot of software management infrastructure
...uh...software to large companies. Niku as a stand-alone company was too isolated. It was a good little yacht in an IT world that has a lot of aircraft carriers. CA is big enough to resolve the size issue.
The price? Well, it's pricey, but there is a lot of forward opportunity in this sector. Besides, they didn't pay nearly as much as Mercury Interactive did for Kintana.
The one caveat on this story is that I'm not sure that this makes for a tight integration with CA's other acquisition, Cornerstone. I don't think PPM's first integration is with network management; at least not yet. I don't think it will hurt, but I'd rather see Niku's technology develop deep integrations with other BPMs and/or ERP systems. This will provide linkages needed to provide the full dashboard for IT management and governance.
The "Jimmys" Face Off over Google! (GOOG)
Sorry to beat this Google thing to death, but per my previous post, Cramer
had Stewart on his show
and got him to admit that while he's taking money here, he's reserving it to buy-in at a later point in time because he believes in the long-term trend for Google. Cramer also illustrated the fallacy of saying that Google is worth more than Time-Warner (TWX)
because valuation also includes debt. This highlights a central point I was making earlier: Stewart had no idea what Jimmy was talking about -or- as soon as Cramer pointed it out, Stewart realized he made a rookie mistake (I'm talking about Enterprise Value
: the concept that a company is worth Market Cap + Debt - Cash). Either way, believe the money man and not the guy who writes about other people doing stuff for a living -- there is no substitute for actual experience.
InfoUSA (IUSA) lowers 2005 guidance...
Wow, I don't really follow IUSA, but their guidance revision
is a whopper. I'm glad I'm not in that stock. In summary, they lowered revenue expectations from $395MM to $375MM and EBITDA from $70 to $65MM for fiscal 2005. The weakness is largely attributed to the Donnelly and Small Business BUs.
I've believe that IUSA is in a tough business; selling marketing leads. I think I'd rather own a company like Dun & Bradstreet (DNB) in this space -- they just announced a strong quarter and confirmed guidance
. Execution matters and considering that they're both trading around 10.5x EBITDA (I believe -- rough estimate), then DNB is clearly a better hold here.
Misinformation and worry around Google (GOOG)
While I’m just as nervous as anyone with Google, I’m beginning to think that this might be a good time to reinvest in the stock.
The following paragraph is from an article written by James B. Stewart for WSJ:
“No other company is like Google, but any valuation has to begin by looking at its two major peers in the Internet sector, Yahoo and eBay, with Yahoo being the closer comparison. Google's trailing-12-month price/earnings ratio was around 115 yesterday, nearly double Yahoo's P/E of about 60. EBay, further along its growth curve, has a P/E of 62, comparable to Yahoo's. Google's price/sales ratio is a lofty 21.3; Yahoo's is 13.4; eBay's is 14.7. Back at the time of Google's IPO, I met stiff resistance when I argued that Google deserved to be valued on a par with Yahoo and eBay. Now that Google's valuation has far surpassed that of its peers, I find people arguing that Google deserves even higher multiples. This worries me.” Now, before I disagree with his analysis, let me say this: I love Jim Stewart as a writer. Den of Thieves is arguably on of the best business exposes of all time. But, he is falling trap to the same phenomenon that a lot of famous business journalists seem prey to; largely, they think that people should hear their opinion on complex topics such as valuing a high-growth company. Now notice I said, “should” and not, “want”. I have no doubt that many people would love to hear Jimmy’s opinion on Google’s valuation. He did write some of the greatest behind-the-scenes exposes about business, right? This is a subtle point, so I hope I can convey it adequately. Jimmy should now be asking himself this question: “Am I qualified to discuss this topic?” I would argue that despite being able to author many great books, that doesn’t qualify him to opine on topics like this. Has he ever worked for a hedge fund? Has he taken any courses on valuation? Is he a CFA (Chartered Financial Analyst? I think the answers to all of these questions is, “no”.
