Long time no write!
I have been quite absorbed with work, and have no energy left... but, I think I would be nice to let you know that I am alive and well, and, well, post a little something.
This links comes from a more reputable sources than those we see in some blogs:
Here, an antitrust lawyer (a real lawyer) discuses the implications of the antitrust lawsuits against Intel. Pretty much self explanatory, just to dispel the confusion brouth to you by "some other blogs".
(Proud member of the IEEE for 14 years!)
Monday, January 28, 2008
Long time no write!
Posted by howling2929 at 8:21 PM
Thursday, January 24, 2008
The Acquisition of MySQL by Sun finally gives me something positive to blog about, I will try to explain in good detail why I think this is an excellent move by Sun.
Sun doesn't want to make most of its money from Hardware. They don't want to sell software either. What they want is to use their Hardware and Software products as marketing drivers for their services. The expenses in both categories pale in comparison with the amount of work and expenses needed to have hardware and software running smoothly in large configurations. To be able to effectively help companies to have smooth systems is something Sun is increasingly good at, therefore, their prospects look promising there and it is natural to be on the look for acquisitions to strengthen the company position.
People who has done Systems Administration probably would agree with me that Free/Open Source software gives you the feeling of being little bit "raw", or intimidating to people who is not master of a given package. This is where experience is valuable and companies such as Sun may provide assistance. On the other hand, once you are past what I call the "infantile mortality region" of the learning curve (when you do not have enough understanding of the software to make it useful for your purposes), Free/Open Source is much better than proprietary software: it does not imposes its policies on you. Proprietary software forces you to accept its policies, beginning with the "shrinkwrap" license on. For large organizations, that have non-mainstream requirements, frequently proprietary becomes increasingly frustrating, the "zealotry" of protecting licenses and stuff makes it much more complex to use third-party tools to assure corporate-wide compliance to policies, that is, proprietary software may become an obstacle for selling products and services that a compay such as Sun provide.
I think Java provides a good example to explain the principles that justify the MySQL acquisition. This wasn't obvious to me, it took me several years to understand how or why Sun may make money off things like Java, that are Free with capital F: In continuation with what I described above, Free software helps a vendor to create a free marketplace where products and services move fast [ free marketplace => market liquidity => efficiency ] where the best positioned vendor enjoys several advantages, and the best positioned vendor tends strongly to be the originator of the free software. I would say that while Sun invented Java, it didn't realize its full potential until recently, because, as I explain in "multiple personality complex" [ old enough to be the sixth article in this blog ], the original strategical role that Java was supposed to fulfill was ill-conceived: My interpretatin of "Code once, run anywhere" was old Sun's master plan to bite into the mindshare of software developers who only developed for x86 and where slighting Sun's hardware, but what really happened was that the few developers for Sun's boutique platforms used Java to free themselves of Sun's platforms [ I would say that Sun felt secure of its platforms 'cos Java would mean a significant increase in computing capabilities demand for the same software, therefore their reasoning could have been that software migrations to Java would be accompanied by hardware upgrades, since Sun commanded the high-ground, Java would highlight Sun's competitive strengths ]. I got to understand all the potential (for Sun) of Java not by looking at Sun, but becoming aware of how IBM had outcompeted Sun in the Java arena. From late 2001 up until late 2003 I worked heavily with Java, and I think this was a period of particular significance because it marked the sunset of IBM's Visual Age and the sunrise of Eclipse/Websphere while Sun was merely repackaging Forte as Netbeans. First, it came the observation that IBM had outcompeted Sun at Java, since the fact was very weird to me, it made me meditate long about how come IBM embraced so wholeheartedly a direct competitor's key product and turned it to its advantage. I had the advantage of a fairly good understanding of what IBM was looking for by embracing Linux, so, I was able to come to a conclusion by early 2006, soon after I wrote "multiple personality complex" [ like I said, it literally took me years! ]
It is nearly indisputable that IBM's transformation from a Hardware company into a Software services one was the success story of the 90's. Sun is also going that route, so, it is important to continue to discuss what IBM did. One of the key elements of that transformation was the development of a free marketplace where offering the services IBM could offer made sense, that's why IBM leveraged its participation in thus far compartmentalized markets such as PCs, Client/Server workstations and mainframes into a continuum of offerings. To accomplish this, IBM needed "glue" to hold things together when the customer wanted to shift gears up (or down) in scale, techniques focused on scalability. From old times, Virtualization, so that applications could be moved upward or downward without trauma. Settling on Linux for the Operating System wherever possible, because Linux runs well enough from embedded devices to mainframes, so that the Operating System won't become a problem, and Java for the applications themselves: "Code once, run anywhere". Since the PC market is a free enough marketplace already, it makes total sense for IBM to get rid of it if the corporate energines are better spent elsewhere, thus the selling of that business to Lenovo.
