Shiau Street

No more blogspot

2005-01-24T18:36:00.000-05:00

www.ShiauStreet.com is up and running and I will no longer be updating brianshiau.blogspot.com (this location). Please visit www.ShiauStreet.com in the future. Thanks.

Sorry...no posts

2005-01-24T14:22:00.000-05:00

Shiau Street is currently moving to a new location. During this transition I will not be posting as I am busy building a new site. Please check back again soon. Thanks.

Apple market share - behind the numbers

2005-01-22T13:43:00.000-05:00

Reuters reports that Apple Stores opened an hour earlier today to unveil the new Mac Mini. The article discusses how it may be the Mac Mini, and not the iPod, that will be key to make Windows users switch. It notes that after the recent earnings report, many analysts believe there is a strong case for a halo effect, but the analysts the article interviews argues differently. Reuters finally whips out the numbers, that Apple market share stands at 2.0% worldwide and 3.4% in the US.

The article is pretty neutral on Apple (NASDAQ: AAPL), though it focuses on the opinion that iPods do not sell more Macs. Mac sales were up in the recently reported quarter but there is not statistical evidence of causality between iPod sales turning into Mac sales. I read a recent article that argued these increased Mac sales were more the result of Windows users getting tired of viruses, spyware, and spam (though OS X doesn’t provide any additional defense against spam).

This article, like most articles on Apple’s market share, likes to focus on the single digit percentage that is Apple market share and frames it in a way that really minimalizes it. I wish these reporters could also post a comparison, because when they do, the numbers are more informative. Only Dell and HP regularly have double-digit market share in the US with IBM or Gateway have single to low-double digit market share as they fight for third. Apple, even with 3.4%, is often ranked as the fourth largest maker of personal computers in the US.

The worldwide number is always smaller. The reason for this is because the US government doesn’t even allow Mac (which are considered supercomputers by those concerned) exports to most countries. In 1999, Democrats had tried to pass a bill that would have allowed Macs to be sold without a 6-month Congressional review (it only takes 30 days to review the sale of an F-16). The measure failed as many considered Macs in the hands of dangerous people as…well…dangerous. And so, few places outside of the US, Canada, Japan, and Western Europe can even buy Macs.

Part of the problem is also that a vast number of computers are found in the office, a place Apple does not really market to. If you came to Princeton University, you would think that Macs have nearly 50% market share when you walk around seeing students work at the library. In the fall, I remember reading an article surveying campus computer stores that reported double-digit Mac market share in the back to school selling season, with some university computer stores reporting Macs having as much as 60% market share for sales to students. I believe Apple continues to grow among the consumer computer market. But the numbers are deceiving due to corporate sales numbers. If Apple begins to focus more on the corporate sector, these market share percentages could drastically improve.

Evening the playing ground

2005-01-21T20:11:00.000-05:00

Long have people complained that Macs are no good for games. This has been one of the biggest barriers for many PC users to switch even though they are plagued by viruses, spyware, and the infamous Blue Screen Of Death among other computer problems associated with windows. However, as PC games become a relic of the past, the Mac’s limited library of games is less of a problem.

Of course, not all games are moving to console. Strategy games, like Atari’s Civilization III (this franchise has subsequently been sold as Atari’s parent Infogrames is scrapping for cash), will always be played on computer but that is not really a problem as the large titles like SimCity are all available for Mac.

The problem has long been that the Mac version computer games are not released by the original studio. The code is ported by a smaller software company that does not optimize the code for the PowerPC and Mac platform. When this is the case, the game does not run as well on a Mac as it does on a PC of comparable hardware, which is a big problem for graphic intensive action games. The solution? As OS X becomes more popular, original software developers are starting to supply Mac versions in a timely matter. Studios like Blizzard release the Windows and Mac versions of its games on the same disc so that the game runs well on both platforms.

Most of the gaming problem will be solved by the shift in the industry to console games. More and more action games are making their appearance on consoles first and eventually showing up on PC or Mac. As consoles become more online enabled, the last PC multiplayer action games will probably transition to next-generation consoles. The remaining computer strategy games (if they remain to be popular) will for the most part be available on both platforms and run comparably. When PC gamers realize this trend, making the switch to Mac should be easier.

ShiauStreet.com

2005-01-21T19:06:00.000-05:00

This blog is now accessible from www.ShiauStreet.com. Over the past couple of days, I have tried to make the blog easier to navigate and read. Hopefully once Google has crawled the site, you will be able to use the search bar to locate posts relevant to keywords you are interested in.

Problems with the blog?

2005-01-21T18:21:00.000-05:00

It has come to my attention that a number of the links were broken. I have fixed them and they should all be working now. I am also aware that there was a problem with the Google search bar on the right side of the window for some Internet Explorer users but it should also load correctly now.

If you ever experience any problems while viewing the blog, please comment here.

Thanks.

The Death of PC Gaming

2005-01-21T16:25:00.000-05:00

In an article titled, PC Games Face Their Own ‘Doom’, TheStreet.com writes its prediction that, for gaming, “the PC is going the way of the Atari 2600.” Even in a year of huge blockbuster titles like Activision's (NASDAQ: ATVI) Doom III, or Vivendi Universal's (NYSE: V) Half-Life 2, and World of Warcraft, PC games sales were down 12% yoy. This is all in-line in what I had written in a previous post about the death of the PC industry in general.

Although the video game industry has been growing yoy every year, the PC games market has been decreasing yoy every year. 2004 saw the sale of 45 million PC games ($1.08 billion), down from 2003’s 52.7 million units ($1.22 billion), which was down 14% from 2002 ($1.4 billion sold). In 2004, console game sales grew 8% to $6.2 billion.

TheStreet.com notes the problem I had pointed out earlier, that gaming PCs cost too much relative to a game console. The writer, Troy Wolverton, points out that an XBOX costs $150 while a gaming PC costs over $2,000. Consoles are also a better platform for many games—allowing you to play head-to-head with friends and family in front of a big-screen TV.

Studios have noticed the trend, too, and have been devoting far more resources to developing console games. PC games are good for studious because they have higher profit margins. Studios have to pay the console makers royalties for each console game they sell. However, PC games are also plagued by piracy. A studio is much more likely to see compensation when putting a console game on the shelf than a PC game. Studios like Blizzard (owned by Vivendi Universal), who had been exclusively PC based, are moving their games to console only.

Games also take a long time to make their appearance on the PC platform now. None of the biggest selling games of 2004, including Take-Two’s (NASDAQ: TTWO) Grand Theft Auto: San Andreas and Microsoft’s (NASDAQ: MSFT) Halo 2 are available for PC yet.

As this trend continues, it may be wise to avoid game companies that are overly exposed to the PC platform. However, expect all video game makers to experience lower to flat growth this year as the industry slides down the end of this console cycle and prepares for next-generation systems.

Taser too weak?

2005-01-21T15:49:00.000-05:00

After a number of claims that Tasers are unsafe have surfaced, Taser has warned police that studies actually show the weapons are too weak. Taser International, Inc (NASDAQ: TASR) will increase the power of the X26 by 14 percent to increase the effectiveness of the weapon. Studies by the Defense Department showed that in some cases the target was able to maintain partial mobility after being shot by a Taser. In these cases, the target was able to break the insulated copper wires that connect the gun to the electrified barbs, thereby ending the shock.