And that’s too bad because if he had any idea of what he’s talking about, he would realize that you don’t value a high-growth company like Google off of trailing earnings. Individual investors would be much better off heeding the advice of another commentator (and guy named James) that I do respect with regards to opining on valuation: Jim Cramer. Cramer has repeatedly pointed out lately the correct way to think about Google; namely that one needs to value Google on forward earnings. If you believe that Google will make $8 next year and also believe that it will continue to grow as fast as Yahoo! and eBay, then it should receive the same forward multiple, which is approximate 43x and equates to $344 a share. Now, consider the fact that Google is growing much faster than Yahoo! and eBay; this would imply that Google deserves a higher multiple than either of those stocks. Some people believe Google could make as much as $9 share.
So, isn’t interesting that the person who has extensive experience as a hedge fund manager, Cramer, has reached an entirely different conclusion than the journalist, Stewart? Which should you believe?
Now, one could argue that eBay and Yahoo! are overvalued, which is an appropriate argument. However, if you believe this to be true, then you would still want to short eBay and Yahoo! while maintaining a long position in Google considering that Google has a much higher growth rate. Additionally, one could argue that Google will not make $9 a share next year and that would also cause valuation concern, but I don't hear anyone using these arguments.
But, then again I’m not a journalist, so what do I know?
Keyword pricing decline worries hammer Google (GOOG)
Such is the life of a high-multiple stock like Google. It's down $11ish bucks today on news that keyword pricing has come down in the month of May
. Considering that I was thinking of taking profits anyway, this might be a good reason. Today's action illustrates what happens to growth companies when they become overbought and there is a lack of information to support the valuation. We all know that Google is going to grow like crazy, but that is now priced into the stock. The debates will now be along the lines of how fast and how long it will grow. 75% a year for 5 years? 50% for 4 years? 33% for 3 years? This starts to matter with a company that just became the most valuable media stock
in the nation in about a year.
However, if I were a long-term investor, I'd actually hold through this rough spot. Google has a good chance of pulling an eBay and continuing to outgrow expectations for an extended period of time.
Greenspan comments on interest rate divergence
indicates that Greenspan is befuddled by the fact that long-term interest rates have fallen in the face of 8 sequential Fed rate increases. Some people suspect foreign governments buying large amounts of US securities, but Greeny indicates that they have ruled it out with a special study they performed.
A couple of comments:
1. The answer is always in supply and demand. I think the reason why long-term rates are so low is because there are a lot of lenders looking to provide capital to good credits on a long-term basis. Look at the home mortgage market -- it is much
easier to get a mortgage today than it was 10 years ago. I was speaking to a mortgage broker the other day who only did loans to 'subprime' prospects (i.e. filed bankruptcy previously). He commented that he couldn't believe that one of his clients took a loan at 11.3% - fixed for three years. I thought to myself, who is the sap that loaned $250K to someone that filed for BK and is only getting 6% above treasuries. Obviously, there are many, many businesses and professionals whose only goal in life at the moment is to lever your ass up to the hilt. I find that when business interests, careers and paychecks are aligned towards a goal, a little thing like the Fed's opinion on rate levels will not get in the way. Sorry Greeny.
2. I'd like to see this 'special study' Greeny talks about regarding foriegn investors. I'm not sure that I trust any government (or quasi-government) study right now. The only source for information worse than Big Media
is the Government; and that's sayin' something.
CNBC Guests Talking Down HPQ...
Another case where the media makes my investments work for me. CNBC's guests are talking about how HP is "stuck at current levels" because the new CEO isn't "doing anything different than Carly Fiorina". HP is a conglomerate mish-mash without any real sense of direction other than cutting 10% of the workforce. It *could* be a long-term turn-around play, but it will take a LONG while before that begins to bear fruit, much less make the stock a solid, long-term investment.
Internet Advertising, Google (GOOG) and Point #1...
Another datapoint that bolsters my confidence in Point #1 of 3Things You Need To Believe to Invest in Google
. Q1 Internet ad spending rises to $2.8 billion
(yes, billion with a "B"). The article describes the inevitable flow of advertising dollars from Newspapers, TV and Radio into Internet-based ad models. This is such a no-brainer -- it really puts all of that trash-talk surrounding Google's IPO into perspective, doesn't it?
