Category: Historical

I read the oddest statement of the day in ABC’s Recall coverage:

Accusations also flew on the Republican side of the governor’s race, as 2002 gubernatorial nominee Bill Simon unveiled radio ads suggesting that rival Arnold Schwarzenegger is a liberal.

Suggesting he’s a liberal? A.S. ISa liberal. There’s nothing to suggest. From what I’ve read about his positions (though his web site tells us nothing), he supports, or at least doesn’t condemn, such ideas as abortion and gay marriage. Those are relatively liberal positions to take, so I can only imagine that it isn’t exactly difficult to “suggest” he’s a liberal.

Last night Dave and I attended the Princeton Shakespeare festival where we watched The Merry Wives of Windsor, an entertaining production done by a theatre company based in Princeton. Very similar in style to the one I saw last weekend in Cuppertino, it was quite a fun production, once we moved close enough to be within range of the speakers. To be honest, I only wish I could follow the dialogue a bit better. I’ve found at Shakespeare performances that when there’s a clever bit of dialogue, only a handful of people in the crowd actually understand it and laugh, while everyone else merely wonders at what’s being said.

In other news, the WaPo came out with another article spinning Bush lies. Given that I received this in an e-mail from the DNC, I don’t expect anyone else actually read it. But at least one major media outlet is attempting to correct the misinformation they were fed this past Winter and Spring.

So, I finished a suite of articles in BusinessWeek that were in my opinion far too rosy about the business prospects for the technology sector over the next several years. While they made a consistent argument about innovation not being “dead” in the tech sector, it is important to remember that innovation does not guarantee profits. Look at such companies/ideas as Satellite (sp?) radio, the good old TiVo, and mp3s for fantastic examples of innovation that have not led to profits, at least not thus far, and may never do so.

It’s important, too, when surveying the technology landscape that much of the infrastructure segments of technology, such as all but the highest end hardware, and much of today’s common productivity software, are all commodities. While providing a relatively stable cash flow, there is no large revenue growth associated with them. And for good reason, as nearly everyone who needs or wants them can afford them. It is as a presenter from the Vaccine division put it: when a vaccine is first launched, there is an initial growth phase where everyone “catches up”. Once that phase is complete, the growth levels off and revenue remains relatively constant in sync with the annual population. Many infrastructure suppliers face a similar situation. With the buildout complete at nearly all the global companies, these components will only be replaced as part of a regular cycle.

Those, too, looking for wireless and broadband to suddenly power a whole new revolution, like the one experienced during the late ’90s, are also likely to be disappointed. The wireless industry has already become relatively commoditized, partly as a result of the standardization that has occurred, while has led to adoption of low-end, inexpensive gear. I already am on my second wireless access point, having upgraded to 802.11g, and for under $100. And this is before the final 802.11g specification has been ratified by the appropriate standards body. While wireless will become an enabler of future applications, wireless itself is, to be frank, nothing but a piece of gee-whiz tech.

On the other hand, much of the value, from an enterprise point of view, will come from being able to collect, process, and exchange more data faster than ever before. Being able to put in place global business processes at multinational organizations will also provide a method of reducing costs, and much of this work at many large companies is still in progress. There certainly remains value in the adoption of technology, and new methods of integration will provide plenty of room for innovation. However, I expect that much of the future value of tech will not flow to the top lines (i.e revenue) of technology companies, but rather to the bottom line in terms of profits to those companies that are able to effectively adopt and deploy valuable innovations within technology. And, in my opinion, the BusinessWeek special feature completely missed the point by neglecting this.

Here’s a fundamental problem with the types of analysis that the media performs with polls. The San Jose Mercury News interpreted the poll results between competition between Arnold S. and his two other GOP challengers in the following way:

The numbers in a statewide Field Poll released today back that up. Among the major candidates to replace Gov. Gray Davis should the governor be recalled, Schwarzenegger gets 22 percent, McClintock 9 percent and Simon 8 percent — a total of 39 percent of likely voters. That’s much more than Democratic Lt. Gov. Cruz Bustamante’s 25 percent — when it’s not split three ways.

This is in no way, shape, or form a true statement. Quite simply, many of those voters who would select either Simon or McClintock, from my understanding, would likely not select A.S. as governor, as they disagree with many of his social liberal policies. So the idea that these two candidates dropping out would suddenly cause a simple addition of voters to A.S. and provide him an overwhelming lead in the race is simply untrue. It is just as likely that, failing to find a suitable candidate, such likely voters would become unlikely voters. Yet this kind of media fallacy will likely only increase the pressure in certain circles for the two underdog candidates to drop out, or at least marginalize their campaigns, as they will be standing in the way of the candidate dubbed “Most Likely to Succeed” by the media. Of course, having A.S. elected in a recall campaign would most likely be a sensational ending to this whole debacle, so on a subconscious level I could see why all these outlets wouldn’t mind so much if that occurred.

Some good advice for life during the blackout from Iraq.

I heard several stories, on the radio, TV, and in print, of acts of kindness and community during the “Blackouts of ’03”. Unfortunately, while people are rightly proud of themselves for performing so admirable, behaving in a generous, friendly manner, and remaining calm, the truth is that I’m disappointed that here in the Northeastern United States that it takes some extreme circumstance like a massive blackout to cause people to behave in a civilized manner. Honestly, why is it that people can’t calm down on a regular day and act in a less arrogant, self-absorbed manner.

