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Friday, May 16, 2008

Nintendo gains continue to accelerate

NPD released its North American sales data for the month of April. Nintendo sold 714k units, a 1% decline from the prior month's 721k. With xbox and PS3 having the added fuel of Grand Theft Auto IV's release to drive console sales, their share fell significantly, dropping roughly 27% m/m to 188k and 187k respectively. Nintendo is outselling their combined efforts almost 2:1.

This month, the Nintendo Wii Fit ships. It's a $90 aerobic pad with an exercise software program. I see a lot of gameplay possibilities for it going forward as it's going to make sports games even more entertaining by adding foot controls in future software titles. It's been massively pre-sold and most retailers aren't even taking orders for it anymore as demand is so far ahead of supply.

Nintendo continues to reinvent the home gaming category by it's intuitive interface design that has opened the previous geekdom of video games to the mainstream. This is the same thing that Apple did with the iPod, took a clunky and very techy experience (encoding music to a portable player) and made it a seamless and non-techy experience. It's revolutionary and it will secure Nintendo's position as the top dog this platform cycle.

They gave conservative guidance... they're going to be wrong. Expect Wii to continue to crush the competition and Nintendo to continue to rise. It's going to be up today but it's still a buy.

Wednesday, May 14, 2008

Man, this blog got quiet

I don't want to be redundant. I think fair value in the SOX is, well, right about here. Tech is enthusiastic and has a tendency to overshoot. I see some resistance at 417, at 423 and bigger resistance at 450ish.

Perusing some of the quarterly reports, I see that inventories are slightly larger than they were last quarter at semiconductor manufacturers, OEMs, contract manufacturers and distributors. While not at red alert levels, this could mute sharp recovery in the second half and that seems to be built into estimates. I'm having some trouble with that scenario in light of the pressures coming on financial IT spending and consumer discretionary income. Tech is far more dependent on the consumer in the 4th quarter and this one could be a nail biter.

I'm offering some of my longs. I got taken out of the last of my Synaptics at 39.6 yesterday -- it's 2 higher today. I'm offering my entire Micron position at $8.64 right now. I have to be careful because I'm going to wind up getting short if I'm not and that's not my intention.

Theoretically I'd want to be long when I think they're undervalued, neutral at fair value and short at overvalued. These are not rules, they're guidelines. Honestly, what I really want is to be long stocks that will continue to appreciate and short stocks that will deteriorate. I'm having more trouble finding stocks that I think will appreciate from here.

I still like Nintendo (I finally got a Wii! My arms are sore.) The Wii Fit is going to be a monster when it's released next week. It's sold out everywhere already. It's quite an expensive peripheral relative to the console cost -- $90 for the Fit and $250 for the Wii. It's a foot controller. I can't wait for my legs to be sore also.

I still don't like Nokia or the ecosystem surrounding it (NSM, TXN). They're going to see a lot of pressure at the high end from the next iPhone and RIMM's unrelenting product rollouts. I think they're substantially overproducing at the low end and when it finally blows up on them it will take multiple quarters to correct.

I'm trying to come up with a good basis to short STEC but so far I'm a little stymied on it. It's getting expensive. I think the stock is running because people don't have a good way to play SSD and they've got a business there... but its a small business. The rest of their businesses are external HDDs which are under severe price pressure, server memory and NAND flash based products. I like SSD in general but it's less than 20% of business right now and actually shrunk(!) last quarter. Ok. Maybe I'm a little less stymied on shorting it than I think, he said as he made a sale.

Western Digital looks like a sale at $36ish. I've been telling you to buy it in the mid/high 20s and sell it in the mid 30s.

I think Apple and RIMM are probably ahead of themselves and don't want to buy them here. They can still go higher, I just don't think the risk/reward is compelling here.

Anyway, I had to break my stasis and write something.

