MorningWord 2/14/13: Why Buy The Cow When You Can Get The Milk For Free – $MSFT

MorningWord 2/14/13:  The Desktop Operating System battle btwn AAPL and MSFT has been raging for over 2 decades.  While a clear winner had been determined, the war for mobile supremacy has left the once victor, MSFT, in the dust.  Former upstart in desktop computing, and early category definer in mobile, AAPL, is now grappling to maintain early mind and market share against an OS that is spreading like a virus the world over, Android.  The mobile OS arms race is looking increasingly like a two horse race btwn AAPL and GOOG’s Android, leaving a widening gap btwn the haves and the have nots.

The have nots (MSFT, NOK, HPQ & DELL to name a few) are scrambling like rats on a sinking ship.  A couple weeks ago, MSFT agreed to pony up $2billion to help one of their important hardware outlets, DELL, go private, with the obvious intent to fortify their beachhead at the struggling PC/Server maker, and do their best to exclude other operating systems, like Android, from future product offerings.  This is an interesting move by MSFT to say the least, especially at a time when the cash hoards of large tech companies like MSFT and AAPL have become a focus of investors.  MSFT has had a habit of throwing their cash around for acquisitions when they need to, $6 billion for aQuantative in 2007 and $8.5billion for Skype in 2011, and obviously their failed $40+billion bid for YHOO in 2008.   Last year MSFT wrote off the entire purchase price for aQuantative, the Skype deal is also likely to be a bust, and the YHOO deal was the miss of the millennium.   MSFT has sucked at large acquisitions, and other tech big wigs know that it is hard to do these sorts of deals. But where they have been bad at acquisitions, maybe just maybe they have done well by the expression, “why buy the cow when you can get the milk for… close to free?”  

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MorningWord 2/13/13:  The path of least resistance continues to be higher, but the opportunities to make money on the long side appear to be looking less and less attractive from where I am sitting.  I have repeatedly stated over the last couple weeks that 1500 in the SPX appears to be a less than optimal entry point for putting new money to work in equities, even if we get a blow off rally to 1550. As a trader who tends to be somewhat contrarian and also focused on the vol market, this is becoming an increasingly difficult market to actively trade.  

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On a lighter note I saw Mumford & Sons again last night at the Barclays Center in Brooklyn.  Here is a clip I took of them performing The Cave during their encore.



MorningWord 2/12/13:  This morning JPM downgrades their rating on QCOM from Buy to Hold, as they feel 2013 will mark the tipping point for smartphone adoption and they will ultimately see growth grates slow and margins decline.  If AAPL’s year over year margin decline in Q1 (down nearly 10%) is any indication, this is a trend coming to a theater near you for the smartphone supply chain.   I would add that a market share and technology leader like QCOM is likely to be far more insulated from these pressures than an OEM.   BUT it makes a lot of sense for investors who have been involved in the secular trend towards smartphone to keep a close eye on saturation, and probably not wait till AAPL & Samsung have sold their last iPhone 6 or Galaxy 5 to the last human who can afford one to lighten up on their bullish thesis on the space.  Widely followed Asymco.com blog had a great chart last month showing the trajectory of smartphone penetration (below).

U.S. Smartphone Penetration Courtesy of Asymco

U.S. Smartphone Penetration Courtesy of Asymco

 

While Smartphone bulls will agree that North America and Western Europe are not where the next leg of growth will come, it is hard to argue that margin pressure won’t become an issue in emerging markets despite what could be decade long penetration process.

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MorningWord 2/11/13:  I think it is fair to say that Q4 Technology earnings were a mixed bag, for instance semiconductors heavily exposed to PCs struggled (INTC), while those exposed to smartphones & tablets flourished (QCOM), smartphone manufactures still trying to hold onto every last once of margin (AAPL) felt  market share pressure from those looking to undercut on price with broader offerings (Samsung & GOOG).  While these trends have been emerging for the past few quarters, they are likely to continue for the foreseeable future.  

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