Posts tagged ‘technology’

NASDAQ and the R&D-Tech Revolution

Technology

It’s been a bumpy start for stocks so far in 2014, but the fact of the matter is the NASDAQ Composite Index is up this year and hit a 14-year high in the latest trading session (highest level since 2000). The same cannot be said for the Dow Jones Industrial and S&P 500 indices, which are both lagging and down for the year. Not only did the NASDAQ outperform the Dow by almost +12% in 2013, but the NASDAQ has also trounced the Dow by over +70% over the last five years.

Is this outperformance a fluke or random coincidence? I’d beg to differ, and we will explore the reasons behind the NASDAQ being treated like the Rodney Dangerfield of indices. Or in other words, why the NASDAQ gets “no respect!” (see also NASDAQ Ugly Step Child).

Compared to the “bubble” days of the nineties, today’s discussions more rationally revolve around profits, cash flows, and valuations. Many of us old crusty veterans remember all the crazy talk of the “New Economy,” “clicks,” and “eyeballs” that took place in the mid-to-late 1990s. Those metrics and hyperbole are used less today, but if NASDAQ’s dominance extends significantly, I’m sure some new and old descriptive euphemisms will float to the conversational surface.

The technology bubble may have burst in 2000, and scarred memories of the -78% collapse in the NASDAQ (5,100 to 1,100) from 2000-2002 have not been forgotten.  Despite that carnage, technology has relentlessly advanced through Moore’s Law, while internet connectivity has proliferated in concert with globalization. FedEx’s (FDX) Chief Information Officer Rob Carter summed it up nicely when he noted, The sound we heard wasn’t the [tech] bubble bursting; it was the big bang.”

Even with the large advance in the NASDAQ index in recent years, valuations of the tech-heavy index remain within reasonable ranges. Accurate gauges of the NASDAQ Composite price-earnings ratio (P/E) are scarce, but just a few months ago, strategist Ned Davis pegged the index P/E at 21, well below the peak of 49 at the end of 1999. For now, the scars and painful memories of the 2000 crash have limited the amount of frothiness, although pockets of it certainly still exist (greed will never be fully eradicated).

Why NASDAQ & Technology Continue to Flourish

Regardless of how one analyzes the stock market, ultimately long-term stock prices follow the direction of profits and cash flows. Profits and cash flows don’t however grow out of thin air. Sustainable growth requires competitiveness. For most industries, a long-term competitive advantage requires a culture of innovation and technology adoption. As you can see from the NASDAQ listed companies BELOW, there is no shortage of innovation.

CLICK TO ENLARGE

Sources: ADVFN, SEC, Other

Sources: ADVFN, SEC, Other

I’ve divided the largest technology companies in the NASDAQ 100 index that survived the bursting of the 2000 technology bubble into “The Old Tech Guard.” This group of eight stocks represents a total market value of about $1.5 trillion – equivalent to almost 10% of our country’s Gross Domestic Product (GDP). Incredibly, this select collection of companies achieved an average sales growth rate of +19%; income growth of +22%; and research & development growth of +18% over a 14-year period (1999-2013).

The second group of younger stocks (a.k.a., The New Tech Guard) that launched their IPOs post-2000 have accomplished equally impressive results. Together, these handful of companies have earned a market value of over $625 billion. There’s a reason investors are gobbling up these stocks. Over the last five years, The New Tech Guard companies have averaged an unbelievable +77% sales growth rate, coupled with a remarkable +43% expansion in average annual R&D expenditures.

Innovation Dead?

Who said innovation is dead? Not me. Combined, these 13 companies (Old Guard + New Guard) are spending about $55,000,000,000 on research and development…annually! If you consider the hundreds and thousands of other technology companies that are also investing aggressively for the future, it should come as no surprise that the pace of innovation is only accelerating.

