Posts tagged ‘INTC’

Jumping on the Globalization Train

What happens when you mix a group of Saudi Arabians, Germans, Chinese, French, and South Koreans with billions of dollars? This is not the lead-in question to a politically incorrect joke, but rather a teaser related to a multi-billion infrastructure project currently under a bidding process in Saudi Arabia.

The proposed $7 billion, 450 kilometer high speed Saudi Arabian railway connecting Islam’s two holiest cities (Mecca and Medina) is expected to ease congestion of the 2.5 million Muslims making the annual journey to Mecca as part of the Hajj pilgrimage.

Amidst the fallout from the recent global financial crisis, the benefits of capitalism, globalization, and free trade have come under attack. There obviously were some horrible decisions made and the collapse of financial institutions around the world underscored the necessity to shore up our regulatory system. Nonetheless, this microcosm of a project is proof positive that globalization is alive and well (see also Friedman Flat World article). How else can you explain China Railway Construction Corp./Beijing Railway Administration (China), Siemens (Germany), Hyundai/Samsung (South Korea), Alstom  (France), and Saudi Binladin Group (Saudi Arabia) coming together on a multi-billion project bidding process?

Oil Rich Countries Think Strategically

Saudi Arabia is not the only oil-rich country that has used the dramatic increase in oil revenues to fund investments in the future. Beyond Saudi Arabia, other oil rich areas like Qatar, Russia, and the UAE (United Arab Emirates) federation are examples of regions wanting to join the 21st Century global party rather than sitting around idly. The billions of black gold being pumped from the oil reservoirs is getting poured into infrastructure, such as technology, roads, bridges, hospitals, and yes…railways. These countries realize the importance of diversifying their economies away from the dependence on any one sector. Leadership from these regions understand the damaging economic impact of boom-bust energy price cycles, therefore they are doing their best by diversifying into other economic areas – including infrastructure. How serious is Saudi Arabia when it comes to investments? Well, the United States stimulus program was a drop in the bucket (single digit percentage of GDP) relative to Saudi Arabia,  which according to BusinessWeek had the largest stimulus package among the Group of 20 (69% of GDP).

The Case for Free Trade

As protectionists and trade union organizers scratch and scream in response to expansion of globalization, competing countries around the world have their economic foot on the pedal when it comes to extending trade borders.

Tariffs, quotas and various other taxes only serve to drag down the competitiveness of our country’s most treasured industries.

These economic trade concepts are not new. Adam Smith, considered by some as the “father of economics” wrote about the “invisible hand” in his famous book Wealth of Nations (1776) and economist David Ricardo explained “comparative advantage” in his book On the Principles of Political Economy and Taxation (1817). Without getting into the nitty-gritty, suffice it to say the advantages to free trade have been well documented over the centuries.

As the standards of living climbs for hundreds of millions of people in developing countries, these populations are becoming fertile ground for the sale of U.S. technology, pharmaceuticals, appliances, automobiles, and other goods and services.

Rather than pouring sand into the gears of innovation, incentives need to be established to motivate product excellence. Otherwise, capital  and jobs will migrate to other countries. Intel CEO (INTC) Paul Otellini, who was recently quoted in a New York Times article, is urging Congress to improve business, tax, and education incentives. Thanks to  China’s tax policy and availability of a skilled labor pool, Intel is able to save $1 billion on  a $4.5 billion plant being constructed this year – not exactly chump change.

Certainly, rules need to be created that promote fairness and credible enforcement of penalties, otherwise the benefits of trade become diluted.

Overall, the recent financial crisis caused economists, politicians, and various pundits to question the validity and benefits of capitalism, globalization, and free trade. In the vast spanning web of global commerce, the recent high speed Saudi railway may only represent a very tiny thread in the whole world’s infrastructure spend. Nonetheless, this multi-billion project integrating international heavyweights from all over world proves that despite the shortcomings of globalization, capitalism, and free trade, the benefits remain substantial and there is still time to jump back on the train.

Read The Financial Times article on the Saudi Arabia railway project.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing had no direct positions in Intel (INTC), China Railway Construction Corp., Beijing Railway Administration, Siemens, Hyundai/Samsung, Alstom, and Saudi Binladin Group or any security mentioned in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

March 22, 2010 at 12:32 am 1 comment

Google: The Quiet Steamroller

As Google Inc. (GOOG) has proceeded to steamroll most of its competition on the global advertising roads, they are learning to tread a little more lightly in hopes of avoiding unneeded scrutiny. There are very few places to hide, when your company is on track to achieve more than $20 billion in annual sales and is valued at more than $175 billion in the marketplace.

As Google revenues continue to rise and they look to take over the world (including their position in China), they are enlisting others to assist them in Washington as well. Through three quarters of 2009, the company increased their lobbyist budget by 41% to approximately $3 million, according to the Associated Press (AP).