I think this is a mega-trend that lasts for the next 5-10 years.
From Barrons.com: The Trouble with Newspaper Stocks
I love it when the market comes to where I already am at! From Barrons.com
, a recent research highlight from Goldman Sachs. Welcome!
"The Trouble With Newspaper Stocks
One New York Plaza,
New York, NY 10004
(Tel) (866) 727-7000
JUNE 2 -- The trouble with newspaper stock valuations is threefold. The stocks aren't cheap relative to historic valuation standards, even after the group's sharp underperformance over the past year.
Current operating fundamentals remain sloppy, suggesting the potential for further earnings-driven downside. And we don't see any near-term catalysts that might serve to bolster investor enthusiasm for the group.
The newspaper group needs to correct on average by another 16% before the stocks can be considered "value" stories. Dow Jones, McClatchy Co. and the New York Times are the most expensive names in the group based on our valuation methodology.
-- Peter P. Appert"
Navarre (NAVR) posts Q4...a bit late
So after I spent considerable time laying out the bull case and arguing why I thought NAVR was going places, they up and missed their own filing date
. Amazing! I was this ][ close to selling, but the action in the stock on the day after was surprisingly strong -- which I took to be a sign that the stock has a HARD floor at current levels.
I just looked at the Q4/2005 earnings release
and I must say that it is fairly encouraging. Below are the guidance points provided by the company:
Fiscal Year 2006 Guidance:
-- The Company anticipates net sales between $710.0 million to $720.0 million
-- Earnings before interest, taxes, depreciation and amortization (EBITDA)
between $43.0 million and $48.0 million
-- The Company anticipates integration expenses related to the FUNimation
acquisition of $1.0 million for fiscal year 2006 and has been reflected
in the guidance.
-- Earnings before interest, taxes, depreciation and amortization (EBITDA)per
diluted share of $1.36 and $1.51, based on weighted average shares
-- Net income anticipated between $18.2 million and $21.5 million.
-- After tax earnings per diluted share anticipated between $0.58 to $0.68,
based on weighted average shares outstanding
They increased sales and EBITDA expectations and I'm willing to bet they've still got some dry powder left. I'm going to continue to hold the stock and hope they don't have any more serious reporting missteps. Unfortunately, the fast money will sell on any strength from this earnings announcement and wait to buy in right before the next quarter.
The CEO, Eric Paulson, apologized for the reporting snafu, but I'm not sure that I'm satisfied with the apology. That mistake, so soon after the liquidity and acquisition financing snafu is evidence that the CFO and CEO need to be changed out. I would be much more comfortable with a change of leadership as this company appears to be loosely managed.
Regardless, I think they've got a good strategy and the stock will have good things ahead of it...IF they can keep operations and finances under control. I can only imagine that GE Capital is a bit nervous about the $160MM(ish) they put on the line here.
Sun's (SUNW) StorageTek Buy is Good - For Symantec (SYMC)
Sun bought StorageTek for $4.1 billion. The slides outlining the deal are here
. My observations:
1. StorageTek is wildly more profitable than Sun and that should embarrass Sun. StorageTek generated $367MM in Op Cash Flow with $800K of R&D and G&A expenses and 7,100 employees v. Sun's $342MM (adj for MSFT cash payments) with $4.8Billion of R&D and G&A expenses and 32,000 employees. That's a ridiculous comparison that actually means this deal is good for Sun. In other words, they're so bad that buying StorageTek will make them look better just by financial engineering.
2. Sun's central deal thesis is that CIO's are looking for a systems approach that tightly incorporates storage to meet new record-keeping and regulatory demands. Where have we heard that before? Symantec's acquisition of Veritas
, but nobody believes John Thompson. Expect Symantec to get a big boost as people decide who they would rather investin: John Thompson or Scott McNeally. My money is on Thompson.