I’m suddenly a tablet advocate: here’s why

my take on tablets

I like gadgets.

I’ve had my eye on a tablet since I first saw one in a university bookstore (a MSFT product) almost a decade ago.  But that one was very clunky and didn’t let you do much more than highlight Word documents.  I looked at a Lenovo combination laptop/tablet a few years later, but it was very underpowered.  And there was still no infrastructure of applications to justify the tablet part.

Now there’s the iPad.  It’s the usual well-designed AAPL consumer device.  But to me it has seemed little more than another device to lug around that’s not much more than an expensive e-reader and an extremely costly way to play Angry Birds.

my newspaper problems

Then the Financial Times newspaper stopped coming to the house.

Yes, I still read the physical newspaper.

I read:

–the FT (comprehensive global business news; a UK perspective on US/world economic and political developments),

–the NY Times (reasonable, US-oriented business news, good–though weakening–sports coverage) and

–the Wall Street Journal (good sports, lots of gossip in the NY section, almost no useful business coverage–meaning I won’t renew).

why the physical paper

I’m not a fan of wood products per se.  But I’ve thought the physical paper has several advantages over the web version:

–the amount of news in the physical paper is greater than on the front page of the newspaper website.  So the editors’ selection of what’s most important is a greater influence on what you see online than in the physical paper.  As a result, the chances of finding information whose significance is not adequately understood is greater in the physical paper.

–I think the web presentation is organized to highlight stories that will maximize visits.  In contrast, the physical paper is organized to deliver information.

–I thought (not any longer) that it’s easier to reconstruct with the physical paper a timeline of information flow by reading back editions you might not have gotten on the day of publication than it is to go back a day or two in time on the website.

my call to the FT

When I called the FT last Saturday to get replacement copies of the papers that didn’t come, the representative I talked to mentioned the e-paper that’s available through ftnewspaper.com.

The site is run with software from Olive Software, a private company in Aurora, Colorado.  ftnewspaper.com has daily back editions.  You can turn the pages of each edition, just like an online catalog.  You can pop out to larger size and different formats the articles you want to read in depth.  I also discovered that, through FT email alerts, I had already read most of “today’s” paper online yesterday!

ftnewspaper.com has been around for a couple of years.  I just didn’t know about it.

my calculation

Anyway, I can cancel my physical paper subscription and save a couple of hundred dollars a year.  No more worries about cancelling delivery when we may be travelling.  No more toting around piles of unread orange newsprint.  Less recycling to do.

All of that just means that I can rationalize paying for a tablet with the money I’ll save by stopping a newsprint subscription.  But I’ve also found a sophisticated and valuable application, other than email, that’s completely suited to what a tablet can do and that I use every day.  This means that I have a positive reason to buy one.

I’d like to see the new Google tablets, as well as iPad 3, before I take the plunge.  I have only one concern.

one concern

In my career on Wall Street, I’ve observed the long struggle for control of brokerage houses between researchers and traders that has been decisively won by the latter.  I’ve thought of this as somewhat like the age-old high school contest between jocks/cool people and the nerds.

It seems to me that the same battle is going on in newspaper firms between traditional reporters and online search engine optimizers–the latter being more interested in eyeballs than in information.  As I study successful financial websites with an eye to improving this blog, I can see the same dynamic in play in this arena–well-crafted and very popular websites with lots of advertising, but almost no useful investment information.

By shifting my financial support from the reportorial nerds to the online jocks, I’m most likely speeding the day when even the FT will suffer from a content deficiency.    But that’s a problem for another day.


“Chromebooks,” Chrome-based notebooks finally arrive!! –and they look good

the Chromebook

Remember the Chrome OS from Google?  …announced in mid-2009, with the promise of Chrome-based netbooks in mid-2010 (see my post from way back then)?

What happened?

The Chrome operating system took longer to perfect than Google thought, and netbooks sales began to nosedive.  Whether this was due to the debut of the iPad or more competitive pricing from low-end notebooks (the latter is my guess) doesn’t matter.  Netbooks using Chrome would have been a non-starter.

What Google has just announced instead is the Chromebook, or Chrome notebook, which will be available for purchase in the US and western Europe on June 15th.


