S2S

Interesting observation. I wonder how they arrived at these figures and if there is a global database where one can compare the ratio of one country vs. another.

I agree completely. And the value of short sellers is not limited to detecting frauds; if not for them, LinkedIn would still be trading at 40x "normalized EBITDA", itself a very generous estimate. Having "smart money" players investing alongside you (while better than not, I suppose) is not a foolproof Buy signal in and of itself. The recent RTO blowups all involve some institutional participation, from Hank Greenberg's Starr International to some of the biggest PE funds (employing the most well-paid and ,on occassions, smartest guys :)) on Wall St. I happen to find Muddy Water's deep-dive work, albeit undoubtedly containing a certain degree of exaggerations, to be persuasive. Then again I don't know my way around the Chinese accounting system nearly as much as the players involved.

Updates on the (developing) Microsoft tablet strategy: http://www.engadget.com/2011/06/01/microsoft-incentivizing-chipmakers-and-tablet-manufacturers-to-f/

Absolutely. With some notable exceptions, shareholders get the short end of the stick in diversification (often diworsification, to steal a Peter Lynch catchphrase) at corporate level. Let we do it the way that best fits our individual goals and risk tolerance.

Seems like BRK and the U.S. Congress have a common issue: lack of a compliance officer ;D http://online.barrons.com/article/SB50001424053111904433604576346981994360302.html?mod=BOL_hps_highlight_bottom

Interesting tidbid from an very well done writeup on Bruce Berkowitz from the Institutional Investor magazine: http://www.institutionalinvestor.com/Article/2824162/Fairholmes-Bruce-Berkowitz-Is-Beating-Hedge-Fund-Managers-At-Their-Own-Game.html?ArticleId=2824162&p=1

^ Yep, such scenario would result in overbearing interest cost for governments worldwide, not just the US! And given the expanded role governments have come to assume in powering the economy, government defaults would lead me to go stock up on canned tuna and bottled water! In other words, it's fun to talk about, but not so much to live through. It's a sure way for Grant to get our attention though. ;D

Sanjeev, do you happen to have your interview with John Linnartz archived somewhere? I stumbled upon the original thread, but the link doesn't seem functional anymore.

In the case of candy bars or, for that matter, most prepared food products that Americans consume in large quantities, the effect to society would be net positive. ;)

Disclosure: I'm not in any way affiliated to the organizers, just happened to think it might be a good opportunity for someone here. For a good cause, as well. "The Sohn Investment Idea Contest seeks to identify a great investment idea to help benefit children with cancer. The winner will present the winning idea in a ten-minute presentation at the prestigious Sohn Conference on Wednesday, May 25, 2011 at the Rose Theater, 5th Floor Frederick P. Rose Hall, Home of Jazz at Lincoln Center, Broadway at 60th Street in New York City. A distinguished group of judges led by legendary investor Michael Price and including celebrated investors Bill Ackman, David Einhorn, Joel Greenblatt and Seth Klarman will select the most compelling investment idea. The winner will present the investment idea in front of approximately 2,000 people at the renowned Sohn Investment Conference. The winner will be selected based on the judges' determination of the most compelling investment idea with a 12-month horizon. On Monday, May 23 at 9:30am, twelve semi-finalists will be notified. Later that day, at 4pm, four finalists will be notified. Each finalist will need to confirm by 7pm that evening that he/she will attend the conference and will be prepared to present his/her idea. At the conference at 2:30pm on Wednesday, May 25 Michael Price will announce the winning idea and the winner will make his/her presentation." https://www.wizehive.com/appform/login/irasohn

It seems like just a matter of time before HPQ buys out SAP or perhaps a smaller service-oriented provider. And the price will be anything but cheap.

