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Mr Spacely

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  • Seadrill And Rosneft: Does The Dividend Elimination Signal A Catastrophe? [View article]
    The go private makes sense but it all comes down to capital. How does it get funded? does JF add more equity from his personal cash? Does he lever SDRL ad/or NADC? If so, how does he fund future acqs? Does he even need to consolidate?

    Also, if Rosneft is at risk, it makes sense to pullback hard, delever and derisk in order to be able to ride out the downturn.

    This all hinges on your outlook for oil consumption. I personally don't think the fundamentals have changed drastically. Granted, there are new near term fluctuations, eg sanctions, more US oil, Libya, but the big picture isn't materially different. I think oil consumption continues to grow and once ROW catches up with US economy, this will just be a bump in the road.

    This doesn't mean I'm bullish on SDRL especially because of the concentrated ownership, but there are opps in the oil patch to make big money.
    Nov 29, 2014. 12:59 PM | 1 Like Like |Link to Comment
  • General Motors' Problems Are About To Get Worse [View article]
    This would make sense if you only looked at Sept data AND only GM in a vacuum. The reality is that GMs recall experience earlier in the year opened a Pandora's box for recalls across the industry. Why didnt the market react? Because every OEM is recalling just about every car right now. GMs experience has spooked OEMs so badly that they are overcompensating creating a "kitchen sink" effect. Might as well recall everything now while people are more desensitized to it than to prolong it. On top of that, this reflects a new industry norm and shift in quality. In the past, OEMs would wait until a flaw became noticed by users before they reacted because they were reluctant to spend the money to fix the issue and feared brand retribution. Today, they can appear proactive by stopping sales and fixing the problem before the product saturates the market. And finally, I think customers are saavy enough to realize that defects are part of the car making process and that as long as the defect doesnt kill you and the company is willing to fix it for free, they are tolerated.

    More specifically to your argument, Sept did show outperformance by GM vs the industry, but go back over the course of the year and GM was actually losing share. Sept was a big launch month where they put a lot of new product into the market and so its natural to see a spike in their volume. Another item to note is incentives. They may be offering 25% loyalty discounts, but their overall average incentive has not moved much beyond ~$3000 per vehicle. And this is actually below their peers. In August, GM's incentives grew 2% while the market grew 20+%. In September, incentives grew 13.0% y/y vs. +20.0% y/y for the industry overall. So if anything, GM is lagging the market on incentives. In fact, their Sept ATP (avg transaction price) increased $1200 vs August and $2500 y/y. This is also driven by mix, ie more trucks and SUVs, again making sense since the new K2XX based SUVs Tahoe/Yukon/Suburban/E... launched in Sept.

    So yes your points are valid if GM was in a vacuum, but when viewed from the perspective of the industry as a whole, you can see that GM isnt in any bigger of a bubble than its peers nor is it "buying" the volume with incentives.

    My biggest concern for the entire industry is what happens when rates move up. Most buyers make their decision based on their monthly payment. At 0% financing, you can afford a lot more car than at 4 or 5%. When rates go up, and depending on how fast they go up, there could be a massive and violent change in the selling numbers.
    Oct 16, 2014. 11:47 AM | 3 Likes Like |Link to Comment
  • Intel Jumped The Shark, Time To Sell [View article]
    Thats about 2.5% of MV and about 2.5% of float if my numbers are correct. Not huge numbers. It is also roughly 127m shares. There are 121m shares of restricted stock owed to employees. Look like they are doing what every tech company does, issue shares to employees then use shareholder money to buy back an equal amount. They dont care at what price, they just need to offset the stock based comp because otherwise, diluted EPS will go down. Just sayin
    Oct 15, 2014. 05:14 PM | 2 Likes Like |Link to Comment
  • Intel Jumped The Shark, Time To Sell [View article]
    DCG growth comes from FPGAs meaning that Intel has to sell an Altera chip next to their chips to get the likes of Facebook to want to buy them. Has to be lower margin, no?
    Oct 15, 2014. 03:44 PM | Likes Like |Link to Comment
  • Intel Jumped The Shark, Time To Sell [View article]

    The flip side is that contra revs roll off and Intel realizes they cant sell tablet CPUs without paying the OEMs.