–made by Samsung (12.1″ screen, 3.26 lbs, 8.5 hr battery life) or Acer (11.6″ screen, 2.95 lbs, 6 hr battery life)

–Intel Atom processor

–8 second boot up

–small (unspecified size) SSD, cloud storage

–Chrome OS, Google apps–for now, Chrome notebooks will not be able to use traditional PC software; Google is working on a free service that will allow you to access Windows- or Mac-based PCs from a Chromebook, so you can use software installed on them, too

–printing either through Google Cloud Print, or through a link to a traditional PC.


purchase:  $350-$500, depending on screen size and whether you elect 3G service or just stick with wi-fi.

rental:  Schools and students will be able to rent Chromebooks directly from Google for $20 a month; for businesses, it’s $28.  The price includes free replacement of lost/stolen/damaged units + centralized IT support for business users.

my thoughts

Score one for Intel.  Chrome is designed for either Intel or Arm chips, but Google is standardizing on the much more powerful Atom chip.

Google has picked two PC manufacturers with almost no presence in the US, and who therefore have no existing business to cannibalize.  They doubtless see Chromebooks as a huge opportunity to pick up market share and will do everything in their power to make Chromebooks work.

The replacement guarantee for renters should make Chromebooks especially attractive to schools.  If so, Google will gradually grow a generation of users with limited experience of traditional PCs.

Small businesses may find the savings of turning a lot of their IT administration over to Google to be big enough to justify a $28 a month price, since adminstration is a much bigger cost than the PCs themselves.  Large companies are a lost cause, though.  It’s not simply that they have so much legacy software; I imagine large corporate IT departments will fight this potential loss of their power with every office-political trick they have.

If Intel is potentially the biggest winner, other than Google, from the success of Chromebooks, Microsoft stands to be the biggest loser, in my opinion. Maybe buying Skype to dress up the appeal of Windows to consumers (and small businesses) isn’t so crazy after all.

AAPL vs. GOOG: battle of the titans, and how they stack up financially

Cordial no more

For some time, previously good relations between AAPL and GOOG have been deteriorating, as each expands and reaches the fringes of the other’s core markets.  For example:

moves to date

–a couple of members of the boards of GOOG and AAPL have resigned from the latter’s director group, either because they felt awkward at having access to the trade secrets of both companies, or they were prompted by regulators to consider the potential conflict of interest more seriously than they had,

–GOOG has developed the Android operating system for smartphones, which it is supplying to competitors to the iPhone (which represents half AAPL’s profits).  It will soon launch the Google smartphone, which it is manufacturing and selling itself.

–GOOG is overseeing the manufacture of Android-based netbooks, which will debut in the second half of the year.  Though in a traditional laptop form factor, to my mind, they will compete against the iTouch and the iPad to a considerable degree.

–GOOG has also developed the linux-based Chrome operating system for PCs–which will drive its netbooks.  While this is aimed more directly at Windows, Chrome will also compete against AAPL’s Safari os.

the latest

AAPL has just announced that it intends to sell advertising on the iPhone that will appear in the apps that customers download.  The details, and a bunch of other AAPL stuff, are reported by Barron’s here.

who’s in better financial position for the upcoming conflict?

The answer is that they’re surprisingly evenly matched.  Here’s what I mean:

AAPL          GOOG

cash                     $24.8 bill     $24.5 bill

debt                        none              none

2010 earnings    $11 bill        $8 bill

2010 cash flow   $12 bill       $9.5 bill

growth over past 5 yrs

eps                         90%/yr        96%/yr

cash flow               73%             95%

investment implications

1.  In the early stages of any new market, participants generally ignore each and rush to stake out as much territory for themselves as possible.  The fact that former allies AAPL and GOOG are turning on one another implies they both perceive the best opportunities for growth now lie in taking market share from each other.  This means the market is maturing for both.

2.  Initial losers in this competition will be everybody else.  As the pace of the AAPL-GOOG rivalry picks up, so too will the pace of innovation.  Smaller rivals will likely be left behind in the dust.

3.  Expect slower growth rates from both GOOG and AAPL.

4.  The fact that both have huge financial resources and are of roughly equal size and earning power means there won’t be a clear winner for some time.

5.  No need to panic if you’re an AAPL or GOOG holder.  Year-to-date stock action suggests Wall Street has AAPL as a slight favorite over GOOG.  But the market is fickle.  And both stocks are trading at what I think are reasonably price earnings multiples–mid 20s–of anticipated 2010 earnings.  That’s not a high price for companies expected to be expanding at a 20%+ rate.

6.  Both stocks need to be monitored more carefully, though, to guard against the possibility that one or the other lands a knockout blow.