Coming back to Sun, now it is clear why Sun helps to develop its own market of services through not just Java, but Free/Open Source databases such as PostgresSQL and continued participation on proprietary databases alliances like IBM's DB2, Oracle and MS SQL Server, the whole point is that the database choice shouldn't be an obstacle. Just like the Operating System shouldn't: to continue to offer Solaris, the continued participation in directly competing Linux, and even Windows!. More recently, new offerings in Virtualization and now the acquisition of MySQL.
I would say that Sun's realization of these ideas was incremental, things like open sourcing Solaris could have happened much sooner, but I think they played a role in selecting Jonathan Schwartz as CEO, and by the time Schwartz was appointed the plan was very clear.
I read Dvorak's severely critical "The Sun-MySQL deal stinks" blog on the subject, and while I think he missed the whole point (I think beloved Dvorak wouldn't understand why Sun insists on Java either), he has provided me with the most convincing argument that Sun had a coup with the acquisition. I have to paraphrase and summarize his blog: The acquisition stinks because MySQL is far outside of the core competencies of Sun, so, the billion dollars will "simply vanish over time" together with the strength of MySQL. Dvorak suggests that since the great beneficiary of a dead MySQL is Oracle, Oracle would be using Sun through their long lasting partnership as its "stooge to do the job" of killing MySQL. One of the points that Dvorak wants to highlight is that Oracle is killing MySQL on the cheap by preventing a bidding war between interested parties: those interested in killing MySQL such as Oracle and Microsoft, and interested parties in its continued existence such as Google and Yahoo. I think that a monumental biding war for MySQL could indeed have happened, so, Dvorak's argument assures me that Sun did a great deal.
As to why the MySQL people sold themselves on the cheap, I am not sure, but it must has to do with two things: 1) Just like Microsoft is famous for acquiring companies just to kill their incipient competing products, MySQL's value for Microsoft and Oracle is "how much does it cost to kill it?", and "if we kill it, how much more could we exploit markets before an alternative fills the void MySQL would leave?", so, I guess companies with "ill intentions" to acquire MySQL have a tougher negotiation ahead for not so great benefits; and 2) Net customers such as Yahoo or Google may not have the willingness to develop the product or its market, so, the value to them is not so high. But Sun is particularly well positioned to make the most of MySQL on both senses: On behalf of its customers who want good and cheap databases, and on behalf of MySQL in terms of product development and corporate backing; this happened with IBM/Linux to the great benefit of the Industry and all the parties concerned, this acquisition will go the same route.
Posted by Eddie at 12:34 PM
Tuesday, January 15, 2008
I have been downsizing my AMD positions because, as I explained before, when a technology company is in dire straits, it is in a reactive position that makes it so much easier to manipulate the stock price. I don't like to be at the end of the line of important information.
Anyway, what I did with the money was to put it in other companies such as Intel. A mistake. I had a nice moderate bearish bias in my portfolio 'cos I was bearish on AMD, my main investment. I lost that bearish bias 'cos I haven't found good candidates to take bearish positions on, so, I turned bullish the market just before the market crashed, and Intel has done horribly wrong lately, so, I am really "hurt".
"Year to date", AMD is down 20%, Intc 15%, the Nasdaq 10% and the Dow Jones 5%, approximately. So, the talk of recession has really hurt Intel, but is Intel really vulnerable?
Intel has just gotten rid of a major competitor that put a clamp on profits, the worst (for Intel) of having Chimpzilla doing great products like the Athlon 64 X2 that force you to compete with gigantic cache memories in your Netburst lineup, is not that you lose market share itself, there isn't much difference between 85% or 70%, the real difference is that you lose monopoly status, and to prevent or recover lost market share you must lower prices. Since the attack was all across the board, the profit cuts where universal.
I wrote an article that now sounds very silly, but that illustrates this point. In March of 2006 I thought Intel wasn't going to succeed with the price war, and I wrote why. The prediction turned out the opposite because Intel managed to come back in great fashion and in great strides with the Core micro architecture line up, that is, outright superior products. The key are the superior products. Since Intel is at the brink of not having to concern itself with what AMD may do, it is close to once again be free to exploit the market at will, that translates to monopolistic profits.
