- Battle of the Steves redux: Microsoft targets VMware
- Microsoft's mobile mistake
- Can Apple's iPhone success be sustained like the Mac's?
- Apple shines, while Intel gives itself a black eye
- Apple Looks Tasty @ $200 a share
- Tech Stocks to Own in a Downturn
- Time to Wash Your Hands of Palm?
- Sell, sell Dell, says Wall Street
- Don't Get Caught in the Stampede
- Rational exuberance
July 10, 2008 | Comments: (0)
Battle of the Steves redux: Microsoft targets VMware
Here's an irony: With Windows XP's expiration date now 10 days past, you'd think Microsoft could take a deep breath, wipe the sweat off its brow, and enjoy some relative peace and quiet. Wrong. The software giant launched its Vista Compatibility Center this week -- and promptly fell on its face when the site was down for a whole day.
Apple, meanwhile, is about to stock the shelves with the iPhone 3G, and while it won't spark the excitement of the original, it's still precipitating plenty of buzz and, no doubt, lines at the stores.
But on another front, when EMC's VMware subsidiary gave CEO and co-founder Diane Greene the boot this week, it was an implicit affirmation that Microsoft (and other players) are undermining the VMware's grip on the virtualization market.
Moreover, it's a good time to remember that Microsoft, for all its shortcomings, still beats the pants off Apple in the market for operating systems. Don't go ballistic on me, please. I'm not implying that Vista is better than Leopard -- merely that it is ubiquitous, while Apple's OS is still a niche product.
Slow and slower drives us crazy
Even if the Vista Compatibility Center hadn't suffered an embarrassing crash, it would still be, well, embarrassing. After 18 months of life, you'd think an operating system's shakedown period would be long over. Hell, Apple launches a new rev of OS X every 18 months or so.
To be fair, Vista and the technology industry are finally closer to being on the same page. Back in May, Microsoft said "there are 240 percent more devices and components supported on Windows Vista today than at launch and there are more than 2,700 Windows Vista logo applications available today." There was more to it, but you get the idea.
Yeah, that's good thing, but again, what took so long? Given that Microsoft has something like a 90 percent market share, and yes, it's a government-certified monopoly, why not use that power before a new OS launches, instead of waiting and causing innumerable user headaches?
It's true that OS X has gained share. Last month, it accounted for 7.94 percent of the operating systems powering computers that accessed the 40,000 Web sites monitored by Net Applications for its clients. A year ago, Mac OS X's usage share stood at 6.03 percent.
A significant gain? Sure. But let's put that in perspective courtesy of "Baboo," of São Paulo, who posted this telling comment on Fortune's Web site after Axel Springer, one of Europe's largest newspaper publishers, announced it was moving 10,000 users from Windows PCs to Macs:
"Microsoft sold 150 million Vista licenses in 15 months = 10 million per month = 333,000 per day = 13,880 per hour.
10,000 new Macs in 5 years = 10,000 new Vistas in 43 minutes
If they're switching 1 million Macs = 3 days of Windows Vista
If they're switching 10 millionMacs = 30 days of Windows Vista."
Nothing like a little math for a reality check.
VMware's loss is Microsoft's gain
I don't have the numbers to do a similar calculation for market share in the virtualization market, but I'm sure VMware still has a substantial lead over both Microsoft and Citxix/Xen. And you could certainly argue that it still has a significant technology lead. However, it's becoming very clear that businesses have gotten the message that VMware is not the only game in town.
The precipitating event for Greene's ouster was a projected shortfall in sales. The company warned, for the second time in about six months, that it would not meet 2008 revenue goals. It appears, though, that EMC, which owns most of VMware, had been unhappy with her performance for some time. It was no accident that Paul Maritz, the former No. 3 exec at Microsoft, was appointed VMware CEO the same day Greene left. The move was a done deal some time ago. Joe Tucci, EMC's CEO, is a hardheaded guy, and he must have been appalled at the disastrous fall in the value of his investment in VMware.
Maritz, of course, certainly knows how to compete with Microsoft. And I suspect he'll be the proverbial adult supervision VMware needs. Still, the company has lost a good deal of momentum, and for now, it's score one for Microsoft.
(Disclosure: I hold shares in all of the companies mentioned in this story, with the exception of Citrix.)
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on July 10, 2008 03:00 AM
February 14, 2008 | Comments: (0)
Buying Danger won't make Microsoft competitive with Apple and RIM in the phone zone
By the standards of its $45 billion offer for Yahoo, Microsoft could have found the $500 million it is rumored to have paid Danger in Steve Ballmer's couch.