While newscasters, bloggers, and newspapers will continue to myopically focus on the Dow and S&P 500 indices, do your investment portfolio a favor by not forgetting about the relentless R&D and tech revolution taking place within the innovative and often overlooked NASDAQ index.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold long positions in certain exchange traded funds (ETFs), AAPL, GOOG, AMZN, FDX, QCOM, and a short position in NFLX, but at the time of publishing SCM had no direct discretionary position in MSFT, INTC, CSCO, EBAY, PCLN, FB, TSLA,  Z, or any other security referenced 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.

February 16, 2014 at 1:21 am Leave a comment

Chewing on Some Apple Pie

Apple pie is an unrivaled American dessert that optimally mixes the elements of dough, sugar, cinnamon, and apples.  With Thanksgiving just around the corner, I can already taste that Costco (COST) apple pie that is about to snap my belt buckle open as I proceed to eat pie for breakfast, lunch, and dinner. A different dessert of the stock variety, Apple Inc. (AAPL), recently received a sour reception after reporting its 3rd quarter financial results.

Despite reporting +27% year-over-year revenue growth and +23% earnings growth, investors have continued to spew the stock out as the share price has fallen from $700 per share down to $600 per share in about a month. With all this indigestion, is now the time to reach for the Tums or should we serve ourselves up another helping of some tasty Apple pie? Not everybody loves this particular fruity dessert, so let’s cut into the Apple pie stock and see if there is any dough to be made here.

Point #1 (Cash Giant): Apple Inc. is a profit machine with a fortress balance sheet. More specifically, Apple has around $121 billion dollars in cash in its checking account and generated over $42 billion in free cash flow in fiscal 2012. And by free cash flow, I mean the excess cash Apple gets to stuff in its pockets after ALL expenses have been paid AND after spending more than $8 billion in capital expenditures (including spending for their new 2.8 million sq. foot spaceship campus expected to open in 2015 and house 13,000 employees).

Point #2: (Brand): A brand has value that will not show up on a balance sheet, and according to Forbes, Apple’s brand is rated #1 on a global basis, outstripping iconic brands like IBM, McDonald’s (MCD) and Microsoft (MSFT). BrandZ, a division of advertising giant WPP, values Apple’s 2012 brand value at approximately $183 billion.

Point #3 (Product Pipeline): Apple is no one-trick pony. Apple’s iPhone sales account for about half of the company’s sales, but a whole new slate of products positions them well for the critical calendar fourth quarter period. Apple’s iPhone 5, iPad 3 (aka, “New iPad”), and iPad Mini should translate into robust holiday sales for Apple. What’s more, a +39% increase in Apple’s fiscal 2012 R&D (research and development) should mean a continued healthy pipeline of new products, including the ever-rumored new integrated version of Apple TV that could be coming in 2013.

Point #4 (Mobile & Tablets): Apple is at the center of the mobile revolution. There are approximately 5 billion cell phones globally, and about 2 billion new phones are sold each year. Of that 2 billion, Apple sold a paltry 125 million units (tongue firmly in cheek) with the market growing faster in Apple iPhone’s key smart phone market. As the approximately 500 million smart phone market grows to about 5 billion units over the next decade, Apple is uniquely positioned to capitalize on this trend. Beyond cell phones, the table market is bursting as traditional personal computer growth declines. Although Apple has made computers for 36 years, the company impressively generated +40% more revenue from fiscal 2012 iPad tablet sales, relative to Apple desktop and laptop sales.

Point #5 (Valuation): With all these positives, what type of premium would you pay for Apple’s stock? Does a +100% premium sound reasonable? OK, maybe a tad high, so how about a +50% premium? Alright, alright, I know you want a good bargain, so surely a +20% premium is warranted? Well in fact, if you account for Apple’s $121 billion cash hoard, Apple’s stock is currently trading at about a -22% DISCOUNT to the average S&P 500 stock on a P/E basis (Price-Earnings). You heard that correctly, a significant discount. If Apple is trading at a P/E discount, surely mature staple stocks like Procter & Gamble (PG) and Colgate Palmolive (CL), which both reported negative Q3 revenue declines coupled with meager bottom-line growth of 5%, deserve even steeper discounts…right? WRONG. These stocks trade at a 70-80% PREMIUM to Apple and a 35-40% PREMIUM to the overall market. Toilet paper and toothpaste I guess are a lot more popular than consumer electronics these days. Clear as mud to me.

