Naveen Selvaraj

Tech Sector: Does R&D Spending Matter?

Gaga,

You are right. This was exactly my thought when I was writing this article. How do we differentiate between Research $'s spent and development $ spent(for upgrades etc which is not really 'Research'). But that look's very difficult. hence my attempt to see how effective are R&D spends by trying to link it to size of company, revenue growth in times of downturn etc.


On Nov 12 01:54 PM gaga555 wrote:

> Having worked at one of the companies that made the list, I can tell
> you that this is a completely flawed analysis. It does not take
> into account how efficient those R&D dollars are nor what specifically
> the spending is on. There is R&D spend that is sustaining engineering
> and there is R&D spend that is actual innovative R&D. I
> know of companies with relatively high R&D that are not innovators
> at all. In addition, for tech companies that consistently acquire,
> much of their growth in R&D spending can be attributed to taking
> on the inorganic expense growth in R&D from adding the expense
> of the acquired company and often supplementing that expense as they
> pour more money into that technology and try to bring it to market.
> Sorry, but you would have to look individually at companies that
> launch new products and segments through internal projects, and that
> is not easy to compile.

Solid Execution Makes Western Digital a Compelling Stock

I guess you had positions in WDC a while ago. For the last year or so, I have consistently been surprised at how good WDC's results are and yet its hardly spoken about!


On Oct 27 12:01 PM Tom Armistead wrote:

> Went long WDC today.

Accenture: Why This Revenue Leader Is Not the Leader by Market Value

I have included marketcap and operating profits/margins specifically for that. I'm only trying to interpret the market's call on this group by supplying facts. I also believe that the next two quarters(Sep/Dec09 qtr) will narrow the profitability gap of INFY/WIT with Accenture and so the market's 'premium' valuation for INFY/WIT may be partially justified...not fully though.


On Oct 06 10:27 AM longyield wrote:

> What you also fail to mention is that ACN is much cheaper than INFY
> or WIT. Although its implied in your comparison of market cap and
> revenue you don't make the point that INFY and WIT are incredibly
> overvalued relative to ACN. You focus on operating margins but you
> should really look at FCF margin and ROCE. INFY trades at 26x FCF,
> ACN trades at 8x. So INFY may grow more than ACN in the future but
> the market has already priced that in. Long INFY was a good call
> a few months ago but I would be surprised if there is anymore "alpha"
> left in that trade.

Accenture: Why This Revenue Leader Is Not the Leader by Market Value

Well despite all this if Infosys and Wipro make more margins than Accenture(and not for one quarter but for the last five years!!!), then as an investor I would still go with Infosys/Wipro. Seriously, clients should give more contracts to Accenture than INFY/Wipro as per your experience but that has not happened in the last five years!!!

In fact that is the curx of my article, If I may add


On Oct 06 08:33 AM Gravity404 wrote:

> From a client POV. I have worked with ACN, INFY, WIT.
>
> What you fail to mention here is that INFY and WIT take twice as
> long to do half the work. Then the amount of time it takes to have
> another company redo their work. How do you account for that on a
> balance sheet?
>
> Oh yeah, then there is the Satyam accounting methods to consider....

Apple Needs Outside Director

Excellent article with a clear articulation of some interesting issues.

However, I would add that rather than just an outside director, Apple should have a director from outside of America. For too long, Apple has been an 'American Company' and it needs to take its innovation to growth markets like India/China.

Synaptics Diversifies Product Range and Rides the Smart Phone Wave

Atmel and Cypress Semiconductor supplies some SoC(semiconductor components) for touchscreens. But Im not aware any other large touchscreen vendor other than Synaptics and I feel that Synaptics is a major vendor for Apple and HTC


On Aug 12 10:27 AM Stefan_S_Sweden wrote:

> great article Naveen!! How about competition? Are there any other
> companies offering the same kind of solutions / technology (touchpads)
> ??? Do you know if Synaptics is inside the latest and upcoming models
> from the big handset makers? Samsung, SonyEricsson, LG, Iphone etc
> ??
>
>
> Stefan
> Sweden

Akamai: Short Of Expectations But Long-Term Growth Story Remains Intact

you are right.The number of customers or revenue per customer might not be strictly comparable but other financial metrics are. I just wanted to highlight the disparity in valuing two companies which operate in the same space. I did'nt want to do a product/service comparison because the in a dynamic space like Internet Services, the definition of products/services and what it constitutes will keep changing!!


