Arris (ARRS) 4Q:07 Results

It's almost a given that a company with extreme exposure to any one customer is ultimately going to have a problem as that customer has control of the supplier's business. Diversified companies can better weather individual customer supply and demand changes.

In this case, Arris derives 40% of their sales from Comcast. That 40% of Arris's revenues, however, was nearly 100% of Comcast's cable modem needs. Comcast opted to go to a second source for cable modems -- Thomson. Comcast also was over-ordering in anticipation of this change, to make sure they wouldn't get caught short boxes in the transition. There is a two-fold problem for Arris in this situation: 1) their largest customer will order less from them in the future as the orders will be split between themselves and Thomson; 2) Comcast, who previously had as much dependence on Arris as Arris had on Comcast, will now be able to play one supplier against the other to get the best price possible which threatens Arris's profit margins on 40% of their business.

Consequently, guidance for next quarter is down nearly 20% from their prior guidance and significantly below the street.

I don't really follow Arris. Looks cheap for a good reason.

Best Buy lowers guidance

The press release is here.

The gist of it is slower foot traffic (less shoppers) in January drove a miss in overall sales for the quarter relative to their prior guidance. The company cited weaker sales in:

home theater (TVs, DVD players and audio systems)
mp3 players (the company sells iPods and about a half a dozen other brand names)
digital imaging (digital cameras)
video games (which they claim were in short supply in January)

Surprisingly, notebook computers were strong.

Earnings Estimate Cheat Sheet – February 14, 2008

Estimated Reporting Date	Symbol	Revenue Estimate Current Q	Operating Profit Estimate Current Q	EPS Estimate Current Q	EBITDA Estimate Current Q	Revenue Estimate Next Q	Sequential Revenue Growth Estimate, Percent	Operating Profit Estimate Next Q	EPS Estimate Next Q	EBITDA Estimate Next Q	Revenue Estimate Full Year	Operating Profit Estimate Full Year	EPS Estimate Full Year	EBITDA Estimate Full Year	Revenue Estimate Next Year	Operating Profit Estimate Next Year	EPS Estimate Next Year	EBITDA Estimate Next Year
2/14/2008	BRCD	352.3	77.5	0.15	--	350.3	-0.57%	72.2	0.14	--	1,429.3	304.4	0.60	341.1	1,575.9	338.6	0.67	385.0
2/14/2008	CRAY	57.2	(0.6)	(0.00)	--	51.5	-9.95%	(6.3)	(0.03)	--	185.7	(5.6)	(0.07)	--	233.3	2.8	0.17	--
2/14/2008	PCLN	329.3	45.7	0.84	48.7	342.4	3.98%	28.8	0.53	31.2	1,390.3	203.9	3.98	221.9	1,687.2	291.4	4.90	300.1
2/14/2008	ANST	25.7	9.0	0.25	--	32.7	27.14%	14.2	0.38	--	101.6	36.5	1.03	37.5	115.0	43.1	1.18	43.1
2/14/2008	ARRS	263.1	31.0	0.21	33.3	328.4	24.85%	37.1	0.19	33.9	1,005.9	121.4	0.84	127.9	1,391.4	185.9	0.93	161.6
2/14/2008	RMTR	13.5	1.5	0.05	--	13.3	-0.88%	1.2	0.04	--	50.3	4.8	0.16	--	61.5	7.6	0.27	--

Microsoft may bid higher to clinch it?

Article is here.

Blodget agrees that buying myspace is a bad idea for Yahoo.

That is all for now.

News Corp wants to dump Myspace into Yahoo

Talk about a poison pill.

On their last quarterly call, Google basically said they can't monetize social networking properly. They specifically meant Myspace where Google signed a billion dollar deal to provide lump sum payments to News Corp for the right to provide search results from within Myspace and serve advertising to their customers. They pretty much said it's been a bad deal for them.

I don't see how it'd be a better deal for Yahoo. Yahoo can't even monetize their own base properly.

It would be a great disservice to shareholders were Yahoo to move forward with a deal like this. I would imagine they would get blocked.

Yahoo stock is bid up on this, I suppose on the notion that Microsoft will have to pay higher to secure the deal. I disagree. I think if this is the best Yahoo can come up with, Microsoft is going to walk away with the company at $31.

AMD in play?

This piece of irresponsible journalism suggests Nvidia might buy AMD. That would never happen because of antitrust concerns. It'd also be a one way trip to $17 for Nvidia stock if they tried something like that.

The article also suggests IBM might be a buyer. That makes more sense. I think China's Lenovo or STM are the most likely candidates as far as potential buyers of AMD go. Both would be subject to quite a bit of scrutiny as they're foreign companies. The currency benefits to STM are significant as dollars are being quoted in pennies.

