Jim Chanos: Palm and Kodak Are Attractive Shorts (PALM, RIMM, EK)

Daily Dose of Optimism submits: Veteran Wall Street short seller Jim Chanos -- who was once dubbed by Newsweek, 'The Guy Who Called Enron' -- weighs in on three consumer electronics stocks:

[Chanos] is short Palm (PALM), the makers of the popular PDAs. Palm, however, loses money on their PDAs and they don't produce the software that makes the system go. "The biggest problem is that Palm doesn't control the Treo software – it's just a box," Chanos says. "Boxes with chips in them tend to be very good shorts if that's all they have."

An example of a box with software is the popular Blackberries produced by Research In Motion (RIMM). The Blackberry runs on Research In Motion software, which could become the standard and then you have "a monster on your hands."...

In the category of "Victims of Creative Destruction," we have Eastman Kodak (EK). In Chanos' worldview, we are moving from an analog to a digital world and the consequences of that are being felt by a variety of businesses. Chanos believes Kodak is another Polaroid, a company that is slowly being eaten alive by the competition. Their most profitable business has traditionally been film. Now, even professionals are moving to digital.

The business is in decline. Free cash flow was $1.5 billion in 2002, $1 billion in 2003 and only $500 million last year. This year, Kodak may not generate any free cash flow. Plus, it is spending billions of dollars on acquisitions every year in the pursuit of elusive profits in digital products. The company is also saddled with some large retirement-benefit costs.

Originally from Value Investor Insight, a great publication (at $300/year), the interview was cited again in a Rude Awakening daily email.

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