Readfest(Tech Indstry): Playing it Again, Same...oops Sam
Continuing on the theme of slowing capital spending combined with increased pressure on foreign economies we turn our attention to the Tech Sector. And with the NDX down 1.4% so far today on the heels of Apple's surprise this might be even more timely than anticipated - purely accidentally of course. Which nonetheless reinforces the point that, at the end of the day, the state of the economy and general business matter even for a superb innovator like Apple. If this keeps up consider this an early fore-shadowing of a future buying opportunity.
Just to put a point on it consider the accompany multi-company chart graphic, which shows pairwise comparisons of key tech bellweathers. The top contrasts the NDX with CSCO where Chamber's honesty and directness has led to a more serious decline in Cisco's stock than many techs so far. Meanwhile the new and the old (AAPL, IBM) show two companies that have held up very well but highlight key concerns with consumer spending domestically, the likely downturn in capex and the issue of foreign demand. Which leads one to the next pair of GOOG and MSFT both of which blindsided with lower than expected performance. The final pair is also a new and old contrast in the software business showing Salesforce.com vs SAP. Both of which holding up well. Lots and lots of issues hiding there as well that get to the heart of the Tech outlook. Besides the general the key question there is how will spending on softward hold up as the economic malaise grows and extends worldwide ? One might suspect future surprises in store - unless of course the thesis that software spending saves money in a downturn holds it up. Not a thesis btw that's historically well-grounded. Which leads us back to yesterday's international economic outlook summary (Economy (Int'l): Re-coupling Redux and Deterioration Accelerations).
How all these conflicting forces play out is illustrated after the break with another set of worthwhile readings excerpts, starting with Cisco but then comparing and contrasting INTC vs AMD. There you get an almost perfect contrast between innovative strategic transformation PLUS superb execution and scale verses self-inflicted foot-shooting. But the real poster child for bad execution is Sprint which continues to suffer tremendously from terrible customer service problems.
The other interesting pair of excerpts is on the transformative nature of Apple's recent iPhone announcements which change it from a very smart customer gadget to a new computing platform. A fundamental game-changer that's not being widely recognized as yet but calls for strategic re-positioning on the part of all the players involved. Jim Jubak is one of the few widely read commentators who gets it and his discussion of GOOG vs NOK vs AAPL highlights some interesting aspects. And creates a list of future buying candidates that you need to table for evaluation.
The final excerpt discusses Kleiner's strategic shift to green tech investing and away from its' traditional base - which could serve as the exemplar for the paradigm shift emerging in the VC community and is worth thinking about.
Tech Industry Readings
Cisco: Bad news for tech Cisco chief John Chambers has some bad news for the technology sector: He no longer expects the recent slowdown in tech spending to pick up until next year at the earliest. Chambers made his comments in a Reuters interview Tuesday. As one of tech's highest profile executives and a dogged optimist, Chambers tends to command a fair share of attention when he trims his outlook even the slightest bit. Cisco, which is due to report fourth-quarter earnings in early August, has been modifying its outlook all year as the expanding global recession continues to hurt business. In March he called for the slowdown to last two to five quarters. Five now looks like the goal, and a bullish one at that. Chambers did not provide a specific outlook for sales growth in 2008, but told Reuters that most Cisco customers won't ramp up spending until early next year. "I think most of us realize that it's probably going to be a little bit longer than the one to two quarters that some people had hoped for," said Chambers. This probably comes as no shock as the economy weakens amid record fuel prices, rising unemployment levels, and the ongoing housing slump. A recent Forrester Report says overall business tech spending is up 3% over the same point last year, and while that is a slight plus, it is below the expected 10% annual growth rate. After warning that January orders were "challenging," Chambers cut the April quarter sales growth targets to 10% from 15%, but left the company's long range growth target at 12% to 17%. Cisco started belt-tightening in March, telling managers to limit travel expenses and use up accumulated vacation days. Chambers, however, told Reuters that he didn't see any need for dramatic cuts and says the company expects to continue expanding in developing markets to help offset slumping U.S. demand.