I find this somewhat humorous. The controversy over the company’s products is that the electrical shock may be fatal. Instead these reports say the weapons are too weak and require more power. Taser initially submitted a bulletin that the weapons may need more power back in September ’04 but did not decide to increase the power of the weapons until now. Shareholders won’t know which way to trade this stock until someone figures out what’s really going on with these weapons. TASR is currently trading at $17.27 ( -$0.295 or –1.68%), down with the overall market.

Apple, the hallmark of design

2005-01-21T03:07:00.000-05:00

The New York Times writes an insightful story about the evolution of “design." It used to be about colorful iMacs, but design has come to a new meaning as Apple (NASDAQ: AAPL) learns to adapt to a changing economy. The article quotes Dan Harden who works for the company that designed the Rio Carbon: "It's Apple joining the rest of the real world. I just hope they remain a beacon of quality." Apple is likened to the high-end design that is fit for the wealthy but adapting to an economy where people demand more for cheap.

This article is overall very positive though I would not foresee any real impact on AAPL the stock. However, the media’s recent rain of positive Apple stories may aid in a subconscious push for the big switch.

Sony admits its proprietary approach was a mistake

2005-01-21T02:39:00.000-05:00

AP writes that Sony’s Ken Kutaragi blames the company's miss on MP3 players and other devices this holiday season on the company’s emphasis on proprietary technology. Sony (NYSE: SNE) had long favored doing its own thing, such as with Memory Stick instead of the secure digital cards that all other consumer electronics companies use in products from digital cameras to PDAs.

Sony’s latest fault was only supporting its Atrac3 format in its digital music players (Sony’s digital Walkman did not support MP3 like the iPod and other players do). Kutaragi claims the fault comes from the companies desire to protect its own creative content (Sony owns a music and movie studios). However, I believe Sony also has a thing for owning formats for added revenue benefits. He goes on to say that the company’s different divisions are now working together and that we should look to the PlayStation Portable to “grow into a platform for enjoying music and movies as well as games.”

This supports my comments in an earlier post that Sony should focus on the PSP for its portable multimedia strategy. The company has built a great deal of consumer capital in the PlayStation name, which holds a better image with today’s people than the Walkman. Technologically, I believe the PSP has a better edge over the competition than Sony’s new iteration of the Walkman.

Early adopters may also have poisoned the Walkman brand with such criticism as the inability to play standard MP3 files and misleadingly claiming the player has larger storage (Sony claimed the Walkman HD carried more songs than the iPod, but this was only using a significantly lower quality encoding). The device only came out last summer and was never heard of again during the recent “must-get-an-iPod” holiday season.

If you can’t beat them, join them!

2005-01-21T01:57:00.000-05:00

The Register reports that Creative Technology (NASDAQ: CREAF) has lost its first battle in its war against the iPod. The company’s CEO, Sim Wong Hoo had declared war against the iPod back in November when he vowed to spend $100 million to market Creative’s products so that his company would outsell the iPod. He had forecasted the company to sell 3 million units at the time but Thursday’s earnings announcement only reported 2 million units for the quarter (Apple sold 4.5 million iPods in the same period). The market punished the stock, closing at $13.90 (down $2.469 or -15.08%).

Now Sim Wong Hoo has changed his tone and hopes Apple to boost awareness for Creative’s products: "Apple's entry into the Flash [player] market will create more awareness in the Flash market segment, and we are well positioned to become a big beneficiary of this expanding market."

IMO there may be a lot of truth behind what he says. From the media’s coverage, one would be lead to believe that the flash market was founded by Apple’s entrance into flash players last week. Creative has been in the business for years but no one really cared then. Now suddenly Apple has made flash players hot and Creative has many flash players ready to sell. The problem with this reasoning is that if you weren’t relevant before, competition in your business doesn’t make you any more relevant.

Synaptics (the iPod click wheel company) reports explosive earnings

2005-01-20T16:54:00.000-05:00

Synaptics, Inc. (NASDAQ: SYNA) reported that profits jumped 178 percent to $9.7 million ($0.33 EPS) up from $3.5 million ($0.13 EPS). Revenue came in at $56.5 million (compared to $34.3 yoy), beating analyst expectations of $55 million. Synaptics makes the click wheel and other touchpad technologies used in Apple iPods.

Synaptics may be a way to play into the success of the iPod without investing in Apple directly. This strategy would not expose the investor to risk of Mac sales not meeting expectations or if the supposed “halo effect” does not become even more apparent. However, the strategy would also be hurt significantly if Apple chose a different technology in future iPods. The new iPod Shuffle does not use Synaptics’ click wheel.

Apple is up after hours following Synaptics announcement at 4:15 PM. SYNA is up $3.00 (+10%) to $33.00.

Today's trading

2005-01-20T16:27:00.001-05:00

The overall market continues to fall following weak earnings outlook. The NASDAQ closed down 27.71 (-1.34%) to 2045.88. The environment seemed positive Tuesday afternoon when IBM (NYSE: IBM) and Yahoo! (NASDAQ: YHOO) gave rosy earnings reports. However, Motorola (NYSE: MOT)’s guidance was disappointing and the stock has declined 9.46% to $15.78 (-$1.65 from $17.43) since the close prior to earnings.

This was followed by eBay’s (NASDAQ: EBAY) report yesterday that it had miss earnings estimates and that growth would slow (the company also announced a 2-for-1 stock split). eBay is down 19.14% to $83.33 (-$19.72 from $103.05) since the close prior to its earnings report and was down as low as $81.40 on heavy volume. I recently blogged about eBay’s price hikes and my beliefs on the impacts on revenue. This may still be the case, but the higher prices may also contribute to slowing growth eBay is predicting. Other companies across sectors posted weaker earnings as well.

In the macroeconomic picture, oil fell by almost a dollar, treasury prices increased, and the dollar appreciated against the yen and euro. Economic indicators were in-line with expectations.

Obviously not a great day if you are long in the market following yesterday’s losses across the board. Few winners in tech other than my favorite, Apple Computer (NASDAQ: AAPL), which is one of the few stocks not in the red, closed at $70.47 (up $0.59 or 0.84%). It will be interesting to see where the stock closes for options expiration. Conspiracy theorists are again whispering that the devious “Big Money” will push the stock under $70 due to the high open interest in the Jan 70 call option (62,281 contracts open). AAPL had coincidentally closed under $65 last month so that the very popular Dec 65 calls expired worthless.

Taser (NASDAQ: TASR) has been having another wild day, trading as low as $15.90 and as high as $18.35 and ending the day nearly unchanged at $1753 (up $0.06 or 0.34%). In a previous post, I noted the near impossibility of trading this stock and sleeping well each night as you can go from mini-fortune to penniless to mega-fortune and back again all in one week. With the safety of Taser’s products remaining in the spotlight, we will continue to see extreme volatile trading as traders speculate on when the next story on safety will be released.

