txlaw

Comments? His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term. It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that? Thanks. I just don't buy that he exited based on lower than expected non-PC growth versus PC revenue decline. Would he really be making decision on fluctuations in revenue growth in the near term/medium term, given the situation for large enterprise and the public business in light of Europe? That's far too close to what the analysts do each quarter. Now, it does sort of sound like he doesn't think that cash will be used wisely at DELL. That is a different rationale for exiting, but he doesn't commit to that viewpoint. I have no insight in addition to what DELL publicly discloses in its quarterly report and CC. Maybe he's uncomfortable with the downside risks now that a lot of the balance sheet that protects the downside's converted into streams of income that may or may not exist in a few years? Perhaps. He certainly says something like that. At the same time, given the strength of DELL's balance sheet and the negative working capital business model, that rationale is puzzling unless he is really worried that the transformation M&A at DELL will not work out such that cash will be converted into illiquid assets (tangible and intangible) that are worth a lot less than the cash price paid. Bottom line, the rationale for dumping DELL is a bit confused or muddled. Now perhaps Einhorn hadn't really thought the investment through from a qualitative perspective -- I wouldn't be entirely surprised, as he seems to be much better with his shorts than his longs and macro calls. On the other hand, this is David Einhorn. So, giving him the benefit of the doubt, I am speculating that perhaps he just thinks DELL will be dead money for a while given the short thesis by Chanos and is taking tax losses to redeploy into different longs (not sure how that works for investment managers). Because, otherwise, it just seems like he is missing the whole point of the DELL transformation.

Comments? His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term. It sounds more like he exited based on short/medium-term issues with the non-PC business rather than sentiment. Do you have any insights into the performance of the non-PC business last quarter vs. the quarters prior to that? Thanks. I just don't buy that he exited based on lower than expected non-PC growth versus PC revenue decline. Would he really be making decision on fluctuations in revenue growth in the near term/medium term, given the situation for large enterprise and the public business in light of Europe? That's far too close to what the analysts do each quarter. Now, it does sort of sound like he doesn't think that cash will be used wisely at DELL. That is a different rationale for exiting, but he doesn't commit to that viewpoint. I have no insight in addition to what DELL publicly discloses in its quarterly report and CC.

Comments? His buddy Chanos is/was short DELL, so maybe he decided to get out based on what he believes market sentiment will be for the short term/medium term.

Wow. http://www.cnbc.com/id/15840232?video=3000104457&play=1

Moved entirely from warrants and 2013 LEAPS into the 2014 LEAPS earlier this year, after the big runup. Actually have reduced a bit to reallocate into AIG warrants and JPM LEAPS. Will slowly add back to my LEAPS position, as I get the chance.

It sounds like the guy is referring to the Boone Pickens sponsored venture, Clean Energy Fuels. They're building out a network of nat gas fueling stations for big trucks. See http://www.cleanenergyfuels.com/buildingamerica.html

Thanks for those links. Will take a look. I'd agree with your point on sense of urgency, although in RIM's case, the urgency is likely being ratcheted up internally given all the market pressure and media pressure. I'm just monitoring HPQ at this point. I'm a DELL investor, but the turnaround/transformation at DELL hasn't born fruit in terms of market price (not too worried about IV). Have been adding substantially to AIG over the last couple of weeks.

Looks like Chanos is switching from shorting DELL to shorting HPQ: http://www.cnbc.com/id/48228416/ Chanos will likely be right in the short term despite his superficial analyses of those companies. Plan, if we see a real collapse in HPQ's price, you may want to start tracking as a potential turnaround.

