Authentidate Has Significant Opportunities for Revenue Growth [View article]
I haven't been following the situation - they have good employees, I've just found myself moving in a different direction. I'm typically on the hunt for a business filled with enduring moats these days, and mostly based on already proven, historical fundamental performance. Feel free to send me a PM to discuss this as you'd like.
Dell - Shareholders Are The Winners If 3 Fight For 1 [View article]
Shwarzenblitz - while they give that argument to the public, I think there are at least other views on what could actually be taking place. There are many companies that are public, yet able to maintain a long term focus. (Berkshire is the most obvious example)
One factor that plays into it is how much control/trust the CEO has with the public and more importantly, the board, who should ultimately be representing the stockholders. He's got 14% of the firm: http://1.usa.gov/Zrzzix
In a large company, 14% is a lot and more than any other person. He really doesn't have to respond to the public as it stands now.
And let's also look at history. A low stock price is *good* for shareholders, so there could arguments made for wanting a low stock price. All else equal, when $1 is spent on share repurchases, the lower the stock price, the more that can be bought back, leaving remaining shareholders with a larger piece of the pie. In the long term view, this lower stock price eliminates a lot more shares outstanding that you have to "share" the business and it's earnings with. The best historical example of this is Henry Singleton - he went from owning 50% of Teledyne down to 2%, and then back up to 10-20% ownership by repurchasing stock below intrinsic value. The change in share count did wonders, because it was an excellent way to allocate capital.
The point is this - by buying out shareholders below intrinsic value, remaining value accrues to those with a longer time horizon. Michael Dell is probably telling the truth regarding freedom/flexibility by not being public, though I'd argue there are many other benefits accruing to him by simply conducting a large repurchase/recapitaliz... whether that's through buying out many shareholders or a transaction that leaves a public stub for investors to participate through.
You bring up a good point though - being private is probably one benefit of Silver Lake and Michael Dell may be hoping for just that so he gets more control. Stock option issuance may be tougher once he's private though (see his earlier days of stock option usage and you'll form an opinion on their approach to that)... so there are a number of factors in this deal.
Dell - Shareholders Are The Winners If 3 Fight For 1 [View article]
The real benefit of the previous offer to Michael Dell was that he could roll his investment into the new firm after having bought out most shareholders below intrinsic value. So he gets a lot of benefits accruing to him, and that's probably what motivated him.
Now that deals are coming in where shareholders can decide to retain an interest and/or sell it off, Michael Dell is still given the opportunity to continue retaining his ownership. This means that his incentive to send a counter bid is lower.
That doesn't mean Silver Lake will back down - they won't get any investment transaction/deal if this doesn't occur, but Michael Dell is likely open to any party coming in, except to the extent that he opposes something they'll do, like break off the financing division and sell it to GE/etc.
Another bid could happen, but I don't expect it to be too aggressive, because Michael Dell will make plenty from any of these buyouts. Any higher of a bid and it'll decrease the return he makes, because either option still let's him keep his stake.
I Still Don't Fully Understand Prem Watsa's BlackBerry Investment [View article]
Watsa was right in his net current asset calculation... the thing is, if running the business erodes that value away, it doesn't matter how much cash is behind the stock.
The envelope with a $1 inside of it, but being sold to you for 50 cents, is my favorite analogy. But if the envelope couldn't ever be opened, then it doesn't really matter how much is inside.
(For the record: I have no clue on Blackberry specifically and Watsa is an intelligent guy... but it's definitely far outside of my wheelhouse)
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
These statements worry me... shouldn't their decision be relative to intrinsic value and where it trades on the market? Buy it back if it's at a decent discount to intrinsic value, otherwise (1) hand cash back via dividends, (2) wait for a rainy day to retire stock, and a horde of other options.
I don't like it when firms decide how much they'll buy before the stock price is known.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
Maybe the hypothesis is that there are certain applications for which power isn't needed - if the purpose is simply serving data, and that isn't performance intensive, maybe they can be okay with lower performance.
I'm not certain on their capabilities, because maybe Intel can serve that better due to scale supporting their ability to pump tons into R&D/manufacturing, and so even if their architecture isn't as tailored to low power, their manufacturing may more than make up for it. I'm not sure here - just speculating.
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
You make a really good point - I wonder if it's possible that we'll see a portion of data storage shift into the cloud, and a portion remain with the user?