Another milestone against piracy

2005-01-20T15:44:00.000-05:00

Software companies and the entertainment business, and respective shareholders, have something to rejoice about again as efforts to curb piracy in the form of file sharing has reached the next level. WSJ writes that two men, William Trowbridge and Michael Chicoine, pleaded guilty to criminal charges of copyright infringement in federal court. They face up to five years in prison, $250,000 in fines, and must forfeit computer equipment used in the crime. The two were involved in file sharing of software, movies, and other copyrighted material.

This comes ahead of the piracy bill that was passed in both houses of the US Congress but has not yet been signed by President Bush. The new bill would allow the Department of Justice to prosecute individuals for file sharing and the government would receive a portion of the settlement or fines.

IMO, the government has a moral obligation to do more to curb piracy if hard working men and women in creative businesses are to be compensated for their work. Furthermore, as shareholders in technology companies and users of technology, it is paramount that companies can remain profitable so that they can devote funds into R&D and produce software for future technological innovation.

Sony disappoints, sign of Apple's success?

2005-01-20T15:25:00.000-05:00

Sony (NYSE: SNE) cuts its profit outlook by 31% as prices fall for televisions, DVD recorders, and other high-end products. As a boon to Apple shareholders, Reuters reported “the consumer electronics giant said it also fell short of its earnings targets in its portable audio business, where it has failed to match the efforts of rival Apple Computer Inc. and its popular iPod music player.” I had noted in my post about iPod’s competition that the fear of Sony in the digital player market is currently overestimated.

Sony reported that it’s other businesses were in-line with expectations. We knew that hardware sales for Sony’s PlayStation division were down significantly this holiday season so that was not a surprise. The company took lower restructuring charges as the company continues to turn around after 2003’s “Sony Shock” when the company had reported a loss of $1 billion in a single quarter. Sony does have significant potential upside in the future as PlayStation Portable (PSP) shipments ramp up in Japan and the product is introduced in North America.

IMO, Sony should just drop the Walkman digital music player and simply focus on the success of the PSP. They will have more success positioning the PSP against portable gaming's reigning champion, Nintendo's Gameboy, as the two products appeal to slightly different markets. Sinking more funds into the Walkman against the iPod simply fights for the same pieces of the pie.

Tip of the day: Think through the trade

2005-01-18T23:11:00.000-05:00

Diversifying has long been the golden rule of investing. Diversifying reduces risk--or does it? Diversifying your portfolio does reduce your exposure to idiosyncratic risk found in specific stocks, but the more you diversify, the more market risk you are taking (and the higher probability your investing in companies you know nothing about). This doesn't help if the whole market tanks and all your stocks go down. Hedging market risk by shorting an index may be a good idea. You can even localize your risk to the sector by shorting a basket of stocks in the same sector. Of course, hedging doesn't reduce your net risk either, but re-allocates it to scenarios you believe less possible. Say your stock goes down but the market rallies, then you lose on your stock and your hedge.

The most important part of investing is clearly reasoning why you are entering that investment position. Why would the upside situation occur? Why would a downside situation occur? What are the risks you are concerned with? Once identifying those risks, ask yourself what you can do to reduce the most probable risks. If it is specific to the stock, diversification may be the answer. If the risk is economy related, hedging may be your answer. You have to tailor your strategy to your investment.

Download music for free again, legally

2005-01-18T16:41:00.000-05:00

CNET reports that Apple is teaming up with Pepsi again to give away free iTunes songs in 1 out of 3 Pepsi bottles. This promotion is available on specially marked 20 oz and 1-liter bottles of Pepsi, Diet Pepsi, Pepsi Wild Cherry, Mountain Dew, Diet Mountain Dew, Mountain Dew Code Red, Sierra Mist.

When people redeem their songs, they will automatically enter into a drawing for a free iPod Mini. Pepsi will give away one iPod Mini every hour, expecting to give away 17,000 iPod Minis in all. This time, 200 million songs will be given away, up from last year’s 100 million (However, only 5 million songs were actually redeemed last year). My experience is that I get excited that I win something then forget and throw out the cap before I have a chance to enter the code online.

IMO this deal helps both parties. For a Coca-Cola lover like me, I might even consider drinking Pepsi. It’s a chance for Apple to further promote the iPod and iTunes. But the bigger impact is the genius part of an exclusive format. If people start downloading songs from iTunes, they’ll more likely keep downloading from iTunes and buy iPods because they are locked into the AAC format. This promotion will boost the iTunes song numbers, but probably will have no meaningful earnings impact in the near-term.

iPod Shuffles already sold out and backlogged

2005-01-18T15:47:00.000-05:00

CNN Money writes that it’s “déjà vu all over again for Apple Computer Inc.” It’s been only one week since the announcement of the iPod Shuffle, which initially met lukewarm responses, and there is now a 4-week wait for the product.

In a previous post, I wrote that Asustek is believed to be manufacturing 400,000 to 500,000 units of the iPod Shuffle per month, could this mean that over 400,000 iPod Shuffles have already been sold? Apple had inventory available before the announcement and if the wait is 4-weeks before new orders are filled, we can speculate that well over 400,000 iPod Shuffles have already been sold (if the Asustek shipment numbers are correct). However, it is uncertain if these sales were to people who would otherwise have bought a more expensive iPod model, thereby leaving the impact on this quarter’s earnings uncertain.

Mr. Rollins, tech genius, comments on the iPod

2005-01-18T14:38:00.000-05:00

CNET reports that Dell’s CEO, Kevin Rollins, interviewed with Silicon.com last week. In that interview, Rollins calls the iPod a one-product wonder, comparing it to the Sony Walkman. "Well, those things that become fads rage, and then they drop off. When I was growing up there was a product made by Sony called the Sony Walkman--a rage, everyone had to have one. Well, you don't hear about the Walkman anymore. I believe that one-product wonders come and go. You have to have sustainable business models, sustainable strategy."

Wow. He inherits the company Michael Dell, whom I have great respect for, builds and now he considers himself a tech genius. It’s really quite frightening to me that the CEO of one of the world’s largest technology companies doesn’t understand the most basic characteristic of technology—that it is, by definition only technology for a certain time period and replaced by newer technology in the future. Perhaps he didn’t get the memo that ALL technological products are fads! Yes, the Victrola Phonograph was pretty big 100 years ago, and with Rollins’ rationale it was just a fad without a “sustainable business model.” Actually, Mr. Rollins, we don’t use Victrola Phonographs anymore because they were replaced by a better technology, just like one day PCs will be replaced. It’s like saying muskets were one-hit wonders because M-16s came around. Tape players were big at one point in history, and the Sony Walkman dominated it with higher market penetration than Dell can hope to see with any of its products. Sony actually followed up with a product called the Discman and the company has been around for quite a while longer than the company you inherited.

In my opinion, it’s just Rollins’ own defense for a pride shamed by the terrible failure of the Dell DJ. Speaking of one-product-wonders, what are Dell’s huge successes outside of computers?

Mac TV?

2005-01-18T14:21:00.000-05:00

The New York Times’s John Markoff asks if Jobs is thinking of a “Mac TV.” He points out that in Jobs’ keynote speech at Macworld, Jobs declares 2005 as “the year of high-definition video,” while Apple currently has no announced plans for HDTV outside of its video editing software.