Tuesday, May 13, 2008

Applied Materials (AMAT) guides lower

Orders at the low end, expect orders down 15-25% for next quarter, see revenue down 10-18% for next quarter, see DRAM down 50% this year. EPS 10-14 cents for next quarter. DRAM is the kryptonite in the solar-powered Superman story of Applied Materials right now. They're talking about this being the bottom but they pushed recovery off the calendar from its previous position of second half of this year. The stock has been treading water for months, torn between optimism about their solar business and fears about the semiconductor part of the business. Semiconductors are the vast majority of business. Solar represents a fractional portion of business at less than 10%.

Investors trade these stocks with a 6-12 month horizon. Theoretically the stock is a buy on that basis as business sucks now and could be better in 9 months and as the semiconductor business shrinks, solar becomes more of the mix. They need to shrink for solar to become more of the valuation. Irony, my friends.

Monday, May 12, 2008

Google first to go SSD on resident infrastructure

According to Digitimes, Google is going to roll out solid state drives on servers. Intel (INTC) will supply the flash – again, Micron is the 50% partner in Intel's flash production. Marvell will provide the controller.

SSD is typically thought of in mobile applications for a couple of basic reasons: there's no moving parts to jostle around so they malfunction less; they consume less power as a result of the lack of a physical mechanism and power is the ultimate gating factor in mobile computing. Over time, I expect the mobile market to phase out hard drives as we know them in favor of silicon-based solutions for these reasons.

Not long ago, I was told Google was investigating SSD for their mobile workforce. Google is all about cloud computing and it doesn't need giant sentient hard drives on their employee notebooks. Google beams wifi to all of Mountain View, California. Google Docs runs in the cloud. So does Gmail. Their entire application base is geared towards the internet as your storage medium and not your computer. It's part of what makes them a ubiquitous presence. Access from anywhere with anything is kind of the underlying theme. Anyway, if you told me Google was going to go SSD on their corporate notebook program, I'd believe you.

I'm not Google is the first to use SSD on servers, but they're certainly big and influential enough to matter. Power consumption is driving force, according to the article. It was inevitable that the high cost of energy would become a factor in IT spending but I never would have suspected it would drive a high-cost solution up the ranks. Google is probably thinking quite a ways down the road. Theoretically, SSD has a lower failure rate and will require less technical maintenance than existing HDD which saves them money. It will consume less power which saves them money. The upfront cost will be much higher for a while. I think the magic price point is a lot lower than where it is now – I've been thinking 80gb for under $200 makes the whole industry transition. We're nowhere near that with Macbook Air drives costing $1200-1300 a pop.

Google's got the cash to be a pioneer here and a vision of the future. That's what keeps them on top.


Research In Motion (RIMM) chart

Research In Motion (RIMM) rolls out Blackberry killer

It's not an iPhone killer, that's for sure. It's sleek, black, fiery... frankly, kinda spooky. The Blackberry Bold looks to be the Darth Vader of smartphones. It has a 2 megapixel camera, an SD slot, and much ballyhooed HSPDA (3G) data transfer rates. It's not a touch screen and it has a real keyboard.

WES2008 begins today, RIMM's equivalent of MacWorld. The geek sites are looking for them to unveil a Blackberry OS 4.5 upgrade for existing Curve, Pearl and World phones which will add movie making and streaming video.

The stock has had a big run in front of these announcements. I had suggested buying the stock after their last quarter. I would be a seller into the strength here, looking for a better entry point lower. The near-term story has peaked. I'm offering stock at $138.35 at present.

Rackable (RACK) - Facebook borrows $100mm for servers

Last quarter, Facebook was a 17% customer ($11.5 mil of total sales) for Rackable, adding to their list of dot coms. Many of the larger online presences (Amazon, Facebook, MSN, YouTube) use Rackable servers.

Businessweek posted an article saying Facebook raised $100mm from a third party to buy servers. Presuming the purchases are slated for Rackable, that might explain the big ramp they're looking for in the second half of the year.

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