Risks: I understand that Apple is not a risk-free Treasury security. Research in Motion’s (RIMM) rapid collapse over the last two years serves as a fresh reminder that in technology land, competition and obsolescence risks play a much larger role compared to other industries. Apple must still deliver on its product visions, and as the king of the hill Apple will have a big bulls-eye on its back from both competitors and regulators. Hence, we will continue to read overblown headlines about map application glitches and photographic purple haze.

In the end, a significant amount of pessimism is already built into Apple’s stock price (yes, I did say “pessimism” – even with the stock’s share price up +49% this year). If Apple can uphold the quality of its products and maintain modest growth, then I’m confident shareholders will happily eat another slice of Apple pie.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs) and AAPL, but at the time of publishing SCM had no direct positions in COST, IBM, MCD, CL, PG, MSFT, WPP, RIMM, or any other security referenced 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.

October 27, 2012 at 10:19 pm Leave a comment

U.S. – Best House in Bad Global Neighborhood

Article below represents a portion of free December 1, 2011 Sidoxia monthly newsletter (Subscribe on right-side of page)

There is no shortage of issues to worry about in our troubled global neighborhood, but then again, anybody older than 25 years old knows the world is always an uncertain place. Whether we are talking about wars (Vietnam, Cold War, Iraq); presidential calamities (Kennedy assassination, Nixon resignation/impeachment proceedings); international turmoil (dissolution of Soviet Union, 9/11 attacks, Arab Spring); investment bubbles (technology, real estate); or financial crises (S&L crisis, Long Term Capital, Lehman Brothers bankruptcy), investors always have a large menu of concerns from which they can order.

Despite the doom and gloom dominating the media airwaves, and the lackluster performance of equities experienced over the last decade, the Dow Jones Industrial Average and the S&P 500 index are both up more than 20-fold since the 1970s (those gains also exclude the positive impact of dividends).

Times Have Changed

Just a few decades ago, nobody would have talked or cared about small economies like Iceland, Dubai, and Greece. Today, technology has accelerated the forces of globalization, resulting in information travelling thousands of miles at the click of a mouse, often creating scary financial mountains out of meaningless molehills. As a result of these trends, news of Italian bond auctions, which normally would be glossed over on the evening news, instantaneously clogs our smart phones, computers, radios, and televisions. The implications of all these developments mean investing has become much more difficult, just as its importance has never been more crucial. 

How has investing become more critical? For starters, interest rates are near 60-year lows and Treasury bond prices are at record highs, while inflation (food, energy, healthcare, leisure, etc.) is shrinking the value of people’s savings. Next, entitlement and pension reliability are decreasing by the minute – fiscal imbalances and unrealistic promises have contributed to a less certain retirement outlook. Layer on hyper-manic volatility of daily, multi-hundred point swings in the Dow Jones Industrial index and a less experienced investor quickly realizes investing can become an overwhelming game. Case in point is the VIX volatility index (a.k.a., the “Fear Gauge”), which has registered a whopping +57% increase in 2011.

December to Remember?

After an explosive +23% return in the S&P 500 index for 2009 (excluding dividends) and another +13% return in 2010, equity investors have taken a breather thus far in 2011 – the Dow Jones Industrial Average is up modestly (+4%) and the S&P 500 index is down fractionally (-1%). We still have the month of December to log, but in the short-run the European tail has definitely been wagging the rest of the global dog.