The NY Times article notes that the $499 Mac Mini could very well with slight modification be a television set-top box. However, Markoff also notes that in an interview, Jobs seems interested in a Mac TV, but the problem is that “cable companies are monopolies.”

It has been my belief that Apple has much to gain with a successful TV set-top box. The company had already been associated with film and video editing. Apple has already met overwhelming success in the realm of music, why not expand into TV and movies with something to dominate the center of home entertainment and unifying all of Apple's different products?

There were rumors of an iHome TV set-top box before Macworld. Even fake videos and photos circulated the web (the video seems to be removed now). I believed the problem with PVRs is that cable companies and satellite TV companies already provide their customers with PVR functionality in the set-top boxes to decode digital cable. Every home will eventually need a set-top box that decodes HDTV signals and record television, but this seems to be locked up cable companies already. TIVO is already hurting as cable companies decide to invest in their own PVR technology. Even Microsoft got out of the business. For Apple to succeed, they are going to have to offer something the commodity cable box does not with the chic people are willing to pay for, much like the iPod’s success over other MP3 players.

EA: Owning the game

2005-01-17T22:37:00.000-05:00

Last month Electronic Arts (NASDAQ: ERTS) announced it had signed an exclusive contract with the NFL, making Madden the only NFL football game left in video games. They didn’t disclose how much they paid but rumors were between $300 - $500 million. Michael Pachter of Wedbush Morgan Securities said, “If they paid more than $200 million, then I seriously doubt their judgment.”

However, Chris Morris makes a great point: “When the EA/NFL/NFL Players deal expires, no company will have renders of the league's 1,400 players, which would cost millions – and could discourage bidding.” The NFL may think they only signed a 5-year deal, but this may very well be a life long deal. Creating the life-like renders of all the players is an incredibly expensive investment, but there is also the game engine. EA will be the only guys making money to develop a better game engine with more realistic physics and testing new game features. This investment will probably spill over into the college football series, too, as that series alone may not be worthwhile for other companies to develop better engines if they can’t use the code for an NFL game.

Today Chris Morris writes that EA has teamed up with ESPN, too, basically buying the titles of its rivals Take-Two’s (NASDAQ: TTWO) and SEGA series of sports games. EA hit them pretty hard by locking them out of football, but stripping their ESPN NBA Basketball, ESPN College Hoops, ESPN NHL Hockey, and ESPN Major League Baseball titles has got to hurt some more. They just renamed the series from SEGA Sports a couple years ago after working out the deal with ESPN.

EA may have paid a lot for the deal, but the big loser is still SEGA and Take-Two. They had invested a lot in building the ESPN franchise, especially selling the games at a rock bottom $20 this round to capture market share and show they, too, can make good sports games. Renaming the series may set back what they had accomplished with gamers who don’t remember which studios make the games they play. Considering all the externalities of the deal, $300-$500 million may not be too bad to pave your $1 billion a year sports line a road to life-long monopoly.

Great tool for your website or blog

2005-01-17T19:32:00.000-05:00

I started using www.statcounter.com yesterday. This web stats system is the best I’ve seen and gives you the most flexibility. It’s completely free and doesn’t put any ads on your website. It even lets you have an invisible counter. Of course, nothing in life is really free, they have ads on their own website which you will see when you view your web stats. The site is very comprehensive, allowing you to see the city, state, country, ISP, and IP addresses of your viewers. This can help you determine how many unique readers you actually have. It also provides you the browser, OS, and resolution they use so you can get a better idea of how to design your site. Statcounter tells you what link they came to your site from and where they left. It even tells you where the navigated while at your site to help you better organize webpages. This tool is a must have to optimize your website.

Social Insecurity?

2005-01-17T16:33:00.000-05:00

My financial investments professor at Princeton, Burton Malkiel, wrote a little something on privatizing Social Security in the Wall Street Journal. I, too, agree that Social Security should be privatized so that people earn some return on the money they put into the system. But the classic privatization bash is that most people don't know how to invest and will lose all their savings. A quick read of the Yahoo! Stock Message Boards can quickly confirm this. But letting every American be a day trader isn't how the system has to work.

Professor Malkiel writes that the savings should be invested in low-cost index funds (Professor Malkiel is a big proponent of index funds) because historically the market has earned superior returns for comparable risk, with every group of 25 years since 1929 earning positive return. Individuals with more than 25 years before retirement should have their social security accounts invested in index funds and gradually rebalance to less risky assets as they approach retirement.

The idea makes sense, but I still prefer the ideal world where people learn what to do with their money. That perfect world may never occur so government directed investing may be the next best option for some people. For the rest of us who believe we can beat the market (and the vast majority of us will fail in this attempt), we’ll keep studying companies for an opportunity to make that big return.

A new and better Intel?

2005-01-17T15:33:00.000-05:00

CNN Money reports that Intel (NASDAQ: INTC) is reorganizing and an exec is leaving. The company will now consists of three divisions: (1) mobility; (2) digital enterprise; (3) digital home.

I have long been bearish on Intel as I believed the company had grown too big into a slow-adapting bureaucracy. The stock chart has pretty much agreed with me on this one. The company had lost focus in its product lines and constantly missed product launches. Products that did make it to shelves required recall (Grantsdale) or just underperformed (Prescott) the quality Intel was once known for. By reorganizing and labeling the divisions with their corresponding markets, Intel may focus on adapting its products to the particular applications in the growing markets in technology.

Apple, another movie company

2005-01-17T14:23:00.000-05:00

So says this week's issue of Barron's. My respect for Barron's take on technology significantly decreased a few years ago when Barron's claimed something along the lines that video card makers nVidia (NASDAQ: NVDA) and ATI (NASDAQ: ATYT) were going out of business due to superior performance coming from integrated graphics on all Intel motherboards. Anyone who knew anything about computer hardware knew that would not be the case, but stocks plunged the next day anyways. But this doesn't matter, because since when was it a prerequisite to understand the products of the companies whose stock you trade? Integrated graphics has taken much of the low-end graphics processing market as expected, but video cards are far from irrelevant.

This time Barron's reports the success of Apple (NASDAQ: AAPL) and the bullish sentiment surrounding the stock going forward. Barron's explains that the new iPod Shuffle and Mac Mini should settle any criticism about Apple not marketing to lower-end markets. I appreciate that they point out that Apple is not a one trick iPod pony but steadily growing computer business. Barron’s notes the jump in Mac sales and refers to ChangeWave Research’s report that people are switching to Mac due to virus, spyware, and pop-up ads concerns. Barron’s then touches on Merrill Lynch’s $85 price target and Bear Stearn’s $87 price target for the stock.