On Jul 30 10:21 AM Dan Rayburn wrote:

> How can you possibly think you are doing a fair comparison from Akamai
> to Liemlight in the number of customers they have and the revenue
> per customer when we know that Akamai sells services that Limelight
> does not offer? You can only compare Akamai's CDN business to Limelight's
> CDN business, and since we don't know how many customers Akamai has
> for CDN, what percentage of their revenue comes from CDN, or how
> many customers take multiple services outside of CDN, you can't compare
> the two companies. You can only compare the CDN product, not the
> company.

EMC's Data Domain Acquisition: A Sign of Desperation

I agree. But making expensive acquisitions is not the way out,especially during a downturn. So, my argument is that EMC should acquire -but not at any cost.

On Jul 28 08:55 AM tkane90 wrote:

> This analysis needs to be done in a way that compares other players
> in the industry over the same time period. For the past twelve months
> we've been in a gobal recession (hello!) and most companies in the
> tech sector are struggling regardless of the business strategy.
> The real question is about how well placed EMC is today versus competitors
> to take advantage of a spending upswing when the economy rebounds.
> Any thoughts on that?
> -tk

Mobile Phone Market Share Relative to Profits

Atleast in India(Nokia sells a lot of phones in India). Nokia has a clear lead over Samsung, LG et all in terms of quality. Consumer generally are willing to pay a premium for Nokia over other mobile phone brands. So even if Nokia might lack in product innovation, they have a strong reputation for quality in low-cost phones too!

It would be interesting to see what happens when Apple/RIM becomes more aggressive and reduces their sticker prices.

How Does Accenture Today Compare to Post Dot-Com Bust?

You are right. The conclusions could have been more precise or done away with. My intention was to only compare and I should have stopped at that.


On Jun 27 01:24 AM Amit Jindal wrote:

> I am difficulty understanding how the comparison between now and
> then led to the conclusions. These conclusions could have been achieved
> even without the comparison.

How Does Accenture Today Compare to Post Dot-Com Bust?

As mentioned in the article, Accenture includes a host of services(SI etc) in Consulting. So what I mean by Consulting growth is not vanilla business/IT strategy consulting but all these services combined.


On Jun 27 10:56 AM Bandwagon2009 wrote:

> The conclusion in this article seems to ignore the cultural buying
> habits of APAC region -- while consulting can certainly provide higher
> value (=margins), there is pre-disposition by clients in some Asian
> countries for not wanting to pay for pure "consulting". Firms
> like ACN might be able to bundle "solutions" which include a combo
> of products and services -- and certainly there are some large scale
> government spoonsored SI projects in India and other countries that
> ACN could go after...in most cases a local tie up / JV is necessary.
> A BOT approach might be a better idea.

The Great Bing Scam

There are definitely a few positives in Bing(over Google/Yahoo) and so some of the Bing usage would HAVE TO be attributed to that.

Assuming that people are 'unwittingly' forced to search on Bing, are they staying and continuing to use Bing or are they going back to Google Search. That is the million-dollar question

Virtualization Out, Expense Management In

Thank you for your comments, Delaland. I probably should have clarified that what I meant by 'Virtualization' is all 'forms' of virtualization(if I may so) i.e Server, Application, Desktop etc.

I know that in a jargon-filled industry like Tech, we tend to get carried away by such jargon and many companies also 'piggy-back' on the latest fad and classify their product under the same . Your comments have made me inquisitive enough to try and unravel this jargon. Let me attempt that!