With no disrespect to the smart folks at the innovative Danger, a decade-old developer of a Java-based "hiptop" operating environment used in the T-Mobile Sidekick and other devices, Microsoft's return on the investment will probably be commensurate with what it spent: not much.
By that, I mean Danger isn't likely to help Microsoft gain much traction in the mobile phone market against the likes of Apple and Research in Motion. "What they are doing, what the advantage is, is just not obvious," Ken Dulaney, vice president of mobile computing at Gartner, told me.
In the enterprise software world, big players such as Oracle acquire companies that have a large installed base and a fast-flowing stream of revenue. In this world, intellectual property is everything, and to a large extent, that means the developers and other brainy folks. Given that everyone expected Danger to go public, those employees had lots of reason to stick around. Now they don't.
Dulaney wonders how many key employees will stay with the new owner. He notes the Danger culture is one of opposition to Microsoft. Some of its developers have roots at the old General Magic, a mid-1990s Apple spin-off that lived to fight the Redmond giant. At this point, why not join Danger co-founder Andy Rubin at Google?
Whether or not the employees jump ship -- or especially if they do -- it's not clear what Microsoft is actually buying from Danger.
What would Microsoft do with the Danger OS?
Maybe Microsoft wants to use the Danger OS as part of the next iteration of the not-so-great Windows Mobile. Given that the Danger OS is Java-based, it doesn't seem likely that Microsoft would take the huge leap required to make it a foundation for a new Windows Mobile.
Perhaps Microsoft would want to move some of the good features of the OS (such as parts of the UI) to the next version of Windows Mobile, which Dulaney thinks is due in 2009. Given the wide differences in the environments, it would not happen quickly or easily. "It might have been cheaper just to hire the developers," he said.
Microsoft is "not going to throw away" Danger's UI expertise, Microsoft Mobile group product manager John Starkweather said during a press conference. But he wasn't more specific than that.
Does Microsoft see something we don't?
His boss Robbie Bach made some references to Danger as a "services" company. "When you actually dig into what they [Danger] do, the vast majority is actually about the social networking and communications services they provide on top of those devices. That's where we'll expand what they do," Bach said.
I have no idea what Bach means. I thought Danger was in the business of developing software for mobile phones and the like. That's what it's done to date, after all.
Does Microsoft want to expand into phone hardware?
Or maybe Microsoft wants to sell the hardware in the same way it sells mice and keyboards. Bad idea, and Microsoft probably knows better than to compete with its Windows Mobile device partners.
I have trouble seeing the advantage here -- and so does Dulaney, who has been around the mobile world a long time.
Microsoft's incentive: Windows Mobile isn't doing well
Despite the lack of clarity on what Microsoft is hoping to get from Danger, it's obvious why Microsoft is looking for help with its mobile business. After six iterations, Windows Mobile is not at all a success.
Research firm Canalys reported last week that Apple took a 28 percent share of the U.S. converged-device market (smartphones and connected PDAs) in the last quarter of 2007. RIM was in first place with a 41 percent share. Adding up the share of all Windows Mobile device vendors gives Microsoft 21 percent, with Palm at 9 percent.
At first blush, that 21 percent sales figure sounds decent. But it turns out that those consumers who do buy a Microsoft-based smartphone are returning them in droves, never a good sign. David DeJean, who blogs at our sister site Computerworld.com, saw a press release from Opinion Research Corporation, which said (and I'll quote directly, because as DeJean points out, the wording is interesting),"Smartphones [excluding iPhone and RIM BlackBerry] were the most returned electronic technology products of the holiday season, with slightly more than one-fifth (21 percent) of smartphone buyers returning their purchase to the retailer." Right. We know who that leaves.
There you have it. Microsoft is way behind Apple and RIM, so it makes a not-too-expensive buy of an innovative company. But how do these players fit together? What value does Danger really add to Microsoft, since even retaining the programmers is not certain?
The more I think about it, the more it irks me, both as a commentator and a (very small) Microsoft shareholder. We all know that Microsoft is racing to catch up with a raft of nimbler competitors as the desktop becomes less significant to the computing world. It's probably not a lot of money, but it could be a distraction -- and even chump change should be spent well.
I welcome your comments, tips, and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on February 14, 2008 03:00 AM
January 31, 2008 | Comments: (0)
Can Apple's iPhone success be sustained like the Mac's?
iPhones, iPods, iTunes -- sometimes it's hard to remember that Apple makes a product that doesn't start with the letter "i." But Apple does, and it's a personal computer.
