Another great article on financial excess by James Surowiecki:
http://www.newyorker.com/talk/financial/2008/09/29/080929ta_talk_surowiecki
Mr. Surowiecki has a knack for telling the straight story, no matter how complex the facts.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Monday, September 22, 2008
Symantec Corporation (SYMC) Shareholder Meeting
Symantec Corporation (SYMC) held its annual shareholder meeting today at its Cupertino, CA headquarters. Available food included a small spread of Starbucks coffee and untoasted bagels, with some juice drinks on ice. Shareholders received a free copy of Norton 360 Version 2.0 and a zip-up notebook with a pen and calculator inside.
There appeared to be about 25 employees attending, plus around 4 to 10 non-employee shareholders. Helyn Corcos, VP Investor Relations, was in charge of the logistics of the meeting. Ms. Corcos seems very detail-oriented and asked me to rewrite my full name on the sign-in sheet (my handwriting is usually illegible), and then noticed I held my shares in street name, i.e., through a broker. She referred me to another person, Mr. Wilcox, who indicated I could not vote at the meeting, because I had not requested a legal proxy. Later, Mr. Wilcox accepted my legal proxy and politely explained the process of converting the street proxy into a legal proxy. (A shareholder should mark on the ballot that s/he will be voting in person, and then mail his/her voting ballot back to the brokerage, after which it will send a legal proxy. I knew all this, but sometimes the ballot comes in the mail too late to mail it back and receive a legal proxy in time.)
Symantec's CEO and Chairman, John Thompson, led the entire presentation, starting with the formal part and then moving to the informal presentation. A link to Mr. Thompson's background is below:
http://www.symantec.com/about/profile/management/executives/bio.jsp?bioid=john_thompson
Mr. Thompson's informal presentation started with some company background. After explaining that Symantec helps consumers and corporations manage digital content, he pointed to four focus areas: control (handling your digital environment); security (adding that "keeping good things in is as important as keeping bad things out"); compliance (legal requirements); and availability (accessibility of your information). He mentioned Walt Mossberg's glowing review of Symantec's latest Norton Internet Security program:
http://ptech.allthingsd.com/20080917/symantec-rewrites-its-security-suite-to-curb-nuisances/
Mr. Thompson said "the number one issue is managing complexity," and Symantec's overall strategy was to "secure and manage" digital content. More specifically, Mr. Thompson identified five strategic areas:
1. Growing core franchises (security, etc.)
2. Scaling high growth businesses (data loss prevention, etc)
3. Seeding longer term growth (e.g., virtualization)
4. Going international
5. M&A
Symantec is in a good business. Data loss prevention is experiencing a 93% growth rate as more people buy computers and are willing to pay for online security. Symantec is ranked first in multiple categories in terms of market position and has a 58% market share in the fast-growing data loss prevention business.
Mr. Thompson said the company would use 1/2 of CFFO (cash flow from operations) for share buybacks, a very good sign.
The Q&A session started. I asked how Symantec differed from McAfee. I asked this same question from McAfee's CEO, who initially gave a confusing answer. Mr. Thompson's answer was clear and concise. He said McAfee focuses primarily on security, whereas Symantec has a dual focus of giving customers security as well as recovery tools. Mr. Thompson implied McAfee doesn't focus on helping its customers beyond avoiding disastrous online attacks.
Another shareholder asked about the Veritas acquisition. (Symantec bought Veritas and its large enterprise storage business in late 2005.) While seemingly a natural fit--Symantec does data protection for large enterprises, and Veritas handles storage for large enterprises--the acquisition ran into problems that have weighed down Symantec's share price. Symantec's shares were trading around $30 prior to the acquisition and now trade around $19, up from a 52-week low of $14.54.
This is where Mr. Thompson shined. Some CEOs will attempt to duck and dodge bad news, like MGM's CEO, who made overly optimistic comments at his most recent shareholder meeting. Other CEOs get upset at bad news or hard questions, like Enron's former CEO. But Mr. Thompson immediately took responsibility and didn't try to blow any smoke. He said that the execution of the Veritas acquisition has not been stellar, but has improved over the last twelve months. His answer was just the right length and with the perfect tone. I left thinking he knew exactly what the problem was and was on top of it.
Another shareholder asked about Mr. Thompson's thoughts on the recent financial turmoil (e.g., Lehman Bros and Merrill Lynch). Mr. Thompson said the underlying dynamics of his business have not changed--only the identity of the buyers/customers might change. He also indicated that financial companies cannot avoid online security compliance. He then turned the question over to the CFO, James Beer, who confirmed that 98% of Symantec's $2 billion were in banks (cash) or money market funds, not risky or illiquid instruments [such as auction rate securities].