Net Neutrality: this week’s appeals court decision

the Comcast lawsuit

Three years ago, the Associated Press responded to consumer complaints by running tests that showed that Comcast was slowing down access to peer-to-peer file-sharing services like BitTorrent, which allows users to swap large files, like movies.  Comcast first denied doing anything, but later said it acted because a small number of users were hogging bandwidth and slowing down access speeds for everyone else.

The Federal Communications Commission ordered Comcast to stop this, under “net neutrality” principles it had laid down in 2005.  Comcast sued.  Earlier this week, an appeals court ruled that the FCC had no legal authority to issue the order.  So, barring another appeal, Comcast has won.

What is Net Neutrality?

First of all, one should note that the name itself is a very clever, highly political choice, sort of like the Patriot Act or the Employee Free Choice Act.  Just as no one wants to be seen as opposing free choice or patriotism, it seems unreasonable to be against neutrality.  So opponents are already on the defensive, no matter what the actual concepts are that lurk behind the names.

FCC statements on net neutrality say consumers are entitled to:

–access all lawful content

–run any applications or services

–connect to the internet with any legal, non-harmful device

–competition among service, application and content providers

–disclosure of operating principles by ISPs

–no discrimination by ISPs against any legal content or applications.

two observations

1.  This is all jockeying for economic advantage.

On the one side, cable and telephone companies have spent billions building out internet networks, with at least vague imaginings of being able to operate the kind of “walled gardens” that Apple’s iPod and iPhone now run, and AOL did in the Nineties.  They don’t want to be reduced to being “dumb pipe” conduits earning a minimal return for transporting very profitable applications run by others.   But they suffer from the weakness of any capital-intensive industry (think:  container shipping or cement plants) that their capital is already sunk in the ground and can’t easily be retrieved.  So they are almost by definition price takers.

On the other, content and application providers are radically dependent on ISPs to deliver their products to consumers.  They wonder (fear?) what would happen if an ISP owned a service that competed with theirs–like Comcast when it takes control of NBC Universal.  Would, say, competing news services find their offerings delivered at slower speed than NBC’s?  Would content/application providers that didn’t link up with Hulu find themselves shunted onto the local track while more NBC-friendly competitors stayed on the express rails?

You might say that an ISP would be foolish to do this, but outside the most densely populated areas, what recourse do consumers have?  There’s no competing internet service to switch to.

At this point, this is mostly in the realm of “what if?”.  Other than the BitTorrent instance, there’s scant evidence that ISPs are acting on what may well be their secret fantasies.

2.  Almost everything that has been said about Net Neutrality is couched in negative terms–what ISPs are not allowed to do.  The other side of the coin has been pretty much ignored.  ISPs are allowed to sell different classes of service, with minimum quality of service guarantees.  And wealthy service providers (think:  Google) can maintain cutting-edge server networks of their own to support their products.  They can also pay ISPs to colocate their equipment with the ISPs to increase service speed.

So neither side is exactly the powerless “victim” of the other that its proponents would like to portray it as.

investment implications

1.  The Roberts family, which controls Comcast, are very shrewd businessmen.  Their attempt a few years ago to acquire Disney and its current agreement to buy an interest in NBC Universal illustrate what they think of the future of the IPSs (i.e., dumb pipe).  In the BitTorrent case, they had two options:  slow down service or add capacity.  The second would mean capital spending that wouldn’t generate any more revenue.  Whether you think Comcast did the right thing or not, it’s an indicator of the maturity of the business if option #2 makes no economic sense.

2.  The wired broadband networks have by and large been built with private money.  This suggests they shouldn’t be regulated as public utilities.  Even if that were possible, and net neutrality thereby assured, I don’t think anyone wants that.  The next step, I think, would be taxation along the lines of telephone services, raising the cost of internet service for everyone.

In theory, tax increases would get parceled out among consumers, ISPs and content providers according to their economic power.  But no one really wants to find out what that allocation would be.  And everyone except the government is worse off.

3.  Content providers want security but they don’t want regulation.  What do they do?

a.  They attack the “walled garden” that Apple has established by providing/supporting the creation of equivalent devices at lower prices.  The Google phone, the Chrome netbook or the $100 iPad-equivalent that Marvell recently displayed are examples.

b.  They promote the proliferation of alternative ways of internet access–WiMax, municipal free internet services.  The more alternatives a consumer has, the less able any one ISP is to take content-unfriendly action.  Also, an ISP would certainly hesitate to take action if that meant that a whole town or county or some other political entity were affected.  Doing so would invite adverse political consequences.

4.  How to invest?

I suspect a value investor would have a field day rooting through the cable companies and the traditional media companies, since many have already acted on their belief that these firms are the ultimate losers in the internet revolution.

