DailyFinance.comhttp://www.dailyfinance.comDailyFinance.comhttp://o.aolcdn.com/os/df/2013/img/2-dailyfinance_logo_m.pngDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/Is Apple's Outlook Bright or Dark? Depends on How Long You Holdhttp://www.dailyfinance.com/2011/04/06/is-apples-outlook-bright-or-dark-depends-on-how-long-you-hold/http://www.dailyfinance.com/2011/04/06/is-apples-outlook-bright-or-dark-depends-on-how-long-you-hold/http://www.dailyfinance.com/2011/04/06/is-apples-outlook-bright-or-dark-depends-on-how-long-you-hold/#commentsFiled under: , , , , ,

Apple's (AAPL) stock has stalled. Now what?

Investors seem split on where Apple goes from here. The bulls, predictably aren't worried. After all, it's not uncommon for stocks to pause for breath -- and Apple rose to $364 a share in mid-February from $240 in late August, That's a rise of 51% in less than six months.

But since hitting that all-time high of $364, Apple's stock has gone through a turbulent patch, falling as low as $326 a share on March 16. While the stock has rebounded somewhat, it's treading water at around $340 a share -- while investors await a signal of its future direction.

Near-Term Concerns

Apple's outlook, though, is a complex one. Its medium-term future looks as promising as ever, but that sunny outlook is sandwiched by some near-term concerns: the effect of the Japanese earthquake on its current quarter, and longer-term uncertainty about its prospects several years from now. To invest in Apple means, more than most companies right now, deciding how long to hold the stock.

Concerns over Apple's performance in the March and June quarters began to mount after the March 11 earthquake and tsunami in Japan. That disaster disrupted supply chains in many industries and, some analysts believe, could leave Apple only a two-month supply of some iPhone and iPad components. Apple could find components elsewhere, but it may end up paying a premium to keep the supply chain running smoothly.

Waiting on the Latest iPhone

And while Apple is holding onto its share of the smartphone market, it's not stealing share away from weaker players like Research-In-Motion (RIMM), Microsoft (MSFT) and HP's Palm (HPQ). Those three companies saw their market shares decline and Android phones sold wildly. Apple's share of the smartphone market edged up slightly to 25.2% in February from 25% in November, according to ComScore. Smartphones using Google's (GOOG) Android operating software rose to 33% of the market, from 26%.

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Apple plans to counter with the iPhone 5 later this year, which is expected to include technology that taps faster 4G networks and be used as a digital wallet. But there's word the release date could be pushed back until the fall -- meaning most iPhone 5 sales could come in 2012. That possible delay is adding to near-term concerns.

Investors will have more clarity on these fronts when Apple reports its earnings on April 20. But some are already looking beyond the next few quarters -- to an era of prosperity driven by rising sales of iPads, a growing share of the laptop market for Macbooks and the introduction of iPhones into countries like China.

The China market is an especially encouraging area for Apple. China Telecom (CHA) says an online poll of 8,300 people showed 73% of respondents were interested in buying an iPhone 4 -- and that most of those surveyed found the price tag to be too high. In a note on the survey, Ticonderoga Securities says China Telecom might offer the iPhone as early as this summer.

Pushing Further Into Media

Other potential positive for Apple might not kick in until late 2011 or even 2012. The availability of iPhones on Verizon (VZ) networks could boost sales, but many Verizon subscribers may choose to wait for a 4G model before switching to the iPhone. And AT&T's (T) planned purchase of T-Mobile USA could bring Apple millions of new iPhone customers. But the deal could be held up by regulatory scrutiny as well as integration issues, which could take a few years to sort out.

More importantly, Apple is making signs about an aggressive push further into media, building a huge computer center capable of hosting high-bandwidth content and shaping Apple TV into a more appealing consumer device.

To date, the iTunes store hasn't been a major contributor to Apple earnings, serving instead as a draw to its higher-margin offerings like the iPhone and the iPad. But if Apple gets serious about media, that could change in the next few years.

Issues Over Future Leadership

At the same time, the longer-term outlook is clouded not just by the diminished leadership of Steve Jobs, as I've argued in the past, but by the loss of longtime heavyweights like Bertrand Serlet, who was key to Apple's revival and its OS X software. Jonathan Ive, Apple's design guru, was recently rumored to be leaving -- which would be an even bigger loss.

All were members of the team which led Apple from its malaise in the late 90s to the $312 billion market cap giant it is today. The risk is that, as more members of this core team exit the company, the competitive edge Apple has in so many markets will be that much duller.

The company could lose more talent if its stock price continues to stay stalled. Apple's surging stock price isn't just a boon for investors, it's an important draw for engineers, designers and others crucial to the company's innovation and success. It's been more than three years since Google's stock has traded above $630 a share, and it's lost a lot of its top talent in the interim.

In short, Apple's prospects should be bright for some time, but there may be some speed bumps ahead that investors should keep in mind along the way. Things are likely to remain choppy for a quarter or so, but Apple is poised for a few strong years beyond that. And after that? Apple will need a dramatically new plan to extend its success even further.


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]]>appleAppleStorebertrand serletchinacomputercomputersiphoneiphone 4iphone 5jonathan ivemacbooksteve jobstechnologyKevin KelleherWed, 06 Apr 2011 06:00:00 ESTFacebook Could Be Writing a Script for Online Movie Consolidationhttp://www.dailyfinance.com/2011/03/09/how-movie-rentals-on-facebook-could-spur-a-wave-of-mergers-and-a/http://www.dailyfinance.com/2011/03/09/how-movie-rentals-on-facebook-could-spur-a-wave-of-mergers-and-a/http://www.dailyfinance.com/2011/03/09/how-movie-rentals-on-facebook-could-spur-a-wave-of-mergers-and-a/#commentsFiled under: , , , , , , , ,

Facebook isn't so much a social network anymore as it is a fast-evolving platform for the Web. Software developers at companies large and small are building applications so Facebook members can share them with each other. This week, Warner Brothers (TWX) offered a streaming-video app that lets people rent movies through Facebook. First up: The Dark Knight (with The Joker played by the late Heath Ledger, pictured).

In one sense, the move is an incremental advance. Facebook did little more than offer its technology platform, for which developers regularly build apps like personality tests and casual games like Farmville. But in another sense, Warner Brother's strategy may presage something huge: Streaming online movie rentals could become a big business on Facebook, so much so that the company's entry into the market could trigger a round of mergers among its new competitors.

Shares of Netflix (NFLX), the current leader in online video streaming, fell 6% to $195.45 on the news Tuesday. Facebook is only 7 years old, but this is how scary it has become to older technology companies: It can threaten to disrupt established markets without lifting a finger.

Giving Facebook a Lot of Credits

Of course, it's way too early to do anything more than speculate about Facebook's plans for online video. But the logic of it making such a move is so compelling it's hard not to speculate. Facebook members could pay for rentals with "credits," Facebook's virtual currency. Facebook gets a 30% take on all credits used -- that's a lot of potential money to pay for the increased bandwidth needed to stream movies.

Many Facebook users have shied away from using credits, but streaming video could be the kind of killer app that wins over these reluctant customers. After all, word of mouth has always provided powerful viral marketing for movies, and a rave from a trusted friend on Facebook could be a better marketing tool than movie reviews, TV commercials or recommendation algorithms.

For movie studios like Warner Brothers, this is a worthwhile experiment. It gives them instant access to 600 million Facebook members, and it doesn't look like they'll have to negotiate with Facebook on pricing as they would with Netflix's Watch Instantly, Amazon's (AMZN) digital rentals or Apple's (AAPL) iTunes.

Warner is charging 30 Facebook credits, or $3, for two-day access to The Dark Knight. But if this idea catches on, it could start to charge more. And more important, Warner and others could use a successful Facebook entry into online videos as a powerful bit of leverage in negotiating higher licensing fees from Netflix, Amazon, Apple or Google (GOOG).

Prime Merger Targets: Netflix and Hulu

All of these companies are pinning some, if not all of their success on the future of online video. Movies and TV shows streamed from the cloud are gradually supplanting broadcast and cable TV. But there isn't room for everyone: In addition to the above four companies and Facebook, cable giants like Comcast (CMCSA) are angling for a piece of the Internet-TV pie. A shakeout is inevitable over time.

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A successful entrance by Facebook into the online video business could speed up that shakeout. Companies might be drawn to merge with others that complement their weaknesses. For example, we might see Google going after Netflix to plug its 20 million person subscriber base into the social networking technologies that Google is busy building. Google has the social technology Netflix lacks, but Google doesn't have a large dedicated user base. Netflix does.

Or we might see Amazon or Apple pick up Netflix or Hulu to strengthen their negotiating clout with Hollywood. Amazon has been seen as an ideal buyer of Netflix for years. The obstacle has been state taxes: Buying Netflix would mean Amazon has to charge its customers sales taxes in most states. Amazon has bitterly fought to avoid those taxes, but revenue-strapped states are fighting back, and Amazon might not be able to hold out much longer.

Also likely to be bought early is Hulu, which in December ditched its plans for an IPO. Netflix will be a more difficult target as long as its stock remains so richly valued: It's trading at 45 times its estimated 2011 earnings. Netflix's relatively large catalog and its $7.99 subscription model might help it stay competitive, but a decline in its stock price could amp up interest in a buyout.

I concede this is all rather speculative. But the many pieces are in place, and it's easy to imagine any of it happening. Facebook benefits from renting streaming videos through its site, and movie studios benefit, too. The more successful Facebook becomes in this area, the more pressure other online-video companies will feel. And the pressure of competition often leads to consolidation.


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]]>comcast on demandfacebookfacebook creditshulu plusiTunesNetflixnetflix watch instantlyonline movie rentalsonline moviesonline videostreaming videothe dark knightTime WarnerTiVoTV Onlinevideo rentalwarner brosWarner BrothersKevin KelleherWed, 09 Mar 2011 10:15:00 ESTApple After Steve Jobs? Disney May Hold a Cluehttp://www.dailyfinance.com/2011/03/07/apple-after-steve-jobs-disney-may-hold-a-clue/http://www.dailyfinance.com/2011/03/07/apple-after-steve-jobs-disney-may-hold-a-clue/http://www.dailyfinance.com/2011/03/07/apple-after-steve-jobs-disney-may-hold-a-clue/#commentsFiled under: , , , , , , ,

Apple CEO Steve JobsSteve Jobs's surprise appearance at last week's unveiling of the iPad2 made a few things clear: Jobs may be on a medical leave of absence, but he hasn't lost his ability to turn a standard product upgrade into a media event, creating free publicity most gadget makers would kill for.

But Jobs's presence at the event also underscored how vital he's been to Apple's (AAPL) success and how hard it will be for his successors to replace him. I've argued here that Apple after Jobs will likely be successful, although maybe not the cultural phenomenon it is today. To further imagine how Apple might fare without Jobs's leadership, it's also helpful to look at another hugely successful American company that decades ago lost its iconic CEO -- Walt Disney Co. (DIS).

Like Apple, Disney started out in a California garage, growing in time into a global brand that became a part of the everyday culture of millions of people. While Apple's achievement was in making personal computers so intuitive they became intimately integrated with our lives, Disney was a dream factory, creating stories and images that shaped childhood imaginations for generations. (Jobs has also served on Disney's board of directors since Disney's 2006 purchase of Jobs's Pixar animation studio.)

Without Missing a Step

In its heyday, Disney's cultural influence was as large as Apple's is today. During the Depression-era 1930s, Disney changed the animation industry with Snow White and the Seven Dwarfs, the first feature-length cartoon and at the time a wildly ambitious project many considered foolhardy. Snow White became the highest-grossing movie up to that time, paving the way for other animated films like Dumbo, Cinderella and Bambi. Disney extended its media empire into TV with longtime staples such as Mickey Mouse Club and the Disneyland series of programs.

In December 1966, Walt Disney died of lung cancer, leaving the company in the hands of his brother Roy. The following six years turned out to be some of the company's most productive as Roy -- a co-founder -- took the reins. During Roy's tenure, Disney released The Jungle Book and The Love Bug -- the latter was the top-grossing movie in 1969 -- and it opened Walt Disney World in Florida in 1971. Roy Disney died in December 1971, leaving the company in the hands of lesser-known managers trained by Walt and Roy.