Intel Sales Slowdown, Stock Slump May Signal End of Growth-Company Status -- Intel Corp.'s quarterly sales gain may slow to its lowest level in a year, signaling the world's largest chipmaker is losing its status as a growth company. Intel probably will report sales increased 7 percent for the second quarter, according to a Bloomberg survey of 28 analysts, down from an average of 12 percent for the previous three quarters. Sales will rise an estimated 4 percent for the year, half the rate in 2007, the survey showed. Prices for personal-computer processors, the source of most of Santa Clara, California-based Intel's sales, dropped 20 percent between 2004 and 2007, according to Mercury Research. That curbed sales growth, which had averaged about 25 percent a year from 1990 to 2000 as PCs became household items. Chief Executive Officer Paul Otellini boosted profitability 38 percent last year after taking market share from Advanced Micro Devices Inc. and saving more than $1 billion in annual costs by cutting jobs and selling off businesses. The stock has fallen 23 percent this year as investors wait for him to reignite growth by breaking into new businesses. The Atom chip may be the breakthrough the company needs to cultivate a new market, said Highmark Capital Management Chief Investment Officer David Goerz, who manages $22 billion, including Intel shares. The product lets the company tap booming sales of inexpensive portable devices overseas, he said. ``Intel's been a one-trick pony for a long time and now I see them with an opportunity to be a two-trick pony,'' said Goerz, who is based in San Francisco. ``They are one of the best positioned technology companies to profit from global growth.'' Intel Profit Rises 25% on Computer Demand; Sales Forecast Beats Estimates
AMD's CEO pushed aside Hector Ruiz was pushed aside Thursday after six tumultuous years as CEO of Advanced Micro Devices Inc., as the chipmaker tries to pull itself out of a deep financial hole caused by a questionable acquisition and a major product gaffe. He's being replaced as CEO by AMD's current chief operating officer, Dirk Meyer, 46, an engineer and chip designer who has been helping Ruiz run the company since 2006. That means he knows AMD's operations intimately but also that he shares some of the responsibility for the company's financial distress. Meyer was involved in the design of AMD's Opteron server chip, which marked the company's 2003 foray into a lucrative segment of the server market where Intel had a stranglehold. The success of that chip - and Ruiz's sales savvy in lining up new customers -helped AMD transform itself from a perennial second-fiddle competitor to Intel into a serious rival across all computing platforms. But the semiconductor industry is notoriously volatile, prone to boom-and-bust cycles. AMD has crashed hard over the past two years, racking up billions in losses and struggling to regain the competitive edge it squandered against Intel. AMD to take $880M writedown on ATI , New AMD chief knows the chips are down
Bedeviled by the Churn, Sprint Tries to Win Back Disgruntled Customers Sprint’s new chief executive, Daniel R. Hesse, has much to do to repair the cellphone operator’s corporate culture and to stem the losses of customers to rivals. Sprint Nextel was in a crisis as Daniel R. Hesse took over the chief executive’s job last December. Sprint was reeling from an ill-fated merger with Nextel. Customers were leaving in droves. Executives were threatening to leave, while those who wanted to stay were worried they would lose their jobs.To motivate the staff, Mr. Hesse gave them DVDs of a documentary about Ernest Shackleton, the famous explorer whose ship was trapped in ice on an expedition to Antarctica. He liked the movie for its optimistic message: the crew survived. The task will be as challenging as Shackleton’s. AT&T and Verizon, the industry’s behemoths, are recruiting Sprint customers who have grown tired of years of inattentive customer service and a lackluster array of cellphones. Investors too have lost patience: the share price has dropped 58 percent since May 2007. And despite early success with the new Instinct smartphone, Sprint’s challenger to the iPhone, the company still lags behind its peers. Mr. Hesse has much to do to repair a corporate culture so tattered that executives made bets he would not even show up his first day. Consumers, more to the point, are the ones who are tired. Tired, that is, of surly customer service representatives who do little to solve their problems. In the first quarter of 2008, 1.1 million of Sprint Nextel’s 53.9 million customers fled, and such churn — a measure of how unhappy customers are — is on the rise. Sprint has the highest churn rate among its peers, 2.45 percent, which is why Mr. Hesse’s first order of business was to make sure customers knew that someone was listening. Mr. Hesse, who once ran AT&T’s wireless unit, ordered new commercials and ended up starring in them himself.