Nvidia (NVDA) under $24

I think the stock holds $23.5 and is a buy under $24.

If it trades $23, I'm out.

Ingram Micro (IM) 4Q:07 Results

Ingram Micro is one of the largest IT distributors in the world. They sell everything. Their customers aren't consumers -- they sell to vendors and resellers, who in turn sell to consumers and businesses. The quarter was fine but the outlook was awful -- they're very cautious on IT spending in Europe and the United States. They said holiday sales were normal but clearly they've seen dramatic softness since.

This tells us is the retail channel isn't doing much restocking right now. Business is slow. It will be important to pay attention to inventory levels at the consumer electronics retailers.

Ingram guided to their worst sequential growth rate since early 2001 -- which for perspective was post-bubble pop and really bad.

Not a good omen, my friends.

Nvidia (NVDA) 4Q:08 Results

Nvidia, the market leader in graphics chips, roughly hit consensus numbers. Revenues were slightly better, gross margins were slightly lower and operating expenses were higher. A lower tax rate (8 vs the 13 est) allowed them to beat consensus estimates. This is a lower quality quarter than the company has been putting together of late. Two quarters ago they were bursting at the seams with upside, this quarter is technically a miss as they would have missed consensus without the lowered tax rate. The company guided next quarter slightly down but less than seasonal and said seasonality is typically down 5%, so the range becomes down 1-4%.

Nvidia has been taking share from AMD (who bought ATI last year). The AMD integration has been sloppy at best -- product delays are now a given at AMD. Nvidia has retained the best gaming chip title (in part due to AMD's missteps) and consequently attracts a significant share of the add-in market on top of their growing dominance of the integrated graphics chipset market.

This was unquestionably a sloppy quarter. The easy share has been taken. Sequential growth is flattening out after a couple of years of very strong growth. The stock trades at roughly 18* this year's estimates and roughly 16* next year's number. For perspective, Intel trades at say 15*08 and 14*09. So Nvidia has a slight premium to Intel. Nvidia also isn't as screwed up as Intel is. I think Nvidia is fairly valued at $24-25 in the present environment and I'd be a seller around $30. The downward spiral in the stock of late makes me think it can move to the top of that range just because numbers aren't really coming down here.

More concerning perhaps is that Nvidia missed numbers and chose to play games with the tax rate to make it look like they didn't. That smacks of poor character and bears further scrutiny. I'll be going over their 10Qs in the near future.

Reminiscences of Elizabeth

When I was at Steinhardt, I worked with Elizabeth. She was amazing. She was a killer on the desk. She'd rip a sales trader's lungs out for an eighth. She said cocksucker more than any person I have ever known. She HATED to be called Liz (still does, I think).

Elizabeth also had a gigantic heart. She was the chair of the St Jude's Childrens Hospital charity for Wall Street (I may be messing up her title but you get the idea). She also raised a lot of money for Ronald McDonald House. Seriously. Huge heart.

I was young when I started working there. Eighteen. I had long hair all the way down my back and used to go to work in shredded jeans and a concert t-shirt, put my feet up on the desk and chain smoke all day. It was my uniform and I was damn proud of it. I had spent 3 years not cutting that hair and one night I decided it was getting too poofy so I cut it myself. Of course, I didn't know anything about cutting hair. I cut hair off the sides and then kept trying to even out what was left. It did not turn out well. If I could have figured out how to do a mullet, it would have improved it. Very bad.

I came in the next day wearing a baseball hat. Eventually, Elizabeth asked me why I was wearing the hat. Embarassed, I confessed what I'd done. She asked to see. When I took off the hat, she laughed for a second but then saw the pain in my eyes, said "oh, you poor baby" and hugged me. She made an appointment with her hair dresser and literally went with me and held my hand while he fixed it. It was such an act of maternal kindness and sympathy. Somehow that horror show haircut I gave myself is one of my fondest memories because of her.

A few months later she left to run the desk at Soros. Before she went, she gave me her copy of Reminiscences of a Stock Operator and I eagerly read it. That book has meant a lot to me over the years -- I don't know if it's because Elizabeth gave it to me. I have also given copies to people that have worked for me. I go back to it constantly for inspiration and reinforcement. It's kind of my stock market bible.

There's one passage that seems to resonate for me often.

"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level, which should show the greatest profit. And their experience invariably matched mine -- that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance. The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight."

I keep thinking about suggesting taking profits in names like SYNA, DRIV, RACK, MU, WDC, STX... but they have further room and when I start to do things just to do something or as a response to boredom they're rarely correct. I shouldn't cut my hair if I don't know where to cut.

I need to be patient and wait for my prices.