Four Dying Silicon Valley Companies 27 comments
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On Sunday, Chris O’Brien of the Silicon Valley Mercury News wrote about four dying Silicon Valley icons. For some reason, it wasn’t posted to the website Sunday or Monday, but it’s there now. He aptly summarizes the problems of three of these companies, and I recommend anyone interested in innovation (or the Valley) to read the analysis.
In my reading, two of the companies are (effectively) single-product companies where their product is no longer compelling and increasingly no longer competitive. Advanced Micro Devices (AMD) once was threatening Intel (INTC) on the performance front, and now they are asset stripping in hopes of raising enough cash to stay alive. Palm (PALM) created the pen-based PDA and for a while was a leader in smartphones, but their Treo remakes have long since run out of steam and their last Hail Mary wasted precious time and money.
The other two companies are diversified systems companies which were built around the idea of integration and economies of scope. Their stories diverge somewhat, in that Sun Microsystems (JAVA) was the dominant firm in a category that’s been dying since the end of the dot-com era, while Yahoo (YHOO) is #2 in a category that’s still very much alive.
Still, there are important parallels. Sun has been cutting its way to greatness for years, and is still floundering in search of a strategy that will somehow make up for its loss of a raison d’être in a world of commodity Linux boxes. (Thank you, Intel).
Yahoo has only recently begun to emulate Sun by cutting its way to greatness — with cuts of 7% in February (announced in January) and 10% earlier this month announced back in October. Even their cutting is not being done well: pre-announcing them makes it like a water torture, and they are also cutting staff from its winners and not just deadweight.
However, Yahoo has been floundering for as long as Sun — ever since it hired Terry Semel back in 2001. Semel was cast off in 2007, but his successor hasn’t done any better.
O’Brien puts Yahoo in a separate category, because he thinks they will do a deal with Microsoft (MSFT) in 2009 that will pull them out of a tailspin. But I think Yahoo’s problems are systemic, and even if they make nice with Microsoft, that won’t substitute for a lack of a winning strategy.
So will Yahoo die in 2009? No, but neither will Sun: it has enough inertia (through enterprise sales contracts) to keep limping along for another decade or more, as did DEC and Unisys (UIS) and Cray (CRAY) and SGI and all the other computer systems also-rans.
Still, if Yahoo doesn’t get a better CEO and better strategy, all its point successes (like Flickr and mobile) will be for naught.
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This article has 27 comments:
[This was a simple typo that has now been corrected, with our apologies - SA Editors]
am not going to give away the secret though 'cause i compete head on with them.
a good company, would be a shame to see them go down the drain.
In other words, the old rule of thumb is the traffic -- the party is still on. Check onto Aol. Over there advertisements are scanty, the financial site is till "Beta" and had been "Beta" for months, if not years. AOL's barn door been open and the best brains been gone for years.
And what is this Crap that Microsoft is the White Knight of sorts? In my view, and come back in a couple of years to prove that I am wrong, Microsoft is already a "Yesterday's Company". Recall AOL was a $250B company a few years ago? Look at Microsoft's equity market value today, $200B+, right? It has the same look and feel as a Christmas turkey ready to be carved down.
Sorry for being heuristic. I am not scholar and academician. I left the articulation and polishing to them.
I don't forget that IBM was in trouble — I teach this class in my corporate strategy class. The difference is, IBM got a good CEO who had a real strategy and held people accountable. Perhaps Yahoo and Sun will someday have both as well. (As for Palm and AMD, they look like a losing hand that would be hard for anyone to win with).
I would agree this is a commentary on conventional wisdom, which is why I posted it to my blog (which is more homey and personal than the SA website). Whether it's interesting enough to run by Seeking Alpha (they pick up 3-4 of my 10+ posts/week) is up to the editors — if you don't think it was substantial enough to be worth picking, please let them know.
Joel
It is always darkest before the storm and more importantly, if you think market intelligence comes from newspapers - you deserve your fate.
This is an absolute virgin market. Mobile broadband and web 2.0 will usher in the post-laptop world with a vengeance. PALM has made all sorts of ridiculous mistakes in the past but their managment has since changed and their development team is highly credible. They are about to deploy a new OS, they are a primary vendor of Windows Mobile (not great, but alright and not going anywhere) in the enterprise market, and their Centro line dominates the low end. Add to that the ridiculously loyal following they have for their legacy PDAs (including me), and it is clear they have a shot.
