Thursday, May 22, 2008

Trimble Navigation Systems Shareholder Meeting, May 22, 2008

I attended the Trimble Navigation Limited (TRMB) shareholder meeting, which was geared towards its employees rather than shareholders. Of the 100 or so people there, only about five of us were non-employee shareholders. There wasn't even a Q&A session at the end of the two hour meeting, which was highly unusual. The meeting seemed more like an internal company pow-wow, where the CEO was focused on motivating his employees, than an actual shareholder meeting.

I originally bought this stock a few months ago because it appeared to be the next GE and its price seemed too low (at the time). However, even to this day, I cannot understand the company's products very well. The CEO, Steven Berglund, spent the first part of the two hour meeting talking about how the company had "redefined" itself throughout the years and now focused on construction, advanced devices, mobile hardware, "ready-mix" solutions (just the first of very vague and confusing terms used throughout the evening), and precision agriculture. He said that TRMB does not have a growth strategy based on acquisitions, and only acquires companies to enter new markets. He focused on the fact that the "international marketplace is key to our success," and later referred to "aggressive internationalism" as the company's plan.

He indicated that he wanted to target customers in waste management, farming, forestry, and utilities. The CEO stated that in most of the markets Trimble was involved, the market penetration (a favorite phrase of CEOs) was low, and was usually around only 30%. Therefore, Trimble did not have to use words like "product life cycle" or "saturation." There was some pump-it-up phraseology of the "annihilation of complacency" and "humility and caution" being goals of the company.

Some very vague terms were used, such as saying that the company's products require "concept-selling capabilities," and Trimble "sells people things they don't know they need." For a value investor and Buffett acolyte such as myself, these phrases made me want to run for the hills.

After the CEO's presentation, there were several presenters, all of whom were touting some company product and who were unfortunately completely dull. I have heard of Six Sigma Black Belts, but now I got to hear about "Kaizen facilitators" and "customized improvement initiatives" and other terms only a business major could love. There were numerous graphs and pie charts showing how the company's products incorporated several different advantages for its customers. I felt like I was in a corporate Dilbert meeting.

But that's just it--Trimble is sort of like your Dilbert company. They are high-tech cost-saving consultants, like the guy who comes in your office and says you can save 100 million dollars by ordering fewer paper clips or by removing the olive from airplane meals. The difference is that Trimble sells high tech products that allow its customers to save money. There's no doubt that its product line is impressive--by having so many software and hardware engineers working in several different divisions, Trimble can deliver everything from its own IC Chip, boards that use other companies' IC chips, GPS systems (including ones that tell a farmer exactly where he is in his field), spatial imaging software, radios, antennas, GNSS sensors, and many other products.

There were some exhibits of the company's products, focusing on farmers, construction, GPS devices, highway projects, and reference design boards. Obviously, Trimble has a diverse product line and a diverse array of customers.

Because I still had a hard time understanding the business, and was very surprised at the lack of a Q&A session, and I went up to CEO Steven Berglund after the meeting to ask him some questions. I am not sure if it was the way I approached him, but he seemed upset that I questioned the lack of a Q&A session; to his credit, however, he did spend about 3 to 5 minutes answering my questions (in a defensive, brusque manner). I asked him about his employee breakdown. He asked which division I was talking about, but finally indicated that software engineers, then hardware engineers, then salespersons made up much of his workforce. I asked him who his major customers were. Again, he retorted that there wasn't any one big customer, not even the Caterpillar, CNH, and Nikon companies I mentioned (they were mentioned in the 10-K) . He replied that I should go read the 10-K. But he obviously hadn't read carefully all of the 10-K, because he would have known that I referred to CAT, Nikon, and CNH from page 20: "We believe that in certain business opportunities our success will depend on our ability to form and maintain alliances with industry participants, such as Caterpillar, Nikon and CNH Global."

By this time, CEO Steven Berglund was becoming more and more agitated, so I thought I'd ask him just one more question and move on. I had read in the 10-K that salespersons were paid in part on commissions, and asked him whether a significant number of his salesforce were independent contractors rather than employees. After some brusque comments asking me what I was talking about, he finally said that no, as far as he knew, the only independent contractors were "dealers," and that his salespersons were employees. That is a good sign, as it indicates that Trimble employees would be more loyal to the company as compared to independent contractors.

The food spread was fabulous, but lacked coffee and sweets. It was basically a buffett dinner style with shish kabobs, dips, bread, vegetables, and chicken entrees.

I was disappointed that CEO Steven Berglund was so brusque, as he appeared to be a good public speaker, but I suppose when you're in that position, and your stock has done well, you can afford to be that way. I am waiting on the sidelines on this stock because of its recent run-up. Many of the potential customers Trimble wants to sell to--such as local government and smaller businesses--may be cash-strapped if the economy doesn't rebound. If you believe that companies will be more likely to hire outside consultants to show them how to save money, you would probably like Trimble Navigation. There's nothing like seeing increased costs to make a CEO jump at the chance of finding more efficient ways of doing business. But if you believe that in a recession, all companies try to save money in ways that don't require paying for major products or new ways of doing things, then you may dislike Trimble's strategy. In addition, the company didn't seem to have any devices that relied on solar or nuclear power, or some other non-semiconductor-based environmental product. I kept thinking during the meeting that there must be some reason why there is such low market penetration in all of the areas Trimble is trying to sell into. Unless Trimble has re-invented the wheel--which it very well may have done, as I've never seen some of the products it offers--there will always be competitors going after the low-hanging fruit. It appears Trimble may be going after the more specialized, difficult-to-get rewards. A recession may not be kind to this company, but perhaps the big-ticket items Trimble sells will be recession-resistant. The CEO told me that his company "sells productivity." Personally, I am more of a skeptic, but if you like the sound of a company that is diversified and sells productivity, then this is the stock for you. I just wish CEO Steven Berglund hadn't been so brusque and understood that a shareholder meeting was also designed for non-employee shareholders to understand his company.

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