I asked whether Symantec was working with VMware (WMV). Mr. Thompson said that Symantec was working with VMware and had demonstrated the "best backup capability" and very strong endpoint virtualization. He said Symantec might compete directly with VMware in the endpoint market rather than partner with it, because the nature of the software business fostered competition. (This can't be good news for VMware.)
Another shareholder asked a general question about phishing, and COO Enrique Salem said Symantec was working on numerous anti-phishing defenses, including "trustmarks." The meeting ended shortly thereafter.
After the meeting, I got a chance to hear Mr. Thompson speak informally with several people. Mr. Thompson has a gift when it comes to storytelling. He talked about a recent salmon fishing trip, which took place in an exclusive area. From a small story about fishing, he expanded into bears, even detailing an age range in which young male bears are the most dangerous. He expressed more interesting tidbits, like how you shouldn't get between a mother sow (pig) and her young offspring. He talked about silver salmon (after returning to their spawning stream, their coloring changes from pink to pale grey) and why you wanted to catch them right before or after they hit freshwater (they are used to saltwater, so when they hit freshwater, their skin "degenerates"--goes from pink to silver). When I was done listening, I came away thinking this is a man who notices the details and is a natural-born leader. I realized right then and there that Mr. Thompson is one of the most charismatic CEOs in Silicon Valley.
So much of enterprise security sales is about sales ability--the underlying software products aren't yet so different that technology is the primary differentiator. Having a CEO like Mr. Thompson provides Symantec with a clear advantage over competitors, because he is someone you want to listen to and have a drink with. Contrast this with McAfee's CEO, who, while certainly a nice man, doesn't inspire confidence and seems to throw out terms he doesn't fully understand to impress an audience. His offhand, irrelevant mention of the Basel II Accord still rings painfully in my head. I don't claim to understand it 100% either, but even the Dallas Federal Reserve Bank president declined to answer a question about Basel II publicly in a recent Commonwealth Club speech, saying it was too complex for a short answer and the questioner should speak with him privately.
It's worth noting that Symantec's meeting was very well-run--everyone knew what they had to do and adapted when necessary. When there was some static at Mr. Thompson's microphone, several people jumped and tried to fix it without interfering with the presentation. In contrast, during McAfee's shareholder meeting, I got the feeling that no one had spent substantial time planning the meeting in advance. In fact, one of McAfee's employees seemed upset non-employee shareholders had come to the meeting. Here, Mr. Thompson recognized a shareholder from last year and said hello.
If you're ever in a room with Mr. Thompson, go hear him speak. He's charismatic, dignified, and prepared. Mr. Thompson didn't just talk about salmon fishing after the meeting. He also briefly discussed politics. Not surprisingly for a man who has a preternatural ability to put people at ease, he said he supported Barack Obama because he was dismayed at how the country was becoming divided. He said we needed to work together, and he favored "statesmanship rather than brinksmanship." Regardless of your political beliefs, Mr. Thompson's natural leadership ability is exactly what shareholders should value in a CEO whose business involves sales. Between McAfee and Symantec, there is no question that Symantec appears to have a more professional management team. However, both McAfee and Symantec lack true diversity--there are no Asians/Indians on their Boards or in top management positions, which is an unforgivable oversight when some of the fastest growing markets are India, China, and possibly Vietnam. In time, I hope this oversight will change, but when the main problems with your company are diversifying upper management and finalizing an acquisition--neither of which directly impacts your underlying business--that's a good sign.
Disclosure: as of September 22, 2008, I own less than 20 shares of SYMC.
There appeared to be about 25 employees attending, plus around 4 to 10 non-employee shareholders. Helyn Corcos, VP Investor Relations, was in charge of the logistics of the meeting. Ms. Corcos seems very detail-oriented and asked me to rewrite my full name on the sign-in sheet (my handwriting is usually illegible), and then noticed I held my shares in street name, i.e., through a broker. She referred me to another person, Mr. Wilcox, who indicated I could not vote at the meeting, because I had not requested a legal proxy. Later, Mr. Wilcox accepted my legal proxy and politely explained the process of converting the street proxy into a legal proxy. (A shareholder should mark on the ballot that s/he will be voting in person, and then mail his/her voting ballot back to the brokerage, after which it will send a legal proxy. I knew all this, but sometimes the ballot comes in the mail too late to mail it back and receive a legal proxy in time.)