VAL9000, My point is that studying what happened in the past can provide you with an useful guideline, but it might be a mistake to project the exact same scenario to repeat in the future. MSFT's incremental profit per PC user might have been $10*X for the last 20 years in the US, but in China the same metric would be more like $X. Surely there is room for upside (ie. crackdown on piracy... which will happen much gradually than you might think; once people are used to getting something for free, good luck with making them pay for it), but there is room for downside as well (the emerging Google Chrome/Doc platform offer a cheap and sometime free alternative). Apple, on the other hand, has a bigger say on much it gets paid on every incremental unit. The same point applies to Apple as well. That they have made it big dominating certain niches does not necessarily rule them out from competing for the mass market in the future, especially now that scale is finally on their side.

^ That's also precisely why an overwhelming majority of software (OS included) installed on Chinese computers are pirated. With a ~35% internet penetration rate, the "opportunity" is there, but perceiving it as easy, or "pure profit", in anyway is too simplistic. They did. This computer is called the iPad; the $499 entry price caught everyone, global manufacturing powerhouses such as Samsung included, by surprise. Don't underestimate what a $30 billion cash reserve and the ability to lock down global supply of parts (capacitive touch screen for example) can do for you.

ERICOPOLY, Agreed. I plan to keep a close eye on whether Google gains traction with its new pay-$30-per-user-per-month-and-throw-away-the-key model. http://www.engadget.com/2011/05/11/editorial-google-clarifies-chromebook-subscriptions-might-have/

Any number of professional analysts or other so called experts have made claims to this effect far too many times over the year. As time progresses and stock prices ebb and flow, some are proven "right", others not as fortunate... But personally I wouldn't go long MSFT on that statement alone. ;D

As the discussion shifts away from software and into TMT, where the duty with my current employer creates a possible conflict of interest, I won't delve into details. There are a few things your thesis (and quite a few others I've seen today that also hint at MSFT's bypassing the traditional carriers) do not address: 1. It's a mistake to believe cellular bandwidth is or will become inexpensive to deploy. Every time the government put up a dozen MHz or so of spectrum on the block, bidding ends at $1B+. AT&T's shelling out $35B+ for T-Mobile US and in the process taking on significant regulatory risk of ramming the deal through the DoJ and the FCC, Clearwire and Lightsquare's having any value at all despite being massive capital sinkhole; it all goes back to the spectrum landgrab. Ask yourself why Sprint's CapEx is going up 50+% year over year. All that while over the air Netflix, video calling etc etc are still far from mainstream. Remember the good old days of across the board unlimited data plan? I'm 99% sure that'll go away once LTE deployment finishes. 2. Wired data can also get expensive, quickly. Ask yourself why Comcast, TWC, AT&T, Verizon et al argue so strongly against net neutrality? 3. Last but certainly not least, regulation, regulation, regulation. Since cable companies recently moved voice calls over to VoIP for the most part, regulation (google "USF/ICC reform") that would govern, among other things, some of Skype operations, is being written. And that's only a small small part of the whole regulatory picture. Back to MSFT, a topic which I have more leeway to discuss, I do find the valuation tempting, even if my attempts to poke holes in others' bull thesis might suggest otherwise. However, at this juncture there're too many moving parts for my taste and MSFT's track record at execution doesn't necessarily inspire confidence. It seems like a "show me" story at least for the near term.

The folks at GigaOM have done a great job of covering this story since the start: http://gigaom.com/2011/05/09/why-microsoft-is-buying-skype-for-8-billion/ If Google's best bid was indeed $4B as rumored, well, you can draw your own conclusion on the purchase price...