    Thats what I dont get about their whole buy the market strategy. x86 has its limits in a tablet. Just because you can buy the OEMs doesnt mean you can buy the customers. If these tablets dont perform, they'll go the way of the Surface
    Oct 15, 2014. 03:42 PM | Likes Like |Link to Comment
  • Microchip Technology: CEO Flubs A Warning Announcement [View article]
    @ Retired, Umm actually, you have it completely wrong. When did I ever say I invest based on a press release. There is something called the Mosaic Theory in finance where you come to do a decision based on many inputs. This press release is one of many inputs. My comments on China were based on my knowledge and research. And so when a CEO says he sees slowing in China, I listen. Apparently so does the rest of the market since most chip stocks sold off heavily on the news. The OP seems to think he knows better and that the market was wrong. And he calls Sanghi an arrogant know-it-all. A classic sign of an overinflated ego is thinking your direct experience trumps everyone else's knowledge.

    But this is irrelevant. Contrary to another poster's comment, I am not a MCHP fanboy. I could care less about MCHP. I dont care if MCHP's statement about the channel is true or not but I dont assume that a CEO is blatantly lying when he issues a press release.

    MCHP sells to a wide variety of end users for a wide variety of end applications so their products spread out across a broad spectrum of the global economy. And because they record sales on sell-through, their sales are indicative of broad end user demand unlike a XLNX or ALTR who sell to more specific parts of the market. Is MCHP the only indicator? Obviously not. But when they arent seeing the end customer show up, I take note.

    FWIW, here is another data point. This is an excerpt from a Pacific Crest Securities report dated Oct 12. They just recently did a trip to Asia to check distributors.

    "Weak China Demand Results in Correction at Asian Distributors
    Supply chain conversations indicate double-ordering and weak end demand in China resulted in excess distributor inventory. While lead time extension was the impetus for distributors to increase order activity and provide strong backlog coverage, it is evident 2H forecasts were inflated to secure product. Given weak demand in industrial, home appliance and automotive, distributors reduced internal inventory levels by ~2 weeks;
    specifically, distributors noted reduced Q4 orders to FSL, MCHP and ONNN.

    We See a Significant Air Pocket in LTE Base Station Demand in Q4
    Despite expectations for a higher base station target of 700K at CHL, supply chain partners are skeptical demand will achieve these levels. Equipment suppliers indicate CHL is tendering its phase 3 deployment (400K), which is not anticipating deployments until 1H15. We see a significant air pocket in Q4 demand due to delays of the full FDD LTE license, prompting lower estimates for ALTR, XLNX and CAVM."

    I am a serious investor. I do not invest on emotion or opinion. I was simply annoyed at the poorly formed logic of the OP and the arrogance oozing from his opinion and then having the hutzpah to call Sanghi arrogant. But what really bothers me is all the subsequent posters praising him for his insightful work.

    Once again, the OP lacks credibility. His whole argument was that Steve Sanghi is an arrogant CEO who wanted to steal the spotlight. And the OP was assured of this because he "know(s) Steve Sanghi and ha(s) deep experience with Microchip Technology". He is wrong, plain and simple. There is nothing insightful about his article. It is petty and appears to be written out of spite
    Oct 13, 2014. 09:30 AM | 4 Likes Like |Link to Comment
  • Microchip Technology: CEO Flubs A Warning Announcement [View article]
    Did you read the press release or are you just bitter about being fired from MCHP?

    The forecast was lowered because of weaker sales in China. The typical pattern of weak August and strong September didnt happen. Maybe that was self-inflicted, IF, others like XLNX and MXIM didnt already comment about a weakening China in July and China wasnt in the midst of an enormous LTE buildout that was started a few qtrs ago which would make a pause in Sept highly probable and liekly. Every analog chip maker has been talking about China LTE buildout and the impact it had to sales over the past couple qtrs and the possibility of an inventory correction in 2H14.

    In addition, show us where you found your info about sell-to. From FSL 2013 10K "We also use distributors for a portion of our sales and recognize net sales upon the delivery of our products to the distributors." Sounds like sell to. From NXP 2013 10K "For sales to distributors, revenue is recognized upon sale to the distributor (sell-in accounting)." Sounds like sell-to. Need I go on.
    Oct 10, 2014. 12:25 PM | 4 Likes Like |Link to Comment
  • AMD: Su Hire Shows How The Game Has Changed [View article]
    This assessment totally misses the mark. The stock tanking has nothing to do with her gender. It has to do with the timing. This was unexpected so people read into it and are speculating that this happened today because of a massive disagreement or a massive shortfall in numbers.