Thank you! +1

I respectfully disagree. I don't think it's appropriate to place all this blame on Steve Ballmer. I haven't read the VF article, but I suspect MSFT was pretty darn bureaucratic and dysfunctional (in some ways) before Ballmer took over. It's almost like David Einhorn wrote this freaking article -- who knows, maybe they decided to do the article after Einhorn made his comments about Ballmer. Regarding Xbox, you can't just look at it as a segregated business. As an OS provider, MSFT has to have an offering for the TV screen and, remarkably, they have set themselves up nicely for the future while actually making a decent profit at the same time. Xbox is part and parcel of the Microsoft OS offering, and I think we're going to see the next version of the Xbox running Windows 8. In fact, it makes absolutely zero sense to spin off the Xbox division -- only a financier would come up with such a dumb idea. Regarding Online Services, first, I would be very surprised if the $6.2 billion acquisition did not have sign off from Bill G. It looks like MSFT underestimated what it would take to really go head to head against GOOG and be profitable (Now that's a moat!), and it's possible they paid too much for the aQuantive deal. Second, MSFT essentially wrote off all goodwill for the Online Services Division. But if MSFT can eventually make a profit on the market share it is going after, that write-down may turn out to be less than accurate from a pure economic goodwill perspective. It's too soon to tell what Online Services will be worth in the next decade or two. Finally, with respect to Windows market share, I don't think at all that it is a given that MSFT will have monopolistic profitability in this coming decade. In fact, I think people could potentially be surprised by how much market share MSFT loses going forward. MSFT gets this, and is trying to maintain (profitable) share, as well as redeploy capital into the "big data" sector, where it feels it can make gobs of profit. Can't fault them for recognizing the threats and realizing that the days left for monopolistic profits are dwindling. I wouldn't count MSFT out -- as Tim Cook would say, there is a horse that keeps on running Redmond that you have to watch out for.

Worth watching even if you don't give a $!*# about the tech industry.

Interesting to hear Bill Gates say on Charlie Rose that he thinks that the release of Surface could be a seminal moment in the industry. It was also interesting to hear him actually come out and say what everyone knows about Yahoo -- which is that the primary strategic reason for the proposed MSFT acquisition was to acquire the search traffic for scaling up their own search service.

I read an article today on Jeremy Grantham's view of whether or not US stocks are expensive: http://www.advisorperspectives.com/newsletters12/Jeremy_Grantham-US_Stocks_are_Expensive.php Here's an interesting excerpt on Grantham's view on US margins: Abnormally high corporate profits are the primary reason for Grantham’s contention that stocks are overvalued. Reversion to the mean is the core expectation that undergirds his firm’s investment philosophy, and when profit margins revert to their historical averages, he argued, investors will suffer weak returns. And then here is a rejoinder on the margin question by Mason Hawkins: Mason Hawkins, the chairman and CEO of Memphis-based Southeastern Asset Management, spoke the previous day and articulated the opposing view: Margins and earnings are neither at peak or temporarily elevated levels. He said margins are higher in the US (but not globally) because we have exported lower returning businesses to other countries, such as those that are manufacturing-based, and have kept the higher returning ones, in industries such as technology and pharmaceuticals. Additionally, he said many US-based firms have significant overseas subsidiaries. Often they own less than 50% of them and account for them on an equity basis, where income but not sales is consolidated. That has artificially pushed up earnings, he said, but not temporarily. So what do people think? Are margins for US companies going to "revert to the mean"? Why are margins so high? The follow up question is: Can revenue growth offset margin compression such that the E in P/E continues to go up or, at least, stays the same?

Hard to say what GOOG's gonna do -- I'm hoping we'll get some answer at I/O. I'd like to see them say that only Motorola and Sony will make hardware for the Google TV system and then optimize those boxes to work with other devices that use Android, for example, the new Motorola tablet that is expected to debut at the conference. Not sure what to do about the tablet/phone hardware situation. It seems like the trend is to vertically integrate like Apple. Maybe GOOG should release Motorola devices on the same schedule as iPhones and re-brand the OS's on those devices as using "Google OS" (with Android, of course, being the underlying open source software). Re Chrome OS, I don't see that playing a big part in the lives of individuals yet. But maybe businesses or educational institutions will adopt it for a thin client IT setup. Who knows? I'd actually really like to play around with one of those boxes, but I ain't paying $329 for one. Not really. It's nice to see that they've been thinking about this. I wonder if the SmartGlass app will get through the App store . . .

