Showing posts from August, 2011

Mobile phone market dynamics

A couple of weeks ago, asymco produced a comprehensive chart  plotting the volume by price metrics for various smartphone manufacturers. I thought it was an insightful chart that illustrated the competitive positioning of all the major competitors (for which Asymco has data or can make an estimate). I thought I would add some notes highlighting my interpretation of the various segments of the smartphone market, and raise a couple of key issues for smartphone investors. In the chart below, I have marked up the chart with the traditional, high-volume/low-price to low-volume/high-price, segmentation. As common in business, nothing ever fits perfectly so the classifications are just ideas. Asymco's charts are in line with my classification except for Sony Ericsson, which should be moved further to the left since it is a low-volume/high-price manufacturer. Sorry about the small font on the axis labels. Click for a larger chart but the font is still too small. Hopefully it doesn'

Sunday Spectacle CXXXVII

American Job Losses From Pre-recession Peak (source: " Percent Job Losses in Recessions July Aug 5, 2011 ," CalculatedRisk, downloaded Aug 28 2011) This is one of my favourite charts because it shows the true severity of the recession. The recovery is unlike anything USA has seen in the post-war years. Since the 2001 recovery is also very slow, I wonder if the slow, flat, recovery is indicative of the collapse of manufacturing. If so, and I believe it is, then how the US economy restructures will dictate its future for the next 50 or so years (similar to how the collapse of farming during the Great Depression set the stage for the future). It may not feel like it but if the US economy doesn't find new areas to replace those lost manufacturing jobs, it will probably deteriorate (economically) relative to the world. Even if you are bearish on the economy, it's really hard to see how it can enter another recession since the employment picture is so bad.

Innovating your way from inventions

(Illustration by Paul Rogers for The New Yorker. " Creation Myth ," The New Yorker, May 16, 2011) In 2008, Malcolm Gladwell wrote " In the Air ," an essay suggesting that innovation and scientific discoveries aren't as rare as they are widely believed, and he continued his thesis in an article for The New Yorker earlier this year. That latter article, " Creation Myth ," is now available for free on The New Yorker's website. If you haven't check it out, I highly recommend it. In "Creation Myth," Gladwell looks at the differences between inventions and innovations, and how inventions feed into innovations. As a case study, he look at two examples. The first example Gladwell focuses on—the more interesting and insightful of the examples in my view—is how Apple took the idea of the computer mouse from Xerox and turned it into a commercially viable product (with Microsoft subsequently turning it into a mass-market success). (sourc

Steve Jobs resigns as CEO of Apple

Most of you probably already saw the news but Steve Jobs handed in his resignation letter to Apple . The content of the letter is quoted below. This ends one of the biggest corporate turnarounds of all time and likely ends the executive duties of one of the top CEOs in American history. If health wasn't a problem, I'm sure Steve Jobs would still be running Apple. But alas, the health issues has finally got to him. Steve will still likely carry out some board director responsbilities but I suspect it will be quite limited. It remains to be seen how Apple performs with the new leadership. Steve Jobs wasn't an easy guy to work for but he was exceptionally talented when it came to sales and design. He cannot be replaced. Steve Jobs' Resignation Letter To the Apple Board of Directors and the Apple Community: I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfo

Sunday Spectacle CXXXVI

Apple iPhone Cost Breakdown (source: " Slicing an Apple ," The Economist. Aug 10 2011)

Sunday Spectacle CXXXV

Rolling 20-year Returns vs Starting P/E Ratio (click to enlarge) (source: " Generation Returns ," Crestmont Research . Last updated 2010.) Bull markets don't start from high P/E values; that's one reason the market has been in a bear market for the last 10 years or so. Right now, the P/E ratio appears to have dropped to the level that it was in back in 1989. Having said that, P/E ratio is influenced by inflation. Typically the P/E ratio tends to be low—that is, market attaches low valuation to business worth—if inflation is high or negative (i.e. deflation). The inverse relationship between P/E ratio and inflation is very clear in the graphic below from Crestmont Research. Inflation vs P/E Ratio (click to enlarge) (source: " P/E Ratios & Inflation ," Crestmont Research . Last updated 2010.) Whether stocks are cheap or not (note that I am talking about the market as a whole and not necessarily specific stocks) depend on what the actual inflation en

Historic downgrade: S&P lowers USA's credit rating from AAA to AA+

Most of you would have heard it by now but I thought I would blog about it because it may turn out to be an historical event in world history. For those that missed it, S&P downgraded USA's sovereign credit rating to AA+ from AAA. This was the first time in history that USA was downgraded from AAA. I am bullish on USA in the long run but if the view of some skeptics who think USA has peaked turns out to be true, this rating downgrade may be as close to any bell being rung at the top.

Sunday Spectacle CXXXIV

Ever Wonder What the Most Expensive Keywords on Google Are? (click to view enlarged full image) (Graphic by and WordStream. Source: " Infographic: The Most Expensive Keywords in Google AdWords ," The Atlantic. July 28, 2011)

Is Netflix's streaming model uneconomic? I don't think so

Netflix (NFLX) is an online and mail-order movie rental business that has been one of the high growth stocks of the last few years. Its valuation looks sky-high and there are quite a number of investors who are bearish on the stock. I don't have an opinion on the stock or its valuation but how about its business fundamentals? Is the online movie streaming model being pursued by Netflix sustainable? A blogger on SeekingAlpha, Slim Shady, is apparently short the stock and provides a write-up, " Why the Economics of Netflix's Streaming Business Is Likely to Fail ," purporting to show that Netflix's model doesn't earn enough money to justify any reasonable valuation for the company. I think there is a flaw in the author's argument. Here is his/her bearish thesis (bold by me): Over the average lifetime of a subscriber of 1 year, at $7.99 per month, the company will receive about $96 of revenue. Their marketing cost to acquire a domestic subscriber in the

Is this the beginning of a credit correction in emerging markets?

I ran across an interesting article from Bloomberg describing the weakening of credit conditions in some key emerging markets. Although too early to say if this portends to any serious calamity, it does feel, at least to me, like the HSBC sub-prime earnings warning from 2007  (of course, when HSBC warned in early 2007, it was widely ignored by many, including me :( ). I hate to quote so much but this could be an important story. Bloomberg reports , Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said. In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisions a

Some banks start demolishing unsaleable homes

I remember hearing someone say a while back that the American real estate crisis will be near the end when we start seeing homes being demolished. Although very small and in the early stages, it seems that it is starting to happen (h/t The Atlantic ): Bank of America Corp. (BAC), faced with a glut of foreclosed and abandoned houses it can’t sell, has a new tool to get rid of the most decrepit ones: a bulldozer. The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs. The number of homes in question for demolishion is negligible but, nevertheless, it does indicate that inventory is being taken off the market.