In another area, Intel has been executing superbly. It succeeded at the challenge of bringing massive amounts of Core products and getting rid of the "Himalayan Mountain" of Netburst inventories, and the new families of products, with the advancements of transistors with metal gates and high dielectric constant field effect insulators so, from the execution point of view, shinning days lay ahead.
Having literally marginalized the competition to the scraps it leaves and being particularly strong in future prospects, product wise, the current Intel stock price is even lower in absolute terms to the price it had in early 2006, before the market fully realized that the K8 micro architecture was vastly superior to anything Intel was offering, thus, to understand the current valuation of Intel one must suppose that The Market thinks the business prospects for Intel are much worse today.
But are they? A significant component of Intel products are not consumers but business, the processors are a practical need that is not elective like, let's say, iPods. Its market is global. Part of its production is in the U.S. and part is outside. While Intel would surely be affected by an U.S. recession, or even a global recession induced by an U.S. recession, all of my analysis indicates that it should track way above the market, because it has more than average advantages and strengths to undergo a recessive period. Since Intel is much below the market in the beginning of this year, in my opinion a contradiction has showed up that I intend to exploit: Intel must not just catch up to the Nasdaq and Dow Jones, it must give better returns (or not as bad). Since there is already a 7%+ difference between Intel and the indexes, the closing of that gap represents more than 3.5% gain potential doing sort of an arbitrage "bearish the market and bullish Intel" in equal amounts.
I also think it is bullshit that the market for semiconductors will track worse than the broad market, yesterday's IBM results are sort of a confirmation. Unfortunately, the market keeps disagreeing with me...
Posted by Eddie at 1:49 PM
Wednesday, January 09, 2008
George Soros, Morton Topfer, Mubadala and Chicagrafo: Who are they?
George Soros is a self-made billionaire that now runs an important Hedge Fund. A very successful investor, who developed a theory about how the Market exaggerates trends, how Market Value and market participants' perception feed each other until Valuation and reality diverge to a breaking point. Mr. Soros used this model for his most famous exploit, when he "bankrupted the Bank of England" short selling the Sterling Pound in September 1992: The facts were that the Pound was coupled to the other European currencies because of its participation in the European Exchange Rate Mechanism, but wouldn't have comparable rates of interest. The perception was that the Pound was strong enough to sort of live an independent life of its own. Soros had the conviction to short sell 10 G$ worth of pounds on the reasoning that something had to give, and when the pound was taken out of the European Exchange Rate Mechanism the devaluation gave Mr. Soros more than 1 G$ in profits.
Soro's model deals with emerging trends and exhausted trends. Most investors try to detect emerging trends that The Market will embrace, but what I found valuable about Soro's model is the other part, that when a trend is fully embraced by The Market, this "reflexivity" of market participants becoming aware of the trend become a positive feedback loop that makes market valuations to lose the sense of proportion. I venture to say that AMD's recent crash lost its sense of proportion, but I won't delve deeper about this subject in this article.
Morton Topfer sits at the AMD Board of Directors. He was vice Chairman of Dell and was an important executive at Motorola before that, presumably he got to know Dr. Ruiz while at Motorola.
Mubadala Development Company
Mubadala Development Company is a State Owned investment company.
And I am a commentator of the technology equity markets.
So, in this group there is representation for Hedge Funds and their managers, large investment companies, directors of publicly traded companies, and "pedestrian" investors.
What do we have in common?
We all have lost substantial amounts investing bull-side on AMD.
According to this site, George Soro's Hedge Fund bought AMD around $23 by the end of 9/2006 and sold around $21.6 by 12/2006. He insisted buying @ ~$15.5 by 3/2007 and sold by 9/2007 @ ~$13.4. This page documents the approximate value of $20 millions that Mr. Soros owned of AMD by 9/2006 in 782,600 shares, or over $24.85 per share. We know that he lost money because the stock price never went back to those levels after 9/2006. What was he looking for when he took bullish positions on AMD? perhaps the materialization of the Dell deal that finally broke Intel's exclusivity?
It is important to remember how highly coveted a customer Dell was for AMD before the deal, the ties to Dell of Mr. Topfer are not to be underestimated. In any case, Mr. Topfer purchased, out of his own pocket, 1.8 M$ in 28 Jul '06 (100,000 shares @ $18+ per share) and another $2 M$ in Nov. 06 (100,000 shares @ $20.85 per share) of which he gave up 100,000 shares in 24 Jul 2007 at a price of $15.07 and still has more than 100K shares...
