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Investing in Tech, the SpongeBob Way
By E. SAVITZ
Barrons
INVESTORS EXHAUSTED BY THE RELENTLESSLY BAD NEWS in the technology sector seem to be trying a new tack: If the news is miserable, simply ignore it. Why let pesky facts get in the way of a good stock idea?
Consider the market's initial reaction to the first major tech-earnings report of the new season: Q4 results from Intel (ticker: INTC). The chip giant's earnings, while well-telegraphed ahead of time, were basically terrible. As CEO Paul Otellini noted in a conference call Thursday, this was just the second time in 20 years that Intel's Q4 revenue was below Q3's. The first time, in 2000, it fell by less than 1%. This time, it plunged 19%.
As for the Q1 outlook, Intel did something odd: It declared that, owing to uncertainty about the economy and customer demand, it wouldn't give revenue guidance. Then, in the very next sentence of its press release, Intel said that for internal purposes, it is assuming revenue will be about $7 billion. (When is revenue guidance not actually revenue guidance? And, by the way, what is the sound of one hand clapping?)
Revenue at the $7 billion level would be a little worse than the consensus view, down 15% from the $8.2 billion reported in Q4, and 27.6% below a year ago. Intel also said its gross margin for the quarter would fall from 53% to the low 40s, due to lower capacity utilization and other factors.
Not much to cheer about. But the stock inched higher Friday anyway. Some investors apparently are working on the theory that the guidance-that-is-not-guidance might be as bad as things are going to get-and that Intel will be a survivor. My reaction, to quote that great philosopher SpongeBob SquarePants: "Well, good luck with that." Sure, Intel will survive, but sticking a stake in the ground and hoping for the best isn't investing; it's gambling. A turnaround in PC demand? It is coming someday, but I see no evidence of it in the numbers Intel reported.
THE SAME PHENOMENON IS EVIDENT at Motorola (MOT). The crumbling of its once-mighty handset business seems to be accelerating. Late Wednesday, the company pre-announced miserable Q4 results. It sold 19 million handsets in the period, compared with 25.4 million in Q3, and 28 million in Q2. At that rate, it soon will have a quarterly handset run-rate of, well, zero. Motorola also said it would lay off 4,000 people -- 3,000 in the handset business. But it cheerfully added that it is developing new smartphones, and that it has been getting a good reception from carriers.
Okay, very nice. Motorola sure needs new smartphones (which are expected to be based on Google's spiffy Android operating system). Unfortunately, while Motorola has been frittering away huge gobs of market share, the smartphone market has been invaded by impressive competitors, like the Apple iPhone, BlackBerry Bold and Palm Pre. Nonetheless, investors, cheered by the, uh, happy news about all those layoffs, bid the stock up nearly 8% Thursday. Paging SpongeBob.
Change Happens: Apple's CEO took a medical leave, while Yahoo!'s new boss arrived. Intel's profit slid 90%. The Nasdaq Composite fell 2.7%, to 1529.
FINALLY, CONSIDER YAHOO! It has a new CEO. After a two-month search, the troubled Internet company replaced founder Jerry Yang with former Autodesk chief Carol Bartz. The Street's initial reaction was to shout "Yahoo!" -- which is exactly what Bartz did at the start of her conference call.
The theory is that with a new CEO, the company will sell its search engine to Microsoft . Bartz, however, told employees she isn't inclined to sell the search business. Bulls are betting Bartz will wheel and deal Yahoo! out of its funk. But if there is no Microsoft deal, she may have to manage her way out. And that could take longer than holders -- whose stock has slid below 12 from about 30 early in 2008 -- want to believe.
Bartz certainly has incentive to drive up Yahoo! 's stock (YHOO). According to an SEC filing, she will get a base salary of $1 million, and a performance bonus of as much as $4 million, plus an annual equity grant -- $8 million for 2009 -- and another $10 million (75% in restricted stock, the rest in cash) in compensation for forfeiting Autodesk options. And she gets five million seven-year options, which vest over time based on Yahoo's shares reaching certain levels. The first third vests when the stock hits 150% of the yet to-be-determined strike price, for instance. Maxed out, her first-year compensation could top $40 million. No wonder she shouted Yahoo!.