Roy Disney not only furthered the vision he had shared with Walt, he managed Disney through some of its best years. The chart below shows Disney's stock performance against the Dow Jones Industrial Average for the six years after Walt Disney died. By December 1972, Disney's stock had appreciated 1,140% from December 1966. The Dow had gained only 30%.



After 1972, however, Disney's stock entered a prolonged slump. The cultural climate shifted toward darker, edgier movies and away from the wholesome, family-friendly fare that was Disney's stock in trade. The new management had trouble navigating the changing market. Titles like Freaky Friday and The Rescuers were not only out of step with the times, they were a far cry from the caliber of Disney movies in earlier decades.

Disney would reemerge as a powerful media company in the late 1980s under the management of Michael Eisner, who joined as Disney's CEO in 1984 and served until 2005. But as the following chart shows, Disney's stock would underperform the Dow significantly for 15 years between 1972 and 1987.



What lessons does Disney's history offer Apple? While it's dangerous to read too many similarities into two companies in separate industries, Disney's performance after the loss of its iconic leader has some bearing on Apple's future. Disney thrived for several years after Walt's death for two key reasons: The company was able to build on his vision, and it was managed by Roy, a man who knew Walt's way of thinking as well as anyone.

What Happens Five Years From Now?

Apple seems to be on track for a similar period of success once Jobs ceases to have input into the company's management. Apple's main franchises -- iPhones, iPads, Macbooks and iTunes -- are positioned to continue growing for some time. Tim Cook may not be as experienced as Roy Disney was when he took control of Disney, but Cook's handling of Apple's day-to-day operations has left investors confident in his ability to succeed Jobs.

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Instead, the risks for Apple lie, as they did for Disney, several years down the road after the departure of its visionary leader. When Disney's market changed in the '70s, the company wasn't able to adapt as effectively as it might well have under Walt Disney. It simply lacked the instincts and insights needed to keep evolving with the times.

Apple could well face a similar period of crisis down the road. With the iPad, Jobs has achieved his decades-old vision of an immersive, easy-to-use home computer. What vision will guide Apple five years from now? That's a vital question with no clear answer.

Of course, for investors concerned with the next few quarters, what happens to Apple in several years is largely an academic discussion. But for Apple's loyal consumers, and the culture that the company has helped shape over the years, any loss of the company's innovative edge would be felt for a long time.


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]]>animated moviesanimationApple after JobscartoonColumnsiPadiPhoneiPodMacintoshmichael eisnerpixarroy disneysnow white and the seven dwarfssteve jobssteve jobs medical leavewalt disneyKevin KelleherMon, 07 Mar 2011 14:00:00 ESTThe Secret Weapon Behind eBay's Comebackhttp://www.dailyfinance.com/2011/03/02/ebay-secret-weapon-stock-price-paypal-profit/http://www.dailyfinance.com/2011/03/02/ebay-secret-weapon-stock-price-paypal-profit/http://www.dailyfinance.com/2011/03/02/ebay-secret-weapon-stock-price-paypal-profit/#commentsFiled under: , , , , , ,

Don't look now, but investors have been quietly bidding up the price of eBay (EBAY).

Back in 2004, the online auction site was a cultural phenomenon and a profit machine. eBay's stock price rose above $59 a share that December, before some ill-conceived decisions, among them its expensive purchase of video chat/Internet phone service Skype, sent the company tumbling.

Since last summer, however, eBay has staged a gradual comeback, rising 68% from a low point around $19 in early July to $32.29 as of Tuesday's close.

Those gains are even more striking when compared to the performance of its peers. Since going public in 2007, MercadoLibre (MELI) -- often called the eBay of Latin America -- has seen its stock price more than double. That's not surprising, since MercadoLibre is a small, fast-growing company, while eBay began to drift around then. But their roles have reversed in recent months.

Over the last six months, eBay is up 40% and MercadoLibre is up 1%. And so far in 2011, eBay is blowing away even mighty Amazon (AMZN), rising 16%, while Amazon is down 6%.

Less Than a Third of eBay Sales Are Auctions

What's behind this slow but steady rally? For one thing, eBay seems finally to be reaping the fruits of its long and painful transformation from an auction website to a retail and e-payments company that thrives on mobile platforms and local commerce.

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The metamorphosis angered many longtime sellers, driving them to take their business to rival sites such as Amazon. And a series of redesigns aimed at weaning eBay's business model off auctions, which had a limited and fading appeal, ended up confusing many consumers, making the site an afterthought for many online shoppers. Auctions now account for less than a third of the goods sold on eBay.

eBay is still a far cry from the e-commerce trendsetter it was nearly a decade ago. Its marketplace business rose 8% in 2010 following a 5% decline in 2009. But globally, online retailing grew more than 10%. However, by improving the site's search, pushing mobile sales and cracking down on sellers with low ratings from shoppers, eBay is slowly wooing those lost customers back.

In fact, the website that most people think of when they think of eBay will play a smaller and smaller role in the company's future growth. During its recent analysts' day, eBay Chief Financial Officer Bob Swan said he expects eBay revenue to grow as much as 18% a year to $15 billion in 2013, while profits will grow as much as 14% a year.

But Swan also said the "original" eBay site will see much slower growth -- only around 6% a year. Other e-commerce properties that the company bought or built -- such as eBay Classifieds and Stubhub -- will see growth rates of around 14%.

The Power of PayPal

But the biggest reason for eBay's recent gains is PayPal. Revenue from the online-payment service rose 23% last year to $3.4 billion. eBay bought PayPal in 2002 for $1.5 billion, hoping to give buyers an easy, acceptable alternative to using their credit cards at its auction site. Now, that payments business is the parent company's growth engine. Swan expects PayPal revenue will keep growing by around 23% a year through 2013, while its share of the global online payments market approaches 24%, up from 18% last year.

Much of PayPal's growth potential lies in the mobile arena. PayPal payment technology has been embedded so far by 60,000 developers in 1,500 mobile apps.

PayPal now provides 38% of eBay's total revenue, up from only 28% just two years ago. Analysts expect PayPal to become the company's biggest source of revenue in a few years. Once that happens, one wonders: How long before eBay changes its name to PayPal?


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]]>amazonappsauctionclassifiedscredit cardsdeveloperse-commerceebayecommercehalf.comMercadoLibremobileonline shoppingpaymentpaypalprofitrent.comrevenuerevenue growthskypestock priceStubHubKevin KelleherWed, 02 Mar 2011 07:00:00 ESTAre Solar Stocks Finally Regaining Their Shine?http://www.dailyfinance.com/2011/02/25/are-solar-stocks-finally-regaining-their-shine/http://www.dailyfinance.com/2011/02/25/are-solar-stocks-finally-regaining-their-shine/http://www.dailyfinance.com/2011/02/25/are-solar-stocks-finally-regaining-their-shine/#commentsFiled under: , , , , , ,

solar energyIs the outlook actually brighter for solar stocks -- or is it just that the sector has been lost for so long in a dark midnight that even the slimmest glimmer of light looks like a new dawn? Such is the crossroad that solar stocks find themselves at as spring of 2011 approaches.

In 2007 -- back when Amy Winehouse was singing Rehab and Juno was a wizard film -- companies making solar modules and panels made up one of the hottest sectors of the stock market. Startup after startup went public and rocketed skyward.

In the summer 2008, crude oil futures neared $150 a barrel and solar manufacturers raced to build more factories. But as the fall brought the financial crisis, solar firms became equity pariahs. High borrowing costs coupled with plunging demand made the sector unpopular. The solar dream went cold.

As the economy bottomed out, the solar sector seemed left behind. Take a look at this chart comparing the TAN (TAN), an exchange-traded fund of solar-powered stocks against the S&P 500. In the fall of 2008, solar stocks fell much harder than the S&P 500 -- despite the latter's heavy weighting in banking stocks.

Solar Stocks vs. S&P 500 stock index

And since then, while the S&P has clawed its way back over the past two years, the TAN has moved sideways. But so far in 2011, things seem to have reversed. The S&P 500 has gained 4%. The TAN has gained 16%, even rising as much as 23% this month.

So, after three years of very mixed fortunes, solar-power looks like it's starting to take off again. Some of the sector's biggest names -- SunPower (SPWRA), First Solar (FSLR), Trina Solar (TSL) and SunTech Power (STP) -- have risen more than 20% so far this year. The tight credit markets on which solar manufacturers rely to fund their new production facilities have eased back open again. And crude oil prices are back above $100 a barrel for the first time since 2008.

Boom and Bust and Boom and Bust

Stocks of companies making solar-power modules and panels have long been volatile. Solar technology is highly cyclical, according to swings in both supply and demand. Rising demand is positive for solar manufacturers, but as time passes companies rush to build new facilities and expand production capacity. If capacity increases too fast relative to demand, prices tumble. In the long run, lower prices are good because they spur new demand. But in the short-term, it can eat into profits.

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In that respect, solar modules are a lot like semiconductors. But the demand for solar goods has a complex and often unpredictable relationship with oil demand as well with the willingness of industrialized countries to offer subsidies. The recession that brought oil prices down also forced governments to cut back on alternative-energy subsidies. No wonder, investors grew bearish on the solar sector.

Now, however, optimism is on the rise, thanks to recent earnings of solar companies. SunPower said this week it's seeing more demand that it can meet with its solar-panel manufacturing facilities. Oil prices are heading upward, and no one is sure how far they'll go this summer as emerging economies demand more power (not to mention if the Mideast upheavals spread to other oil-producing nations).

Rising oil prices can lead to investments in solar-energy projects. But even though solar stocks frequently see a lot of speculative investing and can easily get ahead of themselves, profits could be rising at these companies after their dry spell. So, much of the gains could be based on fundamental strength.

Bullish Earnings Reports

For much of the past year, SunPower struggled below $15 a share, a victim of government budget-trimming in Europe, which has historically provided hefty subsidies for alternative energy. SunPower's earnings of $1.36 a share topped estimates of $1.05 a share. Not only is the company responding effectively to Europe's new austerity but it's increasing its sales in the U.S.

On Tuesday, Trina Solar also reported better-than-expected earnings, delivering $1.87 per American Depository Share, well ahead of the Street's forecast of $1.09 per ADS. Several analysts raised their price targets for Trina, with some noting that demand is surprisingly strong at a time when Trina and others are adding production capacity.

All of that follows another bullish earnings report from Yingli Green Energy (YGE), which said last week that revenue grew 66% year-over-year in the quarter. It posted earnings of 57 cents per ADS, ahead of expectations of 44 cents per ADS.

Not all solar companies are enjoying the gains. JA Solar (JASO) said Tuesday its earnings per share tripled to 41 cents, but the stock declined after that figure came in short of the 48 cents analysts had been looking for.

Straightforward? Not Here

These stocks have mostly been so strong that some analysts are suggesting investors take profits if earnings push the shares higher. On Tuesday, Pacific Crest analyst Weston Twigg issued a report saying that First Solar could easily beat the Street's estimates for its fourth-quarter earnings. If it does, Twigg said, investors might want to lock in their profits. First Solar's stock now trades at double its peers' price-earnings ratio of nine. But solar module prices may decline by 20% this year.

Nothing is straightforward in forecasting the solar industry. In the past, analysts have been too bullish at market tops and too bearish when things were just starting to get better. This suggests that the caution on Wall Street about 2011's solar rally may be overdone.

Whether that's true or not, investing in this sector requires a strong stomach -- and maybe some glare-reducing sunglasses.


