Hayward Police Settles Harassment Case for $5 million

Hayward Police Department settles harassment case for 5 million dollars:

http://www.mercurynews.com/ci_12561714

The lawsuit was settled through the city's insurance companies, which are responsible for paying it. City officials said the settlement will have no effect on the city's general fund or income from Measure A, a utility users tax approved in May.

City Attorney Michael Lawson estimated that the city spent about $500,000 on the case since it was brought forward in November 2007.

Casper said the amount of the settlement indicated the insurance companies "recognized the problems the city has historically had with women being treated fairly at the police department. Close to $5 million is not an amount paid unless someone has recognized years of wrongdoing."

Surprisingly, the amount was paid through an insurance company. Many cities are self-insured, but perhaps Hayward was small enough to get an outside insurance policy. Even though the city paid the settlement monies through an insurance company, taxpayers will still suffer (beyond the half a million dollars spent on legal fees). After all, the insurance company will raise the city's insurance rates, and the higher premiums will be paid by taxpayers.

Intersil Litigation Update

I recently thought about buying a few shares of Intersil (ISIL), which is embroiled in litigation against a Texas company called Texas Advanced Optoelectronic Solutions, Inc. ("TAOS"). I reviewed the online docket, and there's not much going on. The parties have entered into a standard protective order to protect confidential information and have chosen to mediate. Former Magistrate Judge Robert Faulkner is the mediator:

http://www.jamsadr.com/neutrals/Bio.asp?NeutralID=1632

The most recent docket activity was the assignment to mediation. Short interest increased in ISIL shares recently. ISIL should be an interesting stock to follow, especially because it supplies some iPhone parts, and the litigation relates to ISIL's iPhone business.

Disclosure: I own one ISIL share.

California's Budget Crisis Continues

An interesting perspective from Assembly-member Jim Beall, Jr. in Campbell Times (June 2009, page 19):

The state's biggest cost driver is prisons. The prison budget has doubled in the past decade to $10 billion. The state has 173,000 inmates, which is roughly equivalent to locking up everyone in the city of Ontario [California]. We spend roughly $45,000 on each prisoner, which is just about what it costs to send a student to Yale. Yet, California has a 70 percent recidivism rate...what we are doing now isn't working...

The state's 2009-2010 revenue is chiefly derived from personal income taxes accounting for almost half--49 percent; sales and use taxes make up 34.6 percent; corporation taxes represent 10.7 percent; the rest come from a myriad number of sources.

Two thoughts:

1. The war on drugs is bankrupting the state. The state spends huge sums jailing thousands of drug addicts.

2. The pro-law-enforcement mentality post-9-11 may have caused D.A.s to prosecute more non-violent offenders, knowing juries would be more fearful of anyone suspected of a crime.

To be or not to be a libertarian--more Californians should be asking themselves this question.

More on California's problems here.

Morgan Spurlock

Morgan Spurlock just keeps outdoing himself:

http://www.hulu.com/watch/26682/30-days-life-on-an-indian-reservation#x-0,vepisode,1

His episode about living on an Indian reservation was deeply moving. If the link above doesn't work, go to hulu.com and search for the show "30 Days." (Note to Netflix: the online video has captions.)

Kobe Bryant

From ESPN's Bill Simmons, or what I call, "Why Kobe Will Never, Ever Be Like Mike":

http://sports.espn.go.com/espn/page2/story?page=simmons/090608

Important note: Kobe's reputation as a "killer" at the end of games remains overblown. The site www.82games.com just posted a study of game-winning shots from the last five-plus seasons (regular seasons and playoffs since the 2003-04 season) that revealed Kobe was shooting 14-for-56 (25 percent) with one assist and five turnovers, and made 12 of 15 free throws. So let's say that was 70 possessions total, including Sunday night. ... He only had one assist in nearly six years??? That's why Orlando quadruple-teamed him in that spot. Kobe is a phenomenal streak shooter, and he has a real talent for catching fire with a lead and closing games out ... but you can stop him in one-shot situations simply because he's his own worst enemy. He wants to be a hero, he's shooting it, and that's that.

0:00.6: Funniest moment of the game: Kobe storms back to the bench, whacks the chair in disgust and sits down as Phil Jackson (already sitting) looks at him with a bemused, "Should I point out to him that MJ absolutely would have passed there?" smile on his face. Classic.

Mr. Simmons is absolutely right. Is it just me who thinks Kobe's newfound super-intensity is contrived? He mailed it in against Houston in the last series, and in Game 2, he didn't do much until the second half. Then, he gets the benefit of a Jack Nicholson tantrum, which causes the referees to call multiple touch/non-existent fouls against Orlando thereafter. (A significant development when the game later goes into OT.)

Kobe's decision to go four-on-one while Odom was wide open and practically begging for the ball establishes that Kobe is not a clutch player. I'm sorry, but even Mike passed to Steve Kerr (1997 NBA Finals) and enabled John Paxson to take the last shot (1993 NBA Finals).

