Paolo Gorgo's Comments

Axion Power Concentrator 216: Mar. 10: Axion Power And EPower Engine Systems Inaugurate Strategic 18-Wheeler Alliance Using PbC Batteries In Hybrid Drive Trains For Class 8 Trucks

Mon, 11 Mar 2013 02:51:21 -0400

First of all, an apology to all the Axionistas. I’d like to share some thoughts on the Valence Bankruptcy hoping some of the knowledgeable posters here can step in and answer some question / underline the weak points of this thinking. It is related to the sector, and as such I hope you may also consider it a description of a potential scenario (climate/ landscape) where Axion is operating. Under this scenario both A123 and Valence could end up as part of bigger competitors.
I’m mainly the messenger, as I’ve stolen the approach from another investor.
When Valence filed for bankruptcy, it looked like Berg, its major shareholder and owner of more than 90% of the company’s debt, was going to use bk to wipe out shareholders (including himself) and take full control of the company. A request for an equity committee was denied. The company expected to re-emerge by year’s end (2012).
Then A123 filed.
JCI acted as the stalking horse in a 363 sale of that company, but ended up losing against Wanxian. The price doubled to roughly $250 million. Hot bidding war. JCI wasn’t happy about the result and tried to block the deal even after losing it. Unsuccessfully.
Back to Valence.
The company hasn’t re-emerged yet – the opposite. It filed in court to hire two investment banks looking for equity financing. May be it was something due after A123 showed there may be more value than expected for good IP in the sector. However, it is interesting the investment banks will get only half commission if a deal is closed with JCI and a few other companies (that might have already expressed interest in the company?).
Speculation time. May be Valence (Berg) has now realized that post bk Valence will have a different kind of competitor, giant Wanxiang rather than a relatively small and probably still financially weak A123. A tougher competitor for scale, financial and production capacity, etc. etc. May be in the long term a plan B can be now more rewarding both for the company (its management) and its major lender/shareholder: a sale to a big guy, who can take also advantage (in part) of its large NOLs. Berg would just get as much money as possible back (first as creditor and lastly as shareholder), depending on how many people you can get to bid and what price comes out.
Questions: am I correct thinking JCI is pretty weak on IP in the lithium battery sector? A buy out of Valence would strengthen its patent portfolio. May be A123 and Valence had no interest (financial capacity) to start a legal fight with a big guy, but Wanxiang owning A123 may set a completely different scenario. It’s also about building a decent defense in case things get tough.
Here are the names of companies included in the “reduced commission” list for the investment banks: Berg, JCI, SAIF, Enertech Capital, Via Motors. I’d appreciate any comment on the last 3 companies (strengths, financial capabilities, etc).
Could Valence be worth over $120 million in a bidding war? The NOLs are impressive, but could only be used in part. (Section 382 limitation - Following a “more than 50%” ownership change, corporations ability to deduct pre-ownership change NOL’s is limited. If an ownership change occurs in a bankruptcy case, the calculation of the annual limitation is based on the value of the corporation immediately after the ownership change. Since this calculation is usually after significant debt relief, the equity value is higher, more NOLs).
Axion related: if I got it right the long time horizon is not competing with the big guys, but becoming a partner to them. Safer, and pretty smart as a strategy. However, here comes the reference to "sources that are in alignment with our business objectives" for the next financing round. Just wondering if any of the previous big names could be interested in getting additional IP in the sector (even outside of lithium, and through a partnership and not necessarily a buyout ) at a time it seems on fashion to do so (the hotter demand for IP is, the easier it may be for Axion). And given the fact the Axion is only looking for a financing, and not on sale, how this deal could be structured.
Thanks.

Immersion's New Multi-Year Licensing Deal With Samsung: Increased Royalty Rates Plus Basic Haptic

Sat, 09 Mar 2013 12:48:05 -0500

Let me disagree with your comment, for several reasons.

The parts I quoted from the Apple - Samsung court case clearly show that haptics was considered by Samsung an integral part of its development of the Galaxy range and a key differentiator from Apple's iPhone. A strong validation of haptics and a very good reason why Samsung renewed the licence with IMMR.

Understanding how Android and iOS differ as to haptics is also key to understand why Immersion hasn't taken a clear position, yet, toward Apple for their use of haptics:

Mark McMahon - FBL

Okay. But what you just mentioned did sound a lot like that they are – potentially infringing on your basic haptics, with like the alert system, that sort of thing?