Symantec's CEO and Chairman, John Thompson, led the entire presentation, starting with the formal part and then moving to the informal presentation. A link to Mr. Thompson's background is below:
http://www.symantec.com/about/profile/management/executives/bio.jsp?bioid=john_thompson
Mr. Thompson's informal presentation started with some company background. After explaining that Symantec helps consumers and corporations manage digital content, he pointed to four focus areas: control (handling your digital environment); security (adding that "keeping good things in is as important as keeping bad things out"); compliance (legal requirements); and availability (accessibility of your information). He mentioned Walt Mossberg's glowing review of Symantec's latest Norton Internet Security program:
http://ptech.allthingsd.com/20080917/symantec-rewrites-its-security-suite-to-curb-nuisances/
Mr. Thompson said "the number one issue is managing complexity," and Symantec's overall strategy was to "secure and manage" digital content. More specifically, Mr. Thompson identified five strategic areas:
1. Growing core franchises (security, etc.)
2. Scaling high growth businesses (data loss prevention, etc)
3. Seeding longer term growth (e.g., virtualization)
4. Going international
5. M&A
Symantec is in a good business. Data loss prevention is experiencing a 93% growth rate as more people buy computers and are willing to pay for online security. Symantec is ranked first in multiple categories in terms of market position and has a 58% market share in the fast-growing data loss prevention business.
Mr. Thompson said the company would use 1/2 of CFFO (cash flow from operations) for share buybacks, a very good sign.
The Q&A session started. I asked how Symantec differed from McAfee. I asked this same question from McAfee's CEO, who initially gave a confusing answer. Mr. Thompson's answer was clear and concise. He said McAfee focuses primarily on security, whereas Symantec has a dual focus of giving customers security as well as recovery tools. Mr. Thompson implied McAfee doesn't focus on helping its customers beyond avoiding disastrous online attacks.
Another shareholder asked about the Veritas acquisition. (Symantec bought Veritas and its large enterprise storage business in late 2005.) While seemingly a natural fit--Symantec does data protection for large enterprises, and Veritas handles storage for large enterprises--the acquisition ran into problems that have weighed down Symantec's share price. Symantec's shares were trading around $30 prior to the acquisition and now trade around $19, up from a 52-week low of $14.54.
This is where Mr. Thompson shined. Some CEOs will attempt to duck and dodge bad news, like MGM's CEO, who made overly optimistic comments at his most recent shareholder meeting. Other CEOs get upset at bad news or hard questions, like Enron's former CEO. But Mr. Thompson immediately took responsibility and didn't try to blow any smoke. He said that the execution of the Veritas acquisition has not been stellar, but has improved over the last twelve months. His answer was just the right length and with the perfect tone. I left thinking he knew exactly what the problem was and was on top of it.
Another shareholder asked about Mr. Thompson's thoughts on the recent financial turmoil (e.g., Lehman Bros and Merrill Lynch). Mr. Thompson said the underlying dynamics of his business have not changed--only the identity of the buyers/customers might change. He also indicated that financial companies cannot avoid online security compliance. He then turned the question over to the CFO, James Beer, who confirmed that 98% of Symantec's $2 billion were in banks (cash) or money market funds, not risky or illiquid instruments [such as auction rate securities].
I asked whether Symantec was working with VMware (WMV). Mr. Thompson said that Symantec was working with VMware and had demonstrated the "best backup capability" and very strong endpoint virtualization. He said Symantec might compete directly with VMware in the endpoint market rather than partner with it, because the nature of the software business fostered competition. (This can't be good news for VMware.)
Another shareholder asked a general question about phishing, and COO Enrique Salem said Symantec was working on numerous anti-phishing defenses, including "trustmarks." The meeting ended shortly thereafter.
After the meeting, I got a chance to hear Mr. Thompson speak informally with several people. Mr. Thompson has a gift when it comes to storytelling. He talked about a recent salmon fishing trip, which took place in an exclusive area. From a small story about fishing, he expanded into bears, even detailing an age range in which young male bears are the most dangerous. He expressed more interesting tidbits, like how you shouldn't get between a mother sow (pig) and her young offspring. He talked about silver salmon (after returning to their spawning stream, their coloring changes from pink to pale grey) and why you wanted to catch them right before or after they hit freshwater (they are used to saltwater, so when they hit freshwater, their skin "degenerates"--goes from pink to silver). When I was done listening, I came away thinking this is a man who notices the details and is a natural-born leader. I realized right then and there that Mr. Thompson is one of the most charismatic CEOs in Silicon Valley.
So much of enterprise security sales is about sales ability--the underlying software products aren't yet so different that technology is the primary differentiator. Having a CEO like Mr. Thompson provides Symantec with a clear advantage over competitors, because he is someone you want to listen to and have a drink with. Contrast this with McAfee's CEO, who, while certainly a nice man, doesn't inspire confidence and seems to throw out terms he doesn't fully understand to impress an audience. His offhand, irrelevant mention of the Basel II Accord still rings painfully in my head. I don't claim to understand it 100% either, but even the Dallas Federal Reserve Bank president declined to answer a question about Basel II publicly in a recent Commonwealth Club speech, saying it was too complex for a short answer and the questioner should speak with him privately.