Someone (well, more than just one, but one in particular stands out) on the Flyertalk Continental board complains bitterly and incessantly about the attitude and arrogance of the ground crews that work for Continental. But to be honest, what do you expect from an airline that bases a hub in one of the surliest places that I’ve ever been to? This guy supposedly lives in NJ, but if his expectations are higher, I have a hard time believing it. Has he ever been to a RUe basketball game? Everything becomes clear in an instant!

Apparently Richard McCormick, the President of Rutgers, was the victim of a robbery near the New Brunswick campus recently. It just goes to show that such situations can occur to anyone.

From the looks of this map, it appears that most of the blackouts are related to those areas served by the NPCC and the ECAR grids. Amusingly enough, the NPCC web site is down, most likely since their offices are situated in New York City.

So, apparently, it’s all gone dark in major sections of the true Northeast. Being down here in the Mid-Atlantic region suddenly appears to be an asset.

For those curious folk out there, similar disruptions have occurred in 1966 and once again in 1977. In fact, there’s a whole site located here devoted to them. I am amused, in reading one letter scanned in from an investigation of the 1966 blackout, which reads as follows:

Studies have been conducted to determine critical
switching time in certain key areas and plans are underway
to modify protective schemes to obtain faster backup
clearing and to obtain isolation of the affected area to
prevent the occurrence of widespread interruptions. We feel
that each of these steps will further reduce the already
low probability of occurrence of a widespread interruption
from the “possible but improbable” events.

I suppose they’re still working on those steps to reduce the “low probability of occurrence of a widespread interruption.

Last Friday’s BusinessWeek features technology as the core of its “double-issue”, proudly proclaiming that tech isn’t dead and that the best is still to come. While I have no doubt that many future productivity enhancements have yet to be implemented, and that technology still has the capacity to alter the world, I do believe that it currently presents a very weak investment premise over the short- and medium-term.

For starters, it’s important to look past the hype. BusinessWeek’s fluff pieces on how the pace of technological change hasn’t slowed (i.e. Computer-chip performance keeps doubling every 18 months, and disk-drive capacity and Internet-connection speeds are improving even faster.) are in some senses true and others not. Take the Internet-connection speeds referenced here. According to one research report, traffic is indeed doubling approximately every 12 months. Yet compare that to an article in Wired News, which says a study found that Broadband adoption was only running at about 50% per year, which is far from any sort of doubling. And more telling, the pool of users interested in pursuing broadband access is shrinking. This hardly strikes as a long-term growth opportunity. In fact, in this space, as an investment premise, only Verizon makes much sense. As BusinessWeek wrote in its cover story two weeks ago, Verizon is pumping billions in to capital expenditures to reinvent its businesses around a fiber optic network and 3G and beyond wireless service. And as BusinessWeek itself writes,

How can Verizon pay for all this? Its business is one of the great cash machines of Corporate America. The largest local-phone operator and the largest wireless company, Verizon generates about $22 billion a year in cash from operations. That’s 50% more than SBC, twice as much as BellSouth (BLS ) and nearly three times as much as AT&T (T ). More than any company in the industry, Verizon can make enormous bets and pay for them out of its own pocket. Seidenberg expects to cover the fiber-optic initiative without raising the capital budget above the current level, while he continues to reduce the company’s debt. “Funding is not an issue,” he says.

And it’s pretty clear that while funding may not be an issue for Verizon, it is for everyone else. So, you could invest in any of the other telecoms, but in a few years they won’t be able to match Verizon anyway. And given how much money Verizon is investing in itself, the barriers to entry will be extremely high. So, what’s the grand investment premise out of the “rapid-fire broadband adoption” that may not really exist anyway, as the Wired News article points out? Verizon. Welcome to the great tech revival.

For that matter, regarding tech investments, take a look at Cisco. As Briefing.com points out in a recent stock brief, Cisco has relied on increasing margins as its growth stock, since revenue growth stalled out. With the most recent quarterly report, margins actually declined slightly for the first time. Their take on Cisco’s fair value given its current trailing EPS and expected growth rate: $12.50 a share. Cisco’s current stock price: $17.59 (based on the 4 PM close). A good investment? Maybe as a short.

But BusinessWeek proudly proclaims examples such as Microsoft’s move in to gaming with the XBox console. Except that on the whole, margins on the hardware business are lower than those for software, and particularly with regards to the commodity hardware that makes up an XBox console. As long as Microsoft is intent on becoming a purveyor of hardware, its margins will decline. And if growth in the software business that has been their mainstay were truly growing, why would theymove in to a lower margin business?

Then there’s the PeopleSoft-Oracle debacle. The entire reason that Oracle wants to purchase PeopleSoft is to purchase PeopleSoft’s enterprise suite customers. This is driven by the clear recognition that Oracle’s database products are becoming a software commodity, relatively easily replaced by a future database software that provides a better cost/benefit ratio. In order to maintain their revenue streams, they need to move up the ladder in to Enterprise Applications, and since their own suite of applications has achieved little in the way of market-share, they’re pursuing PeopleSoft, who has been more successful. Yet another sign that, as an investment premise, tech is weak.

While I have no issue with the idea that BusinessWeek is out looking for the cutting edge, the idea that tech as we know it will return as a whole to even double-digit growth in the near term strikes me as unlikely. While I do believe there are exceptions, and that perhaps one day a wonderful new idea will capture people’s imaginations again, there’s certainly nothing immediate on the horizon. And rehashing glory statements from the Nasdaq glory days and spinning the idea of tech giants moving in to new areas of business (usually less profitable and because their old ones aren’t growing) as signs of encouragement strike me as the heart of folly. Sure, some companies may be making profits, but that doesn’t justify them as an investment premise.