Vic Viegas - President & CEO

With regards to Apple, we’ve never made that statement. Now we’ve not taken a position that it’s infringing or that it’s not infringing. We have taken a position that the android operating system has currently shipping is using basic haptics which is covered by our patent portfolio.

http://seekingalpha.co...

Apple filed several patents about haptics, as I discussed in a few of my previous articles about IMMR.

http://bit.ly/10mDArN

Apple is certainly aware of Immersion and interested in the space - actually we can't rule out it could even consider a buy out of Immersion, given the strength of Immersion's IP and patent portfolio, and what this could mean for many of Apple's competitors which are Immersion's licensees (or may be infringing basic haptics).

I find it hard to consider the inclusion of the Apple ticker in this article as just a way "to get more views": on purpose I did not put GM and VC as that could be considered a stretch (although the companies are mentioned as licensees), but Apple is a key part of it. I'd say that an Apple investor could also get interesting information about areas (haptics and Samsung litigation) he/she might not have considered/be aware of.

Not All Data Center Stocks Are Created Equal

Sat, 09 Mar 2013 01:28:30 -0500

Converting into a REIT allows the company to take advantage of a tax efficient structure. On the other side, the company will have to distribute its earnings to shareholders and will be forced to finance further expansion tapping the credit market. The recent Public Offering of Senior Notes may be considered an example of how the company can successfully achieve this target.

Immersion's New Multi-Year Licensing Deal With Samsung: Increased Royalty Rates Plus Basic Haptic

Sat, 09 Mar 2013 01:09:53 -0500

Thanks Michael, both for your comments and for your support analyzing the company.
It look like the story is unfolding nicely.

Axion Power Concentrator 214: Mar. 4: Axion Power And EPower Engine Systems Inaugurate Strategic 18-Wheeler Alliance Using PbC Batteries In Hybrid Drive Trains For Class 8 Trucks

Wed, 06 Mar 2013 12:26:57 -0500

iindelco:

definitely a step needed to avoid further problems (although the 363 bk sale process is public), but the terms and names involved are interesting:

http://bit.ly/YNv69P

Valence Technology Settles Patent Dispute With Hydro-Quebec

AUSTIN, Texas, June 13, 2012 (GLOBE NEWSWIRE) -- Valence Technology, Inc. (Nasdaq:VLNC), a leading U.S. based global manufacturer of advanced energy storage solutions settled its patent dispute with Hydro-Quebec, entering into a settlement agreement that resolves existing litigation with no monetary payment made by either side, and each party bearing its own costs and attorneys fees.

Under the terms of the settlement, all claims in the litigation have been dismissed and Valence Technology is free to sell its proprietary lithium magnesium metal phosphate products, without liability to The University of Texas, Hydro-Quebec, or any of their related entities. In addition, Valence Technology's customers and suppliers are also removed from any liability related to the lawsuit.

assets: NOLs and IP, mainly (I'm starting my diligence on Valence, so I could be missing the elephant in the room...)

Axion Power Concentrator 214: Mar. 4: Axion Power And EPower Engine Systems Inaugurate Strategic 18-Wheeler Alliance Using PbC Batteries In Hybrid Drive Trains For Class 8 Trucks

Wed, 06 Mar 2013 11:31:46 -0500

thanks for your comment - I may be completely off, but it looks like Valence believes there might be some investors crazy enough to put additional money there:
Attached hereto are amended Exhibits “A,” “B,” “C,” and “D” to the motion
dated February 8, 2013, of Valence Technology, Inc. (the “Debtor”), the debtor and
debtor-in-possession in the above captioned Chapter 11 case, for an order authorizing the
Debtor to employ and retain KPMG Corporate Finance, LLC (“KPMGCF”) and Roth
Capital Partners, LLC (“Roth”) as investment bankers to the Debtor (the “Motion”)
[Docket No. 291].
http://bit.ly/Xqrej9
may be the NOLs are the main value there... :-)

Axion Power Concentrator 214: Mar. 4: Axion Power And EPower Engine Systems Inaugurate Strategic 18-Wheeler Alliance Using PbC Batteries In Hybrid Drive Trains For Class 8 Trucks

Wed, 06 Mar 2013 10:44:37 -0500

Sorry if I step in with something which may have already been discussed (I'm a forgetful reader), or seem OT: I am under the understanding that Johnson Controls may be interested in bidding for Valence Technology, after the A123 debacle.
This may be read as a further attempt by JCI to strengthen its patent portfolio outside of its core competences/skills.
Axion related, the fact that IP is "on fashion" again in the industry could hopefully mean that financing from "sources that are in alignment with our business objectives" may be less difficult than a few months ago...
A bit of a stretch and wishful thinking, I know... :-)

Not All Data Center Stocks Are Created Equal

Wed, 27 Feb 2013 03:29:09 -0500

@PredominantlyWary: I think jw408 answered most of your questions.