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
Yes - disk usage is ultimately going to shift from the desktop to the cloud. It's kind of like saying how electric cars still have a tailpipe, it's now just at the power plant.
In reality, the power plant is a ton more efficient at generating power. They have better generation, but also better sourcing of fuel. They can also be modified to handle different types of fuel.
If most people have empty space on their hard drive, moving to the cloud will likely bring about more efficiency, because they won't have nearly as much wasted space, because you can sell quite a bit more than you use. It's like how banks only keep a small percentage of cash actually on hand. We could also start to see the demand for large storage decrease, because companies might find that multiple people downloaded the same file, and they only really need to store 1 copy of it.
The challenge with this situation is that you get stuck with overcapacity, right? The steel industry, airline industry, etc. have all experienced it. What will these firms that have $2B+ in property, plant, and equipment do? They'll realize that the marginal costs are lower than expected and continue producing... unless growth outstrips their capacity, and competitors don't add capacity in an effort to try and grow more.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
Even if they aren't depreciating it fast enough, free cash flow isn't trailing too far behind earnings, so the impact to any measure of economic value won't change things by a meaningful amount.
Net Income vs FCF 2011: 12.9 vs 10.2 2010: 11.4 vs 11.5 2009: 11.5 vs 11.5
It's possible that there is an issue there, however I don't believe it will be anything that drastically changes the situation.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
Do Intel investors need to think about PC demand growth though? I believe the shrinkage in demand could be beneficial for Intel's bottom line, because of the competitive scenarios it creates.
Here is what I think about: 1. Due to significant necessary R&D and CapEx requirements of producing processors, the markets lean towards having 1 sole designer/producer of desktop/server processors, especially because of the rapid change. We can see this with Intel massive expenditures compared to AMD that have supported their 90%+ market shares.
2. AMD already struggles to turn a profit. With some decreasing demand, it will put even more pressure on them, increasing the *odds* that they will have to flat out exit the market and/or become increasingly noncompetitive.
If Intel can remain the sole provider of desktop/server processors, it will find itself having pricing power that can help maintain significant profitability. I think we should *hope* that desktops stop being used, because it will make Intel's offerings and financial position much more powerful when we consider the impact to AMD of that same decrease in desktop process demand.
I do not anticipate server demand going away. In the long run, I'm convinced desktops and laptops will see plenty of competition, because the demands for increased performance are decreasing for the average consumer. Given time, the Google Chromebooks are likely "the way of the future," because once you have a browser operating, you can do everything you need to. The need for a full blown operating system is now going to start shifting away, and with it, the need for ever-increasing computing power for certain users may decrease as well.
I'm not sure what the desktop/laptop markets will look like in 10 years, however I think Intel's server division will become even more powerful due to their competitive position relative to competitors (namely, AMD). At today's prices, I'm not betting on anything other than the server division sticking around for the long haul, and quite frankly, that's all I care about. If management can get the other divisions to work well, that would be great, but I don't want to count on those too much.
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
halflink123 - I use the DEF 14A filings in the SEC's Edgar database to find out what they issued.
The fundamental topic that I'm guessing Michael Dell and others argue is this: "I can make the company worth $10B by doing X things, so why should I only take a $5M salary?" The stock options, to him, represent capturing a portion of the value he creates, because he probably believes that the markets will move the stock price to a more reasonable amount and reward him for it.
I think this is a tricky topic and the preference of compensation needs to be determined by the investor involved. I haven't looked over his compensation details and so it's tough for me to have an opinion, but that's what I'm guessing Michael Dell and other CEO's can give an argument for. This does mean that many options he awarded in the past expired out of the money, and so it doesn't always work, but that's at least where he's coming from. I think going into the DEF 14A filings will help form an opinion.
On the whole - I am weary of any extreme, including heavy option based compensation as well as not having any clear incentive.
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
Sameer - that's exactly my concern. I'm just realizing that I don't know enough about the business to form my own opinion on whether the goodwill exists anymore or not, especially because it comes from many acquisitions that Dell has made over its entire life. Often, the goodwill will get written down only after management is confident that the upside they hoped for won't exist and that is too late. I wish I had an opinion on the current acquisitions.
