Replies to post #1898 on The Rising Influence of Rising Affluence

[DewDiligence]

More on The Cloud—this piece from today’s WSJ is
a companion read to the article in #msg-58121809.

http://online.wsj.com/article/SB10001424052970203513204576047972349898048.html

›Small Companies Look to Cloud for Savings

DECEMBER 29, 2010
By EMILY MALTBY

A growing number of small-business owners are expected to try cloud computing services next year, hoping to trim costs and stay up and running if disaster strikes.

Cloud computing refers to any service that operates over an Internet connection, allowing immediate access from any computer or mobile device with Web access. Business owners can access software or store information—such as customer contacts, accounting data and presentations—and leave the technical maintenance to the cloud provider.

As of April 2010, only about 7% of small-business owners were using cloud services, but that number is expected to grow to more than 10% by mid-2011, according to a survey by technology-research firm IDC. "Moving the trend forward in the smallest companies is the affordability and flexibility," says Raymond Boggs, vice president of small and mid-sized business research at IDC.

Software that is accessed through the cloud is often free or pay-per-use—a more affordable model than paying big, upfront licensing fees. Half of small firms that use "the cloud" say it has improved their bottom line, according to a survey this fall by Microsoft Corp., which provides cloud services.

A number of surveys show that some business owners are hesitant to try cloud computing because they don't want to stray from familiar systems or invest in new ones. Some owners that have made the switch, however, say it has been a boon to their cash-strapped firms.

Garey Willbanks, owner of Boiler Management Ltd. in Houston, says he pays about $600 a month to store information in the cloud. He estimates that is less than a tenth of what he would pay if he hired technology personnel to run an in-house storage server.

Mr. Willbanks made the switch to cloud computing after Hurricane Ike cut power to his area in late 2008. At the time, he had in-house servers to channel and store vital information about the water-heating systems his firm had installed. Without access to the servers, his business was at a standstill. "We had no connectivity in our office for 24 hours," he says. "I said, 'We can't be this vulnerable.' "

Mr. Willbanks hired Rackspace Hosting Inc., a San Antonio cloud provider, which assumed responsibility for the storage of Boiler Management's information—from the heater monitoring to email contacts. Since then, Mr. Willbanks hasn't needed anyone to trouble-shoot server issues, and he is connected all the time, accessing information from his BlackBerry, iPad, or laptop.

Some owners, like Mr. Willbanks, use the cloud simply to back up information. Others use it to access software programs through the Web, known as "software as a service," rather than from a local computer.

Cloud services often make expensive software affordable to small firms, says Rob Enderle, technology consultant and founder of Enderle Group Inc., in San Jose, Calif.

In June, Michael Tracy, a private law practitioner in Irvine, Calif., decided to try Nextpoint, a cloud-based program for attorneys. He had previously spent $10,000 to $12,000 a year licensing software that would organize materials before a trial. The problem was he needed it just a few times a year. By contrast, Mr. Tracy pays for Nextpoint only when he uses it, and he anticipates spending just $4,000 to $6,000 a year on the service.

The actual savings of using the cloud will vary, says Mr. Enderle. Cloud software is inexpensive upfront and can cut costs by streamlining processes. For example, accounting software helps business owners manage finances. But when that software is in the cloud, the business owner's accountant may also access it. By seeing those finances in real time, the accountant can trouble-shoot cash-flow issues before they arise and can more easily file tax returns.

"If you already have tight control over your company, your expenses may drop 10% to 20%," says Mr. Enderle. Companies that use cloud services to improve inefficiencies might see an even greater return, he says.

Despite the savings, there are risks. Security breaches, for instance, can happen if the cloud provider isn't reliable. "If they make money directly from you, then they will want to secure [your information]," Mr. Enderle says. "If they make it through advertising," they may be more likely to sell the information to advertisers, he says.

And while in-house software can often be customized, cloud software often can't. Mr. Tracy says that when he uses Nextpoint, "some of the documents are case-specific," and he can't use a general software program like Nextpoint to organize and search them.

Others fear that they might lose their information, or have to spend a lot of time transferring data, if they want out. Kirby Allison, founder of Hanger Project LLC, a garment-hanger company in Dallas, has been using a cloud-based marketing software, Campaigner, for two years. "We'd lose access to so much information if we stop using Campaigner," says Mr. Allison, referring to historical data, such as reams of marketing analytics, which he says would require "several days' worth of work" to transfer to another system.

"As with any information you gather over time, if you are relying on the provider to store it then it can be very painful to move it over," says Melanie Attia, project marketing manager at Campaigner. "So make sure it's the right provider and that you're ready to be in it for the long haul."