It's worth noting that Symantec's meeting was very well-run--everyone knew what they had to do and adapted when necessary. When there was some static at Mr. Thompson's microphone, several people jumped and tried to fix it without interfering with the presentation. In contrast, during McAfee's shareholder meeting, I got the feeling that no one had spent substantial time planning the meeting in advance. In fact, one of McAfee's employees seemed upset non-employee shareholders had come to the meeting. Here, Mr. Thompson recognized a shareholder from last year and said hello.
If you're ever in a room with Mr. Thompson, go hear him speak. He's charismatic, dignified, and prepared. Mr. Thompson didn't just talk about salmon fishing after the meeting. He also briefly discussed politics. Not surprisingly for a man who has a preternatural ability to put people at ease, he said he supported Barack Obama because he was dismayed at how the country was becoming divided. He said we needed to work together, and he favored "statesmanship rather than brinksmanship." Regardless of your political beliefs, Mr. Thompson's natural leadership ability is exactly what shareholders should value in a CEO whose business involves sales. Between McAfee and Symantec, there is no question that Symantec appears to have a more professional management team. However, both McAfee and Symantec lack true diversity--there are no Asians/Indians on their Boards or in top management positions, which is an unforgivable oversight when some of the fastest growing markets are India, China, and possibly Vietnam. In time, I hope this oversight will change, but when the main problems with your company are diversifying upper management and finalizing an acquisition--neither of which directly impacts your underlying business--that's a good sign.
Disclosure: as of September 22, 2008, I own less than 20 shares of SYMC.
Stocks Update, 9/22/08
After the big run-up last week, I sold some of my positions. Malaysia's political turmoil bothered me enough to sell EWM. If the news stories are to be believed, the majority Malay population appears to be having some conflicts with the generally more affluent Chinese and Indian citizens. Also, while politics can get bad in the U.S., you don't see a ruling party trying to jail their opposition through a criminal lawsuit involving allegations of sodomy. I feel sorry for the Malaysians, who have to see a wonderful country's image get sullied by these political troubles. Yahoo's (YHOO) decline is also bothering me. First, a hacker gets access into Gov. Palin's Yahoo email account; then today, Microsoft (MSFT) announces it is spending 40 billion dollars to buy back its stock, taking available funds away from a potential acquisition. I will sit tight with Yahoo, but this kind of continued mismanagement is troublesome. Prices below are mid-day numbers on September 22, 2008. My open positions track the S&P 500 exactly at a negative 11.21%. The list of trades below includes only positions involving at least 2,000 dollars.
Open Positions
EZU = -8.34
GXC = -7.97
IF = -22.1
SWZ = -12.68
YHOO = -4.98
[Average of "Open Positions": losing/negative average 11.21%]
Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
EWM =-11.61 [sold 9/22/08]
EWS = -12.98 [sold 9/22/08]
GE = -6.4
GLD = +8.61 [sold 9/22/08]
INTC = 0.0 (excluded from average; insignificant movement)
KOL = -10.36
PFE = -5.5
PNK = -16.7
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4
[Overall Record for 7 days+ trades: lost an average of 3.92%]
[-50.90 / 13 trades]
Held less than 7 days:
DUK = (0%, excluded from avg) [8/07/08 - 8/14/08]; GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), KOL (13.2%) [9/17/08 to 9/19/08]; NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]; TTWO (2.2%) [9/9/08 to 9/12/08]
[Overall Record for ultra short-term 2 to 7 days trades: gained an avg of 3.49%]
[41.9 / 12 trades]
Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)
[Overall Record for daytrades: Gained an average of 1.76%]
Compare to S&P 500: losing/negative 11.21%
[from May 30, 2008 (1385.67) to mid-day September 22, 2008 (1230.30)]
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.
Open Positions
EZU = -8.34
GXC = -7.97
IF = -22.1
SWZ = -12.68
YHOO = -4.98
[Average of "Open Positions": losing/negative average 11.21%]
Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
EWM =-11.61 [sold 9/22/08]
EWS = -12.98 [sold 9/22/08]
GE = -6.4
GLD = +8.61 [sold 9/22/08]
INTC = 0.0 (excluded from average; insignificant movement)
KOL = -10.36
PFE = -5.5
PNK = -16.7
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4
[Overall Record for 7 days+ trades: lost an average of 3.92%]
[-50.90 / 13 trades]
Held less than 7 days:
DUK = (0%, excluded from avg) [8/07/08 - 8/14/08]; GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), KOL (13.2%) [9/17/08 to 9/19/08]; NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]; TTWO (2.2%) [9/9/08 to 9/12/08]
[Overall Record for ultra short-term 2 to 7 days trades: gained an avg of 3.49%]
[41.9 / 12 trades]
Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)
[Overall Record for daytrades: Gained an average of 1.76%]
Compare to S&P 500: losing/negative 11.21%
[from May 30, 2008 (1385.67) to mid-day September 22, 2008 (1230.30)]
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.