Google Eating Bite Sized Acquisitions

Ever since the controversy caused by Google’s $3.1 billion takeover of web advertising network company DoubleClick (2007 announcement), and the failed joint search agreement with Yahoo! (YHOO) in 2008 due to government and advertiser concerns, Google has decided to consume smaller bite-sized companies as part of its acquisition strategy. Over the last five months alone, Google has acquired eight different small companies (generally less than $50 million acquisition price), including the following: 1) Picknik (photo editing website); 2) reMail (mobile search applications); 3) Aardvark (social networking focus); and 4) AdMob ($750 million mobile advertising network deal). Eric Schmidt, Google CEO, has stated he would like to do one smaller-sized acquisition per month. Google management also believes they have lowered the inherent risk in these smaller deals because of legacy ties to target companies – all these sought after companies house former Google employees, says Bloomberg.  In addition to remaining below the radar, the string of small deals act as a supplement to Google’s hiring practices, which can become challenging in a scarce qualified engineering hiring environment.

Microsoft Pot Calling Kettle Black

Microsoft (MSFT), the behemoth software giant with monopoly-like market share in the PC operating system market, is now fighting back against growing giant Google. This effectively amounts to the pot calling the kettle black, given Microsoft has already paid about $2.44 billion in fines to EU (European Union) relating to antitrust actions in the past 10 years, according to TechCrunch. Nonetheless, Microsoft CEO Steve Ballmer is not shy about throwing Google under the bus, stating Google is not playing fair in the search market.  Furthermore, Microsoft has filed an antitrust complaint against Google in Europe as it relates to Ciao, an online shopping service powered by Microsoft, and cried foul over an agreement Google made with book publishers and authors on a separate project.

Google is not stupid. They have witnessed massive monopolistic companies like Microsoft and Intel (INTC) butt heads with regulators and pay billions in fines. Needless to say, Google will do everything in its power to avoid additional, unwanted oversight, while quietly driving their steamroller over the competition.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and GOOG, but at time of publishing had no direct position in MSFT, INTC, YHOO,  or any other security referenced. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

March 9, 2010 at 11:30 pm 1 comment

Dancing Elephants in a Challenging Economy

To many, the significant rebound in global equity markets, since the March 2009 price lows, has merely been a dead-cat bounce or simply a temporary “sugar high” from the extraordinary fiscal and monetary measures taken by governments all over the world. John Authers, columnist at the Financial Times, captures that cycnical view in his daily column. He believes we are on the cusp of financial dynamics that will “drive a bear market for another two decades.” Ouch – pretty harsh outlook.

Perception Can Differ from Reality

Throughout much of 2009, the better than anticipated corporate results were rationalized as improvements only coming from discretionary cost-cutting. Well, as of last week, 73% of the S&P 500 companies that reported quarterly results exceeded earnings expectations, with 70% surpassing revenue estimates as well. With the 9.7% unemployment improving (at least temporarily), the recovery cannot solely be attributed to cost-cuts.

In the midst of the economic recovery (+5.7% growth in Q4 GDP), other animals beyond deceased felines have joined the party, including dancing elephants. More than seven million jobs have been lost since the late-2007 recession began, yet a broad set of companies have thrived through this horrible environment. The bubble economy has certainly had a disproportionately negative impact on particular areas of the economy (e.g., housing, credit, and automobiles). However, in the midst of the global credit tsunami that engulfed us over the last two years, the largest global economic engine (U.S.A.) was still churning out about $14 trillion in the sales of goods and services. Many companies that were not reliant on the financial and credit markets used their superior competitive positioning to generate significant piles of cash. Instead of piling on additional debt (or diluting owners through share offerings), certain corporations tightened their belts, invested prudently, and stepped on the throats of other irresponsible and reckless competitors, which were forced to recoil back into their caves and bunkers.

Dancing Elephants

Times are tough, right? If that is indeed the case, let’s take a look at a few elephants that are trouncing the competition, even under extremely challenging economic circumstances:

Apple Inc. (AAPL) – Revenue growth +32% ($182 billion market capitalization):  In the recent quarter, Apple pounded the competition by selling a boatload of electronic goods, including iPhones, iPods, and Mac computers. Next up, the iPad!

Amazon.com Inc. (AMZN) – Revenue growth +42% – ($53 billion market capitalization):  In the fourth quarter ending December, Amazon pulverized peers in a cutthroat holiday by selling lots of Kindles (e-reader), growing +49% internationally, and adding a new Zappos.com shoe and accessory acquisition. Organic revenue growth (ex-Zappos) was still incredibly strong at about +23%.

Corning Inc. (GLW) – Revenue growth +41% – ($28 billion market capitalization): Results were buoyed by demand for its liquid crystal display (LCD) glass as consumers continued purchasing LCD televisions, laptop computers, and other electronic devices. In addition, GLW experienced a resurgence in demand for its emissions control products as the auto industry rebuilt supply. Telecom orders in China were solid also.