Mr. Allison plans to continue using Campaigner, as he estimates that the $25 a month he pays to send email promotions to thousands of customers is a fraction of what he'd pay a marketing firm. "It really isn't much money at all," he says. "And it works great."‹

[DewDiligence]

Tablet-Computer Demand Puts a Dent in PC Sales

[See the text highlighted in red about halfway down.]

http://online.wsj.com/article/SB10001424052748703300904576178381437662352.html

›MARCH 4, 2011
By BEN WORTHEN

On Wednesday, Apple Inc. Chief Executive Steve Jobs declared that the tech industry is in the "post-PC" device era as he introduced the iPad 2. A day later, a leading technology research firm gave credence to that assertion, cutting its PC shipment forecast and citing tablets as one of the reasons.

Gartner Inc. said it expects worldwide PC shipments to grow 10.5% in 2011 to 387.8 million units, down from an earlier forecast of 15.9% growth. The biggest decline [relative to the prior forecast] will come in laptops sold to consumers, a traditionally high-growth category where shipments are now expected to increase 14.6% in 2011 instead of 25.1%, the firm said.

Competition from the iPad is an obvious culprit. Many estimates call for upwards of 40 million tablet sales in 2011—with Apple's device dominating the market—an amount that would more than compensate for the drop-off in PC sales if the two categories were combined. And many other companies are racing to make tablets of their own.

"The tablet is obviously one of the biggest challenges the PC has ever faced," said George Shiffler, a Gartner analyst.

Still, it's an overstatement to call the tablet a PC killer. Many businesses and consumers who need computers for work are still likely to buy laptops.

Mr. Shiffler, in fact, suspects that laptop growth may kick into a higher gear again after a delay as consumer figure out the best uses for the new devices. Gartner even revised upward its long-term growth rates for laptop shipments, as consumers in developing countries buy more of the machines. [Hooray for The Global Demographic Tailwind!]

"Our forecasts before the advent of media tablets was for multiple laptops per household," said Jeff Barney, a vice president at Toshiba Corp.'s U.S. computer unit. Now the company, one of the fastest-growing makers of laptops for consumers, expects some people to opt for a tablet over a second or third laptop. Also, consumers may wait longer before replacing an existing laptop.

"Maybe it stretches from every two and a half years to every four years," Mr. Barney said.

Toshiba plans to release a tablet running Google Inc.'s Android operating system in May.

A shift in the market was evident over the holidays: Hewlett-Packard Co. said PC sales to consumers in its January quarter declined 12% from a year earlier; Dell Inc.'s quarterly revenue in its consumer business fell 8%.

Netbooks, a type of small, less expensive mobile PC, have been particularly hard hit since the introduction of the iPad. In the U.S., netbook sales grew four-fold in the fourth quarter of 2009 compared to the same period a year earlier, according to technology research firm IDC. U.S. netbook sales declined 48.7% in the fourth quarter of 2010.

Electronics retailer Best Buy Co. said in December that tablets had captured a lot of the attention of "early adopters" instead of other computers.

"Tablets are an exciting new option for consumers right now and a category Best Buy is focusing heavily on," a spokeswoman for the Richfield, Minn.-based retailer said in a statement on Thursday.

"Our goal is to be tablet central, with a broad selection that customers can test and try. The exuberance around [Wednesday's] iPad announcement is really indicative of the excitement we're seeing for tablets overall this year, and we expect this enthusiasm to continue."‹

[DewDiligence]

CSCO lays off 9% of workforce:

http://online.wsj.com/article/SB10001424052702303795304576454401263162050.html

[DewDiligence]

Wintel’s Identity Crisis

[Having too much cash can be a drain on share-price performance.]

http://online.barrons.com/article/SB50001424053111903337604576455941405828466.html

›JULY 23, 2011
By MARK VEVERKA

Healthy earnings reports didn't do much for the shares of Microsoft and Intel. Investors seem to be dwelling on Microsoft's failure to sell enough operating systems and Intel's lackadaisical PC growth.

Both pillars of the once-mighty Wintel duopoly posted very solid earnings results last week, but the growth fans are long gone, and the value investors who have replaced them are grumpy. Consequently, shares of both Microsoft (ticker: MSFT) and Intel (INTC) did a whole lot of nothing.

Microsoft last week reported a 30% gain in profit, to $5.8 billion, or 69 cents a share, for its fiscal fourth quarter, driven by a healthy appetite for its business offerings, such as Windows Office, and its Xbox videogame business, which is thriving thanks to its game-changing Kinect system. Earnings beat consensus estimates by a dime, but it still didn't move the needle much among investors. Revenue also beat the Street, jumping by 8%, to $17.4 billion. The shares closed Friday at 27.53, up 2.8% from the previous Friday's close of 26.78.