What is most interesting is Barron’s paralleling Apple to Pixar (NASDAQ: PIXR). Both are like movie companies because their successes are based on their next innovative product. Apple is different from Microsoft (NASDAQ: MSFT) and Dell (NASDAQ: DELL) in that it does not rely on its past products for cash flow. “So what will Apple do next? Who knows? Asking that question about Apple is like asking what movie Pixar will make next” (Barron’s quoting Bear Stearn’s Andy Neff). This concept is a certain double-edged sword in that we can expect Apple to experience continued high growth with innovative products, but there is also the risk that they will eventually fail by delivering a dud product. Right now, the concern is that the Mac Mini and iPod Shuffle may just be that. Then again, people were worried about the G5 iMac and iPod Mini when they were first announced, and we all know what happened with those…

eBayers post negative feedback for eBay

2005-01-17T04:08:00.000-05:00

Earlier I wrote that eBay's price increases should result in a significant increase in revenue because eBayers would probably accept the price hikes without much choice. However, CNN Money reports that eBay Store owners have been "sparking revolt" on the message boards. They mention switching to Overstock.com as an alternative. eBay users may be upset and posting protests on message boards, but this does not mean they will actually stop selling on eBay. There may be some risk here going forward, but I still believe most eBayers will simply accept higher pricing.

Nintendo's Iwata is at it again

2005-01-16T20:06:00.000-05:00

Gamespot reports an interview between Kyoto Journal and Nintendo's president Satoru Iwata. In the interview, Iwata is again claiming a paradigm shift in video games. He had claimed before that the industry was moving away from realistic-graphics and complex game play driven gaming and back to simple graphics and simple games. Nintendo's tumbling market share with the Gamecube was the result. However, he has been doing something right. Gameboy remains the best selling videogame console and the company shipped more than 2.8 million Nintendo DS portables by the end of the holiday season.

This time Iwata is setting the company's next generation console, currently called "Revolution," up for something very different. He concedes that others in the industry have a very different philosophy, with the anti-thesis Sony PSP meeting initial success in Japan. Iwata says that Sony is marketing to the mainstream gamer. This is not the direction that he wants to take Nintendo. Instead, Revolution will be for the "non-gamer" and "retired gamers." The gaming population pie is expanding and Nintendo will aim to capture these newcomers rather than compete with other companies for the old pie.

IMO this is clearly another sign of the declining position of Nintendo. Once the dominant player in video games, it is steadily falling into only a niche position as Sony and Microsoft battle for the mainstream multi-billion dollar video game market. In many ways this parallels what happened with Apple Computer in the 1990s but for different reasons. Nintendo's philosophy is pure in that they want to stay true to gaming rather than build a multi-function entertainment center that can do anything, but do nothing well. However, PlayStation2 and XBOX are both pretty good gaming machines even though they are slowly bloating with non-gaming features. Sony's PSX was the greatest deviation from game console to date and that met the pit of failed electronics before it even hit stores. We will see if they learned from this mistake in upcoming hardware announcements.

However, Nintendo's philosophy to stay pure to gaming is flawed in that they do not give gamers what they want. Nintendo's value has long been its cast of intellectual property, namely Mario and family. Gamers, at least in the United States, have grown out of these characters as the average gamer is now in his late-20s. Gamers are still awed by life-like graphics and games where you can do more and more. Gamers like games that make them think, not games that test who can repeatedly press the 'A' button fastest for a minute. Now Nintendo has realized this. Instead of changing their games, they are giving up on gamers and looking for a new market. Who says newcomers to video games want to test how fast they can repeatedly press the 'A' button?

The only positive thing I see out of the interview is the possibility of Nintendo bringing its intellectual property to movies. This strategy did wonders for Marvel, sending the stock to levels comic book writers never dreamed. Iwata says they may consider movies in summer of 2006.

Apple Manufacturing Rumors

2005-01-16T19:11:00.000-05:00

Looks like there was more to the Digitimes article I commented on yesterday that mentioned G5 PowerBooks and iBooks.

The article says Foxconn Electronics is the contract manufacturer for the new Mac Mini. They will be producing more than 100,000 units per month with delivery beginning Jan 22. The iPod Shuffle is manufactured by Asustek, who will be shipping 400,000 - 500,000 units per month. Asustek will manufacture the G5 iBook, shipping 1.3-1.5 million units per year (including G4 models up until G5s begin shipping). Quanta Computer will manufacture the G5 PowerBook and ship 30,000 - 50,000 per month.

With this data, we can expect at most an additional 300,000 Mac Mini sales and up to 1.5 million iPod Shuffles this quarter.

The Apple margins question

2005-01-16T16:41:00.000-05:00

If people didn't sell off AAPL after earnings to take profits, they sold Apple due to profit margin concerns. Some believe that Apple's margins will decrease from the low-price Mac Mini and iPod Shuffle. Seth Jayson at the Motley Fool shares his opinion on Apple's margins, which I found very interesting. The article can be found here.

eBay hiking prices

2005-01-16T16:09:00.000-05:00

I'm not a regular follower of eBay's stock so I missed the press release when it was first announced. While clearing out my emails, I noticed a peculiar email from eBay among the many emails I get from eBay regularly. It was titled "eBay.com 2005 Pricing Announcement." I love using eBay because it allows me to hand off something I don't want to someone who wants it and I get money back and space in my room to put something else that will collect dust in its place. But when I read the email, I was like, "Whoa! It's finally happening." I'm sure others saw it coming, too. With a near monopoly, you just got to exercise your pricing power. Prices for all sorts of services are increasing across the board, some even doubling.

I read somewhere that there is some concern that eBayers will jump ship to another online auction site. My question is where? I know others exist, but almost all liquidity is at eBay. You have the best chance of selling your auction at the best price on eBay. eBay has reached the critical mass that its your only place to go. So for this reason, I think the price hike is great for investors.

eBay will experience high double-digit revenue and profit growth just from nearly doubling its prices. First of all, most of these prices are still just a few dozen cents so they aren't a big deal for individual users, but adding these up will make a huge difference in eBay's bottom line. Next, eBay has a nice way of kind of letting the fees slide in. You don't really notice when you’re being charged or how much eBay is charging you. Your just happy you got money in your PayPal account. This is why I believe eBay's price hikes will be acceptable to eBayers and beautiful for shareholders. The stock has already risen a few percentage points since the announcement (but the tech sector has also slightly rallied). We'll see what happens when eBay reports earnings next quarter as the price hike doesn't happen until February 18, 2005.

Suing kids, a PR battle

2005-01-16T00:24:00.000-05:00

Apple recently filed suit against ThinkSecret.com, which leaked the $500 Mac rumor prior to MacWorld. A press release regarding the suit is an interesting PR battle for Apple. Did they do the right thing?

Thinksecret.com is run by 19-year old Nick Ciarelli (who goes by Nick dePlume online) of Harvard University (I guess our biggest rival, they beat us in football every year I've been at Princeton). He is a huge Mac fan and has been running the site since he was 13 years old. Suing this kid doesn't sound like a great PR move, especially after a press release says the kid can't afford a lawyer and so on. (Seems to parallel the RIAA story, except this guy is more of an entrepreneur.)

Nick did not sign any kind of NDA with Apple since he doesn't work at Apple. He does however, request insiders share information so he can post on his site, which then attracts readers and advertising. This is not really a blog, it’s more of a full blown online publication. Regardless of the nature of the site, it is important for Apple to stop these leaks. Apple's plans for the Mac Mini were basically public knowledge and expected before MacWorld.

This time the leak didn't create any perceived damage. Instead it built up a lot of hype for a $500 Mac. But what if Apple was not ready to release a $500 Mac at MacWorld? The stock would've plunged if all the expectations from these rumors fell short.