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]]>alternative energyfirst solarJA Solaroil pricessolarsolar stockssunpowerSunTech Powertrina solarYingli Green EnergyKevin KelleherFri, 25 Feb 2011 11:00:00 ESTCisco's Optimism Falls on Wall Street's Deaf Earshttp://www.dailyfinance.com/2011/02/15/ciscos-optimism-falls-on-wall-streets-deaf-ears/http://www.dailyfinance.com/2011/02/15/ciscos-optimism-falls-on-wall-streets-deaf-ears/http://www.dailyfinance.com/2011/02/15/ciscos-optimism-falls-on-wall-streets-deaf-ears/#commentsFiled under: , , , ,

Cisco isn't only a marquee tech stock, it's long been a reliable bellwether for the industry. It's positioned to see changes in info-tech spending earlier than most companies, and CEO John Chambers (pictured) has often been up-front about signaling both growth and challenges.

But something unusual is happening between Cisco's (CSCO) investors and its CEO. Their views are parting ways. When Cisco reported its fiscal second-quarter earnings last week, Chambers outlined challenges, but he felt Cisco would weather them just fine.

Wall Street begged to differ. Cisco's stock has lost 15% of its value since that earnings report, closing Monday at $18.81 with a market cap just over $100 billion. That puts the stock's price-earnings ratio below 12, which might be a bargain -- except that analysts worry that Cisco's profit margins may be eroding for some time.

The big area of disagreement concerns gross margins. Cisco's $10.4 billion revenue and earnings per share of 37 cents a share beat analysts expectations. But investors often scrutinize profit margins as a sign of where profits might head in the future. Cisco's gross profit in the quarter was equal to 62.4% of revenue, down from 65.6% a year ago.

Bread-and-Butter Revenue Falls

What's more, according to Chief Financial Officer Frank Calderoni, those margins will stay between 62% and 63% for the next couple of quarters. One big reason for that involves Cisco's switches, which, along with its routers, are the bread and butter of its operations. Revenue from switches, which make up 30% of Cisco's total, fell 7% on year in the quarter.

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Chambers believes that the decrease in gross margins is a negative side effect of a larger, positive trend. For the first time, Cisco has introduced new products in all its portfolios, he says, and development costs of new offerings tend to weigh down margins early in the product's life cycle. The implication is that margins will rise across the board given enough time.

But analysts saw it differently. Some, like Citigroup and Stifel Nicolaus, cut their ratings on the stock. Sanjiv Wadhwani of Stifel said outright he believes the problems go a lot deeper than introducing a broad line of new products. They suggest that switches are subject to a price war as rivals duel with Cisco in an increasingly competitive market.

"There is a more structural change occurring in the industry with pricing pressure being exerted by HP and Juniper among others," Wadhwani wrote. "This is forcing Cisco to compete for the first time on pricing in its switching product line against well funded and capitalized vendors. Overall, the structural change we believe is likely to lead to a permanent change in gross margins."

Public-Sector Spending Slows

To make matters worse, such a change would come as local and federal governments are cutting back on their IT spending. Revenue from the public sector grew 7% last quarter, but it was considerably slower in industrialized regions like the U.S. and Europe. Overall sales in Europe grew 2%.

"From a public-sector perspective, we believe that we are not losing market share in the developed world governments. However, we believe that you're going to continue to see a rapid decrease in discretionary spending including IT in a majority of these governments," Chambers said.

The worst-case scenario for Cisco -- and a likely one -- would be that both Chambers and Wadhwani are right: that public spending on IT would start to dry up and that Cisco rivals like Juniper (JNPR) and Hewlett-Packard (HPQ) respond by cutting prices on their products. Then Cisco would be forced to cut its own prices or brace for lower volume of its new round of higher-priced products.

Judging from the market's response, investors seem to think the problems facing Cisco are largely its own. While Cisco has suffered a 15% decline since reporting its earnings, Juniper Networks' stock has risen 8% and Alcatel-Lucent (ALU) has increased 30%.

In fact, Cisco's fall from the market's grace has been some time in the making. The stock has dropped more than 10% right after each of its last three earnings reports. The first two times that happened, Cisco managed to gain most of the ground back before sliding again.

Layoffs Ahead?

And that's a big change for Cisco. For much of the past couple of years, its stock chart has tracked that of the Nasdaq. But something changed last summer. Nasdaq began a steady march upward, while Cisco kept lurching down. As a result, the Nasdaq is up 29% over the last 12 months, while Cisco is down 21%.

Chambers remains confident that the company can revive margins and remain competitive. Sales in new product areas such as collaboration, wireless and data-center technology are seeing annual growth rates above 30%. And there are signs that Cisco will lay off workers if profit margins continue to be weighed down.

So, Cisco has some ways to meet the challenges it faces. Chambers, however, has an additional one: getting Wall Street to take his optimism seriously.


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]]>alcatel-lucentCiscoCisco marginsCisco profitCisco revenuehewlett-packardJuniperswitchesKevin KelleherTue, 15 Feb 2011 07:30:00 ESTWhat Nokia Needs to Make Its Risky Bet Pay Offhttp://www.dailyfinance.com/2011/02/13/how-nokias-risky-bet-could-pay-off/http://www.dailyfinance.com/2011/02/13/how-nokias-risky-bet-could-pay-off/http://www.dailyfinance.com/2011/02/13/how-nokias-risky-bet-could-pay-off/#commentsFiled under: , ,

A CEO who takes charge of a company in decline typically has one of two options: either act as caretaker of that decline, making it as painless as possible, or do something radical and risky.

Neither way is very palatable. We've watched the first option in Carol Bartz's management of Yahoo (YHOO). And you can now see the second option in action with Stephen Elop's handling of Nokia (NOK).

For outsiders, the Elop show is by far the more interesting spectacle, and not just because of the panache he brings to the dull art of the corporate memo. Or even because, by arranging a hasty partnership with Microsoft, Elop has managed to to alienate both Google (GOOG), by rebuffing its popular Android platform, and Intel (INTC) by junking its partnership in the Meego mobile OS.

What seems to have captured everyone's attention is the high-stakes, Russian roulette game Elop is playing. And nobody even knows how many bullets are in the chamber of Elop's metaphorical revolver.

Considering where Nokia is today (a mobile device giant with a shrinking global market share) and where it wants to be (a viable player in that global market) a Nokia-Microsoft partnership makes sense. Elop also gets credit for forthrightly declaring that Apple's (AAPL) iOS and Google's Android are eating away at his company's customer base.

Sound Business Strategy?

From a strategy standpoint, there's some sound reasoning behind Elop's thinking. Most likely there's room for a third player at Apple and Google's poker table -- but Research In Motion's (RIMM) BlackBerry, HP's webOS and Microsoft are all gunning for that coveted seat. Nokia wants in, too, but neither the Meego software it developed nor its high-end smartphones make it a strong contender: Only one Meego product may be on the market this year, if that many.

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Foregoing Android also makes strategic sense. Google's mobile OS may be helping to revive Motorola's (MMI) smartphone sales, but it's hard for an Android latecomer like Nokia to differentiate itself from Motorola, HTC and others. Besides, many of the $150 smartphones competing with Symbian phones abroad are powered by Android.

So, at least on paper, the deal sounds persuasive. Nokia brings with it a deep network of designers and suppliers, and a worldwide distribution system that will take its rivals years to equal. Microsoft has ready-for-market software that's winning mixed to positive reviews -- but it needs more mindshare among consumers and app developers. The strengths of each partner will match the other company's weaknesses.

But, of course, business doesn't happen on paper. It happens in markets. And sudden shifts in strategy like the one Elop is engineering can run into trouble when it comes to executing new plans.

Unhappy Employees

For one thing, the shift away from Meego and eventually Symbian is sure to be a morale-killer. HP and others have put out the word that any less-than-happy Nokia employees are welcome to help develop HP's webOS. And many at Nokia seem disgruntled: More than 1,000 of the company's workers staged a mass walkout on Friday.

Memo to Elop: Bad morale can weigh down a turnaround.

Investors have staged their own version of a walkout. Nokia's stock fell 14% Friday, erasing any gains the company had made since September. Another big concern is when will Nokia start selling Windows-based smartphones, especially given that the ink on its partnership with Microsoft has barely dried and some details still remain to be worked out.

More Popular Than Android Among Developers

But not all the reactions are negative. One group responding favorably to a Nokia-Microsoft tie-up is app developers -- a community crucial to the success of the partnership. And according to Flurry, a smartphone analytics company, the number of new Windows app projects launched this week surged 66%, making Windows Phone 7 more popular than Android among developers for the first time.

In Elop's now-famous memo, he conjured up the image of a man on a burning oil platform, jumping into icy waters to save his life. While the jump may be scary, the hardest part is swimming to safety. Nokia has jumped -- now it has to swim. And if developers can throw Nokia a lifeline, the company just might make it.


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]]>cellphoneCEScommunicationsmicrosoftmobile devices businessmobile phonenokiasmartphonesmartphonesKevin KelleherSun, 13 Feb 2011 10:30:00 ESTAmazon Investors Weigh Short-Term Turmoil Against Long-Term Promisehttp://www.dailyfinance.com/2011/02/04/amazon-trades-short-term-turmoil-for-long-term-promise/http://www.dailyfinance.com/2011/02/04/amazon-trades-short-term-turmoil-for-long-term-promise/http://www.dailyfinance.com/2011/02/04/amazon-trades-short-term-turmoil-for-long-term-promise/#commentsFiled under: , , , ,

Amazon (AMZN) is never a boring stock. Investors routinely value it at more than 50 times earnings. The company rolls out products predicted to be costly failures -- Prime, Web Services, Kindle -- that end up being profitable and effective. It faces periods of volatility as bulls battle bears -- with the bulls typically emerging as victors.

Strangest of all, Amazon functions like two stocks. One of them is more of a speculative stock, with unusually high valuations and epic bull-bear fistfights. Amazon's stinginess with internal metrics -- the company won't disclose how many Kindles it has sold -- adds to the speculation. Investors read into the company's silence and often disagree over how to interpret it.

It was this speculative Amazon that fell as much as 10% last Friday after Amazon reported earnings after the previous day's market closed. Amazon reported that margins slipped because the company is starting to invest more heavily in its distribution centers. Since then, Amazon has recovered little of that decline. The stock closed at $173.71 Thursday, down some 6% from its price before it reported earnings.

The second Amazon is a stock that rewards the patience of long-term investors with capital gains, delivering consistent growth as it finds new ways to build onto its share of the online retail market. That's the Amazon that warned its profit margins might be weighed down in 2011 so that the company can continue to expand around the globe.

What Are Investors to Think?

Amazon has shown time and again that such investments have paid off, despite skepticism. So, many analysts are holding to the long-term view, even as jittery investors sell the stock based on one quarter's number.

But in discussing the investments it's making, Amazon offered vague explanations. Chief Financial Officer Thomas Szkutak said Amazon was adding distribution centers to increase its ability to provide fulfillment services around the globe for its own store, as well as for other retailers who use Amazon to fulfill orders. Fulfillment costs were equal to 8.2% of revenue in the recent quarter, up from 7.7% in the same quarter a year earlier.

Szkutak also said Amazon "added a lot of infrastructure capacity to support our fast-growing Amazon Web Services business." Technology and content costs, which include Web services infrastructure, increased to 3.5% of revenue from 2.8% a year earlier.

Margins, a Touchy Issue

So, while Amazon is seeing impressive revenue growth -- net revenue jumped 36% in the quarter -- operating costs are growing even faster. That caused some, like Pacific Crest analyst Steve Weinstein, to wonder why Amazon isn't gaining leverage on its investments in fulfillment and technology, even as it hints that it may continue the pace of investments for much of this year.

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Margins have long been a touchy issue with Amazon and its investors. When the company introduced its Amazon Prime service -- which offers free two-day shipping for a $79 a year fee -- it eroded margins at first. But Prime ended up deepening customer loyalty, pushing revenue growth higher in the long run.

Despite the lack of details on how Amazon plans to invest in new fulfillment facilities, shareholders seem to take Amazon's word that they're necessary to maintain revenue growth. After all, the company has a strong track record on delivering returns from investments.

But this latest round of increased investments has so far been accompanied by lower-than-expected revenue growth. Amazon posted revenue of $12.95 billion last quarter, below the $12.98 billion the Street had been expecting. And the operating profit that Amazon is forecasting for the current quarter -- between $400 million and $525 million -- is short of the $567 million analysts had been looking for.