    I think this is shortsighted and wrong. If you agree, then this is a good buying opportunity.

    Lisa Su has been pursuing a CEO role for a while. She ran a large and important group at FSL but wasnt in line for the top job and so she left. As Rory said on the call yesterday, this transition was part of the plan from the beginning. And nothing from the tone of the call suggested this was a contentious transition. It lasted an hour and both ex CEO and new CEO shared speaking duties something they have done on earnings call for a while now. If there was more at issue, it would have been a different call. Also, the qtr is over, they know what the numbers are. If they were going to miss badly, they would have announced it and blamed it on Rory
    Oct 9, 2014. 11:48 AM | 3 Likes Like |Link to Comment
  • Nuance: It's All About The Debt Redemption Baby [View article]
    You missed an important point in the Q&A and in the cvt doc that blows your argument out of the water

    The bonds become putable on August 15. With them way out of the money and with a low interest rate, the company is expecting that holders will put the bonds to company. Whatever principal that remains after that transaction, will be called in Sept. So the call is simply a way to clean up whatever bonds that dont get put.

    I personally think a sale is out of the question. First it would be messy. This company really is 4 separate companies that share a technology. Samsung could integrate a lot, but much of what NUAN sells is to competitors of Samsung, so if they were to buy it, it would be to bring the tech in house. They would no doubt lose a significant amount of current customers & rev who didnt want to be buying from Samsung. That means the value to Samsung is less than the value in the market today. But more importantly, if mgmt believes that they are at the beginning of a large ramp in revenue and profits, why sell at the bottom.
    Aug 14, 2014. 10:10 AM | 1 Like Like |Link to Comment
  • One Simple Reason Why AMD Can't Compete [View article]
    I didnt say INTC isnt taking share, I said the share issue in the low end did not drive their Q2 results.

    You countered your own argument and provided claim to mine.

    "There is no evidence that their falling R&D spending is increasing revenues." Not yet. But they have repeatedly said they will announce 1-2 new deals this year and next. IMO, this team has largely underpromised and overdelivered. They have done everything they said they would. Get 40% non PC revs by YE 14. Yes. Maintain $1 bln cash balance. Yes. Generate enough cash to cover the GF WSA fee. Yes. I'll be honest, Rory doesnt instill much confidence in me, but they have done what they have said they would do. And I am betting that they wouldnt tell us about 1-2 wins per year if they didnt have good line of sight to that. The very nature of embedded applications creates a long design in which means they are probably developing the product now but cant tell us about it. They basically said as much on a recent call. They said the customer wont allow them to discuss it until they announce it. Sounds to me like they won that deal. The question remains how much rev it will produce, but its proof that their R&D is leading to new rev streams
    Aug 8, 2014. 10:10 AM | 2 Likes Like |Link to Comment
  • One Simple Reason Why AMD Can't Compete [View article]
    How does that make sense? Thats ridiculous. A company can only spend a portion of their revenue on development. Every dollar has a return on investment and every decision is based on the that return expectation. Absolute dollars are irrelevant. AMD will spend $1 today to presumably get $2 tomorrow. NVDA and INTC will likely do the same. But if AMD only has $10 to spend and NVDA has $15 and INTC $20, there is no way AMD can spend more than $10 or even should. The argument only makes sense if AMD has $15 to spend but chooses to spend $10. Since the rollout of the game consoles in Q3 last year, which corresponded with their restructuring, R&D in absolute dollars in down less than 10% annualized. But if you factor out the game console revenue, which has hardly any R&D spend attached to it, you will see that their spending actually increased for the remaining businesses AS A PERCENT OF SALES.

    Plus you're missing my point. Level of dollars spent does not equal success. Quality of dollars spent does. Im not arguing that the quality of their spend is good or bad, I think that is yet to be determined, but the article implies that less spending equals less revenue and that's simply is not the case.

