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  • Ethanol stocks outperform as EPA unveils mandate [View news story]
    The ethanol subsidy should be removed gradually because, as noted above, ethanol from corn uses more energy than it provides as a gasoline additive. Furthermore, ethanol made from sugar feedstock is a better alternative and produces more energy than that required to make it.

    Oil and gas subsidies include tax benefits in the form of a depletion allowance as well as below-market royalty rates from producing oil and gas from federally owned land or land below the sea. Distortions from subsidies of oil and gas firms are so large that eliminating them would also make it possible to eliminate the tax credits on solar and wind power, allowing them to compete with traditional fossil fuels.
    May 29, 2015. 01:56 PM | 3 Likes Like |Link to Comment
  • Chip stocks rally following Broadcom/Avago report [View news story]
    MU appears priced low because it faces a lot of competition from Samsung and Toshiba/SanDisk. More to the point, MU still has very low margins on flash memory chips that compete with those of SanDisk, with a respectable 40%+ gross margin. Micron's main profit comes from the mobile DRAM part of its production.

    BRCM is probably overpriced because it doesn't have chip technology related to fourth generation LTE, but there might be some synergy with Avago. BRCM by itself faces almost impossible competition from Qualcomm, which is more advanced in LTE and has the additional Wi-fi technology gained from its acquisition of Atheros.
    May 27, 2015. 07:40 PM | 6 Likes Like |Link to Comment
  • Qualcomm: One Chart Investors Should Consider About Its Accelerated Buyback Plan [View article]
    fsoriano -- You're right that the value of patents, or at least SOME patents is intangible. The patents developed by Qualcomm itself have zero value on the books, though the cost of developing those patents is a genuine cost, reported in the quarter in which it was incurred. Patents developed by other firms acquired by Qualcomm, however, have a value, expressed in the purchase price of the firm, and therefore, those patents are treated as assets on the balance sheet. An example is the patent stash accumulated by purchasing Flarion, a company started with the help of former Qualcomm director and founder Andrew Viterbi. Flarion was acquired for $850 million. Its patents are essential for 4G LTE, the current high end standard for high speed data communication. No smartphone company can make a decent LTE device without using these patents, which include a unique directional antenna design allowing more signals on the same portion of the spectrum.

    The majority of patents, however, have no value on the books. But a value still can be imputed, based on a percentage of royalties received. If one assumes a bundle of patents generates royalties, the imputed asset value can be calculated at, say, $10 for every $1 royalty payment, which would be a conservative value if you consider that royalties are similar to rent received from a tenant. Multiply the annual royalty revenue by a factor of 10, and you get a reasonable addition to book value, which then has the effect of reducing the ratio of the share price to book value. I would suggest that this imputed value gives you a price to book value ratio of about 1.5, or about half the actual ratio. What this exercise does is to underline the somewhat ridiculously low current share price.
    May 27, 2015. 11:26 AM | 1 Like Like |Link to Comment
  • Solazyme's AlgaVia Gains Traction As Bird Flu Leads To Possible Egg Shortage [View article]
    What counts in Solazyme's future financial strength is actual product shipments. Management has not been very forthcoming on how much of what products they are actually shipping. We hear that some batches of product have to be discarded because of erratic power at Moema, but again, very little of what actually has shipped either from Moema or Clinton. Perhaps we will get a little more detail at the coming analyst day meeting in NYC. If not, I expect very little change in the current depressed stock price.

    Long on SZYM, but not adding to my holdings.
    May 26, 2015. 05:04 PM | 2 Likes Like |Link to Comment
  • Qualcomm: One Chart Investors Should Consider About Its Accelerated Buyback Plan [View article]
    As a value investor, concentrating on fundamental financial and market data, I believe stock price is DETERMINED by underlying business value. Variations in stock price, absent a change in fundamentals, are related to shareholder sentiment, technical analysis (which is a form of trend analysis, with short term connotations), and overall market health.