Equinix owns the majority of the key interconnection points in the USA - see this blog post for more information:

http://bit.ly/V89Lfb

Long time ago, Equinix used to compare itself to an airport: if you are a Telecom in the business of exchanging bits (think of them as passengers), it makes more sense to take one or more slots at JFK in NY rather than at an underserved smaller airport nearby. Plus the costs associated with connecting to a new facility jw408 alluded to. The first mover advantage plays an important role in this business, and barriers to entry are quite high.

It is not only a problem related to the presence of many Telecom/ISP providers within a facility.

Most Equinix data centers have built ecosystems where key customers act as magnet for other business partners. This creates a snowball effect, which is one of the beauties of the business model. Being just one cross connect away from people you need to connect to is a great advantage in terms of cost and latency.

REIT conversion. It's tough to answer in a few words, but Equinix is generating a lot of discretionary free cash flow. A REIT structure will help investors focus on this aspect of the business, that gets a bit lost under the existing structure. Plus the tax related advantages.

Thanks to both you and jw408 for the comments.

Gramercy Capital Corporation: An Edward De Bono Stock

Wed, 13 Feb 2013 01:14:21 -0500

Chris,
thanks for your kind comment.
I really enjoyed your latest update on GKK:
http://seekingalpha.co...

Herbalife - A Case History In Bad Due Diligence

Wed, 16 Jan 2013 13:41:04 -0500

I believe John Hempton is long Herbalife - if I got this comment right:

>I am utterly convinced by everything in Bill Ackman's presentation except the final conclusion - that Herbalife's stock will collapse. I took a long position on Christmas Eve.

http://bit.ly/V5lcl3

Great story to watch, and great learning experience.

Cincinnati Bell (CBB -6.9%) sold off after its CyrusOne (CONE) subsidiary set a price range of $16-$18 for its 16.5M-share IPO. That's good for a market cap of $312M-$351M. IPO buyers will own 84.5% of CyrusOne after the offering, and CBB just 9.7% (employees will own the rest). CyrusOne had revenue of $162.8M (+22% Y/Y) for the first 9 months of 2012, and a net loss of $5.1M. (S-1)

Wed, 09 Jan 2013 02:46:49 -0500

CBB will own 9.7% of CONE outstanding shares of common stock and 68.5% of the outstanding operating partnership units, which, if converted into CONE common stock, would represent an additional 61.9% of the company.
This way, Cincinnati Bell expects to effectively own approximately 71.6% of CyrusOne.
Market cap will be around 1 billion, at the mid point.

Immersion Corporation: Profiting From The Touch Screen Revolution

Thu, 03 Jan 2013 03:38:31 -0500

A couple of clarifications as a follow up to the article.

HD haptics are technically better described as higher fidelity, rather than localized.

The combination of Immersion TouchSense 5000 software with high definition actuators delivers vibrations across a broader frequency range than traditional device motors. The result is a more nuanced and lifelike experience because of this wide range of frequency vibration.

As to the paragraph about the automotive sector, the company indicated a wide range for royalties ($1 to $5). It is, however, also possible that the same car contains both a rotary knob and a touchscreen with haptics, so that the final result is a higher rate per unit.

My calculation of a historical number of about $7 derives from an old filing disclosing how many cars had implemented haptics at that time. As I have been pointed out, however, total revenues might have included also project work, etc. - bringing the actual royalty rate per unit lower.

The real purpose was to underline that royalties in the automotive vertical are in the dollar range, and not cents like in mobility, and I still expect them to settle at a few dollars for each car.

Rumor Has It: Is Mohawk Industries Eyeing Marazzi Group?

Fri, 21 Dec 2012 16:59:58 -0500

Thanks. As you might have noticed, the deal finally went through at a higher price than first rumored. I'm planning an update with more details about Marazzi Group and the potential synergies of the deal.

