by Kris_Tuttle on February 9, 2009
It’s no secret that the GPU space has been heating up. The Apple/Nvidia deal got the ball rolling and now Intel, Nvidia and AMD/ATI are in a fight to lock up design wins in the next generation (or two) of devices.
A few things are driving this including:
- More graphics processing needed in mobile Internet devices. Video and graphics are more important than crunching spreadsheets.
- Interfaces are becoming more complex. It’s been on the roadmap for 20 years or so but more game-like UI features will dominate the client going forward. Much as basic windowing systems took over back in the late 1980’s and 1990’s.
- Software libraries have made it easier to take advantage of the GPU for some more general purpose processing. This is both a top-down and bottom-up movement. The GPGPU idea is here to stay.
That Intel may be in the PS4 (if there is such a thing) could happen. The new Intel chip is positioned at the high end but most of the units, and possibly profits will be in the low to mid-range where Nvidia (with Tesla and Tegra) appears to be in a good position.
Nvidia as a company and the NVDA stock are in the midst of a huge transition from high-end, expensive add-in cards to chipsets and mobile solutions. We expect Nvidia to emerge as a leader in this category. It won’t come without any bumps although guidance already reflects a fairly steep falloff in their traditional business.
Our fairly conservative estimate for fair or "intrinsic value" comes to $15 which makes the stock attractive at these levels. Full details can be found in our recently published 5 page client report ($pdf) discussing the changing client architecture with implications for Intel, ARM and Nvidia.
[Disclosure: Research 2.0 has a long position in NVDA and ARM at the time of this writing.]
by Kris_Tuttle on January 14, 2009
There will be plenty of digital ink spilled today on Carol Bartz taking over at Yahoo. With no apologies we offer our own 2c. We did spend some time at the company last year which makes us feel like we have some insight even though we are far from experts on the company.
Lots of damage has been done over at Yahoo over the last few years. It’s well known that many of the best people have moved on. In short, Yahoo is a mess. But then again isn’t that what many investors want?
That the stock wiggled down yesterday is hardly any credible indication of how good the potential fit will turn out to be. Many cited the fact that Bartz has no "Web 2.0 or deal making" chops to help Yahoo succeed. What Yahoo needs first of all is adult supervision and some common sense decision making at the top to begin to restore a sense of coherence and possibly hope after the Semel destruction. Our guess about near-term stock weakness is that the appointment signals that the company won’t be sold in the very near term, a blow for speculators.
What’s required over the next 12-18 months is simple enough that Bartz will probably implement the changes and pull them off. We’re talking about management 101 here. Establish a framework, measure results, reward performance. [Believe it or not none of this exists now in terms of decision making at Yahoo.] That alone can have a dramatic positive effect on how the company operates and is viewed.
The other side of the coin is simply focusing investments and execution on where Yahoo can get returns and build advantage. Some of these may be tough choices but many will be easy. By divesting and focusing their efforts we’d expect Yahoo to improve their poor ROIC and margins over time.
In thinking about this in terms of "expectations investing" the risk/reward on Yahoo seems at least interesting. We don’t know Carol Bartz personally. If she is another Ellen Hancock (Exodus) or Meg Whitman then Yahoo is toast but if her basic management skills are real the stock could easily revisit the 20’s again. Well short of the $33 Microsoft offer but not bad from current trading levels of $12.
We would expect Bartz and the team to be strongly tempted to take one last whack at lowering expectations since it’s their last penalty-free opportunity. Having over $3B in cash gives Yahoo some power to shift things around and make acquisitions once they figure out what strategy elements to focus on.
There are hardly any shares sold short (36M out of 1.4B shares) so if the shares appreciate short-sellers could tend to increase supply of the stock. However the ability of Yahoo to make deals may keep short-sellers at bay.
If the company comes out with a strategy that is better than a 90 day "listening tour" we will take the time to run our intrinsic value analysis to further pin down the potential upside for the shares.
[At the time of this writing we have no stock position of any kind in YHOO.]
by Kris_Tuttle on January 9, 2009
I guess it’s pretty clear the shorts were not paying much attention to ongoing developments at Palm in the last month or so. Going into December there were about 38 million shares short out of a float of about 110 million.