On Jun 04 10:44 AM Delaland wrote:

> Naveen:
>
> I am virtually (no oun intended) certain, that the 'virtualization'
> license revnues that Cirix is providing/reporting during this period
> is NOT hypervisor license revenue. Its their core product which,
> in a nutshell, vitualizes applications, such that you don't incurr
> desktop licensing fees (short version explanation). XEN is the technology
> they acquired when they bought Xen Source ( only 1/1/2 years ago),
> and that is the competing hypervisor technology with VMware, hyper
> V (microsoft), et. al. If you go to their website, the first thing
> you see is they offer Xen for free, using the Linnux Open-souce model.
> Ask Citrix for those numbers (Xen license adoption) and I'll guarantee
> it is growing at a fast pace. VMware, on the otherhand, licenses
> ESX for between $4K and $5K per 2-socket server. Their revenue growth
> may be declining because there are simply many more hypervisors in
> the market to compete against (Oracle, Microsoft, Citrix), where
> they were the only player years back. Plus, they compete against
> 'free' in many instances, certainly with Citrix. Hypervisors will
> eventually be a commodity. But the adoption across the industry
> is anything but slowing.

Virtualization Out, Expense Management In

Thanks for your comments. However, I disagree that since there is more hypervisor adoption, the industry is doing well. If they are not able to monetize these 'adoptions' now, how can we be so sure that monetization of all these adoptions will surely happen. further please refer the data(sourced from company filings) which Citrix has reported the following as application virtualization revenue in their own filings:

FY04 - $696.8M
FY05-$776M
FY06-$871M
FY07-$998M
Fy08-$1081M

you will get the 06/07/08 'App virtualization' revenue from their 2008 10-K filings( Page F-30). So even in FY06, quarterly run rate was >$200M for App virtualization.


On Jun 03 11:04 AM Delaland wrote:

> Mr. Selvaraj's data is way off base. First, he shows enourmous license
> revenue for Citrix since 2006, along with a recent declining growth
> of that license revenue. The fact is that Citrix only bought XEN,
> the hypervisor virtualization software Citix now sells, in 2008,
> and it did so for $500M. But XEN annual revenue to that point was
> only $5M!!! If his chart showed only the growth of Xen license adoption,
> instead of all of CItrix's software product sales, it would show
> enormous growth. Plus Citix Xen license model is the same as Linux;
> i.e. license is free, (for a few months this was not true, but it
> is now) you only pay for annual support, so there are no 'license'
> revenues to report. Finally, other comapnies have jumped in with
> their own hypervisor vitualization products, like Oracle and Microsft.
> Between Citrix (Xen), Oracle, MS, Virtual Iron (bought by Oracle),
> and others, their license growth more than makes up for the decline
> in VMware. The reason VMware growth has declined, is they are competing
> aginst more products, and competing against in some cases 'free products'.
> The assertion that overall hypervisor virtualization software user
> adoption (note I did not say license revenue), is slowing or on the
> same pace as declining server sales is rediculous.

What's Behind Cognizant's Outperformance?

Very valid comments, Huskar. As I has mentioned, Cognizant's short term advantage remains due to 3 reasons and not just $ strength.

But Cognizant has talked of 'superior' client engagement as a business differentiator for more than 4-5 years(their SG&A % spend validates that). But the gap in terms of Revenue per client(With Wipro and Infosys) remains and this is not just the efffect of recession but the effect of business model(more maintenance revenue). The gap is getting bigger in terms of operating profit per client between Cognizant and Infosys. So finally, if we are interested in 'absolute' profit dollars earned per client, Infosys has actually performed better during the last 2-3 quarters.

But I want to EMPHASIZE that my opinion is also that short-term advantages for Cognizant remains.


On May 14 10:43 PM Huskarl wrote:

> Naveen - You have established that Cognizant has added a significant
> number of clients recently and is almost close to Infosys in that
> respect. Is that not a reason by itself for revenue per client to
> be lower?
> Clients can be added overnight but generating revenue out of them
> takes time. Naturally during the initial phases, the revenue per
> client is going to be lower as your client base has increased significantly
> but revenue is yet to show up. Add a recession and this makes revenue
> accretion even slower.
> But through superior client engagement, Cognizant can, over time,
> generate that revenue with these new clients. An Infy or Wipro will
> not be able to do that as they are not investing in building client
> engagement.
> With half the base of Infosys and one third that of TCS, Cognizant
> has added more revenue in 2008 in absolute terms (and not percentage
> terms). Clearly this cannot be because of dollar strengthening.
>