Google Inc. (GOOG) – Revenue growth +17% – ($169 billion market capitalization):  In addition to the growth in the global search advertising market and YouTube video platform, Google also accelerated the deployment of their mobile platform, including their Android cell phone operating system, and concentrated on the expansion of the display advertising market.

Gilead Sciences Inc. (GILD) – Revenue growth +42% – ($42 billion market capitalization): Growth was catapulted by GILD’s dominant HIV/AIDS product franchise, including Atripla, Truvada, and Viread. Pulmonary arterial hypertension drug Letairis and chronic angina treatment Ranexa also contributed to stellar results.

Intuitive Surgical Inc. (ISRG) – Revenue growth +40% – ($13 billion market capitalization): This cutting-edge surgical equipment manufacturer enjoyed robust expansion from continued robotic procedure adoption and higher da Vinci Surgical System sales.

Intel Corp. (INTC) – Revenue growth +28% – ($113 billion market capitalization): The company’s semiconductor sales growth was fairly broad based across its major segments (Data Center, Intel architecture, Atom Microprocessor/Chipset) as demand recovered and depleted inventories were replenished globally.

Netflix Inc. (NFLX) – Revenue growth +24% – ($3.5 billion market capitalization): Netflix added more than one million new customers in the quarter as they continued to eat Blockbuster’s-BBI (and other competitors’) lunch. In addition, the company’s streaming “Watch Instantly” service continues to gain traction.

Although I do currently own a few of these companies, do NOT interpret this partial list of companies as “buy” recommendations – in fact, some of these stocks may be excellent “short” ideas. Regardless of how sexy growth may be, investors should never ignore valuation (read more about valuation). As stated at the beginning of the article, I mainly want to emphasize that trillions of commerce dollars are being transacted, even in demanding economic times.  It just goes to show, one can turn lemons into lemonade. Or said differently, even elephants can be trained to dance.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and AAPL, AMZN, and GOOG, but at time of publishing had no direct positions in GLW, GILD, ISRG, INTC, BBI, and NFLX. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

February 14, 2010 at 11:36 pm Leave a comment

Technology Does Not Sleep in a Recession

Hibernate Bear 

Our economy may be coming out of a long economic hibernation; however technology does not sleep through a recession. Gordon Moore, co-founder of Intel Corporation, has proven this trend true through his groundbreaking piece written in the April 1965 issue of Electronics Magazine. In the article Mr. Moore predicted transistor densities would double about every two years (“Moore’s Law”).  Transistors can be thought of as the brains of electronics devices, and the industry (Intel and other semiconductor manufacturers) has been boosting the brain power of electronics for decades. How far has the industry come? The number of transistors contained on a chip has gone from 16 in 1960s to over 600 million today – now that’s what I call progress!

These achievements have been nothing short of revolutionary, and many people consider the introduction of the transistor as the greatest invention of the 20th century.  According to many industry experts, Mr. Moore’s forecasts have been shockingly accurate and many believe “Moore’s Law” will hold true for years to come – despite challenging technological limitations.

Source: The Financial Times

Source: The Financial Times

We may curse at our computers (I absolutely despise Vista), but there is no arguing with the huge productivity and standard of living improvements we have experienced over the last forty years – since the introduction of the transistor. Many take their GPS, Tivo, WiFi laptop, iPhone, and HiDef TVs for granted, however I for one thank Gordon Moore and those diligent engineers for making my geeky tech dreams come true.

However the cost of further advancements is becoming pricier. As line widths (the ability to add more transistors) narrow, the costs of building fabrication plants (“fabs”) with the necessary equipment are running in the multi-billion range. The Financial Times (FT) article talking about semiconductor trends mentions a $4.2 billion state-of-the-art factory in upstate New York that is just beginning construction. The FT notes that only two players (Intel and Samsung) have firm plans to build 20 nanometer fabs. For comparison purposes, one nanometer is equal to one-billionth of a meter and a human hair is 100,000 nanometers wide. In other words, a nanometer is pretty darn tiny. To further illustrate the point, Intel has managed to fit up to 11 Intel Atom processors – each packed with 47 million transistors – on the face of an American penny.

Source: The Financial Times

Source: The Financial Times

As the chip making industry become more costly, fewer semiconductor manufacturers will be playing in the sandbox:

“Intel argues that only companies with about $9bn in annual revenues can afford to be in the business of building new fabs, given the costs of building and operating the factories and earning a decent 50 per cent margin. That leaves just Intel, Samsung, Toshiba, Texas Instruments and STMicroelectronics.”

 

The economy may still be in the doldrums, but the $60 trillion global economy (as measured by Gross Domestic Product) never sleeps – technologies created by Gordon Moore and others continue to propel amazing advancements.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

August 24, 2009 at 4:00 am 4 comments


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