So, Val, how likely do you think it is that the next Xbox OS uses the same code base/kernel as Win 8 and Win Phone 8? If you have a media app for Win Phone 8 and Win 8, I would think you would like to be able to put it on the Xbox without too much extra work. Although not a lot of apps will be useful on the Xbox. And do you have any thoughts on SmartGlass and how it might further keep developers from abandoning the MSFT ecosystem?

Well, that switching thing is what most reviewers of Windows 8 are complaining about: http://www.guardian.co.uk/technology/blog/2012/mar/05/windows-8-desktop-experience I can come up with counter-examples: http://news.cnet.com/8301-1001_3-57456484-92/microsoft-surface-shows-apple-could-be-wrong/ http://www.slate.com/articles/technology/technology/2012/06/microsoft_surface_is_this_the_ipad_rival_the_tech_world_desperately_needs_.html Nevertheless, I expect that the first version of Windows 8 will be pretty buggy in terms of UX and will be off-putting to people who are used to the traditional desktop UI. That doesn't mean that MSFT won't get it right in updates to the OS or in the next version. And I actually think Apple is BS'ing about the notion that there will never be a hybrid MacBook-iPad device. I think they just haven't figured it out yet but will release something like that once they have figured it out. You do realize that no one has actually had much time to play with the Surface devices to review its usability? MSFT would not even let them turn on the devices with the keyboards. The only devices out there that have dual interfaces - Metro and Windows classic - are the Windows 8 laptops/desktops. Funny you should post the review by Farhad Manjoo. He had this to say about the dual interface topic that we are discussing: http://www.slate.com/articles/technology/technology/2012/06/windows_8_microsoft_s_radical_operating_system_redesign_will_aggravate_you_to_no_end_.html As far as the windows classic interface on the tablet - I think the markets response was very clear when MSFT tried to sell it a few years back. Yeah, I do realize that. Further, did I not just say that "I expect that Windows 8 will be pretty buggy in terms of UX . . . "? That does not mean that Surface is not something new or that it will totally fail in the marketplace. Whereas there was very little point in having a Windows tablet when they were first introduced years ago, now there is clearly a need/use case for tablets, and this is an interesting -- and possibly successful -- approach for keeping business users from switching to AAPL or GOOG, at least for tablets. Not only do you get the Metro UI for your tablet experience, but you also get the power of a desktop/laptop experience, if you choose to use it. To say that this tablet is exactly like MSFT tablets of past is hyperbole, at best. Furthermore, it's not the tablet use case that is the problem with Win 8. The problem is with the traditional desktop UI for Win 8. That is, if you're at the office and you need to get stuff done, it's gonna be much harder to use Win 8 than to stick with Win 7 or XP. I don't disagree with that point made in many reviews that are out there. It's your idea that switching between UI's will never work that I disagree with, and I would be willing to bet that AAPL eventually comes up with some device where you can switch between a touch UI and traditional UI. Bottom line: It's not a good bet to dismiss Surface outright. And it would be helpful to get input on Val's actual question, which was a good one. ;)

Well, that switching thing is what most reviewers of Windows 8 are complaining about: http://www.guardian.co.uk/technology/blog/2012/mar/05/windows-8-desktop-experience I can come up with counter-examples: http://news.cnet.com/8301-1001_3-57456484-92/microsoft-surface-shows-apple-could-be-wrong/ http://www.slate.com/articles/technology/technology/2012/06/microsoft_surface_is_this_the_ipad_rival_the_tech_world_desperately_needs_.html Nevertheless, I expect that the first version of Windows 8 will be pretty buggy in terms of UX and will be off-putting to people who are used to the traditional desktop UI. That doesn't mean that MSFT won't get it right in updates to the OS or in the next version. And I actually think Apple is BS'ing about the notion that there will never be a hybrid MacBook-iPad device. I think they just haven't figured it out yet but will release something like that once they have figured it out.

