Plantronics Annual Shareholder Meeting (2010)

Plantronics (PLT) held its 2010 annual shareholder meeting on July 27, 2010. About ten shareholders were treated to tea, Peet's coffee, and bottled water. When entering Plantronics' headquarters, you will see a small (about 50 yards) museum on your right-hand side. This museum chronicles Plantronics' accomplishments since 1960, including its work with NASA and the Apollo shuttle launches. One of the most interesting museum pieces is an autographed picture from Buzz Aldrin to Plantronics' salesperson Steve Spragens. This space-age theme seems to heavily influence Plantronics ambiance--its building sections have names like Apollo, Cosmos, and Quasar.

The first thing I noticed when I walked into Plantronics, other than the mini-museum, was the pleasant vibe. The employees seemed happy and productive, and Investor Relations personnel made me feel very welcome. I was surprised, because the previous day, when the company reported what seemed like good earnings, Wall Street still punished the stock by 10%. (Note: over the past two years, PLT stock has soundly beat the S&P 500.)

Plantronics' CEO Kenneth Kannappan delivered most of the formal and informal presentation using a slideshow. Plantronics seeks to deliver unified communications ("UC") to corporations, positioning itself as the primary communications integrator for a company. The goal of UC is to integrate a company's voice, data, and video-based communications systems. Although Plantronics creates the majority of its software internally, Plantronics works with Cisco (CSCO), Microsoft (MSFT), and IBM (IBM) to implement UC programs (10K, page 3).

CEO Kannappan said he wanted to make communicating "simple and enticing" so that the return on investing in Plantronics' products would be justified. He also discussed Plantronics' focus on improving the "fidelity of the conversation."

Speaking of improving conversations, Plantronics owns Clarity, which makes phones and devices for the hearing impaired. I happen to be hearing impaired, and I use a Plantronics' Ameriphone XL-50 telephone. It is a big, clunky device, but it has served me well for the past decade. Without it, I'm not sure I'd be able to run my own business as a solo practitioner. The Clarity division doesn't significantly add to Plantronics' bottom line, but it still helps--in the first quarter of fiscal 2010, Clarity contributed $4.1 million to Plantronics' overall $141.2 million. More recently, in 1Q fiscal 2011, Clarity revenue was $5.1 million out of a total corporate revenue of $170.7 million.

Perhaps Clarity isn't doing as well as it should. As Americans get older, more and more them are losing their hearing, so it's surprising not to see a larger demand for Clarity products. I believe the low sales comes from a lack of attention and marketing of the Clarity brand. For example, when I was writing this post, I tried to log on to Clarity's website to view more products. The website was down. Earlier, when I had a chance to view an ad for the Clarity amplified C4220 telephone on Clarity's own website, the word "intelligent"--a word most elementary schoolchildren can write--was mis-spelled. (Note: I bought the C4200 and hope to use it soon. It is apparently a significant upgrade over the much older XL-50.)

Also, how many people would be happier with a higher maximum volume of their cell phones? I own a Palm Pre Plus (HPQ), and although I am happy with it overall, I rarely use it to talk, because its amplification isn't very high. When I was shopping for cell phones, I assumed I had no options for a good conversation and focused on comparing text messaging features. It turns out that Plantronics offers a cell phone--the ClarityLife C900--for senior citizens (a code word generally used in corporate-speak to refer to people who are hearing and/or visually impaired). It would have been nice to be able to walk into a store and try the C900 before buying a smartphone.

Anyway, I'm not surprised at the lack of attention given to hearing impaired professionals--society is used to children and senior citizens being hearing impaired, but not anyone in between. How else can we explain why the recent House bill (HR 1646) on a hearing aid tax credit only covers children and senior citizens? Boo to Reps. Carolyn McCarthy (D-NY) and Vern Ehlers (R-MI). My family had to spend thousands of dollars for hearing aids when I was growing up with no government support. Now that a bill might be passed to help ease the burden of spending 3,500 to 10,000 dollars on hearing aids, the House wants to exclude hearing impaired adult professionals like me?

(Kudos to Sen. Thomas Harkin (D-IA) for sponsoring S. 1019, which covers all age groups. It's hard not to love Iowans--the state has a low unemployment rate, moderate politics, and basketball star Ali Farokhmanesh.)

