The Samsung/Sandisk Buyout Offer - corporate cluelessness at its finest

September 17, 2008 · Filed Under Recent News · Comment 

Time was when SanDisk, the world’s biggest supplier of flash storage cards, was one of the hottest tech stocks this side of the Milky Way. Of course, those also were the days when companies like Lehman and Merrill Lynch were considered unstoppable juggernauts and pillars of financial stability.

 

These days SanDisk is hardly the big time company it was a couple of years ago. Against a backdrop of weakening consumer demand and with flash memory prices falling, SanDisk’s stock has reflected the company’s changing fortunes, plummeting from a 52-week high of $55.98 to finish at $15.04 yesterday. It’s not just SanDisk feeling the pinch; five of the seven top flash memory producers suffered declines or flat sales during the second quarter. This is due mostly to plummeting prices (have you seen how cheap flash drives are these days?) and a changing marketplace. Storage is dirt cheap nowadays.

But after the close of trading Tuesday, Samsung Electronics confirmed earlier rumors and disclosed it had made a $5.8 billion cash offer to buy SanDisk after what it said were four months of flat and inconclusive talks. SanDisk was quick to reject the offer as inadequate. Interesting strategy, given the stock has lost 70% of its value in the past year or so.

In after-hours trading, shares of SanDisk soared to nearly $23 a share. SanDisk stated it rejected the $26 a share offer, arguing that it undervalues the company. That’s pretty much standard operating procedure in any negotiation, though SanDisk also charged Samsung with “an opportunistic attempt” to exploit a depressed stock price, as well as “the uncertainty resulting from the unresolved patent cross license agreement renewal with Samsung, and general equity market conditions.” That’s corporate lingo for: We want more money.

The rejection of the offer also served as an opportunity for SanDisk to air dirty laundry, suggesting that Samsung’s offer might be “a calculated negotiating ploy or an attempt to gain leverage in the ongoing licensing negotiations between the companies, particularly in light of the fact that the parties have met over 10 times on this issue since June 2007.” Not a company i’d be in a big rush to do business with, but then again, that’s why i’m not in the corporate business world.

SanDisk is not closing the door to future talks with Samsung. Irwin Federman, the company’s lead independent director, said SanDisk remains willing to enter into “good-faith discussions” but did not get more specific. The deal is considered still on thin ice, but why in the world would they turn it down? Do they think they’ll get a better offer in this marketplace?

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A Hewlett-Packard PC with Linux?

September 14, 2008 · Filed Under Technology · Comment 

According to a recent story in BusinessWeek, Hewlett Packard has been exploring the possibility of using something other than Windows Vista for some of its computers. The article has some denials from HP spokespersons, but their denials seem weak and uncertain in wording, so odds are, they’re correct in some form or another.

Apple and Mac computers are grabbing increasing market share; at least some of Apple’s new sales are coming at the expense of companies like HP and Dell. It has to be frustrating to Windows OEMs like HP that they don’t really control the complete user experience the way Apple does. HP has a history of wanting to control the user shell more closely, so that loss of control must really irritate them at times.

The idea that HP might create its own operating system from scratch is crazy (and expensive and unnecessary), so they had no problem denying that rumor. Part of the article, confirmed by HP, was about their efforts to “innovate on top of Vista”, in HP’s words. That could simply be some tack-on applications, or added functionality at the BIOS level for certain functions, but I have a hard time believing that would solve a lot of consumer problems. It may even create a whole new set of compatibility issues.

The big question is whether HP is pondering the use of Linux on its consumer PCs. This is territory already explored by the successful Asus Eee PC. That tiny notebook offers both Linux and Windows — but it’s Windows XP. Microsoft has made it clear that XP is OS-non-grata its future plans, so the Linux option may be HP’s best alternative. This would turn the whole OS/PC world pretty much upside down, and MS would be none too happy to see one of its biggest partners defect to Linux.

There are plenty of Linux distributions that HP could use, so the engineering effort could boil down to making sure that high-quality Linux drivers are available (sometimes not a given). HP could push most of that work down to their chipset suppliers such as Intel and NVidia. Sure, they’d want to brand their Linux user interface with some sort of custom HP look, but that shouldn’t take long and wouldn’t cost much, more than likely. Some Linux gurus would probably volunteer testing and ideas for nothing, just to see it happen.