Even though the following interview took place in 2004, Ray Allen's comments about Kobe are still spot-on:

http://www.seattlepi.com/basketball/195189_sonx14.html

He's going to be very selfish...I think the point production is not going to be so much what people are going to look at because (Tracy) McGrady did it in Orlando, Allen (Iverson) did it in Philly. Can you win a championship? I think that's the question. Carrying guys on your back and making everybody better." ... But is his attitude going to allow him to take a back seat and let Lamar Odom shine and let Caron Butler have his nights and bring those big guys along with him?"

Some final comments: Kobe now has Pau Gasol, who's an All-Star center--a white version of Shaq, if you will. Gasol was an All-Star and FIBA champ before he played with Kobe. Kobe couldn't win with just Bynum. He couldn't win with Kwame Brown. He couldn't win with Radmanovic. He couldn't win with Divac. Bottom line, if Kobe wins the championship, good for him--but don't sully Jordan's reputation and your own basketball IQ by ever comparing Jordan--who won championships with non-All-Stars Luc Longley and Bill Wennington--with Kobe.

Notes for Stan Van Gundy: play Howard and Battie/Gortat together as much as you can. Put Pietrus on Kobe till Pietrus fouls out. Play Alston and tell him before the game that he's the starting PG. Let Alston control his own minutes and sub Nelson at Alston's own reasonable discretion.

Update on June 9, 2009: Tonight was Game 3 of the Orlando-L.A. NBA Finals. From this day forward, whenever anyone compares Kobe to Jordan, all you need to end the discussion are the following five words: "Game 3, 2009 NBA Finals." Kobe not only missed a crucial free throw in the final two minutes, but he turned the ball over and misfired on a three-pointer. Kobe's last play of the game? He fouled an Orlando player with 0.2 seconds left on the clock with Orlando up by 2 points. (The player made both free throws.)

Actel's Annual Shareholder Meeting (2009)

Actel Corporation (ACTL) held its annual shareholder meeting on June 5, 2009 at a Santa Clara hotel. Although around eighteen people attended the meeting, I was the only non-employee there. The hotel served cinnamon rolls, fruit, pastries, water, and coffee.

CEO and President John East gave a slideshow presentation. It appeared that the presentation had been shown to everyone else in the room the day before. Mr. East is a tall man, more Texas than California in his demeanor--friendly, direct, and unreserved. (In case you're interested, here is a 2008 interview with him.)

The meeting began with Attorney David Foster introducing various Actel employees. As part of the formal portion of the meeting, several directors were nominated, and shareholders increased the number of shares reserved for issuance by two million shares. CEO East then began his presentation.

Before I summarize Mr. East's presentation, I will provide some technical background. Actel makes FPGAs. FPGA stands for "Field Programmable Gate Array." A digital gate is a combination of many transistors to make a function such as an inverter or flip flop. Hundreds, thousands or even more digital (or recently analog) cells make an FPGA. FPGAs are useful because companies can configure their desired circuits to make a system application by pick-and-choose or by cut-and-paste.

RAM stands for Random Access Memory (vs. ROM which is Read Only Memory). There is Static RAM, Dynamic RAM, etc. which are digital (logic) circuits. These are used in the computers and other electronic systems. (Mr. East mentioned several times that Actel was focused on the "static" end of the market, and I assume he was referring to Static RAM.)

Two ways of measuring an FPGA are by reviewing its clock speed and data rate. Actel's FPGA "clock" speeds of 200MHz (its low power design) and 350MHz are very good. However, in many data communication applications, "data" speed (or data rate) of several gigahertz (1000 megahertz) are common now. To get a more complete picture of Actel's FPGAs, I should have also asked questions about data speed, which I did not do; however, in pure digital systems, clock and data speeds tend to be very close.

In contrast, in mixed (digital + analog) systems, such as data communication applications, the data rate is usually many times the clock rate (speed). Actel indicated clock speeds of 40 to 60 MHz in its mixed-signal product.

Getting back to the presentation, Mr. East talked for about forty minutes while explaining the various slides. I will do my best to replicate the main points of the presentation.

No debt: Actel has no debt and 140 million dollars in cash and investments.

Broad customer base: Actel has 3500+ customers. 60% of Actel's revenues come from around 1000 customers. [Note: 10K, page 26: Lockheed is a major customer. "Lockheed Martin accounted for 4% of our net revenues during 2004 compared with 11% during 2003."]

Niche markets: Actel is not "going after what the big guys [Altera (ALTR) and Xilinx (XLNX)] are going after."

Static v. Dynamic: Actel is better when it comes to static power.

Survey says: "Which vendor best addresses power consumption" problems in FPGAs?

Xilinx: 27%; Lattice Semi: 6%; Altera, 22%; Actel, 22%.

