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Friday, March 27, 2009

Facebook needs more servers

A piece on alleyinsider talking about Facebook’s need for more servers.  In case you haven’t noticed, Facebook has really taken off like a rocket since letting us creepy old people onto the site.  While Facebook doesn’t generate much revenue, they do generate lots of hardware needs.

In years past, Rackable was a big beneficiary of Facebook spending.  Such may not be the case now – in fact, Facebook represents 18% of accounts receivable at Rackable (search this document for facebook) but wasn’t a 10% customer last year.  This adds up to roughly 5 million dollars they still owe Rackable -- Facebook may need this cash to pay for servers they already have.  That said, back in the glory days of Rackable stock, Facebook’s potential spending made the stock fly.  I’m long some Rackable, hoping for some errant speculation that Dell may make a run at them.

Thursday, March 26, 2009

Dell talking about server acquisitions

I wonder if the ever lousy Rackable Systems (RACK) could see some play. It trades at a hefty discount to book due to its wildly unpredictable model and consistent losses. Their market capitalization is 118 million with a cash balance of 180 million. The company generated roughly 250 mil in sales last year, down from 350 mil in the prior year.

DRAM makers predict shortages

Both Hynix and Powerchip are predicting shortages in the second half of the year in DRAM.  Not coincidentally, both will likely require substantial cash over the next several months.  Making a case for profitability obviously would help their impending stock offerings.

Though PCs will decline by the low double digits for the year, wafer additions are slowing due to capacity cutbacks.  Seasonality will drive demand higher in the second half, which will lead to less availability, according to their prediction.

Hynix was up 15%, the limit, on these comments.  Micron is bid up 5% this morning.

Best Buy 4Q:2009 result

Quarter better on EPS due to panic cost controls at beginning of quarter which finished better than it began.  Revs look pretty much in-line.

Segment information is useful:

Home office had +8.1% comp.  Notebooks grew low double digits, mobile phones and accessories up triple digits – iPhone likely drove this segment.

Consumer electronics declined 8.6% – flat panel displays grew mid single digits but were dwarfed by double digit declines in digital cameras, MP3 players and GPS devices.

Entertainment software declined 11%.  DVDs and CDs dropped low double digits and video games dropped low single digits.

Appliances, the smallest segment, dropped a hefty 20.5%.

Stronger notebooks and mobile phone gains are the big standouts.

Guidance of 2.50 to 2.90 for FY2010 is better than the street's 2.45. Revenue guidance is slightly below the street at the mean.

Wednesday, March 25, 2009

Some tech for a change

Foundries have seen business continue to improve as inventory restocking drives near-term orders higher.  Credit Suisse suggested revenue for the second quarter could be as much as 50% higher at Taiwan Semiconductor.  Much of the recent strength seems attributable to China’s stimulus programs – 3G license awards have driven near-term infrastructure spend and coupon-based stimulus has driven consumer electronic purchases (coupons are only good toward purchase of consumer tech).  Consequently, volumes are much improved and guidance was particularly conservative heading into the quarter.  Skepticism abounds.  I suspect end demand will look better in March than it looked in January when companies guided.  Expect to hear a number of companies tell you they’ve seen the bottom.  We are potentially set up for a continuation of the tech rally. 

That said, the sustainable rate of recovery remains very much in question.  While valuations are reasonable by historic standards, growth rates have come in substantially and semis are not cheap factoring in stagnant end markets.  Sure, Intel may beat by a little this quarter because customers try to get inventories back to in-line with demand.  Demand is still lower but it is likely to stabilize along the way.  I read a piece that highlighted the fact that you can buy Cisco, Dell, Hewlett Packard and IBM for 10-12* earnings, which is inexpensive by historical standards.  Guess what?  None of those companies are growing and the economy is decelerating at unprecedented rates.

There is 20 trillion or so in stimulus being thrown at economies worldwide.  The burden of proof is on the OEMs here, but the semis are seeing all the strength – and all of the hope imbedded in their stock prices.  While I suspect the recovery will be short-lived, I think fighting optimism in absence of hard data to refute it is a path fraught with resistance.  I’m trying not to dig in on the short side in tech right now.

Yet another bank rant

I draw the S&P to DJ to about 8020 to get to the larger downtrend that earnestly began in early October.

As highlighted in this piece by Zero Hedge, banks have toxic assets marked on their books at inflated prices.  There are still significant unrealized losses on their books.  Despite efforts by politicians and bank executives to try to manipulate reality by freezing foreclosures, altering accounting standards and moving these assets to the balance sheets of the Fed and Treasury, the piper will be paid – or not, as the case may be.  The underlying assets on these loans have declined in value and many of them are zeros – it is very likely even if these private/public institutions to be named later buy them at inflated prices that those prices are still going to be below the marks, which will lead to more write downs and more pain for the financials.