Investmentacc, The keyword in your post, from where I sit, is "free". No doubt Skype would love to charge a pretty penny, but that's unlikely as long as MSN/Yahoo/AIM/Gchat etc etc offer (almost) the same capabilities for free for the foreseeable future. As given2invest already said, the 30 something EBIT multiple is reminiscent of the dot-com bubble... ... yet some folks still criticize MSFT for buying back shares ::)

VAL9000, Yes, there's a good chance much of my knee jerk reaction would be proven wrong as we learn more about the deal (which value, btw, DealBook put at $8.5B, so debt assumption is likely involved), but here're a few quick thoughts: - MSN already features a robust voice/video calling platform, hence I'm guessing MSFT is mostly paying for the membership base and talent. Feel free to do the math (which, btw, I rather enjoy in our previous debate) on the former, but it seems like a rich price no matter you cut it. The latter factor is far harder to measure; I imagine though, facing a choice between (a) cashing out after their lockout periods and possibly joining other hot startups and (b) working their way through the massive corporate structure at MSFT, many wouldn't think twice. - Again, the same deal could have been done two years ago for less than 30% of the new sticker. MSFT was just as flushed with cash, and eBay was a (almost too) willing and motivated seller. Why now? Is the economics of consumer* voice/video calling 3 times better than it was back in '09? * I think it's important to make this distinction. MSFT/Skype might pose a threat to commercial players like Polycom or Cisco over the long term, but it'd be another uphill battle facing the Tech giant.

Not for these guys: Seriously though, I agree. Some guys here will argue that doing so blocks a much-speculated Skype + Google/Facebook alliance and the ensuing "opportunity". However, at the end of the day, shelling $7B for something eBay couldn't find a buyer for at $2B just 2 years ago does not scream "value".

"At a loss of $2bn per year, inflicting these costs ($4.6B+) upon Google seems like a no-brainer for Microsoft. " I suppose that is one way to conceptualize things... but I'd also propose that it is probably not the right way to do so. As I tried to point out earlier, you are employing 2 completely different metrics. The $2B figure approximates the run-rate bottom line loss, which more or less directly impacts shareholders' takehome. The latter number, $4.6B, estimates the (a) revenue (b) opportunity. (a) With the exception of perfect AND limitless operating leverage (which is not realistic), incremental revenue never flow through 100% to earnings. And not all revenue streams are created equal - per my example earlier the below-cost gas station business is worth a lot less than your standard Shell station. Yes, Google, should they make it a focus, can absolutely increase their share from from 65% to, say, 80%, but at what cost? Lower margin contracts than their existing book or, god forbid, a price war? Even more regulatory/antitrust pressure? (b) Thankfully, internet advertising is still a growth industry, so share gain from Bing is just one of the multiple opportunities at Google's disposal. Deeper and deeper integration of Google processes into mobile computing, display ads, video ads, China, Japan etc etc, you name it. As long as they can make the pie bigger every year and print 20%+ revenue growth like clockwork, I don't think Page and Brin are losing much sleep over Bing as your posts seem to suggest. You mentioned mind share and compensation costs. Few, if any, of the literatures and discussions I have seen/heard on the topics cite Microsoft as the aggressor. It is either Facebook, which aside from being a black hole of information impenetrable for search engines has also lured hundreds of Googlers with compensation packages that sometimes include 8-figures worth of pre-IPO shares, or the younger players in that booming Internet startup industry.

That DriveTime commercial is singing in the back of my head... Approved! Approved! ;D

I'm afraid your argument, elegant as it might be, is neither correct (see shalab's post above mine) nor relevant. Why? Revenue doesn't always translate to accounting profit, much less shareholder value. Say tomorrow after a drinking binge I decide to open a gas station across the street from an existing Shell, except my price would always be $1/gallon lower. Would I disrupt the market and gain shares? You bet. Would I be able to not lose my shirt after a few months? I'm not so sure.

I don't doubt that they can get this right, but as is the case with hockey stick projections, the odds are not overly favorable. Their competitors aren't going to merely stand and watch, and I will add to that group Facebook (closed loop network with their own search engine), Amazon (Web Services), Apple (soon?), among a myriad of others.

re: Bing, let me play the devil's advocate: http://techcrunch.com/2011/04/29/microsoft-internet-bloodbath/ http://tctechcrunch.files.wordpress.com/2011/04/chart-of-the-day-microsoft-online-operating-income-mar-2011.jpeg