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Mr Spacely

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  • 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 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 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 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 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 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 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 02:29 PM | 2 Likes Like |Link to Comment
  • Low-Priced Stocks To Avoid: Round 9 [View article]
    Amen! I understand that this article is specified for (conservative) long term investors but if that is your investing style, then none of the stocks mentioned, either the ones to avoid or the supposed good comps, should be in your portfolio. These are tech stocks. Most are tied to consumers. Add those two together and you get 2x the volatility. Because of these factors, these should never be buy and hold stocks. But that doesn't mean an investor with a shorter horizon couldn't make money in these. In fact, professional investors love volatility because it creates opportunities to make outsize returns.

    None of these three stocks are blue chips, that goes without saying, so there is a higher degree of risk. That can be seen in the numbers above. AMD's trouble are due to the fact that they are largely tied to PCs and the introduction of tablets and larger phones has decimated the PC market. Intel, considered by many to be a blue chip, is in no different a situation. They may have more money to manage through it but they have the same negative trend impacting them. FLEX's volatility is tied to the fact that they are an assembler of hardware, much of it consumer, that goes through cycles. Imagine being the builder for the MOT Razr in 2005. You looked pretty good. Today you look like a clown.

    The real issue with these names is that they are all in transition. In the financial world, they are called special situations. These types of stocks require a significant amount of work before the purchase decision is made. If you are a conservative long term investor and don't want to do the work or don't know how, then stay away. But being a long term conservative investor doesn't mean you shouldn't do the work because if you do, you can be handsomely rewarded.
    Feb 27 11:54 AM | Likes Like |Link to Comment
  • Exide's Recent Price Collapse Was Unjustified [View article]
    @AInvestor, first thing, they said they will continue to operate, so Chap 7 is not an option. Second, at this point shareholder equity is a useless measure. Quite frankly, shareholder's equity is pretty much always a useless measure. You need to mark their assets to market. If you do that their net assets would be well below the stated $1.9 bln. Their market cap is ~16m which represents nothing more than option value that the judge might throw a bone to current equity holders. Unfortunately for equity holders, years of bankruptcy law precendence suggests that wont happen.

    The issue is liquidity. With LTM EBITDA of just 105m and NTM expected to be the same, they cant generate enough cash to fund the business and pay all their debts. If you are generous and give them a 6x multiple, that suggests the value of the biz is just over $600m. They have $170 in ABL debt, 675m in secured notes, 51.9m in cvts and just over 100m in general unsecured claims. As you can see, if the company is worth only $600m then the fulcrum security is the secured notes and they will recieve the lionshare of the reorg equity. The cvts will get a small recovery, think 5-15c, and the current equity holders will most likely be wiped out.
    Jun 11 09:53 AM | 2 Likes Like |Link to Comment
  • How Seagate Will Maintain Gross Margins And Continue To Trade Higher [View article]
    Great article and kudos for being one of the only people on SA (or even the Street) to acutally point out the relevant factors for investing in the storage drive industry.

    I have said these things many times in my comments to other articles about STX (or at least wanted to many times but often I didnt actually hit the Publish button). So many people missed this. I bought the stock at $16, before the Thai floods, on the belief that consolidation would lead to more rational (and higher) pricing. So far, I have more than doubled my initial investment and currently have a 9.5% div yield on my original cost basis.

    You're spot on with SSD as well. As has been pointed out many times on SA and elsewhere, there is simply not enough current SSD manufacturing capacity to create the storage capacity needed to fully replace HDD. That would probably need something on the order of $100 billion investment in facilities which is not going to happen next week. Until the time when those facilities are built, Seagate (and WD) will continue to print cash and buy back shares or increase their div or when needed, buy the capability of the smaller SSD players.