Apple is not suing Nick because they believe he has caused them great material harm in this event, but they are setting precedent. It is important not to turn the cheek and wait for others to leak Apple's upcoming products so that other companies can adapt. Apple's uniqueness is what keeps the company going.

I don't know what kind of settlement they can have. It’s not in Apple's interest to shut down ThinkSecret.com as sites like these are what builds so much hype around Apple's products (which I'm sure the company loves). Rumor sites do more of a service than harm. Its only when they get things right that companies start to worry though.

AMD - A little too late and the death of the PC industry

2005-01-15T21:03:00.000-05:00

I had high hopes for AMD (NYSE: AMD) when the company announced the K6 years ago. Finally, someone to compete with Intel in the x86 market. The company's series of Athlons and now Athlon 64s fought the Pentium for the world's fastest x86 desktop processor. Slowly but surely, the company climbed out of the red and captured marketshare from Intel. Taking advantage of internal trouble at Intel, AMD took the initiative to bring the x86 architecture to 64-bit. Not only did they did this, they made a chip handled both 32-bit and 64-bit code well. Finally, with the Athlon 64, AMD may have declared some longer lasting victory of Intel. But what about it?

AMD's stock has slowly appreciated since the burst of the tech bubble and economic slowdown. All this came crashing down this week as AMD warned a revenue miss due to weakening pricing in the flash memory market. This is not particularly new as semiconductor companies have long been plagued by decreasing prices, as chips have become commodities. Intel, however, has turned around this quarter by reporting earnings 2 cents higher than expected.

The difference between Intel and AMD is that Intel is not fully invested in PCs. Although PC chips have become commodities, Intel has been selling chips for mobile devices such as phones and Pocket PCs. Intel had also tried to expand into digital televisions with LCOS, but after missing deadlines, the company has not been able to develop a commercial product.

The Athlon64 4000+ and Athlon 64 FX outperform Intel's offerings, that has to count for something right? The problem is that the demand for high-end chips has been diminishing over the years. Most people only need to read/write email, websites, and Office documents on their computer, listen to digital audio and watch video, and burn some CDs. All of this you can do on the Pentium 3 I had years ago. This may be why its hard to sell a PC over $500 these days.

But what about PC games? There used to be a substantial market in people building high-end computers with the fastest processors and expensive video cards. Gaming has shifted from PC games to consoles over the past few years. Consoles have come a lot closer to what PCs can offer (as many PC titles soon find themselves on the XBOX). Gaming studios have also discovered that much more money exists in the console market. For one, the PC industry is plagued by rampant piracy. Furthermore, the install base of gamers is greater in consoles. An XBOX costs only $150 while a Doom III ready PC will cost you nearly 10x more. Less PC gamers means less PC games which means even less PC gamers--a vicious cycle. This is also evidenced by the consolidating stock prices of ATI (NASDAQ: ATYT) and nVidia (NASDAQ: NVDA), which was recently removed from the S&P 500.

So PCs parts are commodities, but Intel and AMD don't seem to realize this. IBM decided to cut its losses by selling its PC unit to China's Lenovo as margins have become nearly non-existent. AMD and Intel are still spending billions on R&D only to be met by a public that yawns and orders another $500 PC. AMD may have met more success with the Athlon64 if Microsoft could get its act together and release Windows 64. After all, Apple had released optimizations for the 64-bit G5 just a few months after introducing the product line. But does Microsoft have a need to release a 64-bit Windows? Cash flow remains beautiful from the age-old Windows XP as PC customers have not demanded innovation. Like IBM, Microsoft knows its future isn't in the desktop PC, as it tries to move on to home entertainment and corporate technology.

The PC industry isn't going away, but its going to start looking a lot more like the textiles industry, with cheap, indistinguishable products flowing in from Asia. This is nothing new. Technologies for the past hundred years had been developed in the US, but then moved overseas as they become commodities. Among these were radio, television, and now personal computers. AMD and other American PC companies need to start moving on.

Watch out iPod, here comes the competition!

2005-01-15T19:41:00.000-05:00

Apple is hot. There's no disagreement about that. But the bears are coming out with cries about competition coming to the MP3 market. Worries that history may repeat itself have emerged. Apple had led the personal computer industry with better technology and software. Unveiling a GUI and mouse for would-be computer users. But then the folks at Redmond and an army of competing PC hardware makers stole the show. The rest is history.

Historians say Apple's mistake was keeping the technology from potential partners. Apple wanted a vertical monopoly, from designing the hardware to manufacturing the computers to providing the software. The rest of the PC industry was open war in an open market where the best hardware and cheapest prices survived.

Today, much similarity exists in the digital music industry. Apple has made few partners, but at least this time they have opened up. Apple has enlisted HP to sell its own version of the Apple iPod and Motorola to make iTunes compatible phones. And of course, they have countless third party companies making accessories, from Bose iPod speakers to BMW car support. There was a skirmish with Real who tried to make themselves Apple-compatible, but that was quickly put to an end. If Apple can reach critical mass with the iPod in the MP3 device market and achieve support in alternative devices (such as cell phones), perhaps Apple can lock up the MP3 market as Microsoft has with the PC market. But has Apple positioned itself to defend against the impending competition?

My question is, why are people concerned with competition in the MP3 player market now? There was always competition. Apple was not the first to make MP3 players. My family had MP3 players from Rio and Creative long before Apple released the first iPod. Companies like Archos had hard-drive based players that pre-date the iPod. So what's different now?

Big players like Microsoft and Sony have noticed the market. Then again, that's not entirely true. Microsoft had realized digital music a long time ago with Windows Media Player, Windows Media Audio format (.wma), and portable WMP on Pocket PCs, but they did not execute. I for one used Windows Media Player on my Compaq Ipaq years ago, but that's a little geeky for most people.

Apple made MP3 players cool. Before that, people hid their clunky Creative Nomad IIIs (not in their pockets, you needed a backpack just to carry that and AA batteries around because it lasted a good 2 hours). But now that MP3 players are accepted in hip culture, what prevents other companies from making "cool" MP3 players?

If anybody can take over tech businesses, it would be Microsoft and Sony. Apple is no small shop, but Microsoft and Sony are true behemoths. Microsoft dominates the PC industry and Sony has made great inroads to control the living room with PlayStation2, not to mention the original Walkman (speaking of which, if the portable MP3 player market gets anywhere as big as the portable tape player market was at its peak, the iPod has a lot of room to grow as the Walkman found a place in nearly every American household.) But past success is not a measure of future success.

Sony already has its own MP3 player on the market. They released the Walkman HDD this past summer, and on nearly all accounts, a complete failure. It uses a proprietary format called ATRAC3, which nearly no one used before. Customers would have to convert their music to ATRAC3 (which using the advertised bit-rate would've resulted in a large loss in quality). Some say Sony has learned from this first launch and is better able to compete with Apple with its next product. I believe this is yet to be seen. With the huge flop of the PSX in Japan (the product never even made it to the US) and the recent Walkman HDD it seems Sony may be out of touch with what consumers want.

Sony does not currently have the consumer-capital to push on proprietary formats like ATRAC3, which builds credibility for the rumors that say they may ally with Microsoft. Microsoft has .wma but needs hardware makers to produce a product comparable to the iPod. But even combined, can Sony and Microsoft change the iPod and iTunes monopoly?