New Enticements for Prime Subscribers

Since Amazon reported its earnings, reports have emerged suggesting yet another reason why its margins could be weighed down further and longer than many have been expecting. Amazon may be adding unlimited access to free streaming of 5,000 movies and TV shows for its Prime subscribers. Rather than offering the movies as a new revenue stream, Amazon is offering them as an enticement for subscribers to its Prime service.

That could bring in many new members to Amazon Prime, which could in turn entice more shoppers to buy goods on Amazon's site and receive free two-day shipping. If so, that could generate a much higher volume of transactions for Amazon in coming years.

But in the near-term, the streaming of all those movies could require more investments in networking infrastructure. And the addition of new Prime memberships would mean greatly increasing the discounts on shipping costs it offers to customers. Both of those could push down margins more than investors are expecting.

So expect more turmoil as bulls and bears tussle over how much these moves will weigh on Amazon's profit margins. But for those with longer-term views, it's easy to imagine Amazon continuing to expand for years.


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]]>amazon primeAmazon stockamazon web serviceskindlelong-term investorsonline retailonline shoppingspeculative investorsKevin KelleherFri, 04 Feb 2011 06:30:00 ESTNo, the iPad Is Not Killing Microsoft's Businesshttp://www.dailyfinance.com/2011/02/01/microsoft-vs-tablets/http://www.dailyfinance.com/2011/02/01/microsoft-vs-tablets/http://www.dailyfinance.com/2011/02/01/microsoft-vs-tablets/#commentsFiled under: , , , , , ,

Microsoft may be facing increased competition from tablets, but its quarterly earnings show the company is doing fine.The iPad is killing Microsoft (MSFT), at least if you believe the meme that has been spreading in the stock market.

After Microsoft reported its second-quarter earnings last Thursday, the stock fell 4% despite stronger-than-expected financials and several analysts raising their price targets on the stock. But investors were taken in by the idea that Microsoft's future earnings are so much roadkill in the iPad Era.

Microsoft's quarterly revenue came in at $19.95 billion, above the $19.14 billion estimated by analysts, and its earnings of 77 cents a share beat the analysts' expectations of 68 cents per share. Revenue was especially strong in productivity software and gaming devices.

But the only thing investors seemed to focus on was the rise of the tablets and the decline of the netbooks.

It's true that tablets are eating into the market for netbooks and PCs in general. Gartner reckoned that PC shipments grew by 3.1% in the fourth quarter to 93.5 million units, a slower pace than the 4.8% it had estimated. But tablets are growing much, much faster: Strategy Analytics estimates sales of nearly 10 million tablets last quarter (77% of them iPads), up from virtually no tablet sales a year ago.

Don't Believe the Meme

But while memes are wonderful for culture, they may not be so great for financial markets. Microsoft may be a big, sprawling company, but it's hardly acting like a deer in the headlights facing a speeding Steve Jobs at the wheel. Given the decades-old and often bitter rivalry between Apple and Microsoft, that narrative is tempting. But a deeper look into Microsoft's report reveals a company that's surprisingly nimble for its size.

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First of all, the idea that Microsoft can't create a phenomenon like the iPad anymore simply isn't true. The iPad sold 2 million units in its first 60 days. The Kinect sold four times as many, tapping mainstream interest much sooner. "Kinect is the fastest-selling consumer electronics device in history," Microsoft CFO Peter Klein said in a conference call with analysts.

What's especially interesting is that the Kinect sold so well despite the lack of buzz in the tech media. Comparing Google search and news trends for the word "Kinect" with that of "iPad," and you'll find that the iPad attracted much more of the public conversation. And yet the Kinect's 8 million sales in November and December surpassed the 7.3 million iPads that Apple sold in the entire fourth quarter.

True, the Kinect's $149 price tag is significantly less than the iPad's $499 starting price. But the Kinect's strong launch suggests that Microsoft hasn't lost its ability to produce innovative products that resonate with consumers.

Multifaceted Strength

In the fourth quarter, Microsoft also demonstrated its ability to maintain strong sales in a highly competitive market. Google (GOOG) has made it clear that, as its business customers grow more comfortable housing data and applications online (or "in the cloud," as it's colloquially called), it plans to go after Microsoft's business software. But Office 2010 sales were surprisingly strong, with license sales up more than 50% higher than the pace Office 2007 had at the same point after its launch.

Investors seemed put off by the 30% decline in revenue and the 40% drop in operating profit for Microsoft's Windows division, the segment that contains operating software for netbooks and PCs. The drop exacerbated concerns that Microsoft's core product was in decline.

But as Microsoft pointed out in its conference call, the 30% revenue drop was largely the result of deferred revenue that was recognized a year ago during the launch of Windows 7. Factoring out the effect of the Windows launch, Microsoft estimated growth around 3%, "in line with PC market growth." Again, 3% growth isn't terrific, but it's nowhere near as bad as the headline figure suggests.

Even if Microsoft's Windows revenue does start to slide in coming years, the company can weather the blow. Sure, Windows revenue makes up a quarter of Microsoft's total sales. But its business-software division -- including Office, as well as SharePoint and Exchange -- contributes 30% of its revenue, and that division expanded its profit by 35% last quarter.

Other divisions are seeing similarly strong profit growth. Microsoft's server and tools division, which makes up another 22% of revenue, saw its profit rise by 21%. And the entertainment group, which makes Xbox and Kinect and accounts for 19% of revenue, posted profit growth of a whopping 86%.

Is Microsoft Undervalued?

In spite of all this growth, Microsoft's price-to-earnings ratio lounges at 12 on a historical basis and a mere 10 based on estimated earnings for the current fiscal year. That's well below the average P/E ratio of 18 for the Standard & Poor's 500 Index. Such is the power of the meme in the minds of Microsoft investors.

None of this means to play down the challenges that Microsoft faces as tablets and smartphones become more integrated into consumers' lives. The company faces an uphill battle in those markets. Windows Phone 7 is good enough to compete with Android and iOS, but Microsoft waited too long to enter the smartphone race. The same seems to be happening with tablets, as early reviews of Windows Phone 7 tablets haven't been promising.

But we've been hearing for years that PCs are on the decline in an era of cloud computing. And in response, Microsoft has been positioning itself for a post-PC world for some time, building on areas of strength that could serve it in the future - especially business software and video games.

The threat of tablets to Microsoft is real and shouldn't be trivialized. But neither should Microsoft's ability to keep sales and profits growing in other areas of its broad-based businesses.


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]]>Appleapple ipadbill gatesColumnsearningsipadkinectmicrosoft earningsmicrosoft kinectmicrosoft officemicrosoft stockMicrosoft Xbox 360msftpcsteve jobsstrategy analyticstablettablet pctabletsxboxXbox-360Xbox360Kevin KelleherTue, 01 Feb 2011 12:00:00 ESTWhat Google's Executive Reshuffle Means for Investorshttp://www.dailyfinance.com/2011/01/21/what-googles-executive-reshuffle-means-for-investors/http://www.dailyfinance.com/2011/01/21/what-googles-executive-reshuffle-means-for-investors/http://www.dailyfinance.com/2011/01/21/what-googles-executive-reshuffle-means-for-investors/#commentsFiled under: , , , ,

Google's Executive Reshuffle: Sergey Brin, Eric Schmidt, Larry Page The first thought to come into my head on reading that Google's (GOOG) CEO crown would soon pass from Eric Schmidt to Larry Page was the memory of a moment from Google's first shareholder meeting.

Early in the meeting's Q&A session, an individual investor took the microphone, nervously. He started saying that he hoped to ask his question even though he held only 50 or so shares when Schmidt (pictured in center) cut him off, declaring in an avuncular tone: "You are welcome here." It was a gracious move, casting Google as a company that took any and all investors seriously.

The second thing I thought of was Google's IPO prospectus, which began with its legendary "founders' letter." Written by Larry Page (right), who will succeed Schmidt come April, the letter was presented as an "owner's manual" for Google shareholders -- as if a share of Google stock was somehow as complicated and vexing as a Windows PC.

In the founders' letter, Page stressed that Google was "not a conventional company." He explained this meant Google would "serve end users" and not necessarily investors. That Google would "look forward as far as we can" and not simply focus on immediate profits. And that Google would "not shy away from high-risk, high-reward projects because of short-term earnings pressure."

Breaking Up the Band

And for much of the last decade, that's how it's gone. Google was ruled not by a single executive but by a "Triumvirate" (which nobody ever seemed to call a Triumvirate except its own members). Page and Sergey Brin were the shaggy hackers with a 300-year vision, Schmidt the buttoned-down old guy who smoothed things over with Wall Street and Fortune 500 advertisers. That balance worked well for a long time.

But now, the power trio is breaking up. It's the Police all over again: Sting wants to play the guitar, so the elderly Andy Summers must find a new role. And Stewart Copeland is going to focus on all that futuristic stuff.

Seriously, the analogy isn't much of a stretch. Look at the photo on the blog post Google made to announce the new "clarification of individual roles": Page is in the driver's seat. Brin isn't even in the passenger seat - his best hope is to be a backseat driver. And Schmidt? He's not even in the car. But they're all trying to look so happy.




So, as Page takes the reins from Schmidt, the question for investors is: Will things really change? Will Page steer Google back to the spirit of that first founders' letter, plowing revenue into new research projects that might bear fruit five or 10 years from now, pulling down margins in the meantime?

Put another way, will Google return to embracing risk over steady earnings growth?

The Old Google Spirit Lives. . .at Facebook

The answer may lie in last year's founders' letter, also written by Page. Nowhere in sight is the rebel who threw down gauntlets before Wall Street like Molotov cocktails. Instead, we get rhetoric like this: "With size comes scrutiny and a certain amount of skepticism." Which may or may not be a dispiriting riff on Stan Lee's "With great power comes great responsibility."

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In last year's colorless founders' letter you'll also find language like this: "Finding important technological areas where progress is currently slow, but could be made fast, is what Google is all about." I'm not exactly sure what that means, but it sounds a lot like a large and great company wheezing itself into middle age. Imagine Facebook with such a mantra.

And that's the problem. In designing the future of the Web, Facebook is smaller, more user-oriented, more forward-looking and more risk-taking than Google. Google's technology may not overlap entirely with Facebook's, but its source of revenue does. It's all Web ads, and Web ad spending is migrating to social networks.

More important, Facebook's spirit is closer to the Google of 2004 than to the Google of 2011. Today, it's easy to imagine Mark Zuckerberg writing Google's 2004 founders' letter. It's harder to imagine today's Larry Page composing it. In 2011, Facebook is doing everything in its power to resist an IPO and the quarterly task of jumping through the hoops investors hold up. Meanwhile, Google's CEO-in-waiting is talking to investors like he's Steve Ballmer.

Bring Back Page the Rebel

Page's first founders' letter fought bitterly the constraints of quarterly earnings. I agreed with him, although I knew investors wouldn't. The investors eventually won their way with Google, and its stock has vacillated sideways for the past three years.

I do not own any shares in Google. But if I were an investor, I would want the Page who wrote that first founders' letter to lead the company, and not the one who wrote the 2009 letter, because it's the former Page who is needed to fight back against Zuckerberg.

We need the rebels leading Google again -- that earlier Page who, along with his futuristic drummer, Brin, would refuse to compromise their ideas about how people should interact with information. His return would mean enduring long storms of screeches and howls coming from a Wall Street obsessed with immediate gratification.

It would also mean some rough times as Facebook surged ahead in the short term. But if the rebels held to their vision in the long term, I wouldn't bet against Google.