When Palm got a fresh injection from Elevation Partners that started the ball rolling and their stellar display of new technology and strategy at CES yesterday, especially in the absence of other interesting news from the Steve-less Macworld and humdrum CES.
Most fundamental analysis would say the stock is a little ahead of itself right now at $6.50 but the volume so far suggests there are still lots of shares sold short. Our long-term analysis suggests an intrinsic value of $11 based on a successful execution of the turnaround. So despite all the near-term momentum there isn’t a strong enough reason to sell shares at these prices, at least not yet.
Shorts will certainly point to there still be "lots for Palm to prove" and the next couple of quarters are going to be ugly based on reported results. However if investors are willing to "look through" the negative short-term data points the shorts may not get the relief they are hoping for.
We agree that there are still plenty of risks for Palm and have included more detail in our published note scheduled for release on Monday.
by Kris_Tuttle on December 19, 2008
Stream of consciousness from the Palm call….full transcript is available here.
[This GAAP/non-GAAP thing is a huge useless pain for everyone. Takes tons of time an does nothing but obfuscate.]
Smartphone business not too bad. Handhelds obviously down the drain but now pretty small.
Gross margins down 6pts sequentially! No expansion likely in Q3.
Operating expenses are coming down nicely, should hit low-mid $90M range soon.
Non-GAAP loss of $80M and Adjusted EBITDA loss of $55M. (What large NOL carryforwards you have grandma!)
Cash at $224M, inventory, and A/R all okay.
Sounds like this is close to the bottom for the company with the February quarter offering the most likley bottom IF the new product strategy works starting in fiscal Q4.
It’s tough out there. Maturing product line, consumer spending tough, spending on new products adding to expenses but not yet ramping. Translates into a "few rough months ahead."
New platform is nearing completion and first phone will launch in the first half of 09 as planned. Believes it will "stand out" in the marketplace.
For now Treo Pro continues to do okay, rolling out to new markets. Thinks their ability to control software and hardware will help them long-term in the market. Claims carriers are excited. [Could be an interesting alternative for carriers.]
Smartphones will continue to be gaining share as it is still early days here. [We agree.]
Q&A starts…
Sell in and sell through mostly balanced. Some inventory write-downs should put component WIP in line. Cash burn will be UP in the next quarter.
Some discussion of it being "too late" for a new phone platform. [We agree with management that is still early in the game.]
Treo Pro still plugs away in the current quarter and will roll out at a major US carrier this Q as well. All in front of the new product launch.
Company has auction rate securities but there is zero liquidity in the market right now.
[Conference call drinking game for the holidays? - "challenged environment" or "challenging environment."]
[Pretty good live coverage by the major Street analysts on the call. Clearly they are interested in catching a potential turn at Palm if one materializes. That's a plus.]
They are going to be aggressive at marketing and promotion for the new products and be heavily discounting older products so margins will be under pressure. So Centros are going to be getting very cheap while the Treo Pro ramps and they work on the new platform.
Management states they will return to profitability in 2010 but mum on when exactly. Long term gross margin goal is between 33% and 36%.
Won’t get into what features might differentiate the new Palm offering. Is it graphics, keyboards, applications? No light shed on it. Maintains goal of having "the most compelling platform and product on the market." Hard to believe but they are aiming high anyway.
By Q4 of F09 their OpEx goal is mid-to-low 90M run rate. Company has $224M in cash and will manage all cash expenses very carefully in the Q. Claims they could raise additional cash if they needed to but that would only be to further drive initiatives rather than dig a deeper hole.
One last comment that Windows Mobile will continue to be their platform of choice for enteprise applications is interesting. Does it imply that all the new stuff coming will be consumer only and that they will need to continue to invest heavily in Windows Mobile? Will a Palm device work on both platforms or are we talking full separation here.
It’s going to be a volatile story the next few months. Clearly the new platform is a major turning point and with the number of moving parts the stock may not appeal to most. But with a market cap of $240M, $224M in cash and $400M in run rate revenues it’s an interesting stock. With listed options the stock can be used like a non-expiring call option to implement some strategies.
[Disclosure: We have a small position in PALM at the time of this writing.]