That’s not what I do, however.  I continue to think that the designers of new devices, and of the key components that go into them, are the best bet.

INTC and TSMC: the Atom chip venture is on hold


INTC and TSMC are the two dominant manufacturers of semiconductor chips in the world.  INTC is a proprietary manufacturer; TSMC is a foundry, that is, a third-party fabricator of designs created by others.

Because of its huge share of the market for microprocessors put into personal computers and servers, INTC generates enough yearly revenue to justify making the chips itself.  Other than Samsung Electronics, almost no one else has that scale.  Instead, most firms design chips and outsource their fabrication to specialized manufacturing foundries.  The most sophisticated of these is Taiwan Semiconductor Manufacturing Corporation (TSMC).

As I’ve written elsewhere, I think INTC is an attractive stock for income-oriented investors.

One chink in INTC’s armor

The one knock against the company, however, has been that while it dominates the market for processors for PCs, it is, so far at least, a non-factor in the market for smartphones and other internet-centric devices.  INTC understands the virtues of diversification and has been trying to establish related businesses for what seems to be decades.  It hasn’t been very successful so far, it seems to me, despite the advantages of huge cash flow and a continuing supply of completely depreciated semiconductor fabricating equipment as it upgrades its microprocessor-making capabilities.

The latest new arena INTC wants to enter is the emerging market for smartphones, internet tablets, browsing devices.

The Atom chip

INTC’s entry the internet device market is the Atom chip.  To me, the most interesting of the company’s videos explaining the Atom is this.

The Atom has been a smash hit among netbook manufacturers.  The reasons for this are not 100% clear, though.  The initial concept for netbooks was to create a non-Windows device that would boot up almost instantaneously, have most of its storage on-line and wouldn’t need the power of an Intel chip.  The market was seen to be schoolchildren.

The big buyers turned out instead to be businesspeople looking for ultra-light laptops to use on the road, and college students.  Both wanted Windows–which, in turn, required the power of Intel chips.  Part of the preference for a Windows interface may have been familiarity, but part was certainly how cumbersome most users found linux to use.

The ARM alternative

Design companies other than INTC typically use a processor core that they license from a company like ARM Holdings plc.  They then heavily customize it and have it made by a foundry company like TSMC.

To appeal to these potential users, the INTC-TSMC technology agreement was reached about a year ago.  TSMC  got access to the Atom CPU technology that semiconductor design firms would be allowed to customize for a variety of applications.  By leaving a significant role in the final product for other semiconductor design firms–who are presumably much more familiar with smartphone-like internet surfing devices, INTC was taking a page from the ARM book.  It was deviating from its customary strategy of presenting manufacturers with a standardized finished product, which INTC would manufacture in very large quantities.

The TSMC venture on hold

Two weeks ago, according to the New York Times, INTC and TSMC put their venture on hold.  Why?  –not enough customers.  Why the dearth of takers isn’t clear.  Most likely, the INTC solution isn’t so much better than ARM’s to displace it.  It’s also possible that semiconductor design firms don’t want to become dependent on the behemoth that has dominated the PC processor market for so long.

Competitors in the netbook sphere

The first serious competitor to Atom in the netbook arena is already on the horizon–the GOOG-sponsored Chrome OS netbooks that will be released later in the year.  As far as I can see, these netbooks will be true to the original netbook vision of ASUS, but with more user-friendly non-Windows software.  They’ll be driven by ARM chips.

What does this mean for INTC?

Nothing over the next year or two, at least.  The big INTC story now is corporations replacing their five+ year old PCs with new machines sporting Windows 7.  Remember, given the disaster of Windows Vista, most corporate personal computers are still running on Windows XP.  Not only has that operating system gotten long in the tooth, the PCs running them are old–meaning maintaining them is getting increasingly expensive.

Unlike individuals and the smallest businesses, corporations don’t change to a new Windows operating system as soon as it comes out.  They wait for the biggest bugs to be found by the early adopters and then fixed by Microsoft before jumping in.

This process normally takes at least a year.  But since both hardware and software have “skipped” a generation, the decision to buy new PCs while adopting Windows 7 will probably move faster than normal.

Two developments to watch

1.  How successful the iPad and similar devices, virtually all of which will use ARM chips, are.

2.  Whether GOOG backing for Chrome can shift netbook users away from the Wintel (Windows/Intel) alliance.

These will give us a better indication of how much long-term growth potential INTC has as a stock, and therefore how much more appeal it will have for anything more than current income.

Stay tuned.