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
Well, let's imagine a scenario. A company needs to either acquire a technology or build it. If they build it, they will have to expense everything. If that will hurt their stock price, maybe they will try to engage in some of this "fudgery." Let's say that building it will cost $100 while you can buy it for $200. Well, when you buy that $200 company, it doesn't get expensed except for transactional items like legal costs. This means that their income statement will still show a profit. You still record it, but you record anything above and beyond identifiable assets as "goodwill." To the extent that goodwill doesn't need to be written down, you're okay. Often times, I think goodwill gets written down long after the economic impact, and it involves an art more than necessarily a science.
M&A accounting has other items, historically anyway, that have to be met with caution. In general, it's tougher for an investor to detect economic value during a period of heavy M&A than a light M&A period.
I'm not an expert on Dell, and feel this is a big part of the equation.
Few other items:
1) The enterprise division looks cheap on a historical multiple basis, but what's going to happen in the next 10 years that helps it be cheap based on future expectations? Why will enterprise sales not suffer the same margin demise of PC sales?
2) What if the PC business, instead of being valued at 0, creates a negative value because it begins turning operating losses? This could detract from our estimate of intrinsic value.
I think price is a big factor with any investment, especially when things like liquidation value enter the picture, and so you don't always have to answer _all_ of the questions, but I think they're important for us to think about.
Authentidate Has Significant Opportunities for Revenue Growth [View article]
Dell - Shareholders Are The Winners If 3 Fight For 1 [View article]
Dell - Shareholders Are The Winners If 3 Fight For 1 [View article]
One factor that plays into it is how much control/trust the CEO has with the public and more importantly, the board, who should ultimately be representing the stockholders. He's got 14% of the firm: http://1.usa.gov/Zrzzix
In a large company, 14% is a lot and more than any other person. He really doesn't have to respond to the public as it stands now.
And let's also look at history. A low stock price is *good* for shareholders, so there could arguments made for wanting a low stock price. All else equal, when $1 is spent on share repurchases, the lower the stock price, the more that can be bought back, leaving remaining shareholders with a larger piece of the pie. In the long term view, this lower stock price eliminates a lot more shares outstanding that you have to "share" the business and it's earnings with. The best historical example of this is Henry Singleton - he went from owning 50% of Teledyne down to 2%, and then back up to 10-20% ownership by repurchasing stock below intrinsic value. The change in share count did wonders, because it was an excellent way to allocate capital.
The point is this - by buying out shareholders below intrinsic value, remaining value accrues to those with a longer time horizon. Michael Dell is probably telling the truth regarding freedom/flexibility by not being public, though I'd argue there are many other benefits accruing to him by simply conducting a large repurchase/recapitaliz... whether that's through buying out many shareholders or a transaction that leaves a public stub for investors to participate through.
You bring up a good point though - being private is probably one benefit of Silver Lake and Michael Dell may be hoping for just that so he gets more control. Stock option issuance may be tougher once he's private though (see his earlier days of stock option usage and you'll form an opinion on their approach to that)... so there are a number of factors in this deal.
Dell - Shareholders Are The Winners If 3 Fight For 1 [View article]
Now that deals are coming in where shareholders can decide to retain an interest and/or sell it off, Michael Dell is still given the opportunity to continue retaining his ownership. This means that his incentive to send a counter bid is lower.
That doesn't mean Silver Lake will back down - they won't get any investment transaction/deal if this doesn't occur, but Michael Dell is likely open to any party coming in, except to the extent that he opposes something they'll do, like break off the financing division and sell it to GE/etc.
Another bid could happen, but I don't expect it to be too aggressive, because Michael Dell will make plenty from any of these buyouts. Any higher of a bid and it'll decrease the return he makes, because either option still let's him keep his stake.
Michael Larson: Investment Manager To Bill Gates [View article]
I Still Don't Fully Understand Prem Watsa's BlackBerry Investment [View article]
The envelope with a $1 inside of it, but being sold to you for 50 cents, is my favorite analogy. But if the envelope couldn't ever be opened, then it doesn't really matter how much is inside.
(For the record: I have no clue on Blackberry specifically and Watsa is an intelligent guy... but it's definitely far outside of my wheelhouse)
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
I don't like it when firms decide how much they'll buy before the stock price is known.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
I'm not certain on their capabilities, because maybe Intel can serve that better due to scale supporting their ability to pump tons into R&D/manufacturing, and so even if their architecture isn't as tailored to low power, their manufacturing may more than make up for it. I'm not sure here - just speculating.