This is a good week to remember that fact. While Wall Street analysts have been hunting the "lost" 2 million iPhones with the fervor of a CIA operative on the trail of WMDs, Apple continues to wield a weapon of its own: Leopard. And that weapon is actually increasing Mac sales relative to PC sales at an accelerating rate.
Since it debuted to rave reviews late last year, the new Mac operating system has been driving a surprisingly large gain in market share for Apple, and (less surprisingly) has blown away Microsoft's Windows Vista in surveys of consumer satisfaction.
The good news (from Apple's point of view) about Mac sales and the bad news about unlocked iPhones aren't directly related, of course. But they illustrate a number of key strengths -- and weaknesses -- inherent in Apple's business model.
Apple can do whatever it wants with the Mac platform, and when it does it very well, as it has with recent Mac PCs and the Leopard OS, the company wins big. But it doesn't have that same freedom on the iPhone -- its dependence on partnerships with AT&T and other carriers means it has to accommodate some of their concerns, perhaps to the iPhone's ultimate detriment. That fear is what's behind the "lost iPhones" dilemma.
Why the "lost iPhones" question matters
The case of the missing iPhones boils down to this: Apple reported selling about 4 million iPhones through mid-January. But its U.S. carrier partner, AT&T, says it has activated only about half that number.
The discrepancy raises a number of possibilities. The early take of a number of analysts was dire: Apple, they thought, was carrying a huge load of inventory.
Bernstein Research analyst Toni Sacconaghi was apparently the first to spot the problem. Using a sales figure of 3.7 million phones (he wasn't counting January sales), Sacconaghi figured there were about 1.4 million phones unaccounted for, after factoring in European sales by Orange and T-Mobile.
He then estimated that approximately 15 to 20 percent of those phones were sold to people who hacked them for use with an unauthorized carrier. That seemed like a reasonable number since Apple itself had estimated that 18 percent of the phones it sold in the previous were unlocked by users. If these assumptions were true, it means that 670,000 to 850,000 iPhones were languishing in inventory.
That kind of inventory glut is not only bad in and of itself (inventory costs real money to carry), but it would also indicate that sales to end-users were lagging badly. Not everyone agreed with Sacconaghi's thesis, but since his opinions have a lot of weight on Wall Street, investors were worried.
Earlier this week, Sacconaghi and RBC Capital's Mike Abramsky did some more research, and both concluded that the number of unlocked phones was much higher (25 to 30 percent) than they'd originally estimated, meaning that there were far fewer in inventory. Apple, by the way, has not given an estimate for the number of phones hacked in the fourth quarter.
Sacconaghi believes -- and I agree -- that the unlocked phones are a problem because they rob Apple of significant carrier revenue, and may make it harder to sign up other carriers in the future. Abramsky, on the other hand, figures that the high number of hacked phones indicates strong demand in places outside AT&T's data coverage area, and bodes well for future sales. In either case, the higher number of unlocked iPhones means that Apple is carrying less inventory than feared.
Apple's control strategy is risky for devices
We'll see how this plays out, but there's a deeper issue here for Apple. The Cupertino, Calif., company long ago made a decision that it would control the Mac platform from top to bottom. IBM, on the other hand, decided that the PC platform would be open.
As a result, cloners of the original PC were legion, and the resulting economies of scale helped make the platform ubiquitous. It also gave rise to scores of frustrating incompatibilities as disparate vendors implemented the hardware and software very differently.
Apple users, of course, coped with far fewer glitches since the platform was controlled by one company. The price for a better user experience: higher costs and a limited market.
Now Apple is deeply involved in mobile digital devices, including wireless phones. And that's a realm it can't control. So it gains scale by partnering with AT&T, and presumably other carriers in the future. The price: hackers using the hardware in ways Apple never envisioned.
Why Apple's strategy may work despite the risks
I've never believed in the "halo" theory that users like iPods and other gadgets so much, they'll migrate to the Mac. But Leopard is proving that a good OS (helped by a competing "bad" OS) can make a world of difference. Fair or not, Microsoft's new OS is getting terrible press; indeed InfoWorld's campaign to save XP has struck a major chord in the IT community.
What matters in all this OS brouhaha is what paying customers think; to that end, it appears that Apple's strategy of a controlled, high-quality platform is succeeding. In a recent survey by ChangeWave, which conducts periodic consumer polls, more than 8o percent of Apple buyers say they are "very satisfied" with Leopard. This compares to 53 percent for Windows XP Home and 51 percent for XP Pro -- and just 27 percent for Windows Vista Home Premium and 15 percent for Vista Home Basic systems.