Saturday, September 20, 2008
Barry Goldwater: Political Campaign Buttons
I ordered my first campaign buttons from Legacy Americana (www.legacyamericana.com). I finally understand why people collect the buttons--some of them are a beaut. I really like the gold-colored button above, despite its obvious symbolism (Gold = Goldwater).
Friday, September 19, 2008
Frederic Mishkin Defends Core Inflation
Frederic Mishkin, a former Federal Reserve Board member, wrote a WSJ opinion piece defending the core inflation measure. I've called core inflation a useless, misleading number:
http://willworkforjustice.blogspot.com/2008/08/inflation-revisited.html
I was eager to see how Mr. Mishkin would defend a statistic seemingly designed to insulate the government from macroeconomic criticism. Mr. Mishkin's article is below:
http://online.wsj.com/article/SB122169336538749851.html
To his credit, Mr. Mishkin intelligently argues that the Fed must maintain a "nominal anchor," and food and gas prices (what he refers to as "headline inflation") fluctuate too much to maintain a steady beacon.
As any statistician knows, however, there are ways to mitigate the extremes in any number sample. The Dallas Fed Reserve does just that by publishing "trimmed mean" figures, which are basically inflation numbers sans the extremes on either the high or low side. Mr. Mishkin provides a good defense of core inflation in principle, but I am still not convinced. A "nominal anchor" isn't going to provide any predictability if everyone knows the real numbers are much different than reality. Numbers need to have credibility first. That starts by acknowledging inflation numbers should include items most Americans use daily, such as food and gas prices.
http://willworkforjustice.blogspot.com/2008/08/inflation-revisited.html
I was eager to see how Mr. Mishkin would defend a statistic seemingly designed to insulate the government from macroeconomic criticism. Mr. Mishkin's article is below:
http://online.wsj.com/article/SB122169336538749851.html
To his credit, Mr. Mishkin intelligently argues that the Fed must maintain a "nominal anchor," and food and gas prices (what he refers to as "headline inflation") fluctuate too much to maintain a steady beacon.
As any statistician knows, however, there are ways to mitigate the extremes in any number sample. The Dallas Fed Reserve does just that by publishing "trimmed mean" figures, which are basically inflation numbers sans the extremes on either the high or low side. Mr. Mishkin provides a good defense of core inflation in principle, but I am still not convinced. A "nominal anchor" isn't going to provide any predictability if everyone knows the real numbers are much different than reality. Numbers need to have credibility first. That starts by acknowledging inflation numbers should include items most Americans use daily, such as food and gas prices.
Thursday, September 18, 2008
Transmeta (TMTA) Shareholder Meeting
I attended Transmeta Corporation's (TMTA) shareholder meeting this morning. The meeting took place at the Santa Clara Hilton at 8:00AM and was attended by approximately twenty people, with around three to six non-employees attending. The food spread included typical hotel seminar fare, such as Starbucks coffee, some fruit, and some pastries.
I arrived about eight minutes late, and TMTA had started its meeting with the informal part and was in the middle of a basic slideshow. The formal part of the meeting lasted a few minutes, and then we moved to the Q&A session. Prior to the Q&A session, TMTA honored one of its retiring Board members, William Tai. More on Mr. Tai after the jump:
http://www.transmeta.com/corporate/board.html
Transmeta (TMTA) has around 35 employees and generates much of its revenue from licensing "LongRun and LongRun2 technologies" for controlling leakage and increasing power efficiency in semiconductor devices. The company focuses on power management and transistor leakage control.
One shareholder had several questions and asked questions given to him by other shareholders who could not attend. I will summarize his questions and CEO Lester Crudele's responses as best as I can. The shareholder asked several questions that required forecasting, a legal no-no, causing Mr. Crudele to answer, "We have no comment," to numerous questions.
Q: Given some of the promises of shareholder value, why do you think we're still trading below cash value?
A: I don't understand the motions of the stock market. We have valuable technology.
Q: Do you have any comments on program trading and short sellers?
A: No comment.
Q: When do you believe you will have a market cap of over a billion dollars?
A: No comment. We are still selling licenses, so the company has value.
Q: It feels like their are other infringers, in addition to just Intel [Note: TMTA settled with Intel (INTC) for an initial payment of $150 million with annual payments of $20 million from January 31, 2009 to January 31, 2014.]
A: We will vigorously defend ourselves and plan on defending our patents.
Q: Are you planning to approach more foundries?
A: Yes.
Q: Do you expect a license from AMD?
A: We have a long history with AMD. They invested in us last year.