Its a risky stock certainly. But they have a good plan and they are executing on it. That is the bottom line that separates them other companies you mentioned like Sun or Yahoo, who are still searching for a business strategy.
On Dec 21 01:31 PM Teutonic Knight wrote:
> I disagree with the author on his assessment about Yahoo. Yahoo has
> no debt and if you log onto their site you would still see a steaming
> crowd of blogs, answers to posted questions, advertisers alike.<br/>
>
> In other words, the old rule of thumb is the traffic -- the party
> is still on. Check onto Aol. Over there advertisements are scanty,
> the financial site is till "Beta" and had been "Beta" for months,
> if not years. AOL's barn door been open and the best brains been
> gone for years.
>
> And what is this Crap that Microsoft is the White Knight of sorts?
> In my view, and come back in a couple of years to prove that I am
> wrong, Microsoft is already a "Yesterday's Company". Recall AOL was
> a $250B company a few years ago? Look at Microsoft's equity market
> value today, $200B+, right? It has the same look and feel as a Christmas
> turkey ready to be carved down.
>
> Sorry for being heuristic. I am not scholar and academician. I left
> the articulation and polishing to them.
>
They all survive INTC needs to have AMD around.
YHOO is still a dominant portal - just needs monetization.
JAVA has underlying contracts and JAVA language
PALM is still innovative and has a following.
It's all kind of like saying AAPL is dying because MAC's cannot compete with the commodity nature of PC's. The 'mystique' of AAPL products that adds cache value cannot weather the storm. But the iPhone is another story - real functionality and innovation. RIMM benefits from flattering AAPL's [immitation] and moving into consumer space. These devices will morph into 'portable computers' and will jump in demand when Wi-MAX [or similar] networks dramatically add bandwidth with everything on one network - the internet. Would anyone be sorry if QCOM went away? Try CLWR [CLWRD] instead. With backers like INTC and CSCO, it may take some time, but it will happen.
AMD: Countries around the world are realizing that homogeneous microprocessors is a national security risk. AMD has investment from middle east. China is developing its own micro around MIPS. Any firm that effectively competes with intel will not die.
Java: Sun made money selling to telcos. When telcos server spending dried up, so did Sun. Cloud computing once again brings telcos back into computing.
Palm: Cell phones are not like PCs. They are more like video games. People switch when a blockbuster hits the market. It takes one hit to take a company to new highs. The next version of Palm is expected to be that.
YHOO: Yahoo is the application layer of cloud while google the infrastructure layer. People search google and often find themselves on yahoo content/application.
We are about ready for another reverse split!
The mutual funds that own these shares that can make a difference keep going along with management's vote. What am I missing???
That gives all of these companies many more years to de-zombify themselves. Of the four I'd place my money with AMD. #1) tech companies want an alternative to Intel if nothing more, to keep them in check so they don't bilk the entire computer market the way Miscrosoft is. #2) they have been rising from the ashes multiple times #3) you have to commend them in the early 2000s for taking the leadership with dual core processing even if it was a short time period before Intel got on the ball.
As for Palm, it has a base of loyal users but needs to work on the OS. They are becoming like Motorola was before Nokia and everyone ate their lunch in the cell phone market except they aren't the market leader. Look Motorola still survives. They are liable to roll over their debt several times before any death knell.
If you want to look for zombies and dying companies with more debt than assets I'd advise you8 to look at the banking section. The only catch is, they get to hide their losses by booking them in off balance sheet accounting due to Base 1 accounting rules. This was dreamt up to protect the public after the dot com bubble so they could keep lending without adequate capital and having to recognize those nasty losses. What a laugh.
Regulators, Fed, and Treasury, please stop helping us by gouging out our eyeballs and handicapping the entire market and economy. So far we can't get accurate inflation numbers because you fudge them, can't see the solvency of banks because of base 1 rules, can't see TARP allocations because with the Bush Jr. administration you can't see anything, and can't see a recovery because none is being organized.
And when I speak of handicapping the economy, I'm referring to all the zombie companies we are being forced to fund as they pay their inept executives and hemorrhage employees in the thousands every month. If this is not a prolonged drag on the economy I don't know what is. I dare to say, the free market is no longer free nor can you call it a market. Maybe we should call it a captured government torture chamber.