The same survey looked at PC purchases during the holiday season. Apple's share of laptop sales jumped 3 points between November and January to 17 percent, while the company's desktop sales jumped 6 points to 16 percent. You've got to believe Leopard is making a huge difference.
There you have it. Apple's PC brand is built on a platform it controls. The iPhone is part of a new world order in which more than one player has a major impact on the outcome. Neither fact is going to change, and Apple will continue to reap the rewards -- and the penalties.
Posted by Bill Snyder on January 31, 2008 03:00 AM
January 10, 2008 | Comments: (0)
Apple shines, while Intel gives itself a black eye
What's in a brand? Technology, of course, and a pleasing public face. Few companies are as adept at blending those ingredients as Apple and Intel. But this week, the two Silicon Valley heavyweights were a study in contrasts as Apple made an exceptionally smart PR move, while Intel gave itself an ugly black eye.
Apple shines with a smart "think pink" move
In a week when gender issues highlighted the presidential campaign, Apple garnered a basketful of good press when it named Andrea Jung to its board of directors. Of course, one could say it's about time, since Jung is, amazingly enough, only the second woman (astronaut Sally Ride was first) to sit on the company's board. Still, with Macworld Expo just around the corner, it's a good time to generate favorable publicity.
Gender and PR issues aside, the move makes enormous business sense as well. Jung is the CEO of Avon, and she obviously knows more than a little bit about marketing to women. Moreover, she also sits on the board of GE, the parent company of NBC Universal, which has been scuffling with Apple over the pricing of digital downloads.
Technology marketing has always been wildly skewed toward men. While that may have made some sense when home electronics meant only stereos and TVs, and when computers had few uses outside the office or the hands of hobbyists, it's unreasonable to assume at all today.
The electronics industry some time ago learned that young people, as in teenagers, have enormous buying power, and so it began to market to them accordingly. But the lesson that women -- more than half the population -- control big chunks of a family's discretionary spending (not to mention the legions of well-paid single, career women with their own incomes) hasn't altogether sunk in. Indeed, even today, trade-show booth babes are not extinct.
Barbara Krasnoff, who writes for our sister publication Computerworld, points out that tech companies seem to believe that making a device pink (literally) will convince women to buy it. Sorry. Women with an interest in technology are too smart to go for silly "targeted" ploys. Have you seen many homes with recipe computers in the kitchen or electronic inventory control devices on refrigerators? Yet that's what too many electronics companies think that's what women want.
The issue becomes even more important in a period when consumer spending is likely to slow along with the economy. Already faced with increased competition from Microsoft (as in Zune), SanDisk (as in Sansa), and other vendors, Apple needs to find new customers. My take: Jung is the right person at the right time.
Intel dons "kick me" sign
Meanwhile, what was Intel thinking when it pulled out of the One Laptop Per Child coalition?
Sure, sales of the supercheap PC for third-world kids have not met expectations, and there may have been some legitimate business issues on the table. But talk about a bozo PR move. Intel already is seen in many quarters as a predatory bully. Now the giant chipmaker is taking candy from babies, as it were.
It's the kind of blunder that won't show up on the income statement. However, companies that make themselves disliked are easier targets when antitrust issues rear their heads. Enemies have a way of getting back at you by whispering in the ears of regulators, and politicians -- particularly in Europe -- are sensitive to their constituents' dislike of private-sector companies that appear monopolistic.
And customers note this sort of behavior as well. Any one such action may not turn off buyers, but several begin to switch opinion around and open the door for customers to consider an alternative. Microsoft's bad behavior has motivated a small, but growing, set of consumers to move to Linux; Intel's bad behavior could open a door to AMD. And wouldn't that be ironic, since one of the reasons Intel pulled the plug on the OLPC effort was because of AMD's presence in the box? Behave, children.
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on January 10, 2008 03:00 AM
December 26, 2007 | Comments: (0)
Apple Looks Tasty @ $200 a share
Whoa. Shares of Apple broke the $200 barrier for the first time Wednesday as holiday shoppers continue to snap up huge quantities of electronic goodies.
It’s been a great year for the Cupertino-based company; Apple introduced a new version of its operating system this year, refreshed its hot-selling iPod line and launched the iPhone. When trading opened on Jan. 3 of 2007, shares of Apple were selling for $86.29. Shortly before the close of trading on Wednesday, the stock was selling for $199.70, after retreating a bit from its record high of $200.96.