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]]>ceoColumnseric schmidtfacebookfoundersfuturefuture of GoogleGooglelarry pageonline advertisingPredictionsrebelreshuffleresignresignationresignssergey brinwall streetKevin KelleherFri, 21 Jan 2011 10:50:00 ESTApple Can Succeed Without Steve Jobs, but Can It Still Be Apple?http://www.dailyfinance.com/2011/01/19/apple-can-succeed-without-steve-jobs-but-can-it-still-be-apple/http://www.dailyfinance.com/2011/01/19/apple-can-succeed-without-steve-jobs-but-can-it-still-be-apple/http://www.dailyfinance.com/2011/01/19/apple-can-succeed-without-steve-jobs-but-can-it-still-be-apple/#commentsFiled under: , , , , ,

Apple CEO Steve JobsThe last time Steve Jobs took a medical leave of absence from his job as CEO of Apple (AAPL), the debate stretched on for months: Can Apple survive for a stretch without him? Will the company's new products still become hits? Can its other managers fill in for a leader who is both visionary and detail-obsessed?

The answer to all those questions, we know now, is yes. Which may be why, now that Jobs is taking a third medical leave of absence, the debate has been much shorter. It took pretty much one day for the consensus to swing toward a sense that Apple would do just fine over the coming year. As if to dispel lingering doubts, Apple posted a blowout financial quarter Tuesday and followed up with bullish guidance.

Missing in Action: Charisma and Panache

Word of Jobs' leave hit on Martin Luther King Day, a market holiday, giving the news cycle plenty of time to digest it. In overseas markets where Apple trades, the stock fell as much as 8% from its Friday closing price of $348.48. But following its earnings announcement Tuesday, the stock surged as high as $353.29.

On the earnings call with analysts, the inevitable questions about what Apple would do during Jobs' leave were muted. Instead, analysts focused questions on Apple's future and where its technology and its markets are heading. Chief Operating Officer Tim Cook, who is again taking over day-to-day operations in the CEO's absence, fielded the questions well, even if he lacked much of the charisma and panache that Jobs always brings to public events.

Still, if Apple can thrive for at least the next year or so without Jobs as actively involved, another question remains: How long will Apple thrive once he retires? There's a somewhat ghoulish aspect to the public discussion of any person's prospects when facing cancer -- it's a private matter that deserves to remain private. But every CEO's tenure ends at some point, and every company must adapt to that departure, especially when the CEO's stamp is as indelible as Jobs' is on Apple.

A Man, a Plan, a Brand: Jobs Is Apple

During the last round of questions on the topic of a post-Jobs Apple, I wrote that the company would continue to be a success and an innovator in technology for some time without him, and I still believe that. But there are a few key factors that Apple will have to deal with once Jobs stops managing the company, even in a reduced capacity.

The question is not so much will Apple survive Jobs or still be as successful without him? The question is, how can Apple fill in the gaps that Jobs will leave once he retires?

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Apple's future will be complicated enough as it navigates rivalries with Google (GOOG) and the many smartphone and tablet makers working to match and even improve on the iPhone and the iPad. Jobs' ideas on how personal computers should work took him decades to make real. It will take much less time for others to copy the results.

Complicating this competitive market is that, when Jobs steps down he'll be taking a good part of the brand with him, especially his ability to reframe debates -- as he did with Java -- and to launch products. The iPad was much discussed in 2010, but the discussion peaked back in January, before it was even for sale. That was the month Jobs unveiled it to the public.

Apple's other executives haven't conveyed anywhere near the same charisma when they've make public presentations. That will have an affect on Apple's brand, not just in the tech press but in the broader public.

The absence of a charismatic leader may affect the chemistry of the management team that Jobs has assembled at Apple. It has been pointed out often enough how deep the talent is among these executives. It's not as clear whether Jobs is the glue holding it together, and whether Cook can continue to manage the team as well. Some key players could depart if they feel the company has changed without Jobs.

No More Worlds to Conquer?

Apple has also thrived because of Jobs' legendary -- and surprisingly effective -- stubbornness. The iPod's success was driven, in good part, by iTunes. And iTunes worked because of the concessions Jobs won from music labels, concessions that no other executive had been able to win. Jobs also pushed AT&T (T) into heavy compromises when it signed an exclusive arrangement with it for the iPhone. Apple's partners may not see such a strong negotiator in Jobs' successors.

Then there's the question of Apple's long-term vision. Over the weekend, The Wall Street Journal ran a column asking if Apple's best years were behind it. The reason had less to do with Jobs' leave of absence -- the piece ran before it was announced -- and more to do with the author's belief that there are no more worlds for Apple to conquer. And nearly a year ago, when Jobs had turned 55, DailyFinance saw him nearing the final stage in his career and that Jobs was considering his legacy at Apple.

He has long believed that computers should be as easy to use and maintain as other appliances. He dreamed of a tablet-like device long before the iPad was designed. Now that he has turned those ideas into realities, Apple needs a new long-term vision. Otherwise, the company will simply become a caretaker for the things Jobs wanted to achieve decades ago.

More Than a Tech Company

Cook and other executives at Apple can achieve all this. I'm not arguing that it's over for Apple, or that they can't keep Apple in the forefront of innovation and customer satisfaction. That's the easier task.

The thing is this: Apple is more than a tech company, it's a longtime cultural phenomenon and an inspiration to engineers, designers and creative people in other industries. More than any other company, it has made computers an intimate part of our daily lives. Apple can remain that kind of icon, but to do so will mean filling in all the gaps that Jobs will leave when he retires.

That's the harder task, and I can't imagine how Cook & Co. will accomplish it.


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]]>Appleapple earningsapple earnings callApple earnings reportAsiaCEOChinaColumnsCOOipadiPhoneIpodiTunesitunes storereplacementsmartphoneSteve Jobstablettablet pcTim CookKevin KelleherWed, 19 Jan 2011 11:00:00 ESTThe Latest Challenger to Apple Is. . .Samsung?http://www.dailyfinance.com/2011/01/12/samsung-apple-rival-ipad-galaxy-tab/http://www.dailyfinance.com/2011/01/12/samsung-apple-rival-ipad-galaxy-tab/http://www.dailyfinance.com/2011/01/12/samsung-apple-rival-ipad-galaxy-tab/#commentsFiled under: , , , , , , , , , , ,

Rare is the company that can consider itself a true rival of Apple (AAPL). Microsoft (MSFT) had the honor in the 1980s and 1990s, when it adapted the Macintosh graphical user interface into Windows and became the dominant operating system provider. More recently, Google (GOOG) has filled the role of Apple's chief foe by launching the Android mobile operating system, which is gobbling up market share in smartphones, stealing some thunder from the iPhone.

But if there's room for a new Apple rival, Samsung Electronics (SSNLF) would like to apply for the role. Since its launch, Apple's iPad has dominated the tablet computer industry in the mainstream consumer market. Only one other tablet has garnered sufficient buzz and sales to be considered even a potential rival: Samsung's Galaxy Tab.

Samsung launched the Galaxy Tab in October and sold 1 million units in its first 60 days. Sounds impressive. But Apple more than doubled that rate, selling 2 million iPads in under 60 days, and moved 8 million overall in 2010. Caris & Co. estimates Samsung will sell 8 million Galaxy Tabs in 2011 -- still dwarfed by the 35 million iPads the research firm expects Apple to sell.

Samsung, though, is already bigger than Apple in terms of revenue. It's forecast to report $137 billion in 2010 revenue, more than double the $65 billion Apple took in during its most recent fiscal year. But most of Samsung's income comes from semiconductors and display screens, and as Samsung noted Monday, declining prices for these commodities are hurting the company's financial health this quarter.

Mirroring Apple's Lineup

To offset those falling revenues, Samsung is looking to consumer products like smartphones and tablets. Consumer devices are a minority of Samsung's business, and its brand doesn't carry the cachet that Apple's does. But it's interesting to note that much of its consumer lineup -- mobile phones, tablets, laptops, MP3 players and smart TVs -- mirrors the lineup that Apple has been building over the past decade.

In some areas, like the emerging market for Internet-connected TVs, Samsung has a pretty good shot at competing with Apple for early market share. In others, like smartphones, its sales lag those of Apple's iPhones, but are still respectable. Samsung has sold 10 million Galaxy S phones, becoming the first Android phone to surpass that milestone.

But it's the tablet market that may allow Samsung to make the biggest gains against Apple this year. Forrester Research recently revised upward its 2011 tablet forecast to 24.1 million unit sales, compared with 10.3 million last year (Caris & Co.'s estimate is much higher: 54 million tablets in 2011, with Apple selling two out of every three.)

For Samsung to carve out a big share of that market, it will have to push aside other Android device makers such as Motorola (MOT), which made a big splash at last week's Consumer Electronics Show (CES) when it unveiled its Xoom tablet. The Xoom will feature front and rear cameras, a Tegra 2 dual-core processor from Nvidia (NVDA) and run Honeycomb, the 3.0 version of the Android OS. Motorola is shipping 750,000 Xooms this quarter. Asus is also planning tablets with similar features.

Cheap Generic Android Tablets

Then there are non-Android devices hoping to claw out a piece of the market. Microsoft will be pushing its Windows tablets, although products associated with the company generated fairly weak buzz at last week's CES. One exception was Samsung's own Windows-powered Sliding PC 7 Series, a tablet that seems as if it had been cross-bred with a netbook, for consumers who can't decide which type of product to buy.

More likely to make dent in the market is Research In Motion (RIMM), whose BlackBerry Playbook has been receiving positive initial reviews from influential blogs. The Playbook may not be ready until the summer, however, and it's not clear how innovative the tablet will still feel by then. Loyalty runs high among BlackBerry lovers, though, so there should be an early market for the Playbook.

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Older brands with big marketing muscle, such as Dell (DELL) and HP (HPQ), are also entering the market. And of course, Apple is also planning an upgrade to the iPad, which will reportedly feature a dual-core processor and two cameras. So the race to include the latest innovations will remain tough at the high end.

What may catch Samsung and others by surprise, however, is the low end of the tablet market. Bearing unimaginative names like Apad and Haipad, these generic Android tablets generally sell for less than $150 and can run as low as $99. They may appeal to consumers who are interested in the convenience of a tablet, but not if it means paying upwards of $500. And they may speed up the commoditization of tablets, bringing down both prices and the margins of high-end manufacturers.

Samsung's best hope to become a genuine rival to Apple in the mobile-device business is to find a way to ensure that its tablets keep standing out from the rest of the Android pack. Today, the Galaxy Tab gives Samsung a strong position in the nascent market. Although things could change quickly, the opportunity is now Samsung's -- to lose or to keep.


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]]>androidandroid tabletApadAppleBlackberry PlaybookCESCES 2011consumer electronics showgalaxy sgalaxy tabHaipadiPadiphoneMotorolaNvidiaSamsungSmart TVsmartphonetabletsXoomKevin KelleherWed, 12 Jan 2011 11:00:00 ESTHow the Web Will Make Winners and Losers in 2011http://www.dailyfinance.com/2011/01/06/five-trends-that-will-shape-the-web-in-2011/http://www.dailyfinance.com/2011/01/06/five-trends-that-will-shape-the-web-in-2011/http://www.dailyfinance.com/2011/01/06/five-trends-that-will-shape-the-web-in-2011/#commentsFiled under: , , , , , ,

Five Trends That Will Shape the Web in 2011Success on the Web often boils down to the ability to tap into trends just as they're emerging. The makers of Angry Birds wouldn't have had the hottest game of 2010 without the mainstream success of smartphones and iPads, and Groupon might not have grown as fast had the weak economy not pushed consumer demand for online discounts.

A year ago, hardly anyone was expecting either Angry Birds or Groupon to be among the rising stars of 2010. But the underlying trends that powered their success were plain enough. So while it's nearly impossible to predict with much accuracy which companies will be the hits of 2011, here are five trends that may help separate the year's winners from the losers.

1. Big Advertisers Go Social. Facebook's estimated $2 billion in revenue is a fraction of the $26 billion in online ad spending. But it's certain to grow larger as big advertisers spend more of their budgets on social networks -- a market that for the time being, at least, Facebook dominates.

The most remarkable thing about that shift is that big brands like Coca-Cola (KO) don't really understand why social network ads work, but they're plunging in anyway. It's enough to see that Coca-Cola is liked by 21.6 million people, and that click-through rates rise once a brand is liked by someone's friends. Even though there's still no surefire formula for effective Facebook advertising, deep-pocketed companies are learning to love being "liked."