Q: Do you expect your patents to hold up in continuing litigation?
A: One(?) out of eleven of our patents involved in the Intel litigation are being re-examined.
Note: an astute Seeking Alpha reader pointed out that all the patents are being re-examined:
http://www.investorvillage.com/smbd.asp?mb=329&mn=27418&pt=msg&mid=5553223
Q: Why don't you communicate more with shareholders?
A: The licensing business is very lumpy, it takes time [to get an agreement], and it's difficult to know when the agreements close, as they are usually under NDA.
Q: You don't have much analyst coverage.
A: We are a small size [company], and our current revenue situation [does not bring much coverage].
Q: Your business model seems to be a one time cash payment for the license. What about sustaining revenue over a long term period?
A: We usually get an initial licensing fee and then royalties for continuing use of the license.
Q: Will you be buying back shares? What about a dividend?
A: No comment.
It wasn't a tense exchange, but the CEO did look exasperated with the questions that required him to project revenue or financials into the future. The shareholder appeared to be out for blood, but the CEO answered most of his questions politely.
It was my turn to ask a question. As a layperson, I don't always understand a company's technology, and I always ask the CEO to explain what the company does and what their products offer. CEO Lester Crudele looked pleased to get a question he wasn't legally barred from answering. I am going to do my best to summarize his response. Mr. Crudele said that when electrical currents run through circuits, the currents don't always move consistently and often lose some of its power [which can cause heat and overheating within the IC chip]. He said this current leakage benefited from an on/off switch that regulated the flow of the electrical current.
I asked him whether his product was hardware or software. Mr. Crudele initially said hardware, but when I asked him to be more specific, he said his product was the "technology," and assigning products to hardware/software categories was a limited view of technology. I wondered: if a CEO cannot definitively say his product either has software that goes on the chip, or some tangible hardware, like the chip itself, what exactly was he selling? (TMTA no longer makes any chips: its website states, "Transmeta no longer manufactures, offers for sale, or provides engineering support for any of its microprocessor products.") The CEO, realizing I was confused, told me to come talk to him after the meeting. The meeting ended shortly after my questions.
Before I was able to get to the CEO, two other employees seemed eager to fill the gap in my knowledge. I decided to speak with one of them, Daniel Hillman, VP of Engineering, to see if I could get more information. Mr. Hillman did a very good job explaining TMTA's product. He indicated the product isn't hardware per se, but affects the hardware. It can be used on any kind of chip, and works on all chips, including integrated circuit chips. He used an analogy to explain further. He talked about having a fireplace in a house, but without the ability to control how hot it was. If you just throw logs on an open fire, the fire doesn't move predictably and has energy going in different directions at different speeds. You can't control the heat and the spread of the temperature in an unregulated fire, and it's the same way with transistors. With TMTA's product, you have a thermostat dial and can regulate the heat (i.e., the current) in a particular range.
Mr. Hillman's analogy made perfect sense, but I was still confused about the actual product. Mr. Hillman patiently explained the "product is inside the chip." TMTA's technology works on the entire chip--it's a "fundamental thing." It's not a component like a USB or memory--we go "down to the transistor physics level." Returning to the analogy of a fireplace in a house, TMTA doesn't build the house, but can regulate the temperature in the house. Thus, TMTA allows you to "dial back" the heating to prevent overheating or uneven temperatures, while leaving alone the cold parts of the house. TMTA's products are as follows:
1. Sensors. TMTA sells sensors that can tell you how much heat is in the chip, how much consumption is used by the chip, and how fast the heat is spread in the chip.
2. Controller. Mr. Hillman repeated the the on/off switch analogy used by the CEO Lester Crudele. The controller can shut off a chip's heat if necessary. A "controller" has many meanings. In general, anything that can control an electronic function is called a controller. You can control electronic current, voltage, temperature and other activities.
3. Voltage source on a chip. Mr. Hillman did not elaborate, and he may have meant to combine this product in the controller category above. Voltage source is needed by a transistor or any electronic circuit to work. It is like a switch that can turn on or turn off a transistor.
Mr. Hillman indicated that TMTA's products are "one way of addressing power." TMTA deals with the "fundamental activity" of a chip and changes the behavior of transistors. In a great line, he said TMTA makes chips orderly--it takes the "rabblerousers and makes them well-behaved."
I asked whether TMTA basically sold the blueprint for chips. Mr. Hillman did not say my analogy was incorrect. Thus, it appears that TMTA has some patents that certain chip companies use or must use in their chip production process. Through litigation, TMTA can exact licensing fees from various chip companies or companies using its technology.