Flash: Flash is growing, but at a slower rate than anti-fuse.

Slow but steady?: Actel is "gaining share, but not at a rapid pace."

Long-term customers: Actel has many long-term customers in the military, industrial, and medical markets. At the same time, some of these customers have external complications, such as necessary FDA approval, that prevent immediate sales. As a result, although Actel is actively trying to gain more long-term customers, the time it takes to gain such customers may cancel out any immediate revenue effect.

Vision: CEO East talked about how the "whole world is moving" in the direction of "portable" products, i.e., handheld and battery-powered devices. (The cellphone is an obvious example of this movement.) Mr. East mentioned that he had just seen a portable medical device the size of his thumb. (Quite a change from the days of large, immovable medical equipment.) He mentioned that some restaurants no longer using pen and paper but are taking orders on portable devices. He provided many examples of Actel's ability to grow in the future as more devices become smaller and handheld.

Acquisitions: Mr. East talked about Actel's acquisition of Pigeon Point Systems and the possibility that the TCA (Telecommunications Computing Architecture) standard would become industry standard.

I asked several questions. I mentioned that around 40% of Actel's revenues came from the military and aerospace industries. (See 10K, page 25, "[S]ales of our products to customers in the military and aerospace industries...accounted for 38% of our net revenues in 2008.") I asked how the cancellation of various projects would impact Actel. I mentioned specific projects, like the F-22, which had been scaled back or canceled.

This is where it got a little confusing. All CEOs, including the honest ones, are part-salemen. No CEO wants to admit that problems might arise as a result of government spending cuts. As a taxpayer, I am quite happy President Obama is scaling back some defense programs. (See here for more on this issue.) Actel shareholders, however, probably understand that certain military/aerospace cuts may impact Actel's ability to grow. Mr. East did not mention any particular defense program cut that would impact Actel's revenues. Mr. East seemed to say that Actel's product line was diverse enough so that the "cumulative" effect of defense spending cuts would not be significant. Even so, if I was a mutual fund that owned millions of shares, I'd ask Actel to break down exactly how much money it was expecting from each of its defense projects. That breakdown would give a fund manager a better idea of what to expect from Actel moving forward.

Mr. East did mention that "95%" of American-launched satellites used some Actel product. That's an incredible achievement. Mr. East mentioned that there were many civilian satellites, such as weather satellites, and scientific satellites, such as Pluto explorations. His point was that even if the military cuts back on its defense spending, civilian projects would probably continue to give Actel revenue.

I asked about Actel's efforts to diversify its upper ranks. There were only two females in the entire room, and one of them appeared to be a non-executive employee. If I saw a company with 18 women and 1 male in upper management, I'd be concerned, so I asked Mr. East what he was doing to improve diversity. Mr. East seemed a little uncomfortable with this question and first joked that if I was discriminating against older white men, he was going to call his lawyer to come after me. He then pointed out that Actel had some Egyptian and Lebanese employees in the room, and the overall racial composition of Actel's employees was very, very diverse.

When I pressed him further on why there weren't more women in the room, Mr. East became more serious and indicated that there was a "dearth of American-born female engineers." In probably one of the best comments made by a CEO I've heard, he said he didn't have a company car, he stayed in cheap hotels, and he didn't have an executive jet, but he "liked his engineers." His point was that he hired good engineers, no matter what the ethnicity or gender. As he became increasingly more uncomfortable, the sole female manager piped in. She made some excellent comments about how the company wanted to add diversity naturally, not "artificially." She said that in the nine years she had been with the company, Actel had "never" had a hearing before the OFCCP (the OFFCP ensures that federal contractors do not discriminate). Her response was excellent, and having a female employee save the CEO from his discomfort showed that Mr. East was respected within Actel's upper ranks.

Although I enjoyed the CEO's presentation, I will not be buying more Actel shares. When it comes to technology, you want to go with the leaders, and Xilinx and Altera appear to be the leaders in Actel's field. That doesn't mean Actel won't survive or even thrive, but it appears to have made a conscious decision to move away from competing with Xilinx and Altera. That means Actel will probably focus more on lower-growth areas, where the larger players have exited. To give you an idea of the size difference between Actel, Xilinx and Altera, Actel's market cap is around 300 million dollars; Altera's is around 5 billion dollars; and Xilinx's is around 6 billion dollars. Maybe Actel will eventually decide to play the part of David and slay the Goliaths. Anything's possible in our this topsy-turvy world of ours. Right now, however, Actel does not appear to be able to grow at a high enough rate to justify a massive upside in its stock price.

Miscellany: Actel invested in Lehman Brothers' bonds and only recently wrote off the investment. See 10K, page 49: "The total impairment charge of $0.9 million is included in interest income and other, net on our consolidated statement of operations for the year ended January 4, 2009."

Disclosure: I own an insignificant number of Actel and Xilinx shares.

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