Although the United States knows a thing or two about lack of political leadership and coordination, herding the 17 eurozone countries to resolve the European debt financial crisis has proved even more challenging.  As you can see below in the performance figures of the major global equity markets, the U.S. remains the best house in a bad neighborhood:

Our fiscal house undeniably needs some work (i.e., unsustainable deficits and bloated debt), but record corporate profits, record levels of cash, voracious consumer spending, improving employment data, and attractive valuations are all contributing to a domestic house that makes opportunities in our backyard look a lot more appealing to investors than prospects elsewhere in the global neighborhood.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and VGK, but at the time of publishing SCM had no direct position in any other security referenced 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.

December 3, 2011 at 9:39 am 1 comment

Innovative Bird Keeps All the Worms

Source: Photobucket

As the old saying goes, “The early bird gets the worm,” but in the business world this principle doesn’t always apply. In many cases, the early bird ends up opening a can of worms while the innovative, patient bird is left with all the spoils.  This concept has come to light with the recent announcement that social networking site MySpace is being sold for a pittance by News Corp. (NWS) to Specific Media Inc., an advertising network company. Although Myspace may have beat Facebook to the punch in establishing a social network footprint, Facebook steamrolled Myspace into irrelevance with a broader more novel approach.  Rather than hitting a home run and converting a sleepy media company into something hip, Rupert Murdoch, CEO of News Corp. struck out and received crumbs for the Myspace sale (News Corp. sold it for $35 million after purchasing for  $540 million in 2005, a -94% loss).

Other examples of “winner takes all” economics include:

Kindle vs. Book Stores: Why are Borders and Waldenbooks (BGPIQ.PK) bankrupt, and why is Barnes and Noble Inc. (BKS) hemorrhaging in losses? One explanation may be people are reading fewer books and reading more blogs (like Investing Caffeine), but the more credible explanation is that Amazon.com Inc. (AMZN) built an affordable, superior digital mousetrap than traditional books. I’ll go out on a limb and say it is no accident that Amazon is the largest bookseller in the world. Within three years of Kindle’s introduction, Amazon is incredibly selling more digital books than they are selling physical hard copies of books.

iPod vs. Walkman/MP3 Players:  The digital revolution has shaped our lives in so many ways, and no more so than in the music world. It’s hard to forget how unbelievably difficult it was to fast-forward or rewind to a particular song on a Sony Walkman 30 years ago (or the hassle of switching cassette sides), but within a matter of a handful of years, mass adoption of Apple Inc.’s (AAPL) iPod overwhelmed the dinosaur Walkman player. Microsoft Corp.’s (MSFT) foray into the MP3 market with Zune, along with countless other failures, have still not been able to crack Apple’s overpowering music market positioning.

Google vs. Yahoo/Microsoft Search: Google Inc. (GOOG) is another company that wasn’t the early bird when it came to dominating a new growth industry, like search engines. As a matter of fact, Yahoo! Inc (YHOO) was an earlier search engine entrant that had the chance to purchase Google before its meteoric rise to $175 billion in value. Too bad the Yahoo management team chose to walk away…oooph. Some competitive headway has been made by the likes of Microsoft’s Bing, but Google still enjoys an enviable two-thirds share of the global search market.

Dominance Not Guaranteed

Dominant market share may result in hefty short-term profits (see Apple’s cash mountain), but early success does not guarantee long-term supremacy. Or in other words, obsolescence is a tangible risk in many technology and consumer related industries. Switching costs can make market shares sticky, but a little innovation mixed with a healthy dose of differentiation can always create new market leaders.

Consider the number one position American Online (AOL) held in internet access/web portal business during the late nineties before its walled gardens came tumbling down to competition from Yahoo, Google, and an explosion of other free, advertisement sponsored content. EBay Inc. (EBAY) is another competition casualty to the fixed price business model of Amazon and other online retailers, which has resulted in six and a half years of underperformance and a -44% decline in its stock price since the 2004 peak. Despite questionable execution, and an overpriced acquisition of Skype, eBay hasn’t been left for complete death, thanks to a defensible growth business in PayPal.  More recently, Research in Motion Ltd. (RIMM) and its former gargantuan army of “CrackBerry” disciples have felt the squeeze from new smart phone clashes with Apple’s iPhone and Google’s Android operating system.