I remember a couple months ago when Wall Street feared that Google would be wiped out when Microsoft entered the search business. Funny that Google stock only skyrocketed after Microsoft unveiled MSN search. Some publication commented that MSN search was better than Google in all ways except for searching. Hey, I tried the beta. I put "Capital of China" into the search query and MSN search told me www.intel.com. Its faster than Google, but gives you completely wrong responses (it does however have an Encarta Encyclopedia answer function that told me the correct answer). Now the Microsoft followers have abandoned the "Google is going down march" to the "iPod is going down march." Yet, Microsoft's destruction of Google (which has now risen to almost $200 a share) does not convince me they will do much better against the iPod. My bets remain on Apple, but only time will tell who wins this war.

TASR - A stock as fun, and dangerous, as the product

2005-01-15T17:06:00.000-05:00

After such a wild ride for its shareholders, I must comment on Taser (NASDAQ: TASR). This small company out of my hometown of Scottsdale, Arizona, has become a spotlight favorite, or anti-favorite depending on your side, of Wall Street. The stock exploded last year (rising 461% from split-adjusted $6.864 to $31.65) and many have questioned when Taser's earnings will catch up with its stock price.

I had just noticed that one of my Google ads mentioned a site that kept a list of their top 15 shorts (I guess Google read Taser off my blog and that was the best thing they could come up with). I'm not sure that Taser is a top short. Its certainly not a top long either. In fact, you shouldn't take any position in this stock unless you're day trading with tomorrow's news.

Over the past week the stock's price was nearly cut in half after the SEC announced they were investigating the company for its safety claims. Then the stock came right back up after the military and other institutions came to the company's defense. If only you were omniscient, you could've made 50% shorting the stock, then another 100% longing the stock all in one week...well, I guess we could do a lot of things if we were all-knowing.

(The title is not an expert opinion on the safety of Taser's products. Kids, by dangerous and fun I mean don't play with them like Nerf guns.)

PowerBook & iBook G5s in Q2 2005?

2005-01-15T14:21:00.000-05:00

The Register wrote yesterday that sources close to Apple's manufacturer in Taiwan believe G5s are coming to portables in Q2. This is probably calendar year Q2 rather than Apple's fiscal year Q2, which would be this quarter. Last year, Apple had stated not to expect G5s in portables "any time soon [and] certainly not before the end of the year." The G5 produces far too much heat for use in a laptop computer.

This is great news for someone looking to buy an Apple laptop, which had been Apple's fastest growing segment before the iPod. I believe this is great news for Apple shareholders because this may be what the product line needs to stimulate further growth. From Wednesday's earnings report we have learned that PowerBook sales are down 22% year-over-year, though iBook sales are up 35%. The iBook was upgraded to the G4 this year, which made the difference from a PowerBook less substantial, probably cannibalizing sales from the higher end. In units sold, Apple's laptop division still grew over last year. If a G5 laptop is true and Apple segments it product line accordingly, the company could see great growth in this product line. After upgrading to the G5, iMac sales increased 101% in units and 147% in revenue this past year.

Apple blows out earnings but...

2005-01-14T22:00:00.000-05:00

On Wednesday, Apple Computer (NASDAQ: AAPL) reported blowout earnings of $0.70 and revenue of $3.49 billion, crushing the $0.48 EPS and $3.16 billion revenue expected by Wall Street analysts. The stock appreciated 12% to $73.49 in after hours trading, according to CBS Marketwatch. However, the stock closed lower the next day at $69.80. This was very surprising to me because the stock had traded at these levels last Friday. It was as if the blow-out earnings was already priced in before or massive profit taking has depressed the stock to the point of canceling the positive earnings report.

I believe it is unlikely for earnings to have been priced in last week. AAPL had hit the upper $60s in December but fell to mid- and low-$60s when Smith Barney recommended its clients to take profits. They believed substantial risk lay ahead with the Q1 earnings but believe there were no negative catalysts. The rally last week was more likely anticipation of Macworld and getting in for earnings in hope of a quick pop. Now that earnings are known (and known to be far more positive than anyone had expected) the stock should be discounted to a price above the upper-$60s (a price that discounted AAPL for Q1 earnings risk).

If it is the case that profit taking has cancelled the effects of positive earnings news, then the stock should appreciate in the near-term to properly price in Q1 earnings. However, even on Friday, the stock only rose 0.57% to $70.20 when the overall market rallied (NASDAQ up 0.84%). Analysts even upgraded the stock to "buy" with targets in the upper $80s, yet heavy trading cut back early morning gains. I believe over the next week, AAPL has much room to move up to compensate for the recent positive news as profit taking subsides.

A poor day for tech

2005-01-11T20:34:00.000-05:00

The NASDAQ was only down 0.83% but companies like AMD (NYSE: AMD) (down $5.27, -26.18%) and Taser (NASDAQ: TASR) (down $5.95, -29.68%) were all but destroyed. Both companies have been falling for days. AMD warned sales would be lower as pricing in flash memory continues to hurt. TASR is under investigation by the SEC into the safety of their products and sales are slowing because of it. PLMO continues to fall (down another $0.97, -3.29%) after crashing last week from missing earnings forecasts. On the bright side, Intel (NASDAQ: INTC) beat estimates by 2 cents and rallied after hours. Perhaps the company has finally got its act together.

Mac Mini

2005-01-11T20:23:00.000-05:00

Most attention has been on the iPod Shuffle but IMO the Mac Mini is the more important product. The Mac Mini is truly the opportunity for Windows users to finally switch to Mac as the biggest obstacle has long been the price. Almost everyone was expecting a $500 low-end Mac today, but no one expected a computer defining a whole new category for desktops...a micro-SFF. At 6.5" wide and 2" tall, the Mac Mini offers unbeatable hardware at an even more unbeatable price.

People have been quick to compare it to $500 Dells, but those Dells are also 14x bigger and do not have a video card or cd-burner. Apple has managed to create probably the smallest desktop available but also maintained an AGP video card. Granted, its an ATI Radeon 9200 with 32MB video memory, but its still incredible it fits in such a small box. The Mac Mini comes in under 3 lbs, lighter than most laptops.

The other complaint is that it has no PS/2 or parallel ports which Windows users still use. Apple expects switchers to continue using their old hardware and does provide a VGA adapter so that switchers can use their old monitor with the Mac Mini's DVI port. It seems switchers will have to buy an adapter for their keyboard and upgrade to a USB printer. But for the price, size, and hardware, the Mac Mini is the chance disgruntled Windows users have been waiting for to make the switch. This may be where the supposed halo effect really kicks in and boosts Apple's core business.

iPod Shuffle

2005-01-11T20:18:00.000-05:00

"iPod shuffle: smaller than a pack of gum and much more fun. do not eat iPod shuffle"

Apple marketing is great. But will this new addition into the iPod family continue the success? First impression leads the observer to scream, "NO SCREEN??" But what would one expect from a device called Shuffle with a slogan like "life is random?" With only 512MB or 1GB, the user is forced to only put his or her favorite songs on the device. If that is the case, they really won't care what song comes up next.