Anyway, back to the meeting. The Q&A session was brief. Another shareholder asked, "Are you hiring?" CEO Kannappan said the company was hiring in UC, firmware/software, software support, tech support, and field sales agents, and the increase in hiring would be "gradual."

I asked about Plantronics' decision to shut down and sell a 200,000+ square foot building in Suzhou, China. Plantronics had decided to move its Bluetooth headset manufacturing operations from Suzhou to Weifang, China. (See 10K, page 14.) CEO Kannappan said the new supplier in Weifang, China is in a better position to offer Plantronics "cost-savings."

Disclosure: I own an insignificant number of Plantronics (PLT) shares.

Criminals, by the Numbers

The American justice system, by the numbers:

1.7 million criminals behind bars.
4.3 million people on probation.
700,000 people on parole.

From Wilson Quarterly, Summer 2010, page 74, citing, American Interest, March/April 2010.

Bonus: "California's prison guards have become the state's largest personnel expense, creating a situation in which the government's cost to house each prisoner is an astounding $45,000 per year." More HERE and HERE.

Goldman Sachs' Report on Immigration

In 2008, Goldman Sachs issued an excellent report on immigration and the American economy. You can read the report HERE. The paragraph below is probably one of the most interesting parts of the report:

Immigration is probably a small net positive for the federal budget, because incremental tax revenues outweigh the limited services allowed to immigrants. States and localities often pick up the slack in providing social services to immigrants, and therefore incur considerable costs, particularly in states with a large share of unauthorized migrants.

The costs immigrants pose to the federal budget are probably relatively low. The welfare reform passed in 1996 stipulated that states could not use federal grants to finance benefits such as Temporary Assistance to Needy Families, Medicaid, etc. to non-citizens, though they could still offer such assistance with their own funds. However, the American-born children of immigrants (whether authorized or not) are citizens and thus entitled to benefits.

At the same time, immigrants do provide tax revenues to the Treasury. Even illegal immigrants pay federal taxes: in order to demonstrate eligibility for employment, undocumented workers often use fake Social Security cards with numbers “borrowed” from others or simply made up. When federal payroll taxes and income taxes are withheld from their paychecks, funds accumulate in the Social Security trust funds with no parallel entitlement. Since the Immigration Reform & Control Act went into effect during the late 1980s, inflows into the ‘Earnings Suspense File’ have increased dramatically (Exhibit 8). The cumulative taxes held in this account are $463 billion...

The situation at the state and local levels is very different. According to a ruling of the Supreme Court, these jurisdictions cannot withhold public education and emergency medical services from either legal or illegal immigrants residing in the United States (Hanson, p. 13). As states generally foot the bill for these services, outlays for immigrants likely outweigh the corresponding tax revenues.

Like I said, very interesting stuff. Overall, it sounds like Goldman Sachs is saying that the federal government receives benefits from illegal immigration while states and local governments do not.

Political Polarization

From Chris Hedges’ book The Empire of Illusion: The End of Literacy and the Triumph of Spectacle:

What counts today isn’t engaging the other side with reasoned arguments; it’s building a rabid fan base by demonizing the other side and stoking the audience’s collective sense of outrage and victimization. And that’s a job best performed not by serious thinkers but by hacks and hucksters. Rush Limbaugh, Glenn Beck, Sean Hannity, Mark Levin, Joseph Farah, Ann Coulter, Michelle Malkin: they adorn the cathedral of conservatism like so many gargoyles.

Hat tip to Not a Potted Plant.

Bonus, from same author and book:

We are a culture that has been denied, or has passively given up, the linguistic and intellectual tools to cope with complexity, to separate illusion from reality. We have traded the printed word for the gleaming image. Public rhetoric is designed to be comprehensible to a ten-year-old child or an adult with a sixth-grade reading level. Most of us speak at this level, are entertained and think at this level. We have transformed our culture into a vast replica of Pinocchio's Pleasure Island, where boys were lured with the promise of no school and endless fun. They were all, however, turned into donkeys -- a symbol, in Italian culture, of ignorance and stupidity.

I find myself both awed and saddened by Hedges' summary of American public discussion.