What investors seemed to dwell on was a slight dip in sales for the Windows operating system for personal computers, as well as weakness in Internet-search revenues, including its partnership with Yahoo! (YHOO). "We still face monetization challenges, but we'll have this turned around by [Dec. 31]," Chief Financial Officer Peter Klein told investors on a conference call.

Meantime, sales in low-end Windows for netbooks plunged by around 41%, seemingly cut low by tablets—namely iPads. But the business-products side of the house, including servers and tools, whose revenues jumped 12%, continued to throw off cash. Stellar cash flow "allows us to capitalize on long-term growth opportunities," CFO Klein said. That kind of talk is what irks value-style shareholders, who would like to see Microsoft lose its ambition to remain a "growth company," says HighMark Capital Management Vice President Todd Lowenstein. The Los Angeles money manager, whose firm holds 1.9 million shares, calls Microsoft a "bad allocator of capital," and supports shareholder proposals to use cheap debt to increase dividends and buy back more shares.

"Microsoft is the perfect candidate for a leveraged recapitalization. It has been done with companies in other industries with less stellar balance sheets," Lowenstein argues. No matter how much pressure institutional investors try to apply to Microsoft, don't expect any kind of radical recap plan soon. Current management isn't giving up on its growth plans for mobile and cloud computing.

Intel investors face the same conundrum. As another big-cap tech company that has matured, Intel also has yet to throw in the towel on being a "growth company." Last week, the Santa Clara, Calif., chip giant's second-quarter profit of $2.95 billion, or 54 cents a share, beat analysts' estimates, and record sales of $13 billion edged out forecasts. The results were driven by robust sales in servers and data centers. But the company lowered its expectations for full-year PC growth from low-double-digits to a range of 8%-10%, which grabbed all of the headlines. Shares declined in trading after the earnings report; they closed Friday at 23.13, up 3.4% from 22.37 the previous Friday.

Charter Equity Research analyst Edward Snyder contends that Intel is making smart investments in tablets, mobile and security, but for now will live and die as a PC company in the eyes of investors. "A sustained appreciation in Intel won't occur until investors see tangible signs of success in large new markets like mobile phones," Snyder says. Could be a while.‹

[DewDiligence]

Barron’s is bullish on AKAM…

http://online.barrons.com/article/SB50001424052748703805304577124751186791964.html

›Learning to Love Akamai

DECEMBER 31, 2011
By ALEXANDER EULE

Even the market sometimes gets its math wrong. Take the case of Akamai Technologies, a Web-services provider, which announced on Dec. 22 it was buying rival upstart Cotendo for $268 million in cash. Usually an acquirer's stock falls on deal news, but Akamai jumped 19%, translating the small purchase into almost $1 billion in market gains.

The disparity reflects Wall Street's long-running struggle with Akamai's stock (ticker: AKAM), which has been both loved and hated. Shares ran above $50 in 2007 and again in 2010. Both times they subsequently plummeted into the teens. The stock closed at $32 Friday, and might well be back near $50 in a year.

In the past year investors became obsessed with Cotendo's ability to undercut Akamai's business. Never mind that Cotendo had a meager $30 million in revenue, to Akamai's $1 billion-plus. Once the supposed threat was removed, Akamai shares soared.

The roller coaster doesn't make a lot of sense for a company that basically holds the keys to the Internet. Akamai touches up to 30% of all Web traffic, given its network of 100,000 servers in 71 countries. The computers accumulate Web content and deliver data, on demand, to nearby Internet users. Every big media company and 90 of the 100 largest online retailers use Akamai to keep their content flowing quickly and reliably.

Akamai was founded at MIT in 1998 to solve the problems the Web—an amalgam of disparate networks—created. "The Internet was not designed to be able to deal with things like performance and reliability and scalability and security," says Neil Cohen, Akamai's VP of product marketing. "The big idea when Akamai was formed was to leverage distributed computing."

Such talk sounds like a cliché in today's cloud-focused world, but it was cutting-edge 13 years ago. And the company continues to innovate, layering more profitable, software-based services onto its servers. Akamai's cloud now acts as a perimeter defense against cyber attacks, and it smartly routes IP traffic across the most efficient path. That's crucial as companies outsource their computing power into the cloud and become vulnerable to the Internet's natural latency.

Akamai also is creating profitable partnerships with equipment players such as Ericsson (ERIC) and Riverbed Technology (RVBD), which will put Akamai's software in private enterprise clouds and wireless networks.