The "poor" Mubadala company saw its 622 million dollars in AMD reduced to $271 millions (49 million shares at the current price of $5.53 per share), or less than 44% of what they began with...
As a matter of fact, AMD has attracted all kinds of investors (bull side) and almost all of them have lost money.
This company remains an anomaly among publicly traded companies being one that has net losses on its 30+ years of history.
There is something that has kept attracting investors to this siren call.
The point I am trying to make is very simple: While I made a terrible mistake, I realized I had screwed it up much sooner than Soros, Topfer, or Mubadala, despite my great disadvantages of only having access to freely available web sites and fora for investors to get the information to guide my investments. Why did I got ahead of them?: Because of my superior knowledge of the technology:
In July '2006 I advised to sell AMD while Soros was buying because I realized that the Core micro architecture was as good as Intel was advertising it, that AMD was in denial of the threat, and it won't have competitive products, this before knowing about the ATI acquisition.
The ATI acquisition was a very confusing factor for me, until by January 2007 I had assembled the whole puzzle (*) and got to the easy to understand conclusion that this acquisition is a blunder of suicide magnitude.
About the same time (*), I correctly interpreted the extended L2 cache latencies of 65nm K8 and their slow speeds as evidence of serious problems in the schedule of the 65nm process; furthermore, I acted with extreme conviction regarding the implications a bad 65nm process had for single-die quadcores, because I then understood that to commit the company to pursue a challenge as hard as the "triple challenge" [ single die quadcore/immature process/substantially different architecture simultaneously ] was another suicide-magnitude blunder.
Despite not having even a thread of information from inside AMD, much before Mr. Topfer sold half of his position, I was already sure that ATI acquisition won't ever pay off, and that Barcelona and Phenom were very mediocre products. Just like Mr. Richard, Mr. Topfer sold AMD before the shit hit the fan, before the launching of Barcelona, the first K10.
By the time Mubadala took a position on AMD, it was already very clear to me that this company is not viable.
Unfortunately, this chronology does not mention all the hesitation, tribulation and doubts I have experienced in the over two years I have been on AMD: At the beginning I had the extreme opinion that AMD was supposed to topple Intel not just in the technical leadership, but in the market too, took market positions as extreme as my opinions and lost equally extreme because the market and I disagreed from Feb '06 on regarding AMD. Ever since I had the "pessimistic" extreme opinion, AMD has declined fast, all right, but didn't crash as I expected, until recently, at a time that I wasn't prepared for. It is ironic that I turned out over-cautious when the crash really happened (from $12+ to $6-) because I still can't understand how is it that the market prices-in today information we knew as far back as August!
I really don't know what is the lesson to learn from this experience, but I am mulling over it.
(*) The blog articles linked were written much after the periods mentioned in the text. For me, it is easier to refer to articles that explain the ideas in their polished form, and for the reader perhaps it is also easier to read the polished version, but if I get requests to come out with incipient expressions of these ideas, I can dig my old posts in Investor Village about this subject. Some of them proved prescient, it is not that I am making wild claims of predictions, the record is there that among all the cacophony of opinions and my own flip-flopping I had the trends clear. I was always skeptical of the ATI acquisition but flip-flopped because I didn't really understand it and the Market and everybody else praised the gamble until I got to definitive conclusions; regarding the triple challenge, I still have problems to believe how irresponsible AMD's management had to be to go this path...
Posted by Eddie at 6:59 PM
Wednesday, January 02, 2008
Happy New Year.
Last time, when I spoke of the AMD Analysts Day, I tried to construct an interpretative framework to make the most of it. I said that the opinions of Management should be studied within the background of inviability, and I detailed how is it that AMD's management has over a year speaking of "perfect storms" rather than addressing the real problems. I am sorry to say that Management is still in denial of those problems, they just promised a better future for the company, but not at all how is it that it will improve, so, I begin to fear the worst. Normally, this would call for renewed conviction about bearish positions on AMD, but it is not so simple, as I try to explain:
Since recently it became evident for the Market that AMD is not viable, the stock price has collapsed very quickly. But there is an issue nagging me that I have not been able to explain: This AMD crash began right after Mubadala invested 622 M$ to acquire 8.1% of the company, that was announced in November 16. The price, rather than taking off from $12.64 per share, began the crash to today's low of $7.02. This does not make sense to me, because by November 16 we already knew in what disastrous shape the company was:
- We knew that Barcelona is not even in the same league as other Intel processors,
- that meant that the K10 design sucks,
- thus Phenom, its twin, was going to suck too.