HP has tried to be a good partner with Microsoft in the past, and hasn’t always been rewarded with much loyalty for the effort. One example came to light in a lawsuit where MS told HP execs that Vista would require high-end video hardware, and HP accelerated a redesign of their product lines to support the new chipsets Vista needed. Then, Microsoft backpedaled and said that less-capable video chipsets, the ones in HP’s soon-to-be-defunct products, could be labeled “Vista Capable.”

Microsoft has some options to keep HP consumer products Linux-free. Microsoft will probably use the carrot of a price break or marketing money, similar to the way Intel appeased OEMs with the Intel Inside program. In essence, Microsoft can price Vista or XP in a way that “pays” HP to not use Linux. That may ultimately be an offer HP can’t refuse. Either way, MS needs to step up and do something it appears, or an HP box with Linux may become reality.

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Online Movies - Are we there yet?

February 25, 2008 · Filed Under Product Reviews, Technology · Comment 

The recent surrender of HD-DVD in the latest format war has got us thinking about online video rentals - so we thought we’d review the options available today.

Streaming or downloading full movies instead of renting or buying physical media is nothing new. As happens time after time in the world of technology the real first adopters are the adult industry and the hackers/pirates. The adult movie folks have been providing video content only for years now. And we all know well that hacker-kids have distributed full dvds in online format for some time as well. If both these groups can handle it successfully why not the movie studios?

With the rise in popularity of Youtube consumers have grown familiar with online videos and the entire medium has gained market acceptance. Fears that studios once had over the customer acceptance of less-then-highest quality video have disappeared. Consumers bandwidth will only increase in the future allowing for higher quality.

Netflix: As part of the base netflix subscription all customers can watch unlimited movies online - free. Tough to argue with that deal. The biggest downside is the selection, of course the online library of movies are limited. Quality is above average and the program is very easy to use. As netflix offers more movies into this category it will have an even bigger market impact. We have to wonder when/if they will start charging for the service. Another challenge for Netflix is getting onto the TV and into the living room - not everyone is willing to watch movies on the PC or laptop. Watch for a partnership with Microsoft, Nintendo or Sony in the future. But right now it is the market leader for cost and ease of use.

Amazon Unbox: Amazon has been at this market for quite some time (opened in 2006). Unbox offers a wide selection of newly released and classics at near DVD prices ($14.99 for most movies) and rentals for lower cost (4.99 in most cases). Although the service received mixed reviews when it was released it has improved over time.

The videos can be played on about 20 handheld devices (again - big drawback if you can’t connect the PC to the TV). They’ve since partnered with Tivo to allow purchase of videos which can be sent directly to your living room Tivo system for review. Of course Tv shows are also available for those into that type of thing (who really buys and watches old tv episodes?!)

Apple - iTunes: When it comes to online media - iTunes is still the name we all think of first. Apple has made available movies for download since 2006. Of course they use the itunes market place and application to support the download service. The move catalog matches the size of Amazon’s and most physical rental stores. Pricing is equivalent to Amazon (about $14 a pop) with the edge going to Apple for ease of use. Naturally the advantage is apple’s in the device category as legions of iPod Video’s and Nano’s can show movies and tv shows purchased through itunes. Recently Apple released the AppleTV device (getting into your living room.. sound like a familiar theme?). It allows for move rentals (HD content too) as well as the rest of the itunes HTPC functionality - plugged into your TV of course. So far its received a bit of a lackluster response (for an Apple product that is) and we’ll hold our breath before we tell anyone to run out and buy one.

Comcast (ondemand): The biggest name in the video on demand cable industry - comcast leads the pack. One of the first cable companies to roll out on demand video (which comes free with their digital cable package). This competes with downloadable purchases and rentals head to head. Comcast has the advantage in many areas since they are already entrenched in the consumers living room, have market share and control much of the delivery. The ease-of-use factor cannot be dismissed either. Consumers have embraced the video on demand service in a surprising fashion and other cable vendors have been struggling to catch up.

Directv on demand: Directv is fighting to catch up to Comcast on the movie delivery/video on demand front. Their vod service is still in beta. The distinct disadvantage for Directv is not controlling the consumers broadband as Comcast does, meaning Directv VOD users must rely on their existing dsl/broadband to download video content to their DVR system.

Slingbox & Orb: Both worth a mention here as similar software packages and devices which allow for ‘place-shifting’ of video content. You can pull your recorded TV episodes from the living room and watch them on the cell phone, in the hotel room, or at work. Not mounting any big-time competition with the video rental/download services yet - but keep an eye on them. Either could provide a medium or means of easy distribution in the future.

