Tuesday, February 28, 2012

Yahoo could have socialized flickr before Facebook and now Google Flickerized the social!

Yahoo is a perfect example of how the wrong objective and misaligned incentive lead to too many short term oriented decisions. The goal for Ms. Bartz was to get the stock price of Yahoo to $25 so she could maximize her payout. Hence Ms. Bartz’s focus was Operating Margin expansion to increase the bottom line. She also made some alliances with Microsoft for some quick short term top line growth hoping to get the stock price to $25.

While she did that, the market (hedge funds, mutual funds, ETFs, endowments, sovereign funds) were looking at the competition and did not see a clear sustainable profitable growth strategy. Hence the stock went nowhere. It did have some short term gains along the way only to erase those gains in short order.

The board picked the right person for the job they had in mind. The incentive was aligned with their (wrong) goal and Ms. Bartz did what she was expected to do. It was just the wrong objective.

What was needed here is to think outside the box, look at the landscape and completely re-position the company. Take the short term hit instead of focusing on the short term stock price.

Yahoo missed the search, social, app and mobile revolution. Flickr is still the best asset Yahoo has besides its stake in Asian web firms (Alibaba etc). Opening up Flickr sharing via email and social sites was a throwing in the towel move that was most likely needed. 

Yahoo needs a bold re-positioning strategy. A Netflix like approach to Flickr might be just what the doctor ordered (among other things like divestitures). 

I have used flickr for few years now and love its features. Yahoo could have socialized flickr before Facebook and now Google+ Flickerized the social!

They do have a new CEO now. Scott Thompson from PaypalCould this be it?

In response to this Mashable Article by Zoe Fox posted by Pete Cashmore on Google+


Update May 17, 2013 (Call it Y++!)

A lot has happened at Yahoo since my original post. Mr. Thompson was not it. He has to leave due to Resumegate and Yahoo's board was revamped due to activist investors. Marissa Mayer was hired away from Google to be the new CEO and she appears to be doing what Mr. David Johnson did at Dell. Making astute acquisitions. Her Mandate is completely different from the new board. Focus of Growth rather than Operating Expense reduction.

The speculation is that Yahoo might be interested in acquiring Tumblr for $1 Billion (http://on.mash.to/10vNqJA). Tumblr might be holding out for a better deal. This could turn out to be an excellent acquisition if it does go through. Why?

Yahoo could integrate Tumblr with Flickr and Yahoo content to create a great Social Network. Finally that Socialized Flickr with the much younger Tumblr user base. Call it the Y++!

Update May 18, 2013 (Walk Away from it?)

Yahoo should call the bluff and walk away from Tumblr

Looks like FB and MS are interested and $1.1 Billion "all cash" is not enough. 13 Million in revenue in 2012. They can and should turn Flickr into a real Social Network instead. It can be done.


Update May 19, 2013 (Calling The Bluff?)

Calling the bluff I think. Yahoo Board approves the deal at $1.1 Billion. Tumblr will most likely accepthttp://online.wsj.com/article/SB10001424127887324787004578493130789235150.html

Update May 20, 2013 (Acquisition Confirmed)

The acquisition had been confirmed this AM. Looks like they will leave it alone for now on the demand side (like Google did with YouTube for a while) but will capture synergies on the Supply side  http://www.slashgear.com/yahoo-1-1bn-tumblr-grab-official-promises-not-to-screw-it-up-20282769/

2nd Update May 20, 2013 (1TB of Free Storage on Flickr!!!!!!!!!)

I am a believer now in Marissa Mayer. Flickr one ups Google. Free 1TB of free Storage for all. I just checked my account. I have access to all my pictures since 2009 (well below 1TB, 7.25% of 1TB). This is huge. What is the catch you say? Ads. Unless you opt for 49/year Pro account. Wondering if I should have renewed my Pro account at $45/year when I had the chance?