By E. SAVITZ
Barrons
INVESTORS EXHAUSTED BY THE RELENTLESSLY BAD NEWS in the technology sector seem to be trying a new tack: If the news is miserable, simply ignore it. Why let pesky facts get in the way of a good stock idea?
Consider the market's initial reaction to the first major tech-earnings report of the new season: Q4 results from Intel (ticker: INTC). The chip giant's earnings, while well-telegraphed ahead of time, were basically terrible. As CEO Paul Otellini noted in a conference call Thursday, this was just the second time in 20 years that Intel's Q4 revenue was below Q3's. The first time, in 2000, it fell by less than 1%. This time, it plunged 19%.
As for the Q1 outlook, Intel did something odd: It declared that, owing to uncertainty about the economy and customer demand, it wouldn't give revenue guidance. Then, in the very next sentence of its press release, Intel said that for internal purposes, it is assuming revenue will be about $7 billion. (When is revenue guidance not actually revenue guidance? And, by the way, what is the sound of one hand clapping?)
Revenue at the $7 billion level would be a little worse than the consensus view, down 15% from the $8.2 billion reported in Q4, and 27.6% below a year ago. Intel also said its gross margin for the quarter would fall from 53% to the low 40s, due to lower capacity utilization and other factors.
Not much to cheer about. But the stock inched higher Friday anyway. Some investors apparently are working on the theory that the guidance-that-is-not-guidance might be as bad as things are going to get-and that Intel will be a survivor. My reaction, to quote that great philosopher SpongeBob SquarePants: "Well, good luck with that." Sure, Intel will survive, but sticking a stake in the ground and hoping for the best isn't investing; it's gambling. A turnaround in PC demand? It is coming someday, but I see no evidence of it in the numbers Intel reported.
THE SAME PHENOMENON IS EVIDENT at Motorola (MOT). The crumbling of its once-mighty handset business seems to be accelerating. Late Wednesday, the company pre-announced miserable Q4 results. It sold 19 million handsets in the period, compared with 25.4 million in Q3, and 28 million in Q2. At that rate, it soon will have a quarterly handset run-rate of, well, zero. Motorola also said it would lay off 4,000 people -- 3,000 in the handset business. But it cheerfully added that it is developing new smartphones, and that it has been getting a good reception from carriers.
Okay, very nice. Motorola sure needs new smartphones (which are expected to be based on Google's spiffy Android operating system). Unfortunately, while Motorola has been frittering away huge gobs of market share, the smartphone market has been invaded by impressive competitors, like the Apple iPhone, BlackBerry Bold and Palm Pre. Nonetheless, investors, cheered by the, uh, happy news about all those layoffs, bid the stock up nearly 8% Thursday. Paging SpongeBob.
Change Happens: Apple's CEO took a medical leave, while Yahoo!'s new boss arrived. Intel's profit slid 90%. The Nasdaq Composite fell 2.7%, to 1529.
FINALLY, CONSIDER YAHOO! It has a new CEO. After a two-month search, the troubled Internet company replaced founder Jerry Yang with former Autodesk chief Carol Bartz. The Street's initial reaction was to shout "Yahoo!" -- which is exactly what Bartz did at the start of her conference call.
The theory is that with a new CEO, the company will sell its search engine to Microsoft . Bartz, however, told employees she isn't inclined to sell the search business. Bulls are betting Bartz will wheel and deal Yahoo! out of its funk. But if there is no Microsoft deal, she may have to manage her way out. And that could take longer than holders -- whose stock has slid below 12 from about 30 early in 2008 -- want to believe.
Bartz certainly has incentive to drive up Yahoo! 's stock (YHOO). According to an SEC filing, she will get a base salary of $1 million, and a performance bonus of as much as $4 million, plus an annual equity grant -- $8 million for 2009 -- and another $10 million (75% in restricted stock, the rest in cash) in compensation for forfeiting Autodesk options. And she gets five million seven-year options, which vest over time based on Yahoo's shares reaching certain levels. The first third vests when the stock hits 150% of the yet to-be-determined strike price, for instance. Maxed out, her first-year compensation could top $40 million. No wonder she shouted Yahoo!.
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