Tuesday, November 16, 2010

Apple's Competitors: Unexpected Success?

HP's new slate is so back-ordered, new buyers are not promised delivery until next year. Blowout sales, right? Everything's relative. When your production run is but 5,000 units (that's not thousands of units, but units), orders under 10,000 units stagger your capacity to deliver.

By contrast, Apple's first iPad production run was in seven figures, and sold out before it shipped.

Keeping the market Apple has captured will require continued vigilance in maintaining Apple's competitive advantages, and maintaining the features users think they need. Toward that end, I expect Apple to invest in its next generation of Apple-branded CPUs and a mechanism to ensure that users can print without being subject to print-based denial-of-service attacks. Since Apple's only recently seemed to have hired anyone worried about security, and lost its last batch of chip gurus, these things may take some time.

Thursday, November 4, 2010

Flash: Bad For Your Battery?

Apple has removed Flash from the default configuration of the new MacBook Air, and no wonder: adding Flash reduces batter life by two hours if you have the wrong web page open – apparently, even if the offending page is out of sight in the background.

There have been enough posts here about the Apple/Adobe catfight over Flash and its relevance to the world that I wonder if Flash needs its own tag ....

Still, it's clear why Apple would want people to have to opt in to Flash instead of getting it without informed consent.

Tuesday, November 2, 2010

ACAS Accretes NAV, Earnings; Diminishes Debt

The call won't be on until tomorrow morning, but the news is out: ACAS enjoyed $59M in NOI (+84% q/q), $149M in "net earnings" (+$72m over q309), over $300m in cash proceeds from realizations, and $407m in debt repayment. NAV increased $0.44 over the quarter to stand at $9.59 per share, more than $2 higher than the after-hours share price printing at the time of writing. Net unrealized appreciation on portfolio investments swelled with the improving economy, and the realization of losses on investment exits, combined to drive the quarter's unrealized portfolio appreciation to $158m.

ACAS' investment in ECAS, about which readers have heard here before, is now valued at $0.5B while its own NAV stands at $0.8B, implying hundreds of millions in discounted valuation that would not exist if ACAS were to dissolve the corporate fiction of ECAS and hold the company's portfolio investments directly. The $300M discount baked into ECAS is thus an artifact of FAS 157, and the likelihood that selling the whole portfolio in a corporate wrapper would involve a NAV discount similar to ACAS' own NAV discount. While this makes perfect sense from the standpoint of FAS 157, of course, it boggles the mind: if a dollar bill is worth $1, but is worth only $0.63 hidden in a wallet, it's worth $0.44 if the wallet is first tucked into a purse. Got that? Good. You are getting the theory of how ACAS is valued under FAS 157 in light of the NAV discount.

So, how many of those purses you want?

ACAS' balance sheet should strengthen with any broader economic recovery, as its portfolio is diverse and capable of catching updraft from any direction. Improvements at portfolio companies flow to ACAS' bottom line. They also improve valuation metrics (earnings being an input into valuation formulas) which boost ACAS' NAV.

ACAS is currently $107m away from lowering the interest rate on its outstanding debt. Part of the $407m in debt repayment was on secured debt due in 2013, intended to make sure that ACAS doesn't have another liquidity crisis inspired by another default scare. ACAS is looking out more than a quarter ahead, which I like to see in management. Avoiding liquidity crises and improving the cost of debt are both solid strategic moves. The Jaded Consumer approves.

One thing worth noting is the improvement in the loan portfolio on non-accrual. Last quarter, non-accrual loans stood at $308 of "fair value" (8.5% of all loans at "fair value"), but this quarter the number has slid to $265m of fair value and a less upsetting $7.8% of all loans at fair value. As portfolio companies get their footing and resume payments, ACAS' NOI and the valuation of the loan portfolio should both improve.

I wasn't particularly happy to read that the $305m in cash proceeds involved sales at an average of 2.9% below last quarter's FAS-157-compliant "fair value" -- after all, the portfolio was going up, right? -- but I'd rather have the cash out of dogs. New investments of $63m are good news: ACAS is cherry-picking the best deals available across a broad range of sectors, and I want as many of those good deals in my shopping cart as we head toward the register.

I also like to see 5% per quarter in NAV increase. ACAS doesn't make a return on its share price, it makes a return on its investment portfolio. Watching that portfolio swell is better long-term news to me than a share price uptick. The portfolio and the NOI it generates is real.

I'm interested to get more color on the company's outlook from tomorrow's call, but it may be a few days until I get a chance to hear it. In the meantime, I like what I see.

Apple 0wn2 Tablet Market

Or for those not following l33+sp33k: "Apple Owns Tablet Market"

Apple's iPad, launched to a welcome of "but there's no market for that", owns 95.5% of the market for tablet devices. Given that the market consumes millions of the devices, it's not trivial – at least, not for Apple. Apple has some firm views (audio linked here, with some comments) on the mistakes of competitors and their apparent errors, and Apple's likely ongoing advantages in the market.

Apple could own this one.

ACAS Passes 7 Ahead of Earnings

It's sometimes hard to work out whether price moves result from slipping secrets or irrational speculation. American Capital Ltd. is set to announce its quarterly results this afternoon following the close of trading. (Well, after the close of regular trading. After-hours trading will probably be very exciting for a few minutes while the numbers are freshly revealed.) In the days ahead, the shares have flirted with and passed $7 a few times, and at this writing the stock stands at about $7.06 or so. (Okay, $7.08. I'm not typing fast enough.)

For shares that were on sale for less than $0.60 in the first quarter of last year, this hasn't been a bad start to the shares' recovery. The shares' NAV remains well above the shares' price, and the quarterly announcement should provide the world with a new view of the shares' discount to NAV. The trend has been increasing NAV, and this quarterly announcement will serve an important function in illustrating the extent of that trend.

Although ACAS has been paying down its refinanced debt, we haven't yet heard an announcement on the company's goal of reducing the debt past the interest-rate lowering threshold. Information on the timing of that milestone – an event that will improve NOI by reducing the cost of the debt with which ACAS finances its investment portfolio – should be in the earnings call even if the announcement isn't that it's been completed.

I for one will be interested in looking at ACAS' NOI, average interest rate on debt, and any announced transactions. I prefer to see ACAS making money through NOI than to see it relying on selling portfolio companies at a time they are likely undervalued. With debt-refinancing expenses a thing of the past, many millions per quarter will be brushed from the bad column and net should be buoyed by the vanished nonrecurring expenses associated with the long-running refinancing effort.

Although ACAS has some interesting exits planned – like the Mirion IPO – I am much more interested to see what ACAS is buying while the world of illiquid portfolio companies is on sale.