The company's notebooks ranked among the top-selling computers at Amazon.com during the Christmas shopping season, an important signal as iPod sales begin to flatten out.
In Apple's most recent quarter, a 34% increase in Mac unit shipments over last year yielded a 40% boost in computer sales and generated half the company's total revenue. IPod sales, by contrast, grew just 4% and accounted for 26% of total sales.
And speaking of Amazon, the giant online retailer announced that the 2007 holiday season was its best ever. Dec. 10 was Amazon’s busiest day as customers ordered more than 5.4 million items. Top sellers for the season included the Garmin GPS, Canon PowerShot digital cameras, Samsung LCD HDTVs, Apple MacBooks and HP Pavilion notebooks.
(Disclosure: I have a small position in Apple.)
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on December 26, 2007 12:42 PM
December 13, 2007 | Comments: (0)
Tech Stocks to Own in a Downturn
It's been a Maalox, or maybe even a Xanax, couple of months. Investors have been whipsawed by market tumbles sparked by the still out-of-control mortgage mess interspersed with tantalizing rallies. It's not going to get calmer anytime soon. Many investors are moving money into money market funds or CDs to preserve capital while they wait for the market to settle.
In times like this you'll hear the phrase "flight to quality" and it's an important one. There are still plenty of tech stocks that provide opportunities for growth as well as safety. Picking stocks is very difficult in the best of times. So I'm going to present the thinking of a Wall Street team that has a solid record, a reputation for clear thinking and integrity.
Tech stocks to consider in bad times: Apple, Cisco, IBM, Microsoft, Oracle, Paychex, SAP, Thermo Fisher Scientific, and Xerox.
Tech stocks to avoid in a downturn. Alcatel-Lucent, AMD, Lam Research, National Semiconductor, and SanDisk.
(Note: The above is only a partial list.)
Here’s how the Sanford Bernstein team came to that conclusion:
Earlier this month, three senior analysts at Bernstein -- Richard Keiser, Vadim Zlotnikov, and Denis Smirnov -- examined the characteristics of sectors and stocks that outperformed during prior periods of slowing growth, poor performance by the technology sector, or both.
"Not surprisingly, companies with historically low capital intensity, stable business models, and pricing power or product cycles, outperformed. From a sector perspective this strongly favored software and services, while semiconductors and storage generally underperformed," they wrote.
Just to be clear: The analysts are not saying that all software stocks will do well, and all storage and chip stocks will do badly.
Another important factor to look for (and probably to avoid unless you have strong nerves) is high volatility, known on Wall Street as "beta." Simply put, high beta stocks are more volatile than the market as a whole. A high-beta stock may well move up faster than other stocks on a good day, but it will tend to drop faster on a poor one.
Companies with historically stable business models, a high return on equity, sales stability, strong profitability and low beta include: Oracle, SAP, Xerox, and Paychex. You're well acquainted with the first three, of course, but may not have heard of Paychex, which provides payroll, human resources, and benefits outsourcing services for the SMB market.
Companies that are not only stable but have significant pricing power in their sectors, and product cycles strong enough to power through a downturn include Apple, Cisco, Electronic Arts, and Microsoft. (The report was written before Vivendi announced that it would take a majority stake in rival Activision, which could change the game for ERTS by creating a larger, powerful rival.)
You may have noticed Thermo Fisher Scientific and wondered what the heck it is. I did. Turns out that TMO (its ticker) is a supplier of instruments and software to be used for testing athletes for banned performance-enhancing substances at the 2008 Olympic Games in Beijing. Last year it earned 85 cents a share on sales of $3.8 billion, and has a market valuation of $24 billion.
About the "bad" list. Those companies aren't necessarily bad investments. But they have a history of performing badly during an economic downturn. At other times, they may well be worth considering. And please remember that stocks that have done well in previous downturns could have serious problems this time around.
I don't necessarily agree with all of the picks by the Bernstein team, but their report is a great starting point.
Good luck, and to quote Douglas Adams, "Don’t Panic."
Disclosure: My portfolio includes Apple, Cisco, and Microsoft. I never, ever, short stocks, so anything negative here is unrelated to my own investments.
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on December 13, 2007 03:00 AM
December 10, 2007 | Comments: (0)
Time to Wash Your Hands of Palm?