2. Local Gets Aggressive. The changes 2011 will bring will affect more than just the big advertisers -- they'll create new incentives for small, independent businesses to advertise online as well. E-coupon sites like Groupon are just the first wave. The mobile Web is ideal for helping mom-and-pop shops set up features to entice loyal customers into online relationships while reaching out to potential new customers.

However, there's a catch: Local doesn't just mean small businesses. As Groupon has grown, it has started offering more deals from big companies, moving past the small businesses it built its initial success on. Local Web advertising could quickly become a platform for big national chains, and the mom-and-pop entrepreneurs could get lost in the shuffle.

3. The Introverts Speak Up. With more than 500 million members, Facebook's growth seems assured for some time. But its growth may reach saturation at some point. For every active Facebook member, there's a holdout who's concerned about privacy. For every new member who signs up, an old member stops signing in frequently because the site has lost its allure.

So social networks need to evolve to make the Web introverts -- those who choose not to be visible on social networks -- feel comfortable about signing on. If Facebook can't preserve its members' privacy in a way that appeals to these holdouts -- or if it stops adding new twists to make its site an everyday draw -- it will open up opportunities for rivals to eat into its market share.

4. Privacy Becomes a Corporate Priority. It seems like hardly a month passes without some news of regulators taking a hard look at Web privacy practices. Also growing common are class actions like the one filed against Apple (AAPL) last week, which claimed a breach of user privacy on iPhone apps.

Companies won't stop collecting data, but they will have to take convincing measures to satisfy regulators, privacy advocates and, ultimately, consumers that they aren't misusing the data they're collecting. The problem is, all that information is crucial to their business models: The more data they collect, the more money they stand to make. Finding a balance will be a complex but essential task in 2011.

5. The Web Bubble Deflates. Now that Goldman Sachs has given Facebook a $50 billion valuation -- 25 times the company's estimated 2010 revenue -- it's hard to argue the Web isn't in a bubble anymore. But this bubble seems contained to the private markets, and the disconnect with valuations in the public market is growing.

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All it could take is one high-profile Web company braving the IPO process to change this. After all, it's nearly impossible to short a stock in the private markets, but it's done all the time in the public markets. An IPO -- whether for Zynga, Groupon or Facebook -- would almost certainly see a speculative surge early on. But any disappointment in the financial data would reverse the rally, sending shock waves throughout the venture capital market.

Of course, precisely when a bubble will end is one of the hardest things to predict. But though it will be somewhat painful, a correction would be a welcome event sooner rather than later. The longer it takes for the Web bubble to deflate, the more destructive the correction will be when it comes.


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]]>angry birdsAngryBirdsbubbleColumnsGrouponhyperlocalipadiphoneLiving Sociallocalonline advertisingPredictionspredictions 2011privacyPrivacyIssuessmartphonesocial mediasocial networkingSocialNetworkingtrendsWebKevin KelleherThu, 06 Jan 2011 06:30:00 ESTThe Biggest Tech Surprises and Disappointments in 2010http://www.dailyfinance.com/2011/01/02/the-biggest-tech-surprises-and-disappointments-in-2010/http://www.dailyfinance.com/2011/01/02/the-biggest-tech-surprises-and-disappointments-in-2010/http://www.dailyfinance.com/2011/01/02/the-biggest-tech-surprises-and-disappointments-in-2010/#commentsFiled under: , , , ,

Facebook far exceeded even the most optimistic expectations for the year.At its core, the technology industry is one of innovation, in which people work to create something new that has a significant impact on the world. Creating something new is the easy part; much harder is being able to predict if and when those novelties will make their mark, rather than fade into oblivion.

But with 2010 now over, examining its biggest surprises and disappointments can yield some lessons about the latter. We took a close look at some of the innovation that drove the technology industry and shaped our everyday lives -- and some that didn't. Here are four of the biggest tech surprises in 2010, and three of its biggest disappointments.

Top Tech Surprises

1. Facebook's stunning success: The surprise here isn't that Facebook had a good year, but that its success far exceeded even the most bullish expectations. A year ago, observers predicted the social-networking site would bring in $1 billion in 2010 -- and that forecast seemed optimistic considering that nobody had ever made that much money from a social network before. Instead, Facebook may see $2 billion in revenue this year. The company worked hard to bring big brands to its site, and to get users to "friend" them. CEO Mark Zuckerberg became a household name that was mentioned more frequently in news stories than even Apple (AAPL) CEO Steve Jobs.

2. The iPad: Not that Jobs had a bad year. In the months before and after he unveiled the iPad, many tech pundits predicted the tablet would be a bust. Some dismissed it as a supersized iPhone. But 10 million iPads later, those naysayers may be wishing they had stayed quiet. An even bigger surprise that the iPad's soaring sales has been the power of its apps to do things few could have dreamed of a year ago.

More surprising than the iPad's sales is the potential of its apps to do things few dreamed of a year ago. Netflix made movie viewing more intimate than ever; Magic Piano let us brush up our music skills; Epicurious brought thousands of large-print recipes into our kitchens; and GoSkyWatch helped us stargaze on the go. And media companies have redesigned their content around the iPad.

3. The decline of glitz games: For decades, video-game makers strived to create a virtual-reality effect through realistic graphics and 3-D images, which kept the bulk of the industry's control in the hands of big companies that could afford those big development costs. In 2010, the balance of power tipped dramatically in the other direction. The hottest game, Angry Birds, showed how to immerse players with back-to-basics graphics. Online games went mainstream too, not through graphics-intensive titles like World of Warcraft, but through much simpler Zynga titles like Farmville.

4. The rise of Groupon: Thanks to Amazon's (AMZN) success, a lot of commerce has moved online. But there has been one glaring exception - the mom-and-pop retailers and restaurateurs, which never previously leveraged the power of the Web to draw new customers. Groupon changed this seemingly overnight. The company combined e-coupons and group buying to send droves of new consumers to businesses that signed up to offer daily-deal discounts. Groupon's success allowed it to rebuff a $6 billion bid from Google, which was quickly followed by a private investment valuing it as high as $8 billion.

Big Disappointments

1. The demise of privacy: The longer you have been online, the better you understand that privacy is at most an illusion. It's no longer true that, on the Internet, nobody knows if you're a dog. It's only a matter of time before you are outed, and soon plenty of websites will start serving you ads for dog food. In 2010, the fight for privacy lost even more ground. Even after Facebook suffered huge privacy fiascos, most users apparently have remained content to have their intimate personal data shared with advertisers. It's come down to privacy versus ad revenue - and the money side is winning.

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2. Location and augmented-reality apps: Early in 2010, many were expecting big success stories around apps that use geolocation and augmented-reality technology to create mind-blowing new features. That didn't quite happen. While location became an added feature in apps like Facebook, others that relied heavily on it - like Foursquare and Gowalla - failed to find mainstream appeal. And we're still waiting for a killer app that can turn a big crowd of smartphone users on to augmented reality. Instead, the best selling apps were largely games.

3. Google Buzz: For years, Google (GOOG) has had to contend with criticisms that it's a one-trick pony. While search is a nice pony to have, the company needed to break into newer Web areas like social networks. Buzz was supposed to change that, but it stumbled out of the gate. Maybe 2011 will bring Google greater success in moving beyond search into the social Web.

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]]>2010amazonangry birdsAppleapple ipadfacebookfacebook privacyFacebookPrivacyfarmvilleFarmVille Freakgooglegoogle buzzgrouponipadipad appIpadAppround upround-uprounduptechtechnologywrapupZyngaKevin KelleherSun, 02 Jan 2011 09:00:00 ESTYahoo Is Pleasing Investors, Instead of Its Usershttp://www.dailyfinance.com/2010/12/30/yahoos-future-looks-bleak-as-it-runs-out-of-options/http://www.dailyfinance.com/2010/12/30/yahoos-future-looks-bleak-as-it-runs-out-of-options/http://www.dailyfinance.com/2010/12/30/yahoos-future-looks-bleak-as-it-runs-out-of-options/#commentsFiled under: , , , ,

If 2010 wasn't a bad enough year for Yahoo (YHOO), it's ending on an especially sour note. After watching rivals capitalize on the social and mobile aspects of the new Web, Yahoo moved to "sunset" various properties it set up or bought in recent years. But its handling of the announcement turned into a public relations nightmare, leaving many in the tech world with the impression the company is not only running out of options but blowing the few it has left.

Investors don't seem to have much conviction one way or the other about Yahoo's strategic moves: The stock has traded in a narrow range for the year and trades under $17 per share -- close to its year-ago levels.

But Yahoo's users can't be too happy. The company is ending 2010 on an especially sour note, with a new round of layoffs and its move to sell or shut down popular services like Delicious, drawing a chorus of criticism in the tech press.

Alienating Users?

As Yahoo flips the calendar to a new year, that dichotomy sums up its dilemma. Ever since Yahoo angered many shareholders for rebuffing an attractive takeover offer from Microsoft (MSFT), it has aligned its strategy to make shareholders happier. But in the process, it seems to be alienating users, which can't be good for the bottom line.

The decline in the company's brand among its users is slow, but increasingly perceptible. Its overall audience, measured by unique monthly users, is growing slower than the Web's overall audience. As a result, Yahoo is sliding down the list of the Web's biggest names.

Late last week, ComScore, which tracks Website usage among other things, reported that Facebook surpassed Yahoo as the third-largest Website in the world. Yahoo is now No. 4 (behind Google and Microsoft also). Only five years ago, it gave up its No. 2 slot to Google.

Facebook's success has bedeviled Yahoo this year, partly because -- as Yahoo CEO Carol Bartz made clear in an interview at the Web 2.0 conference last month -- the company sees many of its services as social. "We've been social for a long, long time," Bartz declared.

That's true, but it's like saying horse-drawn carriages were around a long, long time before cars came along. Both Yahoo and Facebook are social, but in dramatically different ways. Facebook is obsessed with all the ways people interact with each other on the Web, and it tweaks its site accordingly. Yahoo seems content to get people socializing in a Web 1.0 kind of way: email, bulletin boards and new twists like Answers.com.

Stuck in the Past

And that points to one of the biggest factors hamstringing Yahoo: The company's DNA is still that of a 1990s "portal" -- a centralized site attempting to structure the Web, whereas the Web is very much decentralized.

Take a look at Yahoo's home page in December 2010. The streams of updates from friends that are the center of Facebook and Twitter content are absent (except maybe the Facebook and Twitter links near the bottom of the page). Now look at Yahoo's home page as it was five years ago. The content is very much the same -- what you'd want from an all-in-one portal. Except that many users don't have a use for all-in-one portals anymore.

Yahoo tried to move into social media by buying popular sites like del.icio.us and Flickr. The results included no successes. Instead, they ranged from mixed to disastrous. Del.icio.us (renamed Delicious) was so deeply integrated into Yahoo's core technology that one former insider believes it can't be sold off. Flickr was granted more autonomy in Yahoo, but it still moved toward the margins of the social web.

Not the Right Strategy for the Web

Bartz's moves to reduce staff and eliminate some of Yahoo's less popular features is likely to please investors, at least in the short run. Corporate turnarounds routinely involve such moves, and Bartz's strategy appears to combine some old-fashioned cost-cutting with a push to innovate into new technologies.

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And that points to the second problem facing Yahoo as 2011 approaches: That hybrid model won't work in the Web sector. Slashing costs and shuttering operations can be effective tools in turning around manufacturers and software companies. But even though the Web is designed with software code, these same strategies seem to have a contrary effect. They drive away top talent and telegraph to users that the brand is fading. And after a while, revenue from advertisers starts to dry up.

Yahoo's recent moves may make investors optimistic. But unless the company starts taking a radically different approach to its site's content, 2011 will be a year of a shrinking audience and a diminished brand. If so, no amount of cost-cutting can keep Yahoo's stock rising much longer.