With the help of technology, globalization, and the internet, never in the history of the world have multi-billion industries been created at warp speed.  Being first is not a prerequisite to become an industry winner, but evolutionary innovation, and persistently differentiated products and services are what lead to expanding market shares. So while the early bird might get the worm, don’t forget the patient and innovative second mouse gets all the cheese.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Performance data from Morningstar.com. Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, AAPL, AMZN, and GOOG, but at the time of publishing SCM had no direct position in BGPIQ.PK, NWS, YHOO, MSFT, SNE, AOL, EBAY, RIMM, Facebook, Skype, or any other security referenced 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.

July 7, 2011 at 11:50 pm Leave a comment

Microsoft’s Hand Caught in Google Cookie Jar

Source: Photobucket

The globalized world we live in has become ever-more connected (see Globalization Train), and the recent events in Egypt where mass protests were organized, in large part by Facebook and Twitter, only goes to show the importance technology plays in our daily lives. As a result of our tight global links and the advancement of technology, product cycles have only become shorter and more competitive, raising the stakes for business success. The expanded field of cut-throat competitors in a digital age has also increased the value of intellectual property (IP). Increasingly, lawyers and judges are being forced to decipher the obscure realm of bits and bytes and vigorously defend unique IP from competitors.

If You Can’t Beat Them, Copy Them

Case in point is the current war of code-words between Google Inc. (GOOG) and Microsoft Corp. (MSFT). Google claims they have caught Microsoft’s hand in the corporate espionage cookie jar by watching Microsoft effectively steal Google’s algorithmic search code for the software giant’s Bing search service. How can Google make such harsh and direct accusations? Google claims to have set up “synthetic” searches, which were designed as digital booby traps. Based on Google’s story, Microsoft appears to have taken the bait…hook, line, and sinker.

You be the judge. Here was the synthetic search result for “indoswiftjobinproduction” when entered in Google:

Source: Search Engine Land

This is the response when the same search term “indoswiftjobinproduction” was keyed in on Microsoft’s Bing search service:

Source: Search Engine Land

Coincidence? Perhaps. Likely? No.

Well, maybe lightning just struck with the “indoswiftjobinproduction” search term gibberish – why not try another?

This is what Google’s search results created when “mbzrxpgjys” was entered:

Source: Search Engine Land

When the same “mbzrxpgjys” term was inputted into Microsoft’s Bing, here was the result:

Source: Search Engine Land

Hmmm, I seem to be detecting a pattern here.

Is Microsoft’s apparent copycat behavior illegal? The evidence for the moment doesn’t appear to be clear, thanks mostly to the fine-print legalese of confusing check boxes that nobody reads when downloading or using any internet service. Evidently, many Microsoft Internet Explorer (IE) users have unknowingly provided Google search information typed in through Microsoft’s IE browser, and the Redmond behemoth has been using this information to sharpen their search algorithms.

So if this behavior is not illegal, then should this activity be considered cheating? Here’s what Amit Singhal, a Google executive who oversees the company’s search engine ranking algorithm has to say about the issue:

“It’s cheating to me because we work incredibly hard and have done so for years but they just get there based on our hard work…I don’t know how else to call it but plain and simple cheating. Another analogy is that it’s like running a marathon and carrying someone else on your back, who jumps off just before the finish line.”

 

I’m sure this will not be the last we hear on the subject of technology and corporate cheating. As a matter of fact, in the field of intellectual property crimes, French-Japanese car giant Renault-Nissan recently brought the case of industrial espionage, corruption, theft, stolen goods, and conspiracy against three senior Renault executives. The allegations of selling crucial electric car information to the Chinese raised concerns to a feverish pitch in the tabloids because so much can be gained or lost by those involved in this estimated $2 trillion electric car market.  