Palm is one of those companies I always root for because I’ve happily used its products for years and I admire its pioneering spirit and history. But that’s not reason enough to like the stock, and the developments of the last few days paint a dismal picture.
UBS analyst Maynard Um on Monday dropped his rating to sell and chopped his price target nearly in half to $5 a share. That follows Thursday’s announcement by the company that it has blown its second-quarter. Read, ‘em, as they, say and weep, if you own Palm, that is: Palm will post a net loss of 8 cents to 10 cents a share, compared to the 4 cent-profit expected by Wall Street. Sales will come in at $345 million to $350 million, compared to the guidance of $380 million issued when the company announced first-quarter results in early October.
Palm also said it was disappointed that it didn’t get certification on a new product, probably a handset for Verizon, although that’s not confirmed. What else could go wrong? Oh yeah, warranty repairs are up. And in one of those twists that sometimes baffle people who don’t follow the industry closely, the company said sales of the Centro are better than expected; but that’s bad news because the low-priced smart phone hurts the margin mix.
Longer term, Palm is getting its butt kicked by Apples’s iPhone and RIM’s Blackberry. It's not at all clear what it can do to regain some momentum in the marketplace. If I were an IT pro, I’d worry that the company is going to be taken out, making enterprise support that much more difficult.
As you’d imagine the stock is really getting hit. It’s off another 2.5% today to $5.60 a share, and has now lost 15% of its value since Thursday. Indeed, the stock has been this low since 2004.
My heart says, “Go, Palm,” but my investor’s brain says it may be time to wash your hands of Palm.
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on December 10, 2007 12:10 PM
November 30, 2007 | Comments: (0)
Sell, sell Dell, says Wall Street
I have to admit I have a bit of a soft spot in my heart for Dell. It was the first major tech company I covered in a serious way, and I learned a lot about the industry from Dell execs and yes, pr folks. Moreover, I used to love their products and was happy to buy them and recommend them to my friends.
Not any more. Dell has really lost its way, and so far, the return of Michael Dell to the CEO’s chair hasn’t made a big difference. Thursday’s results were very disappointing. Not only because the company missed Wall Street’s expectations by a bit, but because the results show that a company that used to be synonymous with “execution,” is having trouble putting one foot in front of the other.
OK, that’s a little harsh, but I was very surprised to hear what ATR analyst Shaw Wu said about the gross margin miss (18.5% vs the expected 19.1%) that occurred despite a shift to higher margin notebooks: "We find this odd as (Apple) and HP experienced the opposite and our own supply chain checks indicate otherwise. Moreover, Dell's (average selling prices) were flat to up, indicating pricing pressure wasn't a big issue," he wrote.
Shaw said "poor procurement execution" was the main reason for the weak margins. "It is interesting to note that Dell's costs may actually now be higher than HP and Apple, something that was unthinkable not that long ago," he wrote in a note to clients.
Think about that. The company that perfected supply chain management can’t handle procurement as well as H-P or Apple. Yikes.
And that follows a year filled with problems, such as the huge battery recall a while back, not to mention evidence of deterioration in quality control and customer service. And don't forget the big accounting mess. I know Dell has been working hard to fix the customer service problems, but the glitches have really turned off a lot of Dell loyalists, including my family, which had motherboards in two not-so-old Dell machines fail this year. When I took my PC into a shop for an eval, the owner said he had seen at least four or five dead power supplies in Dell Dimensions in just one month. Coincidence? I’d give the company the benefit of the doubt, if there weren’t so many well-documented tales in the consumer mags and around the Web.
So now, I’m writing this post on an H-P Pavillion notebook which has performed flawlessly for months. No surprise then that Dell has lost share to Hewlett-Packard.
The net of all this was a terrible drubbing on Wall Street Friday, the day after the third quarter’s results were announced. Shares were off a horrific 12.79% on very heavy volume (113 million shares vs. the three-month average of about 23 million shares.)
I obviously like technology stocks, but until I see evidence that Dell is getting its act back together, I wouldn’t touch it.
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on November 30, 2007 05:25 PM
November 15, 2007 | Comments: (0)
Don't Get Caught in the Stampede
Apple and VMware took the rap when Cisco's warning and Oracle's virtualization announcement panicked tech investors. That was a mistake.
Don't think the market is always rational. Investors, even smart ones, can get caught up in the day's news and the resulting emotion. At times, that results in wildly overinflated prices for companies that have no chance of long-term success; remember the outfit that was going to make a fortune delivering kitty litter online?