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]]>audiencebartzcarol bartzcomscoreinvestingsocial mediaSocialNetworkingWebweb 2.0web portalKevin KelleherThu, 30 Dec 2010 12:00:00 ESTIntel Will Have to Prove Itself All Over Again in 2011http://www.dailyfinance.com/2010/12/28/intel-will-have-to-prove-itself-all-over-again-in-2011/http://www.dailyfinance.com/2010/12/28/intel-will-have-to-prove-itself-all-over-again-in-2011/http://www.dailyfinance.com/2010/12/28/intel-will-have-to-prove-itself-all-over-again-in-2011/#commentsFiled under: , , , , , , , , , ,

Intel Will Have to Prove Itself All Over Again in 2011In 2009, Intel (INTC) tracked the robust rally of the Nasdaq, upon which it trades, rising 44% alongside the index's 48% gain. Higher prices for notebook and server chips helped increase revenues and operating margins alike.

This year hasn't been such a happy story. Intel is up just 2% for 2010, in contrast to the Nasdaq's 17% rise. There's a growing sense that the market will shrink for the notebook and desktop PC chips that produce three-quarters of Intel's overall revenue, thanks in large part to the rising ubiquity of smartphones and the sudden and largely unexpected success of tablets -- especially Apple's (AAPL) iPads.

The iPad, like the iPhone 4, uses a processor designed by Apple, based on an architecture from ARM Holdings (ARMH), and is manufactured by Samsung. The iPad's biggest competitor right now is the Samsung Galaxy Tab, which also uses the ARM design, essentially leaving Intel out of the tablet revolution, except as a bystander watching its impact on the netbook market.

Tablets won't kill off netbooks and other PCs any time soon, but they will dramatically slow their sales growth. Market research firm Gartner recently revised its projections for 2011's growth in PC shipments down to 15.9% from its previous estimate of 18.1%, based in part on the tablet and smartphone phenomena. Within three years, Gartner estimates, tablets could displace a tenth of PC sales.

Data Center Division Shows Strength

The story is similar with smartphones. Qualcomm (QCOM) makes 77% of chips in Android smartphones -- again, using ARM's architecture -- prompting one consulting firm to coin the term "Quandroid" to describe the Qualcomm-Android alliance. That term has to sting over at Intel headquarters, because it echoes the "Wintel" portmanteau long used to describe the Intel-Microsoft (MSFT) combo in desktops.

It all adds up to explain why Intel will see its revenue and profit growth slow dramatically next year. The world's biggest chipmaker is expected to report revenue growth of 24% in 2010, and its earnings per share should more than double to $1.99 from 77 cents in 2009. In 2011, however, revenue growth is forecast to slow to 4%, and EPS will fall by 4 cents a share to $1.95, according to a consensus of research analysts.

Intel's numbers receive some support from its data center division, which makes chips for servers, workstations and storage devices. The data center group accounts for about 20% of Intel's revenue, but half of its operating profit. And the division's revenue is growing faster: It increased 46% year-over-year in the most recent quarter, compared with an 18% growth rate for the PC client group.

Intel wants to see fast growth in its PC division growing again, and it knows the basic rule of survival for tech companies: When a core market slows down, innovate your way into new growth. That can be tricky, but few companies have mastered the process as well as Intel.

Atom and Sandy Bridge in the Spotlight

The company hopes to start off 2011 with some strong announcements at January's Consumer Electronics Show. CEO Paul Otellini said this month that 2011 will see more than 35 tablets released with Intel's Atom chips, with some debuting at CES. Later in the year, a third generation of smaller, more energy-efficient Atom processors will arrive for smartphones.

Intel introduced its Atom processor in 2008, which were popular in netbooks made by companies like HP (HPQ) and Asus, but mobile device manufacturers felt they weren't power-efficient enough for their portable gadgets.
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Otellini also predicts that Intel will make big strides in notebooks as well, thanks to a new chip architecture called Sandy Bridge. Like the Fusion chip from its rival AMD (AMD), Sandy Bridge will build graphics processing into its central processing units. Until now, computers using Intel CPUs have required separate graphics chips made by companies such as NVIDIA (NVDA).

Otellini compares Sandy Bridge to Pentium in terms of a step up in processing, saying it will change how computers handle video and allow developers to create new applications. But analysts so far seem unimpressed. JPMorgan Chase (JPM) declared that, notwithstanding Otellini's enthusiasm, Sandy Bridge appears to be "evolutionary, not revolutionary."

Whether it's evolution or a revolution, it will take months for Sandy Bridge to show whether it can make an impact on the PC market -- and on Intel's bottom line. However, one early encouraging indication is that Apple reportedly is interested in the new chips for its 13-inch Macbooks.

Intel's stock trades at 10 times its estimated earnings for this year, suggesting many investors share JPMorgan's lack of enthusiasm about the company's plans to revive growth. Otellini & Co. will have their work cut out for them to get investors to rethink their indifference toward Intel in 2011.

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]]>AMDatomCESchipmakerchipmakingcomputersconsumer electronics showdesktopgrowthIntelintel atomintel chipsIntel earningsintel forecastIntel stockiPadiphonelaptopmacbooknetbooknvidiaPaul OtellinipcpentiumQualcommsamsungSandy Bridgesmartphonetablet computerstablets vs PCKevin KelleherTue, 28 Dec 2010 12:00:00 ESTNo Matter How Successful, Netflix Can't Shake the Bearshttp://www.dailyfinance.com/2010/12/27/netflix-cant-shake-the-bears/http://www.dailyfinance.com/2010/12/27/netflix-cant-shake-the-bears/http://www.dailyfinance.com/2010/12/27/netflix-cant-shake-the-bears/#commentsFiled under: , , , , , ,

NetflixNetflix (NFLX) must be one of the most successful underdogs in business history. For 13 years, it has grown in spite of -- and perhaps because of -- a series of constant threats. But even as the stock hit a record high this month -- popping briefly above $200 in early December -- Netflix seems to be facing some of its most daunting challenges yet.

Founded in 1997, Netflix had to distinguish itself from a pack of DVD-rental rivals (Reel.com, DVD Express) that are now defunct or forgotten. A year later, Blockbuster (BLOAQ) started selling DVDs, initiating a bloody battle that would force Netflix to lower fees and Blockbuster to redesign its entire business to try to kill Netflix.

The result is well known: Blockbuster is bankrupt. Its stock trades on the pink sheets, and the company is valued at 1/288th of Netflix's market cap. Investors who shorted Netflix aggressively through the last decade have come to regret it: Netflix shares have increased nearly 25 times in value since the company's 2002 IPO.

Sisyphean Battles

Given that history, it seemed almost bizarre this month to see Netflix CEO Reed Hastings writing a long and detailed defense of the company on Seeking Alpha. Hastings was replying to another long, detailed article on that financial site from Whitney Tilson, a value-fund manager who believes Netflix is overpriced and poised to see margins wither way.

Tilson is shorting Netflix; Hastings thinks that will be a mistake. Netflix has emerged from a series of victories in the past several years only to enter another Sisyphean battle with short-sellers. And the interesting thing is, the shorts seem to have a scarily compelling case.

Hastings forthright move was a rare one for CEOs. Most companies would balk at the idea of defending a company's future financial performance fearing a public relations nightmare -- or the risk of spurious but costly shareholder lawsuits if the defense proves to be too optimistic.

The Bears' Argument

But as laudable as Hastings' move was, and as spirited as his counterarguments came across, the immediate risk that he faces with his open response to Tilson is that he failed to deliver a knockout blow. At best, he made it clear that Netflix's future is uncertain. But by responding in such a public manner, he also called broader attention to the concerns held by bears and may have given them weight.

Tilson detailed a long list of potential problems that could slow Netflix sales or pressure its margins. Among the most concerning were that Netflix's subscriber base would saturate faster than many expect, that the cost of building a robust inventory of movies and TV shows would prove unwieldy, and the transition from DVDs to streaming content will have a negative effect on cash flows.

In short, many of the issues Tilson cites will either slow sales growth or push up costs as Netflix approaches its goal of being a streaming-video powerhouse. Hastings concedes that Tilson "only has to be right on one or two of these issues in 2011 for him to make money on his short of Netflix" before asserting, "Odds are he is wrong on all of them, in my view."

Great Skill and Good Luck Needed

It's not unusual for bulls and bears to argue over a the fate of a stock. What's less common is the kind of debate you see with Netflix: Both camps adhering with such passionate conviction to their views for so many years.

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Who is right this time? The bears have a strong case. The coming year will be crucial for Netflix's plans to transition from a DVD-by-mail company to a service that streams movies and TV shows over the Internet. And given the many uncertainties in streaming video and the risks that Netflix must navigate around, it'll take a mix of great skill and good luck for Netflix to keep growing.

Yet if past is prologue, the bulls may be right. Netflix faces some tough competitors in this new field. But the company isn't blindly rushing in late in the game. It has slowly and deliberately laid the groundwork for streaming video, building it piecemeal over the past four years after even more years of careful planning. It has faced competition from Apple (AAPL) and Amazon (AMZN) without seeing its growth slow down.

Following Apple's Lead?

And while it's impossible to predict how many titles Netflix will stream in the future and at what cost, it does have one powerful negotiating chip: It's popular with users. The site's interface is simple and intuitive, and the $7.99 monthly rate for streaming videos is appealing. Apple leveraged the popularity of iTunes to win concessions from music studios. In videos, Netflix seems best positioned to have that leverage.

The bearish criticism of Netflix's stock that will be the most persuasive in the near term concerns its valuation: It's trading at 66 times its estimated 2010 earnings. That's three times higher than its P/E ratio of two years ago. A correction in the stock is overdue -- and would make short-sellers happy.

But they may have to wait much longer for their predictions of Netflix's demise to come true.


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]]>BlockbusterDVDsinvestingmovies on demandmovies onlinenetflix stockonline videoReed HSeeking Astocksstreaming videoWhitney TilsonKevin KelleherMon, 27 Dec 2010 08:00:00 ESTIs Twitter Worth $3.7 Billion? Not in the Real Worldhttp://www.dailyfinance.com/2010/12/17/twitter-not-worth-3-7-billion/http://www.dailyfinance.com/2010/12/17/twitter-not-worth-3-7-billion/http://www.dailyfinance.com/2010/12/17/twitter-not-worth-3-7-billion/#commentsFiled under: , ,

TwitterNot long ago, John Doerr -- a Kleiner Perkins partner and the so-called Michael Jordan of venture capital -- was interviewed at a tech conference and asked about his firm's choice to pass on an early investment in Twitter. Doerr's forthright assessment: "We were wrong."

At another point in that interview, when Doerr was asked if the Web industry was in a bubble, he said he prefers to think of bubbles as booms and that in general "booms are good." String both of those comments together and you have a quick explanation of why Kleiner Perkins led a $200 million venture investment in Twitter this week -- and in doing so, drove the startup's valuation to $3.7 billion.

But now that the deal is done, one has to ask: In making this late-stage, premium-padded investment in Twitter, was Doerr wrong again?

Price-to-Sales Ratio Is Stratospheric

In the new world of social media, Twitter is the name most frequently mentioned after Facebook. It has proven to be a powerful branding tool for everyone from big celebrities to obscure freelancers. As a publishing platform, it has produced breaking news faster than traditional outlets. For social causes, it has helped raise awareness about and money for those in need.

What it doesn't do, somewhat famously, is make much money -- certainly not enough to justify such a high valuation for a five-year-old company that doesn't have a viable business plan yet. Twitter doesn't disclose revenue, but the company said last year it expected to make $4.4 million in revenue in 2009. Using old-fashioned fundamental analysis, that's a historical price-to-sales ratio of 840, which is the kind of valuation you only see in bubble. (Sorry, I meant "boom.")

To be fair, Twitter got a late start in the revenue game, opting instead to first cultivate a loyal base of users -- roughly 200 million at this point -- before experimenting with how to monetize all those micro-musings. In addition, social media is still a nascent industry, with no hard-and-fast rules for making money. And Twitter projected that its revenue would soar in 2010 to $140 million (although recent independent estimates put the figure below $100 million).