On Family

I had a conversation recently with a friend who discussed the difficulties of child-rearing. Then I read this:

The truth is that, with the birth of the first child, marvelous changes take place. From that moment on, mama is no longer the center of attention; the baby is. Mama and papa will give—-and willingly-—and the baby will take. They will assume responsibility, earn money, employ their energy, change their lives, if necessary—-all for the baby. This is no light undertaking, but the business of life is starting now, and every day of mama's life proves it to be so. And here her struggle starts. She wants to give everything to the baby; she wants equally to hold on to herself, her intelligence and uniqueness, while the baby constantly tries her patience, her strength, her nerves, and roots out of her the deepest emotions she has ever known in her life. This is a whole new process, and not one that provides built-in security.

The more things change, the more they stay the same. Fascinating Atlantic article from 1961 HERE.

The More Things Change, The More They Stay the Same

In 2010, the immigration debate seems to be reaching a fever pitch. It's important to note that the same racially-charged arguments against immigration have been made before. In short, the more things change, the more they stay the same. Guess the year Economist W. Jett Lauck made the following statement:

"our industrial system has become saturated with an alien unskilled labor force of low standards, which so far has been impossible to assimilate industrially, socially, or politically, and which has broken down American standards of work and compensation."

From Wilson Quarterly, Summer 2010, page 20; originally from "The Lesson from Lawrence," published in 1912. Mr. Lauck was apparently referring to Italians, Slovaks, Magyars, and Croatians. I wonder what Justices Scalia and Alito think about the Arizona anti-illegal-immigration law.

EMC and Brocade

Update on 9/2/10: this was posted on July 23, 2010, when BRCD was around 5.03. BRCD declined even further over the next few weeks, dropping to around 4.70. On September 2, 2010, BRCD went as high as 5.64. I get concerned when a stock pops over 20% in less than a month, and with my "two in the hand is better than one in the bush" mentality, I reduced my positions substantially. BRCD is no longer my largest holding, and I no longer have an opinion about the direction of its stock price. However, I continue to think a "horizontal acquisition" (when a competitor buys out its competition) would be ideal for EMC and BRCD. Original post is below.

Update on 9/7/10: today, I sold all but one of my BRCD shares. Will I regret my decision? Perhaps. But as I said earlier, I am risk-averse, especially after seeing a stock move higher so quickly.

More here, in case anyone is interested. Check out the comments section within the link.

____________

I've got a superstitious side. I sometimes get gut feelings based on no evidence or new information, and yet, my logical side fails to ignore these feelings. I know this: I am no prognosticator. You should not rely on my subjective opinions. For some strange reason, I just got a gut feeling that EMC may be buying out Brocade (BRCD). I used to think IBM would buy out Brocade, but now EMC seems a more viable suitor. No logic is involved, just a sudden gut feeling. As of today, Brocade is trading around 5.03/share.

Mind you, I have no idea if or when Brocade will be bought out, but it seems clear that BRCD is too small to compete against IBM, HP, or Cisco. Yet, despite all odds, Brocade continues to offer excellent technology and human capital. As such, once Brocade's earnings get back on track, it will be an attractive takeover target. It seems to me that a smart suitor will buy a beaten-down company right before it starts doing well, not after. Once Brocade performs well, its stock price will increase significantly, making a buyout more expensive. Right now, though, if EMC were to offer Brocade $7.00/sh, I would be very pleased.

Disclosures: I own Brocade (BRCD) shares. As of July 23, 2010, Brocade is my largest individual stock holding. However, my holdings may change in the future.

Update: conventional wisdom indicates a buy-out won't happen any time soon. Oracle's Ellison has indicated he isn't interested in Brocade, and HPQ/Dell seem to be moving towards more software-based companies. Also, EMC has publicly stated it is looking at sub-billion dollar purchases, so perhaps BRCD is too expensive for EMC. Even so, I continue to believe that Brocade will be bought out at some point.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result. Unless specifically stated otherwise, no portion of this blog is commercial in nature in any fashion, nor operated for profit. All copyrighted material reproduced herein appears under a claim of fair use. Nothing herein constitutes legal advice, in any state; those seeking legal advice should consult with an attorney licensed to practice law in the appropriate jurisdiction. No guarantee made of updates at any rate of frequency or periodicity. All statements of fact in this blog are derived from sources reasonably and in good faith believed to be true and accurate. Author not responsible for any harm arising from following anything construed as advice herein.