None of these are set to overtake Blu-ray or DVD sales in 2008 - but with the delay in adoption of hidef movies caused by the format wars you can bet that they’ve gained traction.

You can bet your gold-plated dvd’s that downloads will overtake physical disc purchases by 2011.

Any comments or additions are welcome. We’ll be glad to update this as they come in.

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Are Big Changes Coming To EBay?

February 1, 2008 · Filed Under Recent News, Technology · Comment 

January 23rd was a big day at EBay; Whitman publicly announced her coming departure, and the EBay Board of Directors voted unanimously to appoint John Donahoe to replace her. 

Donahoe has been in charge of EBay’s Marketplace Business Unit since March 2005.  In the 3 years since he arrived the revenue and profit of the unit, which accounts for more than 60% of the service’s total earnings, has more than doubled.

No stranger to management, he sits on the Board of Trustees for both the Stanford Graduate School of Business and Dartmouth College. 

He’ll need to hit the ground running, as Whitman doesn’t leave small shoes to fill. How effective has she been at what she does?  Time Magazine called her one of the world’s most influential people, which isn’t surprising when you take into account Forbes Magazine listing her estimated worth at $1.4 billion last year.

Since becoming CEO of EBay in March of 1998, Whitman guided a small company headquartered in San Jose California with less than 50 employees into an international phenomenon that today runs a global business consisting of over 11,000 employees and earned net revenues of $7.67 billion in 2007. 

Talk about having a full plate. Not only has Whitman been managing EBay into an international corporate giant the past decade, she’s also on the Board of Directors for Proctor & Gamble as well as DreamWorks Animation, the movie studio responsible for such hits as Shrek and it’s sequels, Over The Hedge, Madagascar, The Prince of Egypt, and Chicken Run.  In fact, before she ever worked at EBay she made her way up to management through both Proctor & Gamble and the Walt Disney Company.

Whitman will remain as a member of EBay’s Board of Directors. 

Seeking to allay concerns over the change of management, Whitman released a statement to the press, in which she commented: “During
the last three years, John and I have worked very closely together to arrive at this day, and we’ll continue to work together through the transition.  I’m extremely confident in John’s skills and the abilities of John’s veteran management team.  eBay and its millions of users are in great hands as they head into the future.”

Why would the highly successful CEO of a company that earned gross revenues of over $7,000,000,000 in the last year suddenly decide to step down? 

Such a move makes sense now because it’s hard to see how EBay could go anywhere but down from the plateau to where Whitman has guided it. Several sources mention rumors that the reason Whitman is stepping down now instead of later is because she intends to run for Governor of California in 2010.  Two years would give her plenty of time to build up her political machine and prepare to run as a candidate. 

What does all this mean for people who depend on EBay’s services?  Can EBay buyers and sellers expect any changes to the on-line auction house giant now that there has been a change of CEO’s? 

The only changes Donahoe has discussed publicly thus far were experimenting with new pricing frameworks that would cause more of the items listed on EBay to be purchased for a fixed price rather than from bidding on auctions.  He also mentioned dropping the rates charged to to the sellers for listing their items on EBay’s website. 

These changes may not be welcomed by Ebay investors as warmly as sellers.  But in the eyes of the users they should be welcome.  In recent years ebay consumers (both buyers and sellers) have bridled over cost increases and fees. The user base has degraded a bit due to these increases.  Combine these losses with the missteps made by management in buying Skpye (which Ebay is rumored to be shopping to buyers) and it becomes clear that some change is needed.

Both moves seem geared to increase consumer use of the service, as buyers can be confident in obtaining an item being offered for a fixed price since no one can log in at the last minute and outbid them as the auction is expiring, and lowering the rates for listing items for sale will encourage regular sellers to post even more items with the service. 

Several market watchers noted that EBay didn’t show the same robust growth after the aqquisition of Skype, an internet telephone service for which there were high expectations. 

Looking at the growth the company has enjoyed the past 10 years, other market observers think after such long, dramatic growth such a dip in profit is nothing to be concerned about. 

Taken as a whole, Whitman has handed off a company to her successor that has been outstandingly successful, and based on what he’s done in the short time he’s been there, there’s no reason to expect any major changes or negative impact from this development. 

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