The committing of crimes is nothing new, but the types of new crimes are changing. In a globalized world increasingly dominated by technology, perpetrators better think twice about committing these invisible crimes. Cheating may taste sweet, until you get caught with your hand in the cookie jar.

Read More about the GoogleMicrosoft Tiff

Wade W. Slome, CFA, CFP® 

Plan. Invest. Prosper. 

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and GOOG, but at the time of publishing SCM had no direct position in MSFT, Facebook, Twitter, Renault, Nissan, or any other security referenced 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.

February 5, 2011 at 7:31 pm Leave a comment

Winner’s Curse: HP’s Storage Prize

Congratulations HP (HPQ)…you are the proud winner of 3Par Inc. (PAR), a relatively small enterprise storage hardware and software company, for the bargain price of 125x’s 2011 earnings! Never mind that you were late to the game in your winning $2.4 billion bid against Dell Inc. (DELL), or that you paid more than triple the price ($33 per share) that 3Par was trading just 21 days ago (< $10 per share).  At least you have a storage trophy you can show all your friends and you don’t have to carry around all those heavy bills anymore.

Winner’s Curse

In bidding wars and auctions, the victor of the price battle runs the risk of earning the “Winner’s Curse.” The curse falls upon those that bid a price that exceeds an auctioned asset’s intrinsic value. How can this occur? Well for one reason, the bidder may not have complete information regarding the value of the asset. Secondly, there can be emotional factors, or ego, that play a role in the decision and price paid. Lastly, unique factors, such as strategic benefits or synergies may exist that allow one bidder to offer a higher price than other auction participants. For example, consider an exploration and production company (XYZ Drilling Co.) that is bidding for drilling lease rights in Prudhoe Bay, Alaska. If XYZ Drilling Co. has unique existing drilling operations in the same area as the auctioned assets, XYZ Drilling Co. may be in a better position of making a profitable bid relative to its peers. 

HP vs. Dell – A Deeper Look

Let’s take a deeper dive into the HP bid of 3Par. While HP generates a lot of cash by selling printers, cartridges, and computers, the company doesn’t exactly have a bullet-proof balance sheet. Unlike let’s say Apple Inc. (AAPL), which has about $46 billion in cash on its balance sheet with no debt (see Steve Jobs: Gluttonous Hog), HP actually carries more debt than cash (about $20 billion in debt and $15 billion in cash). What’s more, HP has little tangible equity, once $42 billion in goodwill and intangible assets are subtracted from the total asset value of the company – leaving HP with an astronomically high ratio of 275x’s price to tangible book value. For most companies operating with a positive net cash position, making acquisitions accretive is not that difficult in this current environment – when cash is decaying away with a paltry 1% return. Unfortunately for HP, their accretive hurdle is higher than a cash-rich company. Their weighted average cost of capital is ratcheted significantly higher due to a net debt position (not net cash).

Here is the viewpoint on the deal from Ashok Kumar, senior technology analyst at Rodman & Renshaw LLC:

“It’s in excess of $3 million per employee. To put it in perspective, today 3Par has about 5 percent [market share] of the very high-end market and for these premiums to pay out, [HP] would have to expand their market share to about 25 percent or about $1.5 billion, which is 5x the projected growth rate. And all of that would come at the expense of incumbents [like] IBM, EMC, Hitachi.”

 

On the Bright Side

Although the price paid by Hewlett-Packard for 3Par is ridiculously too high, this deal alone is not going to break HP’s piggybank. HP is currently raking in about $8 billion in cash flow per year, so absent aggressive share buybacks or other large acquisitions, HP should be able to pay off the cost of the deal in a few quarters. Secondarily, HP does gain some synergies by integrating 3Par’s blocklevel data storage expertise into HP’s existing portfolio of other storage technologies ( i.e., StoreOnce and IBRIX). Thirdly, HP gains some strategic defensive benefits by keeping 3Par out of Dell’s hands, a potentially formidable competitor in the storage space, given the intensive overlap in customer bases between HP & Dell. Lastly, HP will no doubt be able to introduce and cross-sell 3Par products into Hewlett’s vastly larger customer distribution channels and reap the resulting rewards.