Monday, February 27, 2012

Top 10 Reasons why right now is the best time ever to buy a home in the US

And US Stocks.
The US debt and GDP growth from 1980 to 2010 is very similar to the 1920 to 1950 time period. By projecting similar debt and GDP growth as in 1950 to 1980 30 year period we arrive at the following number for 2040 (spreadsheet):

US Debt in 2040 = 50 Trillion (Nominal)

US GDP in 2040 = 140 Trillion!!! (Nominal)

So why is the next 30 years going to be similar to the 1950 to 1980 time period?

#10 WWIII is ending. Financial Pearl Harbor has lead to currency wars. We are approaching the climax. Euro will be replaced by Yuan as the second reserve currency. The Euro zone’s contribution to world GDP will diminish. BRICS will be larger than Euro zone soon. If the Euro survives, it will be a distant third or even fourth behind the Chinese Yuan and Japanese Yen as currency of choice for world's reserves.

#9 Winners will be people who own Assets and make money via capital gains, dividends, real estate etc. Losers will be everyone else on fixed income (Social Security and/or fixed wages).

#8 The new boomers are in BRICS and other emerging BRICS.

#7 US will arrest the growth of debt by limiting the growth of entitlements, depreciating the dollar and inflating the assets (same as in 60s and 70s). It is already happening.

#6 The US stock market, 80% of the market cap is the S&P 500, will benefit from the deprecating USD since the majority of the S&P 500 corporations have most of their receivables in other currencies and most of the payables in USD. The new healthcare law is also a huge boon for the S&P 500 corporations (see item 5 below).

#5 The healthcare law (PPACA) is actually a huge boon for the free marketeers since there is no public option and people need to buy private insurance. This whole fight against this new law is a red herring. The insurance industry and the corporations got exactly what they wanted with some minor concessions. Lifestyle change is what is needed to fix the big four root causes (diabetes, high blood pressure/heart disease, obesity, bad diet/no exercise) that are responsible for 80% of the cost. The insurance companies in collaboration with the corporations will enforce this via incentives. Most of the regulations will impact small business that do not provide any healthcare to their employees. This requirement will limit their ability to compete with the S&P 500 corporations.

#4 US consumer will eventually benefit once the inflation shows up in the wages (most likely in 2020 and beyond trickle down) and their major expense, the mortgage, is fixed at the current low 4% and low principal (homes are cheap right now). So lock in those rates!!

#3 The new entrants to the US labor force in 2020 and beyond will not be able to afford homes. They will have to settle for apartment like most of the consumers in rest of the world.

#2 Cost of Energy will go down as we transform from Oil/Coal economy to Nuclear/Gas/Solar/Fuel Cell/Electric Battery economy

#1 Warren Buffett said so this morning on CNBC

He is also following his own advice.

Sunday, February 26, 2012

The secret to Warren Buffett's astounding success as an investor?

The secret to Warren Buffett's astounding success as an investor? Emotional Intelligence

Excerpts from his Annual letter published on February 25, 2012 and my take aways.

Cash Investments

"we now have large ownership interests in four exceptional companies: 13.0% of
American Express, 8.8% of Coca-Cola, 5.5% of IBM and 7.6% of Wells Fargo."

The reason for why "We should wish for IBM’s stock price to languish throughout the five years":

"The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply"

"In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life"

Sector Strategy

 "In fact, each of our five largest non-insurance companies – BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy – delivered record operating earnings."

"Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field."

Rail, Tools, Chemical, components/equipment, Energy, + float from Insurance

The flow of goods and services from China to the US will reverse soon. China saves too much, US spends too much. That will reverse over the next couple of decades. Currency equalization will be the big driver. 

In 2000, when I was in Beijing and Wuhan, 1USD = 8+Yuan. Today 1USD = 6+ Yuan. The rate of change ie appreciation of the Yuan vs the USD will be faster this decade.

The all in move to acquire Burlington Railways is case in point. That giant sucking sound (to borrow from Mr. Ross Perot) is going to be the flow of Tools, Chemicals, components/equipment from East Coast to the West Coast of the United States via Rail on the way to China!