    Re INTC, Consumer does not equal low end. Yes, consumer as a % of total Intel is up, but nowhere did I read anything about their share of the market especially in the low end. And sure Bay Trail has allowed them to enter new segments but that doesnt say anything except that they didnt have a (competitive) product in that segment before. And it may now be 60% of their low end chips, but why would they design a new chip not sell it. It will naturally take more share of that product class. Nothing in your quote says anything about share gains. It was a lot of numbers that might make you think they gained share. Obviously they gained something, but doubling from presumably zero doesnt suggest massive gains. Again, my point is not that Intel isnt taking share, but that the driver of the Q2 differential was the success Intel had in corporate sales where AMD had zero. You will need to remember this line of thinking in a couple qtrs when AMD says they doubled their sales in the corporate segment.
    Aug 6, 2014. 05:26 PM | Likes Like |Link to Comment
  • One Simple Reason Why AMD Can't Compete [View article]
    I don’t often say this, but here is why you are wrong.

    First, you look at absolute dollars, not percentage of sales. If you were to convert those dollars to % and graph that trend alongside NVDA and INTC over the past 5 years, which I did but can’t figure out how to post the graph in the comment, you would see that AMD and NVDA tracked each other closely regardless of the absolute level. They avg’d about 25% of sales per year until late 2011 when both started trending towards 30%. Since late 2013, AMD has dropped from 30% to 20%. Intel on the other hand, avg’d 15% R&D to sales until 2011 but now is around 20%. Presumably this increase since 2011 corresponds with the development of smaller nodes and the higher costs related to the shrink. But the larger point is that the graph confirms something that everyone who follows these companies should know, which is graphics R&D is more expensive and since AMD’s spend tracked NVDA’s, it suggests that AMD has spent the bulk of their R&D on the graphics side.

    Second, in saying they are slashing R&D, you disregard the fact that a large chunk of their current revenue comes from game console which were developed using shared R&D (NRE). That is why they were able to go from ~30% spending to 20% - Sony and MSFT picked up the tab.

    Finally, even if you look at it on a dollar level, just because they are decreasing dollars doesn’t mean they are spending less on each individual item. Note that their decreased spending corresponded with a new CEO and mgmt team who brought a new focus to the company. So, and this is just my speculation, it is easy to conceive that they previously were spending on a number of items, say 100, and now with a new focused mgmt team, they are spending on 50. The intensity of spend on those 50 probably increases, but the total should still drop. This makes intuitive sense to me and is actually something that I think mgmt should be doing for shareholders. Getting the best return for dollars spent. The old AMD was notorious for over developing and overspending. Maybe this new mgmt team brought some discipline and focus.

    One last thing, the reason why INTC sales were so strong in Q2 was due to a corporate refresh not because they took share in the low end. AMD has almost no presense in the corporate market but is overweighted in the low end. The low end got hammered (down 20%) but the corporate segment grew. Intel may be taking share, but that doesnt accurately describe why their results differed in Q2.
    Aug 6, 2014. 01:56 PM | 2 Likes Like |Link to Comment
  • Good Memory's' Are Over - Micron, Hynix, Inotera, Nanya Tech, Sandisk [View article]
    Anyone who thinks you can compare the memory IC industry and the HDD industry is badly mistaken and you will be sadly surprised when you realize it too late.

    There are definite similarities but the key to the argument is their one major difference and that is that one is a semi company and one is not. Semi companies are ruled by Moore's law, HDDs are not. If you dont shrink your node before your competitors, you are at a disadvantage, so everyone wants to be first or at least on the front end. The problem is, we have reached a point on the cost curve where moving to the next node is highly cost prohibitive. Again, this isn't true for HDDs. On the logic side, only Samsung, Intel, TSMC and GloFo are able to afford it. In memory, its Micron, Toshiba, Samsung and Hynix. The cost to move to the next node now runs in the billions and is increasing at an exponential rate. And with consolidation, there are fewer companies to share that cost. That means per company capex will increase. But then there is the problem of ROI and ROIC. If there are only a couple buyers, suppliers are reluctant to move forward because their cost recovery is extended. This is partly the reason why EUV and 450 mm wafers are not yet here. 450 will be easier to achieve but think about all the investment needed just to switch to equipment that can handle bigger wafers across the entire supply chain.