The CEO's statement that hardware/software was a limited view of technology now made more sense. Rather than reinvent the wheel, some chip companies choose to pay TMTA a licensing fee so they can run their business, and that's where TMTA appears to make its money. TMTA's value lies in sustaining the viability of its patents, having an experienced litigation team, and being able to successfully negotiate with chip companies. TMTA is not a growth story. It's own 10K states, "Our customer base is high concentrated. For example, revenue from two customers in the aggregate accounted for 89% of total revenue during fiscal 2007."
As new technology enters the market, other companies may not need to license TMTA's patents. New technology may allow chip companies to regulate heat and power management in ways different enough to justify spending the money on litigation to fight TMTA in patent litigation. For now, and perhaps over the next few years, TMTA will continue receiving revenue from its prior work. If Intel settled with TMTA, and Nvidia (NVDA) bought a license, TMTA's patents are viable. But in technology, Darwin's Law is harsh and comes with great speed. TMTA looks like a company trying to conserve cash to survive. If you're looking for a growth story, this isn't it; however, as long as its patent portfolio remains viable, TMTA may be a potential takeover target or value play at the right price.
More analysis from a Ph.D. in electrical engineering: "It is not clear from your email exactly what kind of technology they [TMTA] are referring to; however, it appears that the technology is a combination of voltage source sensing and fabrication process control. This means that when we make transistors to build an electronic circuit, they can add another layer in the chemical process that can control electric current and hence the temperature of the transistors. Transistors, which are basic components of any electronic circuit, are made of staggered chemical layers on a piece of silicon. Now they can alter this fabrication process to control the current/temperature of the chip."
Disclaimer: I own fewer than 25 shares of TMTA.
I arrived about eight minutes late, and TMTA had started its meeting with the informal part and was in the middle of a basic slideshow. The formal part of the meeting lasted a few minutes, and then we moved to the Q&A session. Prior to the Q&A session, TMTA honored one of its retiring Board members, William Tai. More on Mr. Tai after the jump:
http://www.transmeta.com/corporate/board.html
Transmeta (TMTA) has around 35 employees and generates much of its revenue from licensing "LongRun and LongRun2 technologies" for controlling leakage and increasing power efficiency in semiconductor devices. The company focuses on power management and transistor leakage control.
One shareholder had several questions and asked questions given to him by other shareholders who could not attend. I will summarize his questions and CEO Lester Crudele's responses as best as I can. The shareholder asked several questions that required forecasting, a legal no-no, causing Mr. Crudele to answer, "We have no comment," to numerous questions.
Q: Given some of the promises of shareholder value, why do you think we're still trading below cash value?
A: I don't understand the motions of the stock market. We have valuable technology.
Q: Do you have any comments on program trading and short sellers?
A: No comment.
Q: When do you believe you will have a market cap of over a billion dollars?
A: No comment. We are still selling licenses, so the company has value.
Q: It feels like their are other infringers, in addition to just Intel [Note: TMTA settled with Intel (INTC) for an initial payment of $150 million with annual payments of $20 million from January 31, 2009 to January 31, 2014.]
A: We will vigorously defend ourselves and plan on defending our patents.
Q: Are you planning to approach more foundries?
A: Yes.
Q: Do you expect a license from AMD?
A: We have a long history with AMD. They invested in us last year.
Q: Do you expect your patents to hold up in continuing litigation?
A: One(?) out of eleven of our patents involved in the Intel litigation are being re-examined.
Note: an astute Seeking Alpha reader pointed out that all the patents are being re-examined:
http://www.investorvillage.com/smbd.asp?mb=329&mn=27418&pt=msg&mid=5553223
Q: Why don't you communicate more with shareholders?
A: The licensing business is very lumpy, it takes time [to get an agreement], and it's difficult to know when the agreements close, as they are usually under NDA.
Q: You don't have much analyst coverage.
A: We are a small size [company], and our current revenue situation [does not bring much coverage].
Q: Your business model seems to be a one time cash payment for the license. What about sustaining revenue over a long term period?
A: We usually get an initial licensing fee and then royalties for continuing use of the license.
Q: Will you be buying back shares? What about a dividend?
A: No comment.
It wasn't a tense exchange, but the CEO did look exasperated with the questions that required him to project revenue or financials into the future. The shareholder appeared to be out for blood, but the CEO answered most of his questions politely.
It was my turn to ask a question. As a layperson, I don't always understand a company's technology, and I always ask the CEO to explain what the company does and what their products offer. CEO Lester Crudele looked pleased to get a question he wasn't legally barred from answering. I am going to do my best to summarize his response. Mr. Crudele said that when electrical currents run through circuits, the currents don't always move consistently and often lose some of its power [which can cause heat and overheating within the IC chip]. He said this current leakage benefited from an on/off switch that regulated the flow of the electrical current.