Key Take Aways:

1) Always have cash on hand.

2) Go all in when stocks are cheap. Impossible to pick the bottom.

2) Buy dividend paying stocks and reinvest the dividends.

3) Buy those corporations that are doing share repurchase.

4) The fundamentals have to make sense first. Don't be blinded by the hype.

5) Bet on long term macro economic trends. 

6) No one can pick the bottom or predict the next quarter, year or even five years

As far as Energy is concerned, Mr. Buffett has investments that will benefit from the trend discussed in my blog post about The Cloud and Power Generation

Monday, February 20, 2012

As computing goes from the desk to the cloud will power generation go the other way!

This is a follow up to my blog post on February 17, 2012 about Nuclear Energy in the United States. Link is at the bottom of this post.

The Southern Company project uses Toshiba (now part of Westinghouse) AP1000 Solid Fuel Reactor.

The design of the containment of the reactor housing is the final critical factor in preventing Chernobyl, Fukushima, Three Mile fiasco.

First line of defense is the reactor design.

Second, back up generators to keep the reactor cool.

Third, reactor containment housing.

All three failed at Fukushima.

Now, lot of folks have mentioned Liquid Floride Throrium as being ultimate safe fuel to use instead of Uranium/Plutonium Oxide. I don't think AP1000 is a LFTR.

The real questions is: Do we have this whole power generation and transmission concept backwards. Lot of energy is lost during the transmission. The Grid is a mess. Remember the blackout? No one wants transmission lines in their backyard or over their head.

Will it be Natural Gas Turbines in the backyard or Natural Gas Fuel cells like the Bloom box creating a distributed power generation system? Google is actually using one to power their headquarters and/or data centers using Bloom Energy's Bloom Box.

It maybe that as the computing goes from the desk to the cloud, power generation will go the other way!

In couple of decades, we will most likely end up with Nuclear base load, Gen 3, 4, 5 etc and a distributed system at a local community level including solar on rooftops with a smart grid.

As the fossil fuels (Crude Oil) run out, the load on the grid will keep increasing due to the switch over to Electric Cars. Those plugged in cars will consumer lot of power and may even be used to provide power to the grid during peak demand. A distributed storage system. Part of the Smart Grid.

The power consumption rate might actually accelerate rather dramatically over the course of next couple of decades. Hence the reason for the new Nuclear Plants in the US.

Earlier post about The nuclear energy in the US

Saturday, February 18, 2012

Top 10 reasons why Dell might be the Dark Horse among the 10 Tech Horsemen: AAPL, GOOG, AMZN, FB, MSFT, DELL, HP, IBM, CSCO, ORCL

Top 10 reasons why Dell might be the Dark Horse among the 10 Tech Horsemen: Apple (AAPL), Google (GOOG), Amazon (AMZN), Facebook (FB), Microsoft (MSFT), DELL, HP, IBM, Cisco (CSCO), Oracle (ORCL)

#10: Dell has re-positioned itself during a trough in the economic cycle.

While others, like HP and Yahoo, were busy hiring and firing CEOs and "streamlining", Dell systematically acquired lot of business. The architect of this acquisition strategy is Mr David Johnson. He was recruited by Dell from IBM. Mr. David Johnson was the brilliant strategist behind all those acquisitions that IBM made after the dot com bubble burst. PWC at $3billion in 2002 after HP walked away from a $20 billion deal in 2000! PWC wanted $22 Billion I think. One of the probably only smart move by HP in the past decade!!

#9: Dell is moving itself from products to services via acquisitions.

Acquisitions like the Perot systems, software companies and system solutions. This is still in process. Borrowing from IBM playbook executed by Mr. Lou Gerstner in the 90s and early 2000s.

Who says Elephants can't dance? By Lou Gerstner. Link is to the book on Amazon.

#8: Dell's focus is more on the corporate sector. Total End to End solutions provider for corporations. Margins are higher and sales effort is more focused.