The problem here is banks aren’t lending to good borrowers; it’s that most of the demand is from overleveraged borrowers with near-term cash flow needs.  Many potential buyers are skeptical of current market prices of both stocks and real estate.  I know how to fix this.  Let sellers find buyers.

These efforts to soften the blow of the downturn distort prices and impede the market’s attempts to find equilibrium at realistic prices.  Risk is a prime component of markets – it is the other side of reward.  The government is trying desperately to create a risk-free bubble for private market buyers of toxic assets.  By doing so, they will suck the reward side of the equation for all of us.  Take a report, taxpayers, you just bought a trillion dollars worth of overpriced real estate loans at inflated prices with massive leverage.  Enjoy.

Monday, March 23, 2009

Corning (GLW) shows a little more leg

From a proxy filed this morning:


Retail sales of LCD TVs in Q1 have been strong so far.

February data:

U.S. unit sales up 39% YOY.

Japan unit sales up 30% YOY.

Only January data available for Europe and China:

Europe unit sales up 49% YOY.

China unit sales up 109% YOY.

Reported utilization rates at the panel makers continue to improve.

Taiwan: 20% in December to >40% in February.

Korea: 50% in December to almost 80% in February.

We expect panel maker utilization rates to increase again in March.


Glass orders have increased over the past several weeks.

SCP and wholly owned business.

Q1 total glass volume now expected to be flat to down 5% sequentially.

Original expectation: down 20% - 25% sequentially.

No change to our Q1 glass price decline expectations for our wholly-owned business.

Q2 pricing not finalized, but price declines expected to be more moderate than Q1.

Price pressure from customers could still affect these expectations.

Corning now expects to have positive net income, excluding special items, in Q1.

Original expectations “about breakeven”.

Better retail sales commentary on US has me long Best Buy (BBY) for a trade today.

Expectations of positive net income excluding special items in Q1 are very vague.  The street is at 4 cents, above Corning’s guidance of breakeven.

We’re going to need a bigger boat

For whatever reason, when I look at what the government is doing to fix the financial crisis, I keep coming back to this scene.

It’s still pretty unclear what’s being proposed.  If it is a proposal to manipulate the price of bad assets higher using tax dollars, expect it to fail.  By tying the dollar to overvalued assets, the government is likely to dilute the value of the currency… and once again, this hurts everyone, not just the companies and individuals that probably deserve to go out of business for their lack of risk control and over-leveraged lifestyle.

The market jumps at any sign of hope, no matter how sparse the details.  This is a sign that we remain in a bear market.  At the bottom, hope is lost.  Geithner has proven to be a significant disappointment and represents the interests of the banks and not the taxpayers, despite his office representing the people.  He has too many NY Fed grown ties and has been too close to the crisis to approach it objectively or in a fresh way.  As Paul Krugman, noted economist and predictor of the credit crisis, puts it in a NY Times op-ed this weekend:  “By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different.”

The plan seems to involve banks bundling bad assets into securities which would be sold to investors and then backstopped by the FDIC.  The CDO problem was that banks bundled bad assets into securities which were sold to investors, and rating agencies based their ratings on the strength of their underwriters without sufficient due dilligence or judgment of the underlying securities.  In this case, we have the same assets, repackaged, rated toxic and FDIC guaranteed.  This may be a good plan for investors but it’s a potentially catastrophic investment on the part of the government, especially as the underlying notion seems to be to have the FDIC set the pricing and overpay for these assets.

The bottom in the market cannot be reached until the ramifications of the full faith and credit of the US government is brought into question.  As long as people believe that everything will hold together without a major decline in the dollar due to this potentially massive dilution of the currency then we have not factored in all the negatives.  This is not a standard recession.  Bubbles pop and leave craters in their place.  Efforts to rush recovery will prolong it as we spend up our future fighting off the past.

Obama does Leno & 60 Minutes and Geithner opines for the WSJ

Politicians are the new celebrati.  Getting in front of the media is smart.  I don’t know that showing the American people a $5000 swing set for the First Children was the brightest move on Obama’s part… and when he said that the only thing less popular than bailing out banks was bailing out the auto companies, he laughed… and so did I.  My guess is some are going to find his laughter distasteful.  It sounds like he intends to veto the AIG tax.  Obama said if Geithner tried to resign that he wouldn’t accept it.

The takeaway from the 60 Minutes interview is Obama is a very intelligent, thoughtful man who is working against a lot of adversity.  He probably has a lot to learn every single day – the problems facing the financial markets alone are probably mind-bending at his level – there are pressures from all sides on how to handle it.  Everyone has an opinion that serves their own interest and he’s trying to run the gauntlet.

Obama on Leno:

Obama on 60 Minutes:

And Geithner’s opinion (plea?) in the Wall Street Journal.

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