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
Seagate: A Dividend Growth Stock To Buy For 6% Yield [View article]
In reality, the power plant is a ton more efficient at generating power. They have better generation, but also better sourcing of fuel. They can also be modified to handle different types of fuel.
If most people have empty space on their hard drive, moving to the cloud will likely bring about more efficiency, because they won't have nearly as much wasted space, because you can sell quite a bit more than you use. It's like how banks only keep a small percentage of cash actually on hand. We could also start to see the demand for large storage decrease, because companies might find that multiple people downloaded the same file, and they only really need to store 1 copy of it.
The challenge with this situation is that you get stuck with overcapacity, right? The steel industry, airline industry, etc. have all experienced it. What will these firms that have $2B+ in property, plant, and equipment do? They'll realize that the marginal costs are lower than expected and continue producing... unless growth outstrips their capacity, and competitors don't add capacity in an effort to try and grow more.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
Net Income vs FCF
2011: 12.9 vs 10.2
2010: 11.4 vs 11.5
2009: 11.5 vs 11.5
It's possible that there is an issue there, however I don't believe it will be anything that drastically changes the situation.
Why Has Qualcomm Surpassed Intel By Market Cap? [View article]
Here is what I think about:
1. Due to significant necessary R&D and CapEx requirements of producing processors, the markets lean towards having 1 sole designer/producer of desktop/server processors, especially because of the rapid change. We can see this with Intel massive expenditures compared to AMD that have supported their 90%+ market shares.
2. AMD already struggles to turn a profit. With some decreasing demand, it will put even more pressure on them, increasing the *odds* that they will have to flat out exit the market and/or become increasingly noncompetitive.
If Intel can remain the sole provider of desktop/server processors, it will find itself having pricing power that can help maintain significant profitability. I think we should *hope* that desktops stop being used, because it will make Intel's offerings and financial position much more powerful when we consider the impact to AMD of that same decrease in desktop process demand.
I do not anticipate server demand going away. In the long run, I'm convinced desktops and laptops will see plenty of competition, because the demands for increased performance are decreasing for the average consumer. Given time, the Google Chromebooks are likely "the way of the future," because once you have a browser operating, you can do everything you need to. The need for a full blown operating system is now going to start shifting away, and with it, the need for ever-increasing computing power for certain users may decrease as well.
I'm not sure what the desktop/laptop markets will look like in 10 years, however I think Intel's server division will become even more powerful due to their competitive position relative to competitors (namely, AMD). At today's prices, I'm not betting on anything other than the server division sticking around for the long haul, and quite frankly, that's all I care about. If management can get the other divisions to work well, that would be great, but I don't want to count on those too much.
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
The fundamental topic that I'm guessing Michael Dell and others argue is this: "I can make the company worth $10B by doing X things, so why should I only take a $5M salary?" The stock options, to him, represent capturing a portion of the value he creates, because he probably believes that the markets will move the stock price to a more reasonable amount and reward him for it.
I think this is a tricky topic and the preference of compensation needs to be determined by the investor involved. I haven't looked over his compensation details and so it's tough for me to have an opinion, but that's what I'm guessing Michael Dell and other CEO's can give an argument for. This does mean that many options he awarded in the past expired out of the money, and so it doesn't always work, but that's at least where he's coming from. I think going into the DEF 14A filings will help form an opinion.
On the whole - I am weary of any extreme, including heavy option based compensation as well as not having any clear incentive.
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
How Much Would Dell Be Worth If It Never Sold Another Desktop PC? [View article]
M&A accounting has other items, historically anyway, that have to be met with caution. In general, it's tougher for an investor to detect economic value during a period of heavy M&A than a light M&A period.
I'm not an expert on Dell, and feel this is a big part of the equation.
Few other items:
1) The enterprise division looks cheap on a historical multiple basis, but what's going to happen in the next 10 years that helps it be cheap based on future expectations? Why will enterprise sales not suffer the same margin demise of PC sales?
2) What if the PC business, instead of being valued at 0, creates a negative value because it begins turning operating losses? This could detract from our estimate of intrinsic value.
I think price is a big factor with any investment, especially when things like liquidation value enter the picture, and so you don't always have to answer _all_ of the questions, but I think they're important for us to think about.