    Thus, the underlying business value of Qualcomm is based on more than 17,000 patents, including most of what are called standard essential patents that enable smartphones and similar devices to function, and the revenues and earnings derived both from the patents and the chips that Qualcomm sells, which utilize its patents. Shareholder sentiment is often influenced by (a) large trading/investment firms' actions or publicity on the stock, and (b) concerns about the direction of the economy and stock prices in general.
    May 26, 2015. 11:58 AM | 3 Likes Like |Link to Comment
  • Qualcomm: One Chart Investors Should Consider About Its Accelerated Buyback Plan [View article]
    The total amount to be allocated toward a stock buyback is $15 billion, of which the first $5 billion now appears to be in the process of being purchased. This, of course, is in addition to the amounts previously repurchased and announced back in April.

    A $15 billion repurchase of stock at its present level near $70 would reduce the outstanding shares by about 12%, which is a significant amount, and which would produce two impacts on the share price. First of all, earnings, even if they remained the same as the previous quarter, would go up on an earnings per share basis, and so would revenues per share, due to fewer outstanding shares. Second, the dividend payout would be less, because of fewer shares. Buying that much stock (as a percentage of total outstanding shares), furthermore, effectively places a floor under the stock price – probably close to the present price.

    Comparing the QCOM share price with SPY really makes little sense. A company buys its own shares if the price is reasonable. How can we know the current price is reasonable? Not by comparing the price trend of QCOM with SPY, but by looking at the fundamentals. QCOM currently trades at about 3 times book value, which is quite low for technology sector shares. Book value, moreover, can be misleading when, as in the case of QCOM, cash and marketable securities make up 78% of the book value. Does that mean the rest of Qualcomm – buildings, facilities, equipment, skilled employees, and above all, more than 17,000 patents – are worth only about $16 per share? If anyone (myself included) thinks that's a little low for a company on the cutting edge of wireless technology, then the stock is a bargain, and the company is justified in buying its own shares.

    What's the cost of buying back the shares? In order to avoid repatriating cash held overseas (the largest portion of Qualcomm's $31 billion is held overseas) and paying the 35% corporate tax rate, Qualcomm instead opted to issue bonds bearing interest anywhere from a little over 1% to about 4%. Interest payments are deductible, so the after–tax debt service costs are probably LESS than the dividends that no longer will be paid on the repurchased shares. This is being done at a time when interest rates are well below average. Put another way, the timing of the bond issue for repurchasing shares and the deductibility of interest payments, coupled with an overabundance of cash and marketable securities makes a near perfect scenario for a stock buyback and a resulting benefit to existing shareholders.

    The notion that "The problem is that a company's underlying business must be strong in order for buybacks to have the desired effect, and not have any global antitrust drama circulating its most profitable segment" makes little sense, given the current market valuation of the shares. Qualcomm has been investigated twice by the European regulators, who have found in both instances (the most recent earlier this month) that Qualcomm was not violating antitrust laws. The Koreans volunteered to help the Europeans find something . . . anything . . . they might use to force Qualcomm to knuckle under the way the Chinese did. But it doesn't appear that either the Europeans or Koreans have much to complain about. The Chinese did force Qualcomm to abandon a simple, and fair system of licensing and royalty payments, which in the end will net Qualcomm about the same royalty rate it had already negotiated with Chinese and non–Chinese firms. The cost of this settlement was $975 million, which may sound like a lot, but which, in the framework of making it easier for Qualcomm to go after Chinese firms that have failed to pay any royalties is more like chump change.

    Remember that, because Qualcomm owns most of the essential patents for high speed wireless communication (so-called 3G and 4G LTE in all flavors), virtually no firm can sell a wireless phone suitable for most world markets without getting a license and paying royalties to Qualcomm. Remember also that, while overall demand for wireless phones has been dropping somewhat, demand for smartphones suitable for voice and data applications has been INCREASING, and this is precisely the market that Qualcomm and its licensing and chip manufacture address.

    Thus, I come to the diametrically opposite view to the writer's; namely, that in this current period of price weakness, QCOM shares are a buy, and what's more, a buy with little downside risk.