I asked him whether his product was hardware or software. Mr. Crudele initially said hardware, but when I asked him to be more specific, he said his product was the "technology," and assigning products to hardware/software categories was a limited view of technology. I wondered: if a CEO cannot definitively say his product either has software that goes on the chip, or some tangible hardware, like the chip itself, what exactly was he selling? (TMTA no longer makes any chips: its website states, "Transmeta no longer manufactures, offers for sale, or provides engineering support for any of its microprocessor products.") The CEO, realizing I was confused, told me to come talk to him after the meeting. The meeting ended shortly after my questions.
Before I was able to get to the CEO, two other employees seemed eager to fill the gap in my knowledge. I decided to speak with one of them, Daniel Hillman, VP of Engineering, to see if I could get more information. Mr. Hillman did a very good job explaining TMTA's product. He indicated the product isn't hardware per se, but affects the hardware. It can be used on any kind of chip, and works on all chips, including integrated circuit chips. He used an analogy to explain further. He talked about having a fireplace in a house, but without the ability to control how hot it was. If you just throw logs on an open fire, the fire doesn't move predictably and has energy going in different directions at different speeds. You can't control the heat and the spread of the temperature in an unregulated fire, and it's the same way with transistors. With TMTA's product, you have a thermostat dial and can regulate the heat (i.e., the current) in a particular range.
Mr. Hillman's analogy made perfect sense, but I was still confused about the actual product. Mr. Hillman patiently explained the "product is inside the chip." TMTA's technology works on the entire chip--it's a "fundamental thing." It's not a component like a USB or memory--we go "down to the transistor physics level." Returning to the analogy of a fireplace in a house, TMTA doesn't build the house, but can regulate the temperature in the house. Thus, TMTA allows you to "dial back" the heating to prevent overheating or uneven temperatures, while leaving alone the cold parts of the house. TMTA's products are as follows:
1. Sensors. TMTA sells sensors that can tell you how much heat is in the chip, how much consumption is used by the chip, and how fast the heat is spread in the chip.
2. Controller. Mr. Hillman repeated the the on/off switch analogy used by the CEO Lester Crudele. The controller can shut off a chip's heat if necessary. A "controller" has many meanings. In general, anything that can control an electronic function is called a controller. You can control electronic current, voltage, temperature and other activities.
3. Voltage source on a chip. Mr. Hillman did not elaborate, and he may have meant to combine this product in the controller category above. Voltage source is needed by a transistor or any electronic circuit to work. It is like a switch that can turn on or turn off a transistor.
Mr. Hillman indicated that TMTA's products are "one way of addressing power." TMTA deals with the "fundamental activity" of a chip and changes the behavior of transistors. In a great line, he said TMTA makes chips orderly--it takes the "rabblerousers and makes them well-behaved."
I asked whether TMTA basically sold the blueprint for chips. Mr. Hillman did not say my analogy was incorrect. Thus, it appears that TMTA has some patents that certain chip companies use or must use in their chip production process. Through litigation, TMTA can exact licensing fees from various chip companies or companies using its technology.
The CEO's statement that hardware/software was a limited view of technology now made more sense. Rather than reinvent the wheel, some chip companies choose to pay TMTA a licensing fee so they can run their business, and that's where TMTA appears to make its money. TMTA's value lies in sustaining the viability of its patents, having an experienced litigation team, and being able to successfully negotiate with chip companies. TMTA is not a growth story. It's own 10K states, "Our customer base is high concentrated. For example, revenue from two customers in the aggregate accounted for 89% of total revenue during fiscal 2007."
As new technology enters the market, other companies may not need to license TMTA's patents. New technology may allow chip companies to regulate heat and power management in ways different enough to justify spending the money on litigation to fight TMTA in patent litigation. For now, and perhaps over the next few years, TMTA will continue receiving revenue from its prior work. If Intel settled with TMTA, and Nvidia (NVDA) bought a license, TMTA's patents are viable. But in technology, Darwin's Law is harsh and comes with great speed. TMTA looks like a company trying to conserve cash to survive. If you're looking for a growth story, this isn't it; however, as long as its patent portfolio remains viable, TMTA may be a potential takeover target or value play at the right price.
More analysis from a Ph.D. in electrical engineering: "It is not clear from your email exactly what kind of technology they [TMTA] are referring to; however, it appears that the technology is a combination of voltage source sensing and fabrication process control. This means that when we make transistors to build an electronic circuit, they can add another layer in the chemical process that can control electric current and hence the temperature of the transistors. Transistors, which are basic components of any electronic circuit, are made of staggered chemical layers on a piece of silicon. Now they can alter this fabrication process to control the current/temperature of the chip."
Disclaimer: I own fewer than 25 shares of TMTA.
Wednesday, September 17, 2008
America's Bailouts Approaching a Trillion Dollars
Courtesy of Reuters, here's a nice pie chart of the recent bailouts.
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