The plus is the size, its basically a flash drive and it plugs in directly into the USB port. It works as a lanyard or an armband, perfect for more active lifestyles. At $99-$149, the iPod Shuffle opens a new market for the budget conscious and more active individuals. Only time will tell if the design is right.

Macworld news and Apple stock

2005-01-11T19:44:00.000-05:00

Steve Jobs' much anticipated keynote at Macworld went off today and the stock went off with it in a rollercoaster ride that mostly went down. the stock traded between $68 and $69 up until about 12:15 EST when the stock plunged to below $65. AAPL recovered to mid $68s over the next hour only to fall below 65 again and trade lower for the rest of the day.

CBS Marketwatch attributed overall weakness in the tech sector to this drop. I believe the 4.5 million iPods sold report was the more likely culprit. 4.5 million iPods sold fall below many expectations, some which were as high as 5.0 million for Q1. Another problem may be the uncertainty over a screen-less iPod (the new iPod Shuffle).

If the decline is the result of lower than expected iPod sales, we should have some of the negative earnings news priced in today. Tomorrow we will find out how the rest of Apple's businesses did, including if a halo effect truly does exist. I believe with 4.5 million iPods sold, Apple will easily beat the expected revenue of $3.14 billion. If we approximate the average iPod sold as $300 revenue (there are iPods that cost less and ones that cost much more, also ones not sold from Apple directly return lower revenue), we find $1.35 billion of iPod unit revenues. If we approximate Mac sales at 900,000 (Apple averages about 800,000 a quarter, and this is a holiday quarter) at $1800 each, that is $1.62 billion. Together, iPods and Macs would bring in $2.97 billion in revenue, $170 million short of the target. If we include iTunes music sales, software, peripherals like the Airport Express, iPod accessories, etc, I think Apple has the expected $3.14 billion beat. But how much investors are expecting them to beat is a whole other question. I don't believe investors will be happy with anything below 50 cents a share for EPS. We will know all this by this time tomorrow.

24 and where did the Macs go?

2005-01-10T00:07:00.000-05:00

The season premiere was absolutely amazing and theories are already running wild. Are the terrorists pretending to be Heller in the video? Is Audrey the leak? And why did they switch all the Macs in CTU headquarters to Dells and HPs? My explanation is it seems that a computer virus attack is coming soon. The virus will of course have to shut down CTU's computers (like Nina's little trick in season 3), but this time it's propagating from the Internet. If they keep using Macs, that won't happen. It only makes sense in the storyline for them to be using PCs. Pretty funny stuff. Even funnier is that someone mentioned this lack of Macs on the Yahoo! AAPL stock message board.

Apple's big week

2005-01-09T16:42:00.000-05:00

I for one look forward to this week for Apple Computer (NASDAQ: AAPL). Macworld begins Monday and the rumors are steaming. The stock ran up $4.70 (7.3%) Friday as analysts kicked up estimates once more and speculative frenzy ran wild over potential Macworld product announcements. Macworld is the biggest Mac event of the year where CEO Steve Jobs gives an inspiring keynote speech and debuts all the wonders they come up with in Cupertino. This year the world is expecting a flash-based iPod and a $500 Mac w/ no display. Other rumors include Apple phones, an iHome entertainment center, among others.

Around this time last year, I remember people screaming AAPL as a buy with a potential 100% return. I wish I had stuck with it because, as we all know now, AAPL would return a modest 200% in 2004. Friday's run up may just have been a pre-Macworld rally or people may finally be getting back into the stock after Smith Barney (back in early December) told investors to take profits before the end of the year.

AAPL is expected to release Q1 earnings on Wednesday, January 12. Consensus estimates are for $0.49 EPS with revenue of $3.14 billion. However, investors may be expecting EPS as high as 50 cents and 4.5 to 5.0 million iPod sales. IMO this is quite possible. iPods were nearly impossible to find in stock this holiday season, and logic would say sales to that extent should end up at the high end (unless the high end was more than the number available for sale in the first place). If APPL beats its own expectations (a much lower $0.39-$0.42 EPS on revenue of $2.8-$2.89 billion) but fails to meet the much higher $0.49-$0.50, I'd expect the stock to plummet. Expectations for AAPL are so high now the company must outperform in all aspects to keep its darling status.

But if AAPL does beat, the positive result may be borderline-insanity. AAPL is a stock that jumps to a price target just because an analyst writes the number in a report. Targets are as high as $100 now and possibly the only thing holding it back was the bearish report from Smith Barney (which reported nothing bad about the company, just that there may be opportunity to take profits before 2004 ends), along with the small matter of meeting holiday sales forecasts (which was a minor risk people used to ignore a few years ago but is once again important).

Personally, I am rooting for AAPL. I love the products the company makes, but I also own a handful of Jan 65 call options.

New Year Resolutions

2005-01-09T16:11:00.000-05:00

Every year when the calendar turns over to January 1 we come up with a whole slate of ways we're going to change our lives, but by January 2 we decide we were pretty well off already. We love making wild predictions about the New Year, as if the world is different now that our numbering system has relabeled a unit of time from 2004 to 2005. And this year is no different.

Already it has been predicted that REITs and small cap stocks are going down and there will be a wide shift toward large cap stocks because the year is 2005. Autos and transport stocks are no good anymore either; 2005 will favor healthcare and utilities. But if this was the case...shouldn't we have bought this up last week? I for one was well aware that 2005 was coming. Maybe the efficient market hypothesis is just a Princeton academic thing...

Anyways, so if healthcare and utilities are going to be hot this year, should I dump my portfolio and start over? What if I don't know anything about healthcare? They tell me energy is big but all I really know of the current energy environment is that I play a guessing game of how much I'm going to pay each time I visit the gas station. Yes, I'm aware of the whole Yukos situation and the terrorism premium, but does this give me any edge in the market? After all, an energy company may be doing great but I can still overpay for the stock.

I like to stick to sectors I understand. Kind of like Peter Lynch and Warren Buffet's strategy...except what I understand is tech. There are always great opportunities even if the sector is not great overall. Even in the collapse of the tech bubble and the slowdown in the economy, there were many gems to be found among video game stocks. Companies like Atari (NASDAQ:ATAR) offered investors triple digit returns (the company has subsequently...collapsed but other opportunities to go long have emerged and since gone). Additionally, you don't always have to go long. There's money on both sides of the market. If you understand the sector, there are plenty of shorting opportunities when you can't find buying opportunities. And besides...if you're truly interested in the sector, you're going to be reading about it anyways. Why not try to invest in it at the same time?

My first blog

2005-01-09T01:23:00.000-05:00

So I read this month's Fortune magazine and was inspired by the cover story to explore the world of blogging. I'm usually an early adopter of new technology but I guess I am quite behind in this avenue. I always thought of blogging as a way for people to rant to the world only to be met by deaf ears. I know I never read blogs even though lots of my friends update their blogs everyday. Do I want to be another blogger typing a new story ready to be forgotten? But Fortune magazine, a pretty clever source, seems to think blogging is the most powerful thing since the printing press...and Dan Rather probably agrees. If blogging can share thoughts that change the world, I guess I can give it a try.