At other times, the market overcorrects the other way. A spate of bad news makes investors nervous, and suddenly everyone is looking for an excuse to run for the exits. That's what happened last week. With all sorts of bad macro news -- the continuing market meltdown, rising oil prices and the limp dollar -- investors had reason to be nervous.
Then came Cisco's first-quarter earnings call.
In fact, it was a very strong three months. First-quarter revenue was $9.6 billion, up nearly 17 percent from $8.2 billion in last year's first quarter. Net income rose more than 37 percent to $2.2 billion from $1.6 billion a year earlier. Earnings per share were $0.35, up from $0.26 in last year's first quarter. What's wrong with that? Sales to the U.S. financial sector were weaker than expected.
Investors took that as a very negative signal, and to be fair there was certainly reason. But one of the companies that took a major hit was Apple. Say what? Of all the major computer companies, Apple has the least exposure to enterprise sales, and its consumer business, headlined by the iPhone and the iPod, is terrific.
Part of the reason for the slide: momentum players. These are hedge funds and other institutions that trade directionally over the short run. When a stock moves down, short sellers can get into the game, and suddenly the stock is really tumbling. That in turn upsets the broader market, particularly retail (Wall Street lingo for Mom and Pop) investors who sell.
Apple recovered nicely on Tuesday, along with the broader market, and got a big boost from news of strong iPhone sales in the U.K. and a possible big deal in China.
Meanwhile, Oracle kicked off OpenWorld with an announcement that it was jumping on the virtualization train.
Kaboom went shares of VMware. Investors with positions in VMware and EMC, which owns most of VMware, freaked. VMware, the hottest IPO of the year, had been sliding anyway. But the Oracle news got it tumbling.
Interestingly, there are a lot of questions about what Oracle is really going to do about virtualization. Benchmark analyst Brent Williams put it this way: "We believe a product likely to add de minimis revenue to Oracle's deal size is unlikely to attract significant attention from Oracle's sales force, and thus is unlikely to be featured in significant numbers of deals."
Similarly, Citi analyst Brent Thill said in a note to clients: "Oracle's announcement to offer and support their own flavor of the Xen open source hypervisor does not affect VMW's position as the
de facto standard in server virtualization. Xen, as an open source project, is already freely available on the web or through other vendors. VMware's own base hypervisor technology, VMware Server, is available as a free download."
The Benchmark analyst noted something that struck me right away: The virtualization announcement is reminiscent of the big splash Oracle made with "Unbreakable Linux," a splash that temporarily swamped the share price of Red Hat. As it turns out, "Unbreakable Linux" isn't much of a factor in the market at all.
That's not to say Oracle won't make headway in virtualization. But not right away. Meanwhile, VMware's release of Server 2, its free virtualization product, is getting rave reviews.
So, morning-after thoughts by analysts, plus the Server 2 release, turned VMware around.
The bottom line: There's obviously reason to worry about the strength of tech sales going forward, but take a deep breath and look closely before you sell. Indeed, the dip in VMware's value might well have been an opportunity to buy some shares at a nice discount. (In fact, I did that very thing, and now hold a small position in VMware.)
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on November 15, 2007 03:00 AM
October 25, 2007 | Comments: (0)
Forget today’s ticker. Tech is showing strength across the board
In a nervous market, share prices can bounce around like corn in a popper. But with the fall earnings season at the midpoint, tech companies are showing strength across multiple sectors.
There have been solid reports from chip makers, including Intel; outsourcers such as Satyam; Google, Amazon and Yahoo! in e-commerce; Seagate, whose sales are largely tied to the health of the PC industry; and Apple.
Software is still something of a mixed bag; IBM’s software business was weak, SAP is problematic and Microsoft won’t report until Thursday afternoon. Oracle, the other software bellwether, posted a 25% quarterly gain in profits when it issued its financial report last month.
Results aside, the volatility has been rather amazing. On Tuesday, Amazon, Google, and Research in Motion, chalked up big gains in share prices. Amazon’s bump was driven by a very strong quarter. But then the market decided that the online seller’s margins might not be good enough for the Christmas season, and the stock tanked Wednesday morning, taking much of the NASDAQ with it.
Even worse for the broader market was the terrible report by Merrill Lynch which reminded investors that the credit crunch is far from over. Even that could have a bright side: some Wall Streeters figure the news could convince the Fed to cut rates a bit more.
Meanwhile, it looks like Microsoft, whose share price moves at glacial speed, will give investors something to cheer. Analysts polled by Thomson Financial are forecasting 39 cents a share for the September quarter on $12.6 billion in revenue.