    One other thing, don't listen to the Street on these guys either. The sell-side equity machine is geared for high growth industries. The Street does not view disk drives as high growth. They view them as a melting ice cube. They have been wrong and will continue to be wrong.
    Jun 4 10:29 AM | 2 Likes Like |Link to Comment
  • OCZ: It Burned Me - Don't Let It Burn You [View article]
    Congratulations Ashraf. Your bio says you have degrees in Mathematics and Computer Science. It is safe to say that you have now earned your degree in finance and investments and Im guessing (hoping) it was cheaper than an MBA.

    Many of the items you highlight are included in the CFA materials in the quality of earnings section as red flags for earnings quality. But in the end it comes down to one thing - cash flow. You can't really game the cash number on a balance sheet and if its dropping while revs are increasing you need to seriously question what the company is doing.

    I praise your effort to highlight your mistakes. Many would be too proud to do so. And you provided pertinent lessons for all investors to heed. Again congratulations and thanks for the post.
    Feb 14 11:03 AM | Likes Like |Link to Comment
  • Is High Yield Overvalued? [View article]
    The time to invest in HYBs was Dec 2009. Not to brag, but that is exactly what I did in my 401k. I took HY from a 7% weight to 15%.

    I am now selling my overweight position down to a normal weight because the past 4 years of double digit returns are over and expected return is now only coupon at best. If you want to buy HYBs today, please let me know because I will gladly sell you mine.

    If you havent done so already, buy stocks, although I also bought stocks in Dec 2009 and have had a doubling of my money since. However, there is still room to go on stocks.

    BTW, the reason retail investors get burned is not because of Wall Street or some conspiracy theory, its because they are uneducated, dumb some might say. They will buy HY now because they see 4 years of great returns which is exactly the wrong time. Now is the time to buy the asset class that has had 4 years of low returns. Mean reversion and proper asset allocation are two of the most dominant (successful) themes in investing since the dawn of investing.

    Happy investing!
    Jan 11 01:01 PM | 1 Like Like |Link to Comment
  • The Network Effect: Why Apple's iOS Will Win The Platform War Over Google's Android [View article]
    @jsweiter,

    I completely disagree about your view of Apple. I just recently got an iPad but for nearly the past 2 yrs I have had Android phone. The first thing I noticed about apps on the iTunes store was that all the reviews for competitor apps like Amazon, Dropbox, Google Drive, Youtube, Chrome, SkyDrive, Adobe, etc etc, got negative comments because they seem to be so buggy. That’s peculiar since I can run any of these apps flawlessly on my Android phone, but oddly enough, they have problems on Apple's system. And all the comments are directed at the programmers of the apps. How can this be? Do Google or Amazon engineers not know how to create a good app on iOS? Is there some magical talent that only Apple’s non-competitor engineers and programmers have? My personal opinion is that Apple deliberately makes it difficult for major competitor’s products to run on their platform so that users are forced to accept only what Apple provides. You seem to think that all consumers should be happy about this because Apple has a superior platform, but I think iOS is shit. The Android OS is much better.

    Here are some very simple examples. The keyboard on the iPad requires me to toggle to another screen to access commonly used items like an apostrophe or an exclamation point instead of allowing me to long press a key. And when I click a box in a form that could only be filled with a number, Android brings up the number keyboard because it knows you can only use a number whereas iOS brings up the letter keyboard which requires an extra step to get to the numbers. These may seem trivial but for those who only use Apple and swear by it, they don’t realize that they are being shortchanged. They get caught up in the hype and perceived status of that half eaten apple on their package.

    And finally, there may be plenty of people who are perfectly happy having Apple control all their devices and content, but I am not one of them and I know many people who stop buying Apple devices after their 2nd because they don’t want to be completely tied to Apple’s platform. So while yes, Apple will continue to take its 35-40% share because it is a competitive platform, I don’t see it every growing more than that. In fact, it’s exactly the opposite, the fact that its open, that Android will remain the OS of choice for many more people.
    Jan 11 12:09 PM | 5 Likes Like |Link to Comment
  • Taking A Longer Look At Apple's Secret Hedge Fund [View article]
    This article as well as Zero Hedge’s is pure sensationalism. Does anyone on here have any actual investment experience? Judging from the general quality of comments I would guess not. All the necessary information is given in the 10K.