Now In Different Two Different Leagues

But Facebook was founded only two years before Twitter, and it's way ahead on revenue growth. Facebook's revenue is expected to grow to $2 billion this year from $700 million last year. Based on private stock sales on secondary exchanges, Facebook is worth $52 billion, which would put its price-to-sales ratio at a still-ethereal 26, much lower than Twitter's, but significantly higher than the 8.7 ratio of publicly traded search giant Google (GOOG).

This week, Twitter also launched a series of features intended to help businesses use the service as a marketing tool, including self-serve ads and how-to tutorials. The company is using strategies that Facebook devised to make social-networking ads pay.

But at the same time, its efforts underscore how Facebook and Twitter have moved into different leagues this year. Facebook is more actively searched than Twitter, according to Google Trends. In fact, it's not even close. More important, Twitter not only lags behind Facebook in the number of unique visitors in the U.S. -- the market where it's more likely to monetize its service first -- its growth in that metric is slowing down, according to ComScore.

So even before Twitter has solved one major problem -- how to profit from its growing audience -- it may have to confront another -- how to keep its current users active while luring new people to the service. Some growth is likely to come from overseas markets like Indonesia, Brazil and Venezuela, but many expect its user base in emerging economies will be harder to monetize.

How Integral Is Twitter to Users?

If it can get past those obstacles, Twitter will have an easier time seizing its opportunity to weave its way into users' daily lives the way Facebook has for many of its half a billion users. But therein lies another challenge for Twitter: Its users are older on average than those on Facebook. Many Facebook users consider that site an integral part of their everyday lives, whereas older Web users tend to regard social networking sites more as afterthoughts.

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In the end, the best defense of Twitter's $3.7 billion valuation is that it has a Plan B: Sell itself to an aging tech giant desperate for a social media star that can deliver hundreds of millions of active accounts overnight -- say, Google, Microsoft (MSFT) or Yahoo (YHOO). Remember that Google was willing to pay up to $6 billion for Groupon and reportedly offered as much as $4 billion for Twitter, so it's not hard to imagine Twitter holding out for a year to fetch a $6 billion price, which would double Kleiner's investment.
That might make Twitter a worthwhile investment for Kleiner Perkins, but it's not the spectacular slam dunk John Doerr would have made in his prime. What would Michael Jordan say?


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]]>advertisingColumnsfacebookJohn DoerrKleiner Perkinsmicrobloggingmobile advertisingmonetizationonline adsonline advertisingprice-to-salessocial mediasocial networkingTwittertwitter valuationtwitter vs facebookventure capitalventure fundingwhats twitter worthKevin KelleherFri, 17 Dec 2010 15:30:00 ESTChinese Internet IPOs: The Case for DangDang Over Youkohttp://www.dailyfinance.com/2010/12/13/chinese-internet-ipos-dangdang-or-youko/http://www.dailyfinance.com/2010/12/13/chinese-internet-ipos-dangdang-or-youko/http://www.dailyfinance.com/2010/12/13/chinese-internet-ipos-dangdang-or-youko/#commentsFiled under: , , , , , , ,

Chinese Internet usersChinese Internet companies seem to like U.S. stock exchanges better than their American counterparts do. Maybe it's a mad dash to raise capital before the Chinese economy overheats and dampens Wall Street's interest in them, but several Chinese Internet companies are hitting the market around the same time.

Among the more promising is an online bookstore turned general-merchandise e-tailer called E-Commerce China DangDang (DANG), or DangDang for short. Like many new IPOs, the company has risks, but its longer-term prospects could be appealing to investors who can tolerate them.

DangDang closed Friday at $32.79 per American Depository Share, more than double its offering price of $16 per ADS two days earlier. That left the online store with a market cap just over $2.5 billion. Still, that's significantly below the market cap of last week's other big Chinese IPO, Youku (YOKU), a would-be Chinese YouTube that was worth $3.8 billion by week's end.

The Amazon of China?

DangDang's market cap was nevertheless impressive. It's worth seven times Overstock.com (OSTK) and one-third as valuable as Sears (SHLD), even though Sears's $44 billion in revenue last year was more than 200 times as large as DangDang's $218 million.

But nobody's really comparing DangDang to Sears, or even Overstock. It's being touted as the Amazon.com (AMZN) of China. Amazon's market cap of $78 billion is 31 times bigger than DangDang, and its revenue was 112 times as large. In an interview with Bloomberg, DangDang co-founder Peggy Yu Yu said she hopes that one day Amazon will be thought of as the American version of DangDang.

That day is pretty far off, but it may not be smart to bet against her and her co-founder Victor Koo. As DailyFinance's Peter Cohan pointed out last week, DangDang didn't grow because it was the only online bookseller in China. It faced competition from the likes of Joyo, which Amazon bought in 2004. So, DangDang tailored its service to its home market.

Case Studies in Raising Capital

Founded in 1999, five years after Amazon, DangDang drew inspiration from others such as Bertelsmann's book club and New York independent bookstores. It grew much more slowly than Amazon did, partly because Chinese consumers are as passionate about saving money as Americans are about spending it. But mostly because the Chinese Web was slower to mature.

According to Yu, DangDang had a pretty big advantage when it came to building warehouses, a daunting cost for online retailers, because local governments were willing to share the burden in order to attract the company's operations. Amazon relied instead on the private credit markets. Both companies are case studies in how both capital venues can work, but DangDang's solution is a lot easier on the balance sheet.

Yu comes across in the Bloomberg interview as thoughtful and articulate -- similar to U.S. Web pioneers like, say, Amazon CEO Jeff Bezos. Like Bezos, Yu and Koo expanded by putting a focus on discounts and low costs. But unlike him, they built their online bookstore -- which Yu says is already China's biggest bookseller, including bricks-and-mortar chains -- without racking up debt.

A decade after its launch, Amazon faced more than $2 billion in long-term debt, enough to prompt some bearish analysts to predict its bankruptcy after the dot-com crash. DangDang raised money through venture investments from the Tiger Technology Fund and Kewen Holdings in 2004 as well as Silicon Valley firms like DCM-Doll Capital and Walden International in 2006.

Slower and Steadier Might Win Out

Compared to Youku, DangDang seems like a (relatively) sensible investment -- a notion that seems to be reflected in the stocks' performances on Dec. 10. DangDang inched up 2%, while Youku -- which had more than tripled in its first two days of trading -- dropped 12%. After all, DangDang had nearly 10 times as much revenue as Youku did last year. And it had a $2.5 million profit, while Youku has yet to earn any.

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DangDang's revenue growth is slower and steadier than Youku's, but its bottom-line performance suggests it's a better bet for investors, especially given rising concerns about the Chinese economy. Inflation is starting to be worrisome, and interest rates will eventually move high enough to slow China's scorching economic growth and consumer demand.

That will make for some rocky times ahead for DangDang investors. But for those in for the long haul, the company's ability to navigate a market that will one day see massive growth is an intriguing story.


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]]>Chinachinese inputDANGDangDange-commercee-tailersInternetjeff bezosonline shoppingPeggy Yu YuVictor KooyokuYoukuKevin KelleherMon, 13 Dec 2010 15:20:00 ESTYouku's IPO: Could This Love Story Break Investors' Hearts?http://www.dailyfinance.com/2010/12/10/youkus-ipo-too-risky/http://www.dailyfinance.com/2010/12/10/youkus-ipo-too-risky/http://www.dailyfinance.com/2010/12/10/youkus-ipo-too-risky/#commentsFiled under: , , , , , ,

Youku IPO at New York Stock ExchangeAmerican investors seem to be in love with Chinese Internet IPOs. This week, Chinese online-video site Youku (YOKU) had the strongest first-day rally of any company on a U.S. exchange since China's Baidu (BIDU) in 2005. Baidu went on to rise 40-fold over its offering price, and judging from the market's reception to Youku, hopes are high for a similar surge in time.

But the flip side to promise is risk -- and the risks of pinning big hopes on Youku are also big. The company has yet to post a profit, and the bandwidth-intensive nature of online video can weigh down margins. What's more, Baidu went public during a booming period in China's economy. It's not clear that the country's prospects are so bright in the next few years.

Those concerns haven't slowed Youku so far. The offering was initially priced between $9 per American Depository Share and $11, which would have put its market value between $922 million and $1.13 billion. Demand for the IPO quickly led underwriters to boost the offering price to $12.80 per ADS.

That put Youku's market value at the time of the IPO at $1.3 billion. But new investors were only getting started. By the end of its first day of trading, Youku's stock had risen 161%, and it rose another 9% on its second day, closing Thursday at $42.70 per ADS. At Thursday's close, Youku's market cap at just shy of $4.4 billion.

Another YouTube? Well, Maybe

The allure of owning shares in Youku are clear enough. It's being called the YouTube of China. YouTube is big in North America. China is potentially an even bigger market. So, the math goes, big plus bigger equals huge. How huge? As DailyFinance's Tom Taulli pointed out, to find a yardstick to measure Youku's valuation you might have to go back to the late 90s.

There's also reason to think the underwriters placed the offering price lower than demand dictated. Remember, Google (GOOG) paid $1.65 billion for YouTube in 2006, about 18 months after the video startup was founded. At the time of the deal, YouTube had 72 million monthly visitors. Youku, by contrast, was founded five years ago and has 264 million unique visitors per month, according to its prospectus.

By that measure, Youku was modestly priced at the opening, although it's starting to look pricey at its current level -- because one thing Youku does have in common with YouTube is a long history of losses. Four years after Google bought YouTube, its executives are still sheepish about answering questions about the unit's profitability.

Youku's losses have been growing smaller in proportion to revenue, but the black ink is still some ways away. In 2008, the company saw revenue of 33 million yuan ($5.1 million) and a net loss of $30.7 million. Last year, revenue grew to $23.1 million and the loss declined to $27.4 million.

All That Bandwidth Costs a Bundle

That trend is continuing this year, at least as far as revenue is concerned. In the first nine months of 2010, Youku's revenue increased to $35.3 million from $15 million for the same period a year earlier. But net loss grew to $25.1 million from $20.5 million, largely because of an increase in sales and marketing expenses. To bring in new ad revenue, the company is going to have to keep hiring sales representatives, which isn't unusual for a startup like Youku.

The problem is, as Google has learned from YouTube, Youku is also going to have to continue to spend on infrastructure as the amount of video content and the size of its audience grows. Youku has posted an aggregate loss of $53 million since 2006, about two-thirds of which came from cost -- primarily the cost of providing bandwidth to handle all the video traffic.

Youku plans to invest proceeds from the IPO in these areas, as well as video content that will help draw new audiences and perhaps subscribers. In time, investors will want to know that Youku can pay for its own costs through its operating activities, and that may take a while.

Cash flows from operations were a negative $25.6 million in 2008 and negative $20.4 million last year. Whatever revenue growth Youku is seeing is still being fueled by investments. In the first three months of this year, cash flow was a negative $17.5 million and is likely to top 2009's figure.

Thirty-Eight Pages of Risk Factors

What could hamper that growth? A few things. For one, Youku's market lead isn't as big as Baidu's was early on. Youku says it has a 40% share of the time spent watching online videos, and its closest competitor has 23%. But in terms of making money, the share is smaller: Youku controls only a 14% share of the online-video ad spending in China.

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Second, while all IPO candidates list risk factors in their prospectuses, Youku's is -- at 38 pages -- longer than most. Much of it centers on possible obstacles that could various Chinese agencies could present. Usually, most risks itemized are boilerplate text, but not all. And U.S. investors unfamiliar with Chinese commercial laws won't be able to know which risks are real.

Still, the biggest risk that Youku faces is plain enough. China has been pressuring interest rates higher to cool an overheating economy. Further moves to trim China's growth could put a speed bump on Youku's path to profits. Even worse would be the realization of fears now emerging that China's credit bubble could be the biggest bubble in history -- even larger than the U.S. housing boom.

Youku could overcome these obstacles and become an investment that, years from now, rewards early investors amply. But imagining the company as the next Baidu or even the next YouTube overlooks many risks that deserve some sober attention.


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]]>Baidu Incchinese internetchinese iposinternet searchInternet stocksinterntetIPOstech startupstech stocksYoukuKevin KelleherFri, 10 Dec 2010 09:45:00 EST