Notebook 11.23.11: HPQ, RIMM, Comm Equipment, NFLX, Talking Books, Ken Langone and Egypt

I started my notebook post two weeks ago here.  This is my notebook heading into the Thanksgiving break.

– Meg Whitman, CEO of HPQ on CNBC: I think companies should give Y/Y guidance only and report a monthly set of numbers, which would be a subset of financials and unaudited.  I think this would take a lot of emotion out of quarterly results as well as channel check drama.  With that said when companies stop giving guidance or provide less transparency, I do not see how this is helpful and I sell or short the stock until I can trust the management team.  I listened to Meg Whitman’s comments on CNBC yesterday.  She said there was a lot of complexity and cost in HPQ and she wants to strip it away and simplify the company (my take away from her talking points).  Leo was there 9 months, so did all this cost and complexity come from him or did Hurd oversee it?  I viewed Hurd was a cost cutter and when he was ousted the management team at HPQ was quick to tell investors that Hurd and stripped the company down to the bare bones and there was no investment in innovation and growth.  Apparently I am confused.

– RIMM: This market is very difficult to invest and I think the people who promote the notion that it is cheap and people should buy stocks or if Europe was just fixed it would all be good are nuts.  I picked RIMM off the bottom a week ago as written here.  I was smart enough to put a stop limit in at $18.50.  It triggered on the scary market day.  The lesson with this market is you can trade some stuff, but it is impossible to be invested.  All shorts and longs require stop limits.

– Telecom Equipment Markets: I sent the four charts below to a friend the other day.  Both of us had careers in networking in the 1990s.  He came back at me with following argument:  “Carrier traffic growth is 40-60% annually, carrier CAPEX growth is ~3% annually and carrier revenue growth is <10% annually.”  The only way to reconcile that construct is to drop the cost per bit.  Who will bear the burden of that cost reduction?  I think the most likely candidate is the equipment providers.  I have been Verizon FiOS customer since July 2006.  In 64 months my service cost has never changed – yet they have increased my bandwidth twice.  That is deflation.  I have covered all this before in various posts here (optical upgrade cycle), here (exaflood), here (Moore’s law) and here (data center).  My thinking here is that the people who tell you to buy stocks based on mobile traffic growth, or YT hits or software defined networking, blah, blah are lazy in their thesis construction.  Just because there are lot of mobile devices and tablets andChina andIndia require billions of handsets is not a sufficient argument.  I would submit that the real investment thesis is to ride that wave of jubilation and sell the hype-cycle before it collapses.

– NFLX and Buybacks: I have always felt that buybacks are stupid use of cash by management teams.  Buybacks are put in place to offset option dilution, help achieve EPS and keep the stock propped up so insiders can sell.  The SEC should regulate or ban buybacks.  The latest example is NFLX, who raised $400M ($200M stock and $200M zero coupon convert) the other day, but spent $200M buying back stock in 2011.  Here is a good overview.  My question would be if the company is so desperate to raise cash, why was it spending cash buying back its stock?  Who on the BOD, Audit Committee or management team takes the fall for this?

– Talking Books: In the wake of Focus Media, NFLX and countless others, I still think it does not serve the interest of active money managers to talk their books on CNBC, Bloomberg and emails.  I think if you are active fund manager, silence and discretion is best.  IMO, if you talking stocks to the world, it should be because you have stepped away from daily investment management.

– Ken Langone on CNBC: Spot on.  I have no idea who I will vote for in 2012, but our politicians lack fundamentals of leadership and the whole political process of red versus blue is terrible.

– Egypt: If you read my 17k word missive on revolutions that I posted in October, the events in Egypt should be no surprise.  It looks like they are entering the Accession of the Extremists stage.

Happy Thanksgiving to all.

/wrk

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