- We knew that there were serious problems with the 65nm process, otherwise the speeds of introduction for the already very late Barcelona wouldn't be as abysmally low.
- Thus, we were perfectly aware that the single die quadcores were expensive to manufacture and would have to be sold very cheap
- We knew that the company was trying to hide all these problems behind outrageously optimistic promises
- We knew that Fusion continues to be very far in the horizon, and, despite being hyped as the second coming of Christ, Fusion is just a power efficient General Processing Processor/Graphics Processor package; hardly anything that would take the market by storm.
- We always knew that "Asset Light", or how it is now called, "Asset Smart" was 100% bullshit
- We always knew that AMD's Goodwill was inflated, it did not reflect the reality of the lost value of ATI
- We had reasons to expect some nasty "show stopper" bug in K10
- And we knew that the "Fat Lady" had already sung: The best shot AMD had, K10, had been fired and fizzled.
So, my concern is that the stock price collapse should have happened gradually, every time these items became more clear from April to October; the Mubadala acquisition of 8.1% of AMD turned out to be the most unlikely wake up call to the reality that AMD is not viable, I can't explain how is it that right after the Mubadala deal suddenly all the analysts began to seriously talk about the subject of AMD's inviability and to "connect the dots" mentioned above.
These coincidences make me think that the price was manipulated for most of 2007, otherwise it would not have remained above the absurd level of $12 per share in the face of extraordinary losses and uncompetitiveness. While the crash was happening, the company actually had a bit of positive news, the Mubadala injection of $622 was important, then there was the launch of the not so bad "Spider" platform, and the small vindication of the launching of the new series of graphics cards that closed the gap to nVidia a little bit. And the latest news are that the TLB bug is not as important as I initially thought, it has proven to be very difficult to replicate, so, people may as well forget about it, especially the Windows users that expect the system to crash every once in a while, so what does it matter that a processor bug makes it crash a couple of times per month?, and the Linux users for whom the Operating-System level patch does not hurt performance. Amd's Management didn't say anything new in the Analysts Day, they just repeated the same bullshit of a fictitious recovery they have been saying, so, that shouldn't be reason to continue to crash.
Although I am nearly sure that AMD will experience a very close encounter with Bankruptcy, I have reasons to think that the next round of manipulation will be bullish, thus my certainty does not translate into conviction to take bearish positons. The reason is very simple: AMD is in a reactive position, so, it must sort of "obey orders" from important market players. Those players have a great advantage over me about when the things are going to happen, so, by putting my money on AMD, either bull or bear side, I would just be exposing myself to be caught in the manipulation maelstrom.
I see that the manipulators have two important cards that they have not used yet:
- AMD has, apparently, succeeded at staving off questions about the inviability of its schedule of capital expenditures by saying that thanks to "Asset Light" or "Asset Smart" the company won't need as much money;
- And the manipulators may succeed at circulating rumours of an AMD acquisition now that the market cap is less than 4 G$.
The problem is that while most analysts and commentators insist on considering the possibility that AMD could sell factories to outsource most of its production, or the possibility of an acquisition, the dutiful investors of "Investor Village", "Yahoo Finance" and "Silicon Investor" knows better: AMD has important limitations on how much it can outsource production due to the x86 license, and the said license impedes a change of ownership too.
The conspicuous ignorance in the official press about the above subject is very suspicious to me, the ignorance, as it is today, helps the Bull case, to emphasize the licensing restrictions will emphasize the bear case.
So, the bottom line for me is that I should not have my money on AMD despite of being sure that my analysis of the fundamentals is correct: The closer the company is to bankruptcy, the more desperate the actions of the company, the better the information the manipulators have, and the easier the manipulation. The great crash that had to happen from above $12 to less than $10 already happened. Now that the price swung so much, the manipulators have an easier time to make it rebound on phony reasons, or to let it go further below, depending on their desires. Also, the less relevant AMD becomes, then Intel has better reasons to squeeze more profits. The way that I am going to ride this out this year is to unwind all my AMD positions with great patience, and trying to preserve the moderately bearish bias I've had after the price went below $9
Posted by Eddie at 3:44 PM