Archive for March 2006
As of this morning, I am now a contributor to the Seeking Alpha network of finance blogs. Seeking Alpha has emerged as the leading blog network for finance news and stock coverage. It started with the Internet Stock Blog but has mushroomed to become quite a resource for folks in the finance industry. Their conference call transcripts service will likely become an invaluable tool for many investors. You should check it out if you have not already.
Research In Motion, the makers of the Blackberry, has lowered guidance on Q4 subscribers not once, but twice. The main explanation was that uncertainty around the NTP patent has delayed purchases. I am gonna have to call bullsh*t on that excuse. I am sure some corporations and government agencies did put off purchasing, but I doubt it was the whole source of the shortfall. I think that companies are increasingly looking at Blackberry competitors for viable alternatives: Good Technology, Microsoft, Visto, etc. Also, it is problematic that over two thirds of RIMM’s revenue comes from hardware sales – would Palm be a better play in that arena?
Interestingly, even with the huge Q4 miss RIMM pre-announced this month (slyly done the same day as the NTP patent resolution), analysts have not lowered expectations for the May Quarter for RIMM. I suspect RIMM is going to lower subscriber, revenue and earnings guidance for Q1 2007 (May) when they report on April 6th. I’ve been burned shorting RIMM before, so this time I purchased in-the-money puts that expire in April.
I own puts on RIMM shares and calls on PALM.
[Post updated to add external links, my phone preference, PALM disclosure]
Jim Cramer took a breather from pumping Marchex’s stock and on 3/7/06 gave some airtime to the often insightful Herb Greenberg. Herb was bearish on MCHX and made some of the same points I’ve made. He said that their core business isn’t growing, domain names are their one good asset (and in perpetual beta), the domains business is not a long term growth business, and that Marchex is a “manana story” – always promising growth tomorrow.
Apparently, Cramer is a buddy of Marchex CEO Russell Horowitz. On 3/2, he did a phone interview with Horowitz packed with softball questions. My favorite was when Cramer asked “Do you have any competition at all?” Russell responds “in some parts of our business, but nobody has the same combination of assets…” That is a lot like saying that no one has my fingerprint! Horowitz claims synergies between the businesses, but as one of my previous posts outlines, Marchex will not be able to monetize their own traffic better than Yahoo can so the synergies are limited.
Cramer is a smart guy and apparently a great trader. Marchex has been a great investment for intrepid longs but not since Cramer picked it. In this case, I think Cramer is wrong and Greenberg is right. To add some food for thought, I will highlight a list of competitors for Marchex’s sprawling mini-empire of sub-scale businesses. In most cases below, Marchex business is not even in the top 3 competitors!
Enhance (Tier 2) / GoClick (Tier 3) – Syndication Business
Tier 1: GOOG, YHOO
Tier 2: MIVA, LOOK, INSP, ASKJ, Kanoodle – see Miva’s disastrous earnings report!
Tier 3: INCX, EPilot, 7Search, BrainFox, GenieKnows
TrafficLeader – Outsourced Platform management
MIVA, LOOK, INCX and other smaller players
TrafficLeader – SEO and Search Engine Marketing management
Hundreds of companies – As a starting point, all the members of SEMPO (e.g. Efficient Frontier, Did-it, Bruce Clay, etc.)
Name Development – Subject Based Direct Navigation / Domains
Bookmarks, anyone with a branded URL or existing traffic, browser navigation, search engines
Pike Street – Locally focused direct navigation (zip codes and Yellow.com)
All yellow page players, GOOG, YHOO, INCX (Local.com), CitySearch, oodles of startups
Industry Brains – Publisher specific monetization
Direct: Adbrite, Google OASU, Federated Media, BlogAds
Indirect: Doubleclick, 24/7 Media, Yahoo Publisher Network
I own puts on Marchex’s stock.
Intel is unloved right now. AMD is kicking its butt on the low end and making inroads in high end chips. Inventory is building up in the channel, margins are compressing, and analysts are downgrading the stock. Intel’s stock has made very little progress in the last nine years. However, on a PE basis INTC is cheaper than it has been since 1996. It is trading at below a 15 PE – even less if you back out its cash. INTC has over $10 billion in net cash and is actively buying $25 billion of its own stock. The dividend is 2%. Apple is using Intel chips (and gaining share). Windows Vista is about to be released which could drive a new upgrade cycle in PCs. Intel’s competitive troubles with AMD may take longer to sort out, but INTC has the resources and infrastructure to out-innovate AMD. AMD may be ahead on performance, but Intel is pulling ahead in price-performance, power consumption, and smaller chip-making infrastructure. Intel is expanding via consumer electronics (with VIIV), NAND memory (a JV with Micron), and mobile chips (with XScale).
In short, Intel is a contrarian play. Sure, it could get worse before it gets better as AMD continues to steal share and the inventory backlog gets worked out. But with INTC buying back shares, you should rejoice if the price keeps declining – you and Intel can buy more for less.
Is Asia the Fountain of Youth? My take is that Asia presents the greatest opportunity for Intel. Intel CEO described China as the fountain of youth for computing. China, India and the rest of Asia comprise an opportunity more than twice the size of the current developed world over the coming 20 years. With less than 10% of each country online and likely less than 5% with computers, the long term opportunity is huge. It is my belief that almost every household in the world will have a computer at some point (just like TV’s in the US today). Heck, even Russia has a computer penetration of only 20% according to BusinessWeek.
Will Desktop Linux and OpenOffice remove the Microsoft software tax? In more price sensitive foreign countries, a computer fully loaded with Microsoft software could be prohibitively expensive. As free open-source alternatives to Microsoft’s products become viable for third world consumers, prices of computers with pre-installed software will drop (Microsoft will likely drop their prices in these countries too). Fortunately for Intel, every computer still needs a processor! Admittedly, many of these processors may be on the low end, but there will be a spectrum of demand.
Currency play? Asia’s share of Intel’s sales is now 60% and growing – they are selling to the manufacturers. Given that Asian currencies are expected to strengthen over the next decade as China’s currency policy allows for floating, Intel’s stock could be a very smart bet on strengthening Asian currencies. As Asian currencies strengthen, Intel will get a boost to dollar denominated revenue and profits. Intel does hedge currency fluctuations for 12 months forward, but over the medium to long term, they should benefit tremendously.
Disclosure: I am long INTC and MSFT. I also own calls on MSFT. I was recently long AMD but have almost sold out of my position (all I have left is spoken for via in-the-money covered calls).