    First of all, according to GAAP, in order to be included as cash and cash equivalents, these investments have to be liquid and of a short duration. According to the 10K, “All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.” GAAP states that to be included in current assets it has to be less than 1 year. This includes the short term marketable securities. Together with cash, these comprise $29 bln or nearly 1/4 of the total. The balance of the cash hoard, $92 bln, is in long term marketable securities. These are longer than a year but I would guess still not much longer than a year or two. And while I don’t deny that there are some equities included in the corporate bucket, why assume they are all equities? My first guess would be that they were investment grade debt with maybe some preferreds and a slug of high yield for extra juice. And if there are equities, they are probably low vol, div paying stocks.

    That means that this fund of ~$120 bln is basically a money market fund that moved out the credit curve as evidenced by the addition of MBS in last year. This idea is somewhat confirmed by the “Return on YE Total Cash” of 74 bps in my calcs below which uses the unrealized G/L from the statement of shareholders equity divided by the prior year end balance of $81 b. This isn’t clean because the unrealized G/L is for one point in time and the base is probably not the prior year end total cash and marketable securities, but it’s the best I can do with the data given. Plus the prior three years unrealized G/L has been 123m, -41m and 601m, none of which are large numbers. From the K, “The Company’s marketable debt and equity securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders’ equity.” This suggest that the marketable securities are short term in nature and don’t produce much in the way of gains. Additionally, if you follow the cash, you see that in 2012 they generated “excess cash” of about 39.4 bln, most of which they used to buy more securities, but the increase in total cash and investments was 39.68 bln. So, over the course of the year the additional 39.4 grew to 39.68 or 70 bps.

    If you look in the 10K, all investments are either Level 1 or Level 2 meaning that they are relatively liquid and easily priced. That would exclude private equity, credit default swaps, distressed debt, certain commodities and other hard assets and just about any other esoteric asset class which are generally the ones used by hedge funds.
    2011 2012
    From B/S
    Cash 9.815 10.746
    STI 16.137 18.383
    LTI 55.618 92.122

    Total 81.57 121.251
    diff 39.681

    From SOCF (Investing)
    Purchase -151.232
    Mats 13.035
    Sales 99.77
    Net Purchases -38.427

    From SOSE
    unrealized G/L on
    marketable securities 0.601

    Return on YE Total Cash 0.74%

    Follow the cash
    Cash From Ops 50.856
    Capex -9.402
    Acqs -0.35
    Divs -2.488
    Net share activity 0.79
    Excess cash 39.406
    Net investment purchases -38.427
    Diff 0.979


    What does this all mean? It means that this is in no way a hedge fund. It invests in plain vanilla, easy to value, easy to sell securities which is what it should do because that is prudent financial mgmt. Apple is not a hedge fund and if it were engaging in such activities, shareholders would/should be raising hell.

    The bigger issue, to which some have already alluded, is that Apple chooses to keep $120 bln in assets yielding probably not much more than 1%. This would suggest that they have no better options for this money and that they are too stubborn to return it to shareholders. If I were an Apple shareholder, I would be making a lot of noise about returning this cash.
    Jan 9 03:44 PM | Likes Like |Link to Comment
  • Taking A Longer Look At Apple's Secret Hedge Fund [View article]
    @Ben. I'd like to know where you got that tidbit of info or if you are being facetious. My friend is an elementary school teacher and wanted iPads for all his students. He teaches in the city and so getting a $700 iPad for a lower income student is difficult if not impossible. So he went to Apple to ask if they would help with a discount. Fat chance. Apple charged full price and wouldnt budge. In the end, he had to write a grant to a charitable organization that funded his purchase of 30 iPads at full price. This from a company that is sitting on over $100 BILLION in excess cash.
    Jan 8 11:56 AM | Likes Like |Link to Comment
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