The great Google-Nokia-Apple war The 3 tech-sector giants are positioning themselves to become major players in the emerging market for versatile, computerlike smart phones. When it's finally all over -- when housing prices stop falling, when banks stop taking $10 billion losses, when the stock market bear growls its last growl -- investors suddenly will notice that the technology battle that counts is Google vs. Nokia vs. Apple. The very existence of this battle will come as a surprise to too many investors. Fixated on the Fed, mesmerized by mortgages and infatuated by inflation, investors have by and large ignored the significance of the game-changing moves from Google, Nokia and Apple. But the battle isn't news to technology companies themselves. Look at the fast and furious launch of Atom, a new low-energy microprocessor from Intel or the TouchSmart generation of touch-screen PCs from Hewlett-Packard. Both product lines represent an effort by a past leader to remain a significant combatant in the new tech struggle. These companies know the sector is undergoing a seismic shift that's likely to result in a new generation of technology dominated by so-called near computers, devices that deliver much of the power and functionality of a PC but in a package that more closely resembles a phone or an iPod than a conventional laptop computer. The move to near computers also will again reconfigure the relationship between software and hardware -- this time, it appears, in favor of companies that can put the two together into a cool, user-friendly whole.
How the iPhone 3G is changing the wireless game When Apple CEO Steve Jobs took the wraps off of the iPhone 18 months ago, the wireless establishment offered a smug response. At the Consumer Electronics Show in Las Vegas, a Nokia executive sniffed that Apple’s new gadget merely validated his company’s strategy, and voiced his surprise to journalists that the iPhone didn’t use the latest 3G networks for fast data connections. “Overall, it’s very exciting for us,” he said, implying the mighty Nokia had nothing to worry about. A year and a half later, as the iPhone 3G arrives, Apple’s (AAPL) rivals look a lot more flummoxed. The little gadget has catalyzed the wireless industry, boosting earnings for Apple and U.S. partner AT&T (T), and inspiring an avalanche of copycat touchscreen devices. But with the competition scrambling to develop an iPhone killer, might they be missing the point? Judging by customer raves, the iPhone’s magic isn’t in the features – not the 2-megapixel camera, or the Safari web browser, or even the music and video capabilities. It’s in Apple’s knack for making all those features easier to locate and use. What’s more, as the iPhone 3G debuts this week, Apple’s trademark simple approach is doing more than setting consumers’ tongues wagging – it’s changing the game in wireless, from phone sales to software development. Still, the iPhone’s impact so far is much bigger than its sales figures suggest. Even detractors grudgingly admit that the bar is now higher for phone design. Confusing menus and hidden features just won’t cut it anymore. “Most smartphones are smart in name only,” says Richard Doherty, an analyst at the Envisioneering Group. “People tend to feel dumber using them.” He sees similarities between the iPod’s shakeup of the music industry earlier in the decade and what the iPhone is starting to do to wireless. A key difference, though: Unlike the iPod, which some music moguls blame for lost revenue, the iPhone represents a trend that could make a lot of telcos richer. A Million New iPhones Sold in the First Weekend
Kleiner bets the farm About three years ago he began steering his partners toward an emphasis on alternative-energy projects, or "green tech" in Kleiner parlance. The new eco-focus has attracted plenty of hoopla, most notably late last year when Doerr hired his pal Al Gore as a Kleiner partner. Yet the firm's shift toward energy investing is only part of the story. As important is Kleiner's steady drift away from the industry that made the firm what it is today: the Internet. Kleiner's investments defined the Internet's first generation. Without Kleiner there was no Netscape, and without Netscape there was no cash-gushing dot-com boom. Yet Doerr and his partners have been absent not only from the biggest deals to date among the next generation of Internet companies… But the green fund represents more than just an expanded product line for Kleiner - it's an attempt to stretch the definition of venture capital. Ever since the industry got its start 40 years ago, VC firms have always been small partnerships investing relatively small amounts of money, hoping for a few giant payouts to outshine the inevitable flubs. But together Kleiner's three most recent funds - including its latest, $700 million venture fund raised this spring - amount to nearly $1.6 billion, a paltry sum compared with the giants of private equity but a massive amount for the venture business. And unlike the usual startup-centric VC approach, Kleiner's strategy focuses on existing alternative-energy companies that are well beyond the launch phase. In essence, like some of the biggest private equity shops, Kleiner is becoming more of an asset gatherer, as opposed to a builder as it was in the early days of Amazon and Google. Then again, Kleiner needs more money than ever before because energy projects require billions of dollars in investments, not the millions required to jump-start a Web idea.