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  • AAPL & MSFT: Please Put Something Special In Shareholder Stockings This Holiday Season

    The market is closed for the weekend. Let's have some fun. So how do you know when it's time for a special dividend? When you can buy your long-term rival out for cash. Such is now the case with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). Don't believe us? Here is how.

    Apple is currently sitting on over $121 billion of cash and financial securities (including long-term investments). Unfortunately for Tim Cook, Apple is a bit shy of buying out Microsoft. However, that is where Microsoft comes in. To its benefit, Microsoft has horded its own stash of cash to the tune of approximately $76 billion. With the combined companies holding nearly $200 billion in cash and securities, the gap is narrowed to a measly $27 billion (based on Microsoft's market cap of approx. $225 billion). Surely these underleveraged balance sheets could support $27 billion in debt, no?

    (click to enlarge)Sources and Uses

    In fact, there is no need to raise $27 billion in debt. The combined companies generated over $21 billion in free cash flow in the fourth quarter of last year alone (ignoring a large acquisition by Microsoft). Considering that expected dividend payments this quarter will be under $5 billion, this $27 billion "hole" may narrow to something more like $10 billion by year end. We feel pretty confident that there are some smart investment bankers out there who would salivate to fill that $10 billion hole!

    Obviously this article is meant to facetious. But the fact that it is even in the realm of financially possible should irk shareholders. With tax rates going up, we urge both management teams that this is the year to put something special in your shareholders' stockings.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 30 5:30 PM | Link | Comment!
  • Dolby: Follow Up To Oct 29th Article

    On October 29th we published an article related to Dolby's disclosures (or lack thereof) relating to its licensing revenues and patent expirations (here). This article focused on the language of one particular risk factor that discussed patent expirations and licensing revenues. Interestingly, when the company filed its latest 10-K just two weeks later (November 15th), it made the first substantial update to this language in at least five years. Coincidence? We don't know. But studious investors take note of changes.

    For the first time, the company is reporting "progress" transitioning clients from Dolby Digital to Dolby Digital Plus. The company is now referring to both Dolby Digital and Dolby Digital Plus revenues as "significant". While definitely a step in right direction, the disclosure still indicates there is indeed a significant amount of revenue that continues to come from Dolby Digital technologies.

    Full language from the aforementioned Risk Factor from latest 10-K below:

    "Our licensing revenue depends to a significant extent on patent royalties, and some of our key patents from which a significant portion of that revenue is derived have expired and will continue to expire.

    Many of the technologies that we license to our system licensees are covered by patents, and the licensing revenue that we receive from those licenses depends in large part upon the life of such patents. In general, our agreements with our licensees require them to pay us a full royalty with respect to a particular technology only until the last patent covering that technology expires in a particular country. As of September 28, 2012, we had nearly 2,800 individual issued patents, and over 2,700 pending patent applications, in over 80 jurisdictions throughout the world. The currently issued patents expire at various times through November 2032.

    We regularly look for opportunities to expand our patent portfolio both through organic development and acquisitions. However, to the extent that we are not able to obtain new patents or develop other proprietary technologies, or to the extent that we do not replace licensing revenue from technologies covered by expiring patents with licensing revenue based on non-expiring patents and other proprietary technologies, our operating results may be materially adversely affected.

    In particular, some of our patents relating to Dolby Digital technologies, from which we derive a significant part of our licensing revenue, have expired and others will expire over the next several years. We have transitioned a number of our Dolby Digital licensees, and continue to make progress in transitioning other Dolby Digital licensees, to Dolby Digital Plus technologies, an extension of our Dolby Digital technologies, whose patents generally expire later than the Dolby Digital patents. We now derive a significant part of our licensing revenue from Dolby Digital Plus. To the extent that we are unsuccessful in having licensees continue to transition to Dolby Digital Plus, or to the extent that licensees of Dolby Digital Plus transition back to Dolby Digital as our original patents covering this technology expire, our operating results could be materially adversely affected."

    For reference, here is the equivalent risk footnote regarding patent expiration from Q3 results:

    "If we do not obtain new patents or proprietary technologies as our existing patents expire, our licensing revenue could decline.

    We hold patents covering much of the technologies that we license to system licensees, and our licensing revenue is tied in large part to the life of those patents. Our right to receive royalties related to our patents terminates with the expiration of the last patent covering the relevant technologies in a particular country. Accordingly, to the extent that we do not replace licensing revenue from technologies covered by expiring patents with licensing revenue based on new patents and proprietary technologies, our revenue could decline.

    As of June 29, 2012, we had nearly 2,700 individual issued patents and over 2,500 pending patent applications in over 90 jurisdictions throughout the world. Our issued patents are scheduled to expire at various times through November 2032. Of these, 3 patents are scheduled to expire in the remainder of calendar year 2012, 30 patents are scheduled to expire in calendar year 2013 and 91 patents are scheduled to expire in calendar year 2014. Patents relating to our Dolby Digital technologies, from which we principally derive our licensing revenue, have begun to expire and the remaining patents relating to this technology generally expire between now and 2017. Additional patents relating to our Dolby Digital Plus technologies, an extension of Dolby Digital, expire between 2018 and 2026. In addition, the remaining patents relating to Dolby Digital Live technologies, an extension of Dolby Digital, are scheduled to expire between now and 2021."

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: DLB
    Nov 26 2:28 PM | Link | Comment!
  • Opportunity In MCD?

    McDonald's (Ticker: MCD) is trading off about 2.0% today after reporting the first drop in same store sales in 9 years today, as a result of increasing competition between fast food competitors. Stock is currently trading below its 52 week low $85.92, and currently yielding a healthy 3.5%. Could be an interesting entry point for long-term investors. Might do some homework.

    Here is a news report from bloomberg.com:
    "McDonald's Corp. (MCD), the world's largest restaurant chain, said sales at stores open at least 13 months fell 1.8 percent in October, the first monthly decline in nine years, as U.S. customer traffic decreased." Here.

    Tags: MCD
    Nov 08 1:53 PM | Link | Comment!
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