    Disclosure: Long on QCOM since early 1992.
    May 22, 2015. 04:38 PM | 15 Likes Like |Link to Comment
  • Goldman calls many energy winners and losers amid weak oil price outlook [View news story]
    Yes, let's look at the facts: The average cost of finding and developing new oil reserves keeps increasing (even with the blip downward from initial tracking operations in the U.S.). Worldwide demand, despite the economic slowdown in Europe and China, and the slow recovery in the U.S., keeps on increasing. And political unrest also works in favor of increases in crude prices. Thus, to argue that the price of crude won't go higher in the near term (or long term, for that matter) than $60 amounts to an heroic, unjustified assumption.
    May 20, 2015. 11:53 AM | 3 Likes Like |Link to Comment
  • SanDisk: Asymmetric Risk/Reward Based On Cash Flows [View article]
    Regarding purchases made by SanDisk, Pliant was an earlier purchase (mainly for its controller software) that didn't prove as effective as hoped. SanDisk wrote down that investment to the extent that it was not productive. SMART storage and Fusion were better investments, especially Fusion, which enabled SanDisk to establish a foothold in the enterprise storage sector.

    The potential recovery from the SanDisk v. Hynix lawsuit in my view has not been factored into the current price of the stock. Briefly, an employee of Toshiba and SanDisk at their Japanese fab was arrested, tried, and convicted of misappropriating trade secrets in return for a high paying job at Hynix. Toshiba already recovered $250 million from Hynix, leaving little doubt that Hynix is probably going to pay SanDisk (which owned most of the technology) a lot more.

    Following the trial and conviction of the former employee, SanDisk filed a lawsuit against Hynix in a California state court, for misappropriation of trade secrets. Hynix tried to get the suit transferred out of federal court on the premise that it was merely a patent infringement suit, subject to an arbitration agreement and/or should be dismissed because of a patent cross licensing agreement between the two companies. Last March, the federal court disagreed with Hynix and ordered the lawsuit remanded to the California court (still allowing the possibility of an additional patent infringement suit being brought in federal court). It is likely that SanDisk will win big time in both the California court and later on in a patent infringement suit, if the matter isn't settled out of court beforehand.

    Among the damages that may be proved are that Hynix, based on some 10 GB of documents provided by the former SanDisk/Toshiba employee, was able to win the contract for embedded flash memory for the new model Apple iPhones. Compensation for that alone would reestablish SanDisk's revenues and gross margins in line with earlier levels. There is a reasonably high probability that SanDisk will collect somewhere between $500 million and $1 billion damages (in my view, at least).

    The outcome of the lawsuit, combined with SanDisk's continuation of stock buybacks suggests that the present share price near $67 is a floor for the stock. Given that parts of the overall market are beginning to look a little high priced, I doubt that SNDK shares can reach their earlier high above $100, but $80 prior to year end seems achievable – more so than a drop to the $50 level as some believe.
    May 20, 2015. 11:41 AM | 1 Like Like |Link to Comment
  • Should You Follow The Director Into Chevron? [View article]
    There aren't many companies that you could put $19 million or so into without disrupting the share price. Someone with less than that amount to invest might find better opportunities in smaller companies. The price of crude oil, which has affected the share prices of virtually all companies that engage in exploration and production, may have already hit bottom. That, at least, is the belief of the ExxonMobil CEO, who predicted world prices above $60 this year (at the recent XON conference call). If the CEO had it right, then there is probably very little downside risk for CVX, together with a reasonably good prospect for growth, especially from Chevron's Australian liquid natural gas investment.

    For investors with less capital to invest, there may be better opportunities, but also at greater risk. As for me, I continue to hold CVX shares, acquired through the acquisition of Unocal in 2005. I'm in no hurry to sell, but I'm also looking at other energy investments that I think are better for me.
    May 19, 2015. 07:54 PM | Likes Like |Link to Comment
  • SanDisk: Asymmetric Risk/Reward Based On Cash Flows [View article]
    Comprehensive review of all the major factors at play -- except for one. SanDisk v. Hynix litigation, prompted by the misappropriation of trade secrets by a former SanDisk/Toshiba employee in Japan, in return for his being hired by Hynix. A recent decision in federal court granted SanDisk's motion for the case to be heard initially in California state court, where the compensation for acts that the former employee pleaded guilty to could be enormous -- even before patent infringement litigation.

    Toshiba already received compensation from Hynix amounting to about $250 million. But since most of the technology documents given to Hynix related to SanDisk, not Toshiba technology, the award to SanDisk could be at least double.