Cloud infrastructure now accounts for 60% of revenue, which could reach a record $1.3 billion this year. Earnings are likely to grow 14% to $305 million, or $1.67 a share. [At the current share price, this 2012 forecast represents a P/E of about 19x.]

Still, bears contend pricing pressure from smaller players like Level 3 Communications (LVLT) and Limelight Networks (LLNW) makes Akamai permanently vulnerable. That was the worry when Level 3 won some content-delivery business from Netflix (NFLX) a year ago. The rivals can't match Akamai's scale, ultimately limiting their appeal to the most profitable enterprise clients.

David Rudow, a senior equity analyst at Thrivent Asset Management, has watched the Akamai drama unfold in the past five years, and his firm has been in and out of the stock. Thrivent now owns almost 1% of Akamai, and Rudow thinks the stock could reach $50 within the next 18 months. That assumes an enterprise value-to-Ebitda multiple of 14. In 2010 shares fetched up to 25 times Ebitda, or earnings before interest, taxes, depreciation and amortization. [That analysts continue to EBITDA-based ratios for valuation is somewhat troubling, IMO.]

So far, sell-side analysts have kept their enthusiasm in check, to say the least. The average price target on the Street is $31. By the time the Street acknowledges Akamai's momentum, the opportunity to profit could be gone.‹

[DewDiligence]

Does anyone here like EMC as a play on the data explosion consequent to The Global Demographic Tailwind? All that data has to be stored somewhere, whether or not it’s in the cloud. EMC’s EV is about $50B, but after stripping out EMC’s 80% stake in VMW, the remainder of EMC has an EV of only $20B or so.

p.s. EMC just acquired an Israeli company called XtremIO for about $440M:
http://www.reuters.com/article/2012/05/10/emc-idUSL4E8GAC7M20120510

[DewDiligence]

Barron’s gives limp endorsement of INTC based on low valuation—from cover story touting the end of the “PC era”:

http://online.barrons.com/article/SB50001424053111904034104578058751530288678.html

The inexorable shift away from PCs is causing havoc for manufacturers. This year, worldwide sales of personal computers are projected to drop about 2%, to 357 million units, according to IDC's David Daoud. In dollars [as opposed ot units], they will fall 5% to 6%. More telling: Smartphone sales are expected to surge 42% this year, to $294 billion, topping PC sales for the first time. And sales of tablets are expected to rocket 65%, to $59 billion.

To Dan Niles of Alpha One Capital Partners, this sounds very familiar. He worked in the 1980s at minicomputer titan Digital Equipment Corp., whose founder, Ken Olsen, famously said there was no reason anyone would want a computer in his home. DEC was later acquired by Compaq Computer and vanished without a trace. Smartphones and tablets are similarly underestimated now, Niles asserts. For that reason, he's inclined to avoid Intel and Microsoft. "Go ahead, gamble they can make the leap to this new world," he says. "I don't want that bet."

…The problem is that Intel has more to lose from the PC decline than to gain from selling cheaper chips for tablets and smartphones. The company's shares, which closed the week at $21.27, trade at nine times next year's estimates and pay a rich 4% dividend. While Intel may never be a growth company again, it probably won't hurt investors who own it.

[DewDiligence]

EMC cuts 1,000 jobs due to competition from The Cloud:

http://www.bostonglobe.com/business/2013/05/07/emc-restructuring-plan-cuts-jobs/cWWavZ125CLHoQFjLgfdsO/story.html

Among the large-cap IT companies, the only one I own is IBM.

[DewDiligence]

GS reiterates Sell rating on INTC:

http://www.streetinsider.com/Analyst+Comments/Intel+%28INTC%29+Numbers+Do+Not+Match+Wall+Street+Euphoria%3B+Goldman+Reiterates+Sell/9065420.html

Goldman Sachs reiterated a Sell rating on Intel (NASDAQ: INTC) with a price target of $16.00. Comments follow Q4 results that were below consensus. Analyst James Covello continues to view revenue & implied EPS guidance as too aggressive.

"We believe the Street is also overly bullish on INTC, as several analysts have upgraded the stock in the last five weeks on expected upside to EPS guidance, supposedly driven by PC stabilization & Data Center (DCG) growth," said Covello

"We believe the 4Q report and 1Q guidance confirm our view that there is downside, not upside, to Intel's 2014 EPS. …Specifically, we see risks to 2014 revenue guidance on (1) a headwind from the corporate PC refresh cycle ending after 1Q and (2) DCG [Data Center Group—i.e. server sales] continuing to underperform vs. expectations.

I have no position in INTC or any other large 'IT' companies.