Not sure why you are focusing on using the Surface tablets at the office. The point is that these are mobile devices, isn't it? They can be carried away from the desk, used at home, or can be taken with them while on travel. Also, you seem to be forgetting (or perhaps you haven't watched the keynote) that the Surface tablet can essentially be docked to use with a keyboard that isn't "crappy." When the Intel version is docked, you essentially get a Win 8 desktop setup. That's the ideal, isn't it? If you had an Apple tablet that had the power of OSX built into it and that could be docked at work to give you a fully functional Mac, but then would switch to iOS when undocked, wouldn't you like that? I would. Val's comment that the tablet "market exists" pretty much sums it up. The difference between tablets then and tablets now is that there is actually a use for them and that both hardware and software has evolved to where the things you need to make a tablet useful -- good touch interface, high res screen, decent battery life, and apps that make use of touch -- are actually present. I'm focusing on the office because thats where MSFT has the advantage. They are also positioning their tablets for the office for the large part. Why else would they offer an expensive Intel version with backwards compatibility? I wouldn't want Mac OSX running on my tablet because that would entail compromises from Apple that would reduce my IOS experience. The whole point of the tablet is to move away from many of the legacies of the desktop. The tablet starts from the ground up and builds a modern UI. It removes some of the mistakes made in the past when guis first came into existence. You're conflating use by business (which it is fair to say is where MSFT has its advantage) with use at the office. It's the fact that there are legacy applications that is making them offering the "expensive Intel version." If you were to say, MSFT is positioning their tablets for use by business, I would agree with you. I just don't see an issue with keyboards or touchpads or anything like that. As I said before, a docking station will take care of that. You also sort of sidestepped my question on a competing AAPL product by assuming that the iOS experience will always be reduced by creating a hybrid OS like Win 8. That's the Tim Cook line, of course. But what if you could switch seamlessly between traditional desktop/laptop UI and a tablet UI? Would you still have the same opinion? I think it's a mistake to conclude that a typical tablet UI is optimal for every sort of use case. A tablet UI is not necessarily a better version of the traditional GUI (I love the OSX GUI, for example). The tablet UI is different because of the use case.

Not sure why you are focusing on using the Surface tablets at the office. The point is that these are mobile devices, isn't it? They can be carried away from the desk, used at home, or can be taken with them while on travel. Also, you seem to be forgetting (or perhaps you haven't watched the keynote) that the Surface tablet can essentially be docked to use with a keyboard that isn't "crappy." When the Intel version is docked, you essentially get a Win 8 desktop setup. That's the ideal, isn't it? If you had an Apple tablet that had the power of OSX built into it and that could be docked at work to give you a fully functional Mac, but then would switch to iOS when undocked, wouldn't you like that? I would. Val's comment that the tablet "market exists" pretty much sums it up. The difference between tablets then and tablets now is that there is actually a use for them and that both hardware and software has evolved to where the things you need to make a tablet useful -- good touch interface, high res screen, decent battery life, and apps that make use of touch -- are actually present.

The software... and the hardware. - Windows 8 offers a touch-oriented UI and is designed with the tablet form factor and all of its particularities in mind. - Chipsets are much more energy efficient vs. "a few years ago". Both because ARM is now an option and Intel has made it an important goal. Helps: the market exists. Hurts: the market is dominated by a competitor. +1