    Looking at book value, the proportion of book value in the form of cash and marketable securities is about 80%, which is unusually high. What that means is that the intrinsic value of the company is much, much higher. Even though it is difficult to predict future prices, much less earnings, the downside risk at this point appears to be very low.
    May 19, 2015. 03:49 PM | Likes Like |Link to Comment
  • Goldman calls many energy winners and losers amid weak oil price outlook [View news story]
    Re: ". . . zero interest in offering advice that would be helpful."

    Helpful to them, not to you or me.

    GS, as noted in many of the above comments, makes recommendations that only make sense if you assume it's in their interest, not necessarily yours. It is a violation of federal and New York State laws to take actions, such as well publicized views, that tend to cause the stock price to go up or down.
    May 19, 2015. 02:59 PM | 4 Likes Like |Link to Comment
  • Who Survives The Bloodbath Between Qualcomm, Mediatek And Intel? [View article]
    The so-called "bloodbath" you refer to is really nothing more than a copy of the successful strategy that Intel has employed for over two decades – building and selling premium priced processor chips and simultaneously dropping the price on older, slower, possibly hotter chips that compete directly with products of other companies (such as AMD). What this strategy does, in the Intel example, is to allow customers to choose the ultimate in performance, at a high price, while making forcing competitors to sell their lesser products at lower margins, thereby making it difficult for competitors to generate cash flow for further research and development.

    The Snapdragon 400 and 600 series are simply lower cost processors that do a good job for many users and are priced lower than the premium performance processors because the R&D used to develop the premium processors already has covered the costs of the lower priced models. Put another way, the marginal cost of the lower priced models is very low.

    The assumption implicit in the article is that ALL the competitors, whether Mediatek, Spreadtrum, or others, have the same R&D costs for developing a specific chip. Not so. On the other hand, the new Mediatek chip with a purported 10 cores, may be little more than a public relations coup, designed not necessarily to outperform but simply to show customers how advanced they are. Sort of like producing a 12 cylinder Jaguar when 8 cylinders will do just fine for the performance minded.
    May 13, 2015. 06:40 PM | 6 Likes Like |Link to Comment
  • Qualcomm: Looking Beyond The Split Up [View article]
    Splitting the chip making business from the chip licensing business doesn't make a lot of sense because chip making and licensing both depend on research and development. Do you mean that QCOM should split off its R&D, the very core of its business?

    What might make more sense is to turn the strategic initiatives portion of the company into a separate entity that would be entitled to use some or all of Qualcomm intellectual property. Among these initiatives, which haven't worked out very well over the long term are the mirasol display, the investment in a related low power display being developed by Sharp, a wireless induction battery charging system for vehicles (buried in the street), and numerous other ideas that consume a lot of R&D but typically have produced little return over the years (other than negative return).

    As for the chip making operation itself, it's already farmed out to contractors like Taiwan Semiconductor. I don't see the advantage that JANA claims.

    Disclosure: Long on QCOM since early 1992.
    May 13, 2015. 06:29 PM | 4 Likes Like |Link to Comment
  • South Korea And EC Gang Up On Qualcomm [View article]
    One more factor: The author believes that the Samsung Galaxy S6 is gaining market share, but does not mention that this is a high end smartphone, currently in demand in a market where overall growth is slowing.

    The really fast expanding markets at this point are in developing nations, especially in India. Chinese companies have made major inroads into this market, typically using a system on chip, incorporating both the modem and processor -- and made largely by Qualcomm. The particular processor chip made by Qualcomm for these markets is a lower priced Snapdragon 400 or 600 series, which is much cheaper than the Samsung Exynos processor used in the S6.

    One of Qualcomm's great strengths is its ability to customize chips to meet demand of particular customers, rather than make one chip, one size to fit all. Smartphone manufacturers are well aware of this, which is why so many of them prefer to shop for their chips at Qualcomm's store -- more so than at Samsung's.

    With all this going for Qualcomm, one might still want to conclude that its near term earnings growth might be on the slow side. But why would one believe that justifies a short position? Egad!
    May 12, 2015. 12:58 PM | Likes Like |Link to Comment
  • Solazyme Provides A Progress Update On Moema [View article]
    Well, they met with several others, including some making comments here.

    "I'd actually be concerned if they took time out of their busy days to meet with non-institutional shareholders."

    I have met with officials of several other companies in this area, including SanDisk and Energy Recovery. Never had a problem before this.
    May 12, 2015. 12:45 PM | Likes Like |Link to Comment
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