    Its pretty clear that there is a coming surge in demand for storage of all types in 2017 and beyond. the current capacity cant handle it and the current economics wont support it. Steve Luzco, STX CEO, just said last week that the industry doesn't have the capacity needed for the coming surge and that his company couldn't support it with 6-8% capital intensity or even 28% gross margins. That means prices have to go up. That may seem good from an investor perspective, but the incremental profit will be spent on capex which means any talk of a huge dividend payout is ridiculous. The industry is in a capex trough right now with increasing demand which is why stocks prices are up, but rest assured that this part of the cycle shall too pass and the spending will resume in the not too distant future.
    Jul 25, 2014. 07:01 PM | 2 Likes Like |Link to Comment
  • 3 Likely Benefactors Of The ICD-10 Medical Coding Switchover [View article]
    dgulick got it right on Nuance. This article got it wrong. Nothing irks me more than people on SA who write articles that are just flat out wrong. Regarding Nuance, this article got it flat out wrong. And the article started out so well too.

    Debt is the least of the concerns for Nuance especially when they have relatively low levels of debt in a low rate environment like we have today. What’s more important is the debt service. They have ~$2.5 b of debt which costs them ~$100m per year to service. That’s like a 4% all in cost - pretty cheap for a non-investment grade company. And yes, roughly $500m of their debt is a floating rate bank loan so they are exposed to rising rates, but the rate on the loan is 3M LIBOR +275. 3M Libor is like 25 bps and has actually come down over the last year. Plus 80% of their debt is fixed rate with nearly $1 bln being 2.75% converts. So this articles argument about debt being a concern and NUAN needing to pay it down is ridiculous and shows that the author knows nothing about corporate finance and how to capitalize a business.

    Plus, even after their $100m interest expense, they can generate AT LEAST $300m of FCF which can used for a number of items like invest in new biz dev, expand R&D, return to shareholders or if needed, pay down debt. This seems like a lot of flexibility for the company to what it needs to do.

    The reason that the stock sold off was that investors were concerned about the company's growth trajectory vs prior guidance, not because there was a concern with their debt levels. Take a look at NUAN's chart. You will notice large (~20%) drops after each of the conf calls in 2013 because the company adjusted future guidance each time. Debt levels were flat in 2013 except for the increase in Q1 which was used to fund the JA Thomas acq. This is the very platform that allows them to access the coding mkt and capture growth from ICD 10. As an investor, if you think they can get above WACC growth from the ICD 10 transition but pay below WACC rates (ie ~4%) to do it, it’s huge a win.
    Mar 21, 2014. 04:20 PM | 2 Likes Like |Link to Comment
  • VeriSign: Short Signals Are Flashing [View article]
    I don’t disagree that valuation is in transition, but I take issue with the arguments presented. Take a step back to put into perspective the bigger picture.

    First and foremost, VRSN’s biz is about reconciling web addresses. They are given this job by ICANN which is the international agency overseeing web addresses. Their agreement with ICANN gives them exclusive ownership and the right to sell all .com and .net top level domain names. In exchange for this privilege, the company must maintain a minimum level of service which requires continual investment in a network of hardware and software. As long as they maintain that service, they can continue to sell and manage those TLDs and in essence, maintain a monopoly. We should expect mgmt to continue to do this.

    The reason sales were growing at those levels in 2012 was that both .com and .net could, by virtue of their agreement with ICANN, increase prices charged for domain names on average 7-10% a year. In 2013, the renewal of their .com agreement prohibited them from any further price increases. This removed a major growth driver since the bulk of their biz is .com names.

    That means growth going fwd will be limited. It will only come from unit increases in .com which is 1-3% per year, unit increases + price increases in .net plus growth in their services biz along with any new TLDs they win. Combining these sources means growth will be in the mid single digit range vs the double digit ranges seen previously.

    By the way, none of this is new to investors. Mgmt has been talking about this for over a year. So if you didn’t expect lower sales starting in 2H13, you weren’t paying attention.

    So what has mgmt done to address this? First, they issued new debt with the sole purpose of increasing EPS accomplished in two ways - buying back shares and getting a tax shield. Second, they recently announced a transaction that will allow them to repatriate a significant portion of their intl cash in a tax free manner. They havent yet said what they will do with the cash, but its a safe bet to assume they buy back more shares thus increasing EPS further.

    I dont deny that this is a gimmick but it is a known gimmick. None of what is happening with this company is a surprise. As an investor, that makes me happy and comfortable investing in the stock. It wont be a growth stock but with huge margins, a stable cost structure and thus stable cash flows, a new investor should assume the company will continue to return that cash to shareholders.

    This company has essentially gone from a growth stock to a value stock. The question is what price to apply to the new value stock.
    Mar 12, 2014. 02:29 PM | 2 Likes Like |Link to Comment