Both profit and sales figures would represent double-digit percentage gains over the numbers the software giant posted for the same period last year.
Halo, Microsoft’s popular first-person shooter, drove a boatload of Xbox 360 sales last month. According to NPD Group, a research outfit that specializes in retail sales data, sales of the game console hit 527,800 units during the month, nearly double the number of units sold in August.
Xbox sales are somewhat paradoxical because Microsoft loses money on each one it sells, so better sales equal slightly lower earnings. Contract manufacturer Flextronics, on the other hand, does make a profit on the Xboxes it makes for Microsoft and that helped the company post a strong quarter.
Seagate is interesting as well. In an interview with Barron’s, CEO Bill Watkins said that his company has sold out its production for the fourth quarter, and is turning away orders for millions of units. He also said that Seagate has no current plans to increase its capacity, a refreshingly conservative move in an industry driven by frenetic boom and bust cycles.
Apple hit a home run, as we all know, but it’s still worth noting that very strong iPhone sales gave AT&T a boost; the telco giant netted 2 million new subscribers in the quarter, the biggest jump in the company’s history.
EMC reports early Thursday, and it should give us answers about the enterprise storage market and important clues about the strength of business spending on IT.
And finally, the PC market: We won’t hear from Dell and Hewlett-Packard until next month, but the strong showings by Intel and Seagate certainly indicate strength in demand. Moreover, worldwide PC sales sped up in the quarter with 15.5% year-over-year growth, according to research firm IDC. Sales by Dell finally accelerated, particularly in Europe and Asia.
The bottom line: This is a brutal, volatile market. But tech’s losses have been largely caused by larger worries about the credit crunch and its parent, the sub-prime mortgage meltdown. I’d be sweating a lot more if I didn’t see solid sales and earnings by the major players.
I welcome your comments, tips and ideas. Write me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on October 25, 2007 03:00 AM
September 30, 2007 | Comments: (0)
Wall Street to iPhone critics: So What?
There’s been a lot of negative stuff about Apple and the iPhone, lately, including here at InfoWorld. Some of the rotten tomatoes tossed at the company and its newest gadget were well aimed. After all, it’s not very cool to keep your users from loading and enjoying third-party apps by turning the device into a brick in the name of security. But to quote Tom Malloy (Marlon Brando) in On the Waterfront, “I say, so what?” At least as far as Wall Street is concerned.
Shares of Apple outpaced the market last week, gaining nearly 4%, while the Dow was flat and the tech-heavy Nasdaq gained about 2%. When trading closed for the week, Apple was selling for $153.47, within spitting distance of its 52-week high.
One of the drivers was a bullish report by Piper Jaffray analyst Gene Munster. According to Munster, his checks show that demand for the iPhone at AT&T stores is up 70% to 100% following the price cut. Previously the firm had expected demand to stabilize at about 50%. I don’t know if that says that iPhone critics are wrong or that buyers don’t care. But for now, it doesn’t matter. The iPhone is selling and that makes investors happy.
Another interesting tidbit last week was contained in Tibco’s quarterly earnings report.
The company missed analysts’ projections in the third quarter by 3 cents a share. The miss was expected since the company issued earnings warnings earlier in the month. But the interesting bit here is the news that the mortgage meltdown has started to hurt sales of business software to the financial services industry.
According to Paul Kedrosky, executive director of the William J. von Liebig Center in San Diego and a frequent contributor to numerous sites, Tibco has more at stake in the financial services sector that any other major provider. Tibco’s exposure, that is percentage of revenue, is 30%, Informatica’s 23% and BEA Systems derives 21% of its sales from the sector. BEA has had a good run on Wall Street lately, but chalk that up to ever-present rumors that the company will be sold. (A long-shot, as I wrote recently.) BMC Software, CA, Citrix Systems and Red Hat all have an exposure of about 20%. How much these companies will be hurt is unclear, but, as Kedrosky said, they bear watching.
(Disclosure: I own a small number of Apple shares.)
I welcome your comments, tips and ideas; write me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on September 30, 2007 02:05 PM
TOP STORIES
ADDITIONAL RESOURCES
- Why Linux Threats Mean Business
- Do you have the power to resolve technical issues with one call?
- Take control of your content- leverage Microsoft SharePoint
- Four Steps to Disaster Recovery and Business Continuity Using iSCSI
- Flexible, Scalable, Enterprise Storage for Virtual Infrastructures
- Virtual Servers Meet Virtual Storage