Mohawk Industries (MHK) agrees to acquire Marazzi Group, a global manufacturer and marketer of ceramic tile, for ~$1.5B in cash and stock. MHK says the addition of Marazzi, whose 2011 revenues totaled ~€833M ($1.16B), will make it the worldwide leader in ceramic tile. MHK -0.8% AH.

Thu, 20 Dec 2012 16:57:30 -0500

Seeking Alpha broke the news:

http://seekingalpha.co...

Axion Power Concentrator 188: Dec. 19: Latest News

Wed, 19 Dec 2012 10:12:34 -0500

congrats, John. Looking forward to reading it.

Rumor Has It: Is Mohawk Industries Eyeing Marazzi Group?

Sat, 15 Dec 2012 01:32:18 -0500

As mentioned in the article, the large majority of tiles consumed in the USA is imported. While it is true that US producer n. 1 would be buying US Producer n. 2, I believe Mohawk industries could successfully prove that its market share would remain relatively low if compared to total market consumption.

As an update to the article, readers should be informed that Chairman of the Board and President of Marazzi Group Filippo Marazzi died on November 27th of natural causes.
His death is a great loss to the whole industry and might slow down the acquisition process.

http://bit.ly/Uuh4Jj

Data Center Related Stocks Close Mixed In November And After Q3 Earnings

Thu, 13 Dec 2012 04:10:25 -0500

Outside of my coverage area, unfortunately. Thanks for your comment.

Axion Power Concentrator 179, Nov. 23: John Petersen's Axion History & Prospects; Q3 '12 Rpt; SAE Truck APU App; Rosewater & Queens Univ. Partner On Distributed Energy Study; 13th ELBC: Axion's "Operational Stability Of PbC Batteries And Battery Systems

Mon, 26 Nov 2012 03:31:43 -0500

you (authors) have an opt-out option, to avoid SA Pro "limitations" for readers.

Mohawk Industries (MHK +1.4%) appears to be in advanced talks to buy Italian ceramics maker Marazzi Group. One source puts the deal at around $1.2B.

Sat, 24 Nov 2012 02:51:49 -0500

First on Seeking Alpha (with additional info/data about Marazzi Group):

http://seekingalpha.co...

Data Center-Related Stocks Sell Off In October

Tue, 13 Nov 2012 03:58:16 -0500

Over the last couple of years (plus), I have been publishing reports about performances of data center related stocks on a regular basis, with the main purpose to resume YTD and monthly data on a relatively simple chart, with some basic commentary. It is not certainly an innovative idea, as many other people are doing similar things for different sectors, etc. I found this approach useful as a reader, and decided to share the same data, which I used to collect, about a few stocks I am tracking. Since the beginning, I have introduced the concept of creating small sub-sectors, to help investors track individual stocks compared to their real peers (as far as business model), and compare these sub-sectors.
These short articles, as well as other ones I am writing about “Earnings Performances” in the same sector, are very easy to identify, as they mention “data center related stocks” and “monthly performances” in their title, with almost no exception over several months. As I understand these posts don’t add much, in terms of insight, to your knowledge, I suggest you avoid them in the future. Looking at the number of pageviews received for this kind of reports, and over a relatively long period of time, it looks to me (as an author) that are a few readers interested in this kind of relatively simple-to-understand and basic analysis.
A far as more insightful articles, if you are interested in the sector, you might take some time to have a look at other posts I wrote over the last few years about this specific sector, which make most of my contributions on Seeking Alpha. These articles go from analysis of sector trends, like “Insatiable Demand for Colocation Services” or “Colocation and the Financial Industry”, written in the post-Lehman times, to reports of specific events, like “Equinix Trims Yearly Guidance but Still Looking Strong”, post company’s revenue warning, or analyst meetings I attended (Equinix's Analyst Meeting Details The Journey To $3 Billion In Revenues), or IPO analysis, for example for Interxion (INXN), etc. etc.
Thanks for your comment.

Equinix (EQIX): Q3 EPS of $0.58 misses by $0.01. Revenue of $488.7M (+20% Y/Y) misses by $5M. Shares +4.6% AH. (PR)

Thu, 01 Nov 2012 16:43:55 -0400

Revenues exclude $8.8 Mil. from discontinued operations related to 16 data centers sold.

Why A123 Systems Is A Sucker's Bet

Thu, 01 Nov 2012 10:20:59 -0400

Great analysis.

The Transition From Legacy IT And Its Potential Consequences On Microsoft

Mon, 15 Oct 2012 12:59:11 -0400

I guess we are all entitled to different opinions - I believe your comment adds food for thought, but don't really highlight major mistakes in the article.