All in all, the 3Par acquisition by HP makes perfect strategic sense, however the price paid will turn out to be a much better deal for 3Par shareholders, rather than HP shareholders. HP ultimately shelled out a hefty price tag to become the victorious party in the 3Par bidding war, but rather than increasing shareholder value, HP ended up achieving the “Winner’s Curse.”

 Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and AAPL, but at the time of publishing SCM had no direct position in HPQ, PAR, DELL, IBM, EMC, Hitachi, or any other security referenced 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.

September 7, 2010 at 12:20 am 5 comments

Living Large – Technology Revolution Raises Tide

It’s hard to believe that my kids will never truly know what it is was like to live without a microwave, VCR, GPS device, internet connection or many of the other modern day inventions. In my elementary school days, when I had to write a report about Alfred Hitchcock, I was forced to drag my mom to the public library, chase down some librarians, and comb through floors of book shelves, only to find the book I needed was already checked-out. Today, it’s amazing to watch my kid, barely old enough to pull the milk container out of the fridge, scamper over to the computer, type in a few search words on Google (GOOG) and access an endless pool of information for a homework assignment. Fortunately for my wife and me, my daughter has not discovered Facebook yet.

Rising Tide Lifts All

In the uncertain times we live in, many people lose sight of the incredible advancements achieved over our generation, and ignore the difficult challenges and problems entrepreneurs are solving today. And many of these advancements have trickled down to wide swaths of the population. The minimum wage worker, cleaning dishes at the local restaurant, may not be able to afford the new $500 iPad from Apple Inc. (AAPL), but technology advancements have benefited the less privileged in different ways. For example, similar computing power used in the iPad has also been used in the logistics and sourcing departments of retail chains like Family Dollar (FDO), thereby making goods cheaper for lower-income consumers.

One person who has not lost sight of these advancements of productivity is Mark J. Perry of the Enterprise Blog. In a recent article, Perry compares what a consumer working 152 hours in 1964, earning an average wage, could purchase versus an average consumer today (46 years later) working the same 152 hours. Beyond the average wage of $2.50 per hour increasing to $19 per hour, Perry shows the unbelievable increase in the quality and number of products.

Perry places the continuing technological revolution in context by stating:

“Americans today can purchase low-priced electronics products that even a billionaire in the past wouldn’t have been able to buy.”

 

Another person that knows a little about technology, Sergey Brin (Co-Founder of Google Inc.), put recent technology advancements in perspective in the company’s 2008 annual report:

“Our first major purchase when we started Google was an array of disk drives that we spent a good fraction of our life savings on and took several car trips to carry. Today, I walked out of a store with a small box in my hand that stores more than all those drives and cost about $100. Similarly, the processors available today are about 100 times as powerful as those we used in 1998.”

 

Advancements in our standard of living are not only limited to electronic gadgets and internet searches, but also tangible benefits continue to be realized in the most important elements of our human survival. A picture says a thousand words, and these charts speak volumes about our standard of living:

Lives are Extending and Food More Affordable

Obviously, everything is not a bed of roses and some of these improvements have come at a cost. Our country has lost millions of jobs over the last few years, and globalization has significantly increased foreign competition in broad areas of our economy. But before you succumb to the devastation rhetoric of the nay-sayers, please do not forget about the almost imperceptible rising tide of technological innovations that are allowing us to live better lives, even in uncertain times.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, GOOG, and AAPL, but at the time of publishing SCM had no direct positions in RSH, FDO, Facebook, or any other security referenced 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.

July 13, 2010 at 10:24 pm 7 comments

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