#7: Dell is very good at execution. With the strategy now in place, the execution risk is minimal.

#6: Dell is the best there is Working Capital Management. No body beats Dell in this department. Except maybe Amazon. But Amazon has a ridiculous valuation right now.

Working Capital Gap (On Slideshare).

#5: Dell is also aggressively targeting the healthcare sector via opportunities in the  Electronic Medical Records regulation in the PPACA law.

#4: Dell is undervalued. With over $60 billion in revenues, it's market cap is just over $30 billion with PE ratio of less than 10. Dell is aggressively repurchasing its shares outstanding. Dell Share Repurchase

#3: Dell was the best performing stock in the entire US market in the 90s. 90,000%+ return!! A $1000 dollar investment in Dell in 1990 would have been worth almost $1,000,000 in 2000. $300,000 today

#2: It is all relative. HP and IBM are the only real competitors in the corporate end to end solutions market. IBM has had its run. HP, well, it is HP. I lost track of the number of blunders. They should have stuck with Carly Fiorina in my opinion. Cisco and Oracle are solutions providers but are really focused on niche areas like routers and databases. Dell is not competing with Cisco and Oracle.

And the #1 reason: Michael Dell. He is a listener. Read his book. You will know what I mean.

Direct from Dell By Michael Dell. Link is his book on Amazon.

One February 27, 2012 Michael Dell confirmed my thesis bout Dell on an Exclusive CNBC interview

$18.6 Billion of the $60 Billion in revenue is from Services - End to End Solutions to the Corporate sector.

50% of Dell's profits are from this 1/3 revenue stream. Profitable Growth.

Focus is on the $2.7 Trillion corporate end to end solution market. Consumer segment is $250 Billion.

Competitors are shackled by legacy technology.

Disclosure: I currently have no position in Dell stock. May initiate position in the future.

Friday, February 17, 2012

Is Nuclear Energy the Future in the United States?

The United States has set the ball rolling on transforming our Energy sector over the course of next couple of decades. The day this was announced (February 9th, 2012), almost all the alternate energy stocks took a hit.

U.S. Nuclear Regulatory Commission (NRC) approves first Nuclear Power Plant in over 30 years

In the US, even today, 50% of the power generation capacity is fueled by Coal! Surprised?

In the state of Indiana, where I live, 90% of the power generation is by Coal!!

Of the 3000+ power plants in the US, only just over 100 are Nuclear. All of them are what they call base load. Meaning they run all the time to provide power to the grid at a 100% constant load factor.

The other base load plants are mostly what they call combined cycle plants. The name is derived because they are a combination of Steam Turbines powered by coal and Gas Turbines powered by Natural Gas with a Generator at the end (obviously).

GE, where I worked for couple of years in the Energy division, produces almost all the critical components for Combined Cycle and Nuclear Power plants and has the largest market share.

The only country that generates most of its power (80%) from Nuclear Energy is France.

In light of the recent Fukushima disaster in Japan and the subsequent decision to phase out Nuclear Energy by Germany, this is a very bold move by the United States.

In fact, the US has been quietly building the infrastructure needed to build Nuclear Power Plants on a massive scale for a few years now. Like the Department of Energy (DOE) funded MOX project being led by Shaw Areva, a US French collaboration.

Interesting learning experience for me working on a Root Cause Analysis (RCA) contract on the MOX project.

The MOX Project

Thursday, February 16, 2012

Lightsqared vs GPS

Lightsqared vs GPS is a Signal to Noise Ratio issue.

The fix sounds simple. Either increase the signal strength or decrease the noise. But the reality is more complicated.

The GPS satellite signals are weak and the terrestrial 4G signals are broadcast at high intensity generating RF interference in adjacent bands.

The original GPS receivers were not designed to filter out this RF interference. GPS satellites cannot increase their intensity and 4G transmission can not scale back its intensity.

So the only possible solution is to install noise filters in those GPS receivers since the signals can not be changed.