I think Palm has a steep hill to climb, but more because of Google's Android than Apple. Nova is expected to be linux-based, as Android is, but Android is open-source and has Google's deep pockets backing it.
That said - the new Nova OS may pull their fat out of the fire for awhile; even a two-year respite would keep in the game for the next generation of mobile smartphones. There's no reason Palm couldn't ship an Android phone in 2010, and by 2011 the shift to x86 smartphones (more powerful than today's netbooks) will be on.
Palm is on the "endangered species" list for sure, but they've certainly got a shot at staging a comeback (and having Rubinstein leading the tech side of that makes it at least plausible).
On Dec 22 02:23 PM deasys wrote:
> On Dec 21 04:44 PM goldenhinde wrote:
Question for you: What do you think about GRMN? My guess is that they are still well capitalized, but do you see them going the way of PALM? I still kick myself for not shorting that and (unrelated) SBUX last year.
Please post more "no-brainers" if for nothing else a sanity check.
On Dec 21 04:15 PM Joel West wrote:
> Sorry about the tickers — that happens at the copy desk, not by the
> author.
>
> I don't forget that IBM was in trouble — I teach this class in my
> corporate strategy class. The difference is, IBM got a good CEO who
> had a real strategy and held people accountable. Perhaps Yahoo and
> Sun will someday have both as well. (As for Palm and AMD, they look
> like a losing hand that would be hard for anyone to win with).<br/>
>
> I would agree this is a commentary on conventional wisdom, which
> is why I posted it to my blog (which is more homey and personal than
> the SA website). Whether it's interesting enough to run by Seeking
> Alpha (they pick up 3-4 of my 10+ posts/week) is up to the editors
> — if you don't think it was substantial enough to be worth picking,
> please let them know.
>
> Joel
>
The reason I mention it is that when I sat down with a group of people the other day Palm was brought up and independently of my input others mentioned this same thing. They all depised their Treos and had moved on.
Palm will not survive as a me-to company. They cannot just do a few things better. They have to be different.
Thus, you had a heat threshold buffer galore on the AMD chips, which not only was a benefit to overclockers, but to the general public in the form of reliability, performance, and durability over Intel.
Unfortunately, "the herd", i.e General Public is fixated on "WinTel", i.e. Untel and MS Windows. Thus, even when a superior product was out there for less, they chose inferior, based on a well known and almost single brand name as the choice for all the reasons: Perception, Marketing, Brand Name recognition...but then again, is not perception reality?
Regardless, Yahoo has great sites that are extremely sticky. Yahoo was the first real search engine (in my opinion) that was good on the Internet. I've used it for almost a decade and I still go back to it. Do I use Yahoo search? Yup. I also use google. But I love Yahoo's news on the front page and their finance site is awesome... They have so many things going for them... To say they are a dying company is ridiculous. Dying companies aren't profitable and debt free... yes, they made errors and made less profit - but they still made money.
As an example, please allow me to illustrate one problem, with Yahoo! First, consider that their Yahoo! finance is one of their profit centers that actually is a money maker. Yet, they never bothered to fix transaction portfolio login functionality, after they broke it while implementing unified login years ago. This, despite the fact that there are plenty of free QAs - people who report, complain and ask for a solution to this problem...
HOWEVER, I've had a first-hand glimpse at the $millions of dollars and hordes of (mostly) very talented people that Intel can marshall during product development. No way can AMD compete with that. Even if every single AMD engineer were twice as capable as an Intel engineer, the 10x numerical advantage falls to Intel. Yes, occasionally Intel marketing so totally cripples the engineers that Intel stumbles for a few years. But AMD can't count on recurring Intel marketing ineptitude for their viability.
AMD is "dead man walking".
Disclosure: long INTC.
(a) If AMD dies, the CPU market will become a monoploy. This will lead to all sorts of headaches for Intel from anti-trust issues to price gouging and so forth.
(b) AMD CPU's offer good value for money and there is still demand for them. Starting from HPC to laptops, on the value end AMD is a key player.
With regard to Yahoo!, I think it will also limp along. It still has a solid base of die-hard fans that run into hundred's of millions, it has a powerful brand name and some of it's pages (News, Finance etc) are really good. But I agree with many comments that the company needs to turned around fast.