1. Losing money fighting against Google may be a great strategy, but other MSFT investors might be entitled a different opinion.

2. I'm wishing Nokia to be successful in its turn around. Living in Europe, I am witnessing how the company has gone from a leading place among consumers to a relatively small position.

4. MSFT gets royalties on Android from OEMs, as well as Nokia gets royalties for its patents from companies like Apple, just to name one.

Unfortunately, that doesn't seem to be enough for both companies - MSFT wants a bigger slice of the cake, and NOK can't certainly turn a profit on AAPL royalties alone.

Network-Neutral Data Centers Lead Gains Year-To-Date

Mon, 15 Oct 2012 12:50:05 -0400

I wouldn't forget Amazon and its AWS platform.

Unfortunately, as I was trying to explain in the article, most of these companies derive the majority of their revenues and profits from other sources, and this makes it difficult to track them for their data center assets.

Network-Neutral Data Centers Lead Gains Year-To-Date

Mon, 15 Oct 2012 12:47:59 -0400

REITs had, on average, a very good performance in 2011 - DLR was up 29%, COR 30% and DFT 14%.
The run up continued in 1H 2012, with DLR gaining almost 13% and DFT almost 18%.
I tend to believe that these gains were due to investors discovering the above-average growth potential of this specific sector and the reduced risk in the long term.
Apparently investors are now taking profits after a long upward move.
CoreSite's strong performance may be a small exception to the rule. I wouldn't forget that the company owns, in the West Coast, probably the only peering point in the US that can really compete with Equinix.
The importance of the network and interconnection businesses have also been recently recognized by the market - see how the network-neutral providers performed in 2012, at least so far.

Thanks for your comment.

Off Line For Now

Tue, 02 Oct 2012 11:00:46 -0400

Real pity - thanks for all your posts.

Focus Media LBO Offer: Betting On The Timing Rather Than The Outcome Of The Proposed Deal

Thu, 27 Sep 2012 03:54:00 -0400

I also believe the stock might tank big if the deal doesn't close - as a reminder it lost about 40% in a single session at the time of the Muddy Waters allegations.

There are so many ways to play this company with options that the one I wrote about is just a relatively simple one.

Here is another interesting comment from a blogger:

>A perfect situation for options

This truly binary outcome throws up more ways to play it than you can count.

In this case, you could buy the stock and put options in much greater size.

Another way would be to load up on options both sides.. buy October $25 calls for $0.20. If the deal goes through you make 10x your money that day – more than enough to account for whatever you spend on puts.

>A demonstration of retardedness in the option market

Just looking at live market prices now, Jan 15 calls struck at $27 are selling for $1.50. Since the best case scenario is that the stock goes to $27 and is taken off the market, this is pretty damn close to free money.

http://bit.ly/UvWp79

Focus Media LBO Offer: Betting On The Timing Rather Than The Outcome Of The Proposed Deal

Mon, 24 Sep 2012 12:21:02 -0400

sorry for the broken link - try this one:

http://bit.ly/SgN5lJ;sp=

or this one (Reuters):

http://reut.rs/QtZ3Mr

Equinix's Analyst Meeting Details The Journey To $3 Billion In Revenues

Thu, 13 Sep 2012 05:28:57 -0400

thanks for your kind comment.

Geoffrey's speech was extremely interesting - you may still find it at:

http://bit.ly/OrSds1

(min: 30 on)

CDS Spreads - Links To Bloomberg.com

Sat, 01 Sep 2012 00:58:02 -0400

It looks like these data won't be freely available on Bloomberg any more (some are still, as I write):

>Thank you for getting in touch. Unfortunately, the data that you're inquiring
about will not be available in the future on Bloomberg.com; it will remain
available on the Bloomberg Professional Service. This index will be removed from
the mobile web and mobile apps soon, as well. If you are interested in Bloomberg
terminal our fee-based product, please advise and a sales rep will contact you.

Sincerely, Bloomberg Website Feedback Team <

This leaves a few options:

Markit discloses some selected companies at this link (registration required).

http://bit.ly/NHQRmW

Sovereign Credit-Default Swaps:
CNBC

http://bit.ly/rgBEun

Several CDSs are available at this link.

http://bit.ly/NHQRmY

or self-estimate, through Bond Calc, for example (I have a conflict of interest, as I am among the authors of the app):

http://bit.ly/Q9kCRI

Ciao

Paolo