I would not be surprised if the author of that article had not come up with the title because it was actually a good article. Illustrates the problems that RIM faces and why MSFT is not an appropriate partner (or potential acquirer) at this juncture. I agree with you, Val, on the necessity of having a Surface tablet to get the most out of Win 8. It's just another illustration of how these OS providers are trying to get on every single screen that an individual or company utilizes. I do think that having legacy enterprise software out there and already paid for will enable MSFT to keep some of those enterprises using Windows across multiple devices. However, I still think that there is a huge opportunity for businesses to switch out of Windows into different client OS ecosystems. But I would note that every OS provider who is trying to own customers across every screen has to worry about businesses adopting a thin client strategy, where you can bypass the need for a "unified" experience by building your information systems to take advantage of virtualization, web application technologies and SaaS, and low latency communication networks. Regarding Intel, I think that ARM continues to be a big threat and MSFT's support of ARM increases the threat. (As an aside, this is why MSFT's strategy is so interesting. All old partnerships -- like Wintel and MSFT/HP or MSFT/DELL -- are falling by the wayside.) However, Intel still can break into the mobile market, which provides some upside in terms of market share. Additionally, I believe that providing computer power for servers will be "where it's at" in the future, and I think that Intel will continue its push there as computing power migrates to the cloud (whether public or private) over the long term. So margin compression will/may be offset by growing market. Having said that, I was a fan of Intel at $18, but at $27, I would not be long INTC given the competitive environment. Not enough upside.

I think you may be right on the tablet form factor, which could eventually become a widely used device at offices (through docking stations) by people who are not power users. Not sure about hardware for laptops/desktops. Also not sure about whether MSFT will design mobile phone hardware, although that's certainly a possibility. It will be interesting to see how MSFT works with the major distributors going forward. HPQ and DELL, for example, have been major partners for MSFT in terms of distributing the Windows OS into business and into homes. This action may free those guys up to start mixing and matching OS's when providing solutions to their business users. For example, if you're a DELL, you may tell a customer who needs to place a large order of productivity devices for its employees that the customer should go with a mix of Windows 8 PCs and iPads, or thin clients and a private cloud solution. It's gonna be real interesting how this strategy shift affects the market share of MSFT versus AAPL versus GOOG in business.

The major takeaway I'm getting from this video is that Surface is designed both for "content" consumption and "content" creation/work productivity. IMO, the iPad sucks for content creation and doing work. You really need a Macbook air if you want an ultraportable Mac to work on.

Good point about the touchpad, bargainman. I love my iPad, but I can't really do any presentation or spreadsheet work on it because there is no mouse/pointer interface. Surface would be great if I wanted to use, for example, Google Docs at a coffee shop.

Well I don't know about desktops making the most sense for corporations. Any meeting I got to these days is littered with laptops all connected to some conferencing software. If someone has a desktop they RDC into it all the time. Teams are distributed around the world, and when they travel they need their laptop with them, and that's in tech/engineering. Now for sales and marketing laptops are probably the only thing that makes sense vs desktops. WRT the tablet, well this is almost a full powered laptop with an i5 chip. The only underpowered aspects are screen size, SSD memory, and the keyboard potentially (although msft claims the thicker keyboard cover allows for full speed typing since the keys do have a millimeter or 2 of give). So... there's a USB 3.0 port - attach your keyboard, mouse, and extra hd if you need it. There's an SD port too so add memory at least up to 32gb if not more. There's a displayport (or HDMI, I forget), attach your nice 24" monitor! Unless you're doing something intensive like coding/video editing you now have the best of most worlds.. I say of most, since the small screen would still be worse than a 15" laptop screen for doing real work, but at least you have a 'real' keyboard on the go, and the stylus, and the tablet like nature.... it's relatively compelling... I've been watching the video as I work. The displayport feature is pretty compelling. At your desk, you have a large, high-res display set up plus mouse and keyboard, and you just connect your Surface to the setup. That will support most applications that people need to use, including Office and Photoshop. Then, if you need to go to a meeting or something, instead of undocking your laptop, you undock your Surface, which comes with a full keyboard which will allow you to do productivity tasks such as email or presentations while you're away from your desk. This is quite cool.