Saturday, April 23, 2011

AGNC's Offering Raises NAV

AGNC's newest offering of 28,000,000 shares has been priced to yield gross proceeds of "approximately $780 million." That means approximately $27.85 per share. Given that the last-reported NAV was $24.24, and the company's shares were just south of 65m outstanding, the issuance should result in a NAV north of $25.


This isn't the first time existing shareholders have been blessed with a NAV boost like this. In the last quarter of 2010, the effect of issuance was 97¢ (see p.20 of the 4Q2010 presentation). Holy cow, right?

I think ACAS' management of AGNC has not only been brilliant for ACAS, but a terrific ride for shareholders of AGNC. (I told my mother to buy after the IPO at $20, then again about a year later at $15; the current quarterly dividend of $1.40 is going to do nicely for her as it continues to compound for her tax-deferred on a DRIP in her rollover IRA.)

And what does the issuance do for ACAS? Well, two things. First, 1.25% of $780,000 would be $9.75m in annual fees, but of course the gross proceeds aren't all turning into funds under management; the underwriters are getting paid from that gross. Still, adding a fee income of over $2m/quarter is nothing to sneeze at. It's about 0.7¢ per share per quarter of indefinite income, without requiring ACAS to deploy any more assets. The whole firm just got more valuable.

Dig it?

ACAS is now worth more, and so is AGNC. Who says you can't have a win-win deal on Wall Street?

Saturday, April 9, 2011

Apple: 800-Pound Gorilla?

Apple is being described as "locking up" supplies of touch screens so that competitors can't buy parts. This isn't new, actually. Back before the iPod was big, Apple had ordered so many of Toshiba's new-to-the-market 1.8" hard drives (unavailable elsewhere) that Toshiba wasn't willing to give anyone else a price break: Apple had ordered first, and cornered the market, achieving "almost a complete monopoly of these drives for about a year." Competitors who wanted into the market segment targeted by the iPod had two choices: a physically larger, heavier (ick) player, or a player that had the itty-bitty capacity then supported by Flash memory (bleh). The iPod had a moat borne of superior supply agreements. Apple isn't buying a huge supply just out of spite, though: it wants to secure a large supply at a price known in advance. The cost of that deal is big up-front cash payments for continuous supply at guaranteed-stable prices.

At the very time it threatens the component pricing of its competitors, Apple is accused of "poaching" PR execs from major game companies (presumably to position iPhone/iPod/iPad against Wii/PS2/etc.). What a drag, to compete with Apple's new iPhone5 and derivative iPod Touch just as the parts supply to chase Apple's market niche vanishes beneath a wave of large-scale prepaid supply contracts. Why might Apple be keen to press its advantages so hard? For one, Apple's been on the wrong side of giants with lots of cash making platform-development deals. Apple has been taught in the roughest possible way that computing hardware is about software ecosystems and content as much as about hardware capabilities and prices, and it's a hard-won lesson that may keep Apple from making the same mistakes again in the mobile arena.

To give you an idea about the scale of Apple's current success, consider its competition with what was once the most valuable company on the planet: Microsoft. Despite Jobs' 1996 declaration that the platform wars were over, and that Apple had lost, Microsoft's 2011 chief executive has Apple envy: Ballmer wants as many retail stores as Apple, but the stores just aren't performing well enough to justify the effort.

Steve Jobs' 1996 Wired interview is an interesting read in 2011. Since his return to Apple, the company has definitely leveraged some hard-earned lessons to its great advantage. Who's the 800-pound gorilla now?

Tuesday, April 5, 2011

Adobe to deliver cross-platform Flash!

After fighting with Apple over who needed whom, Adobe – after a long and drawn out battlehas created a drag-and-drop converter for developers to turn their useless-on-a-standards-based-device Flash content into something that will run anywhere HTML5 is spoken.

Th irony, of course, is that Adobe has claimed for so long that Flash is "cross-platform development software" and necessary to "browse the whole web" and that these facts were the reason everyone should just shell out for Adobe tools and deploy to Flash. Well, well. How the world turns.

The upside for Adobe is that if its tool makes high-quality HTML5, it will have a much bigger audience for its wares than were willing to sacrifice standards. The upside for everybody else will be the avoidance of Adobe's atrocious reliability and various performance and security problems and overall quality associated with Adobe's Flash player plug-in.

(Although I include it above, I repeat the link to Daring Fireball's discussion of Adobe, Apple, and Flash because it's such an outstanding summary for those of you who may not have the time to read more than one link.)

Monday, April 4, 2011

Apple Mobile Competitors: A Quality/Quantity Conundrum

IDC predicts that Android and Windows Mobile Phone 7 (or whatever it's called) will take the top two phone operating system slots by volume in the next several years.

Among the leading causes of Microsoft's reversal of its longstanding share decline is a decision by Nokia to kill its own OS in favor of Microsoft's. Just imagine: the world quantity leader in cheap phones, and the world's quantity leader in irritating and buggy desktop operating systems, joining forces to make a consumer product you can carry with you and depend on to function properly under adverse and uncontrolled conditions!

The more interesting question is whether Android's share will be in high-margin products that are genuine iPhone competitors, or whether Apple will dominate profit in phones into the future as it dominates in PC profits. If Nokia and Microsoft appear poised to make the next wave of commodity devices, but Google raises some interesting questions about how hardware partners will perform and whether together they will be able to build something that speaks to users like Apple's products apparently do.

Assuming IDC's volume predictions are accurate (a premise not without trouble; Nokia/MSFT could easily make a perfect storm of mediocrity incapable of sustaining share, and lack of carrier lock-in could impact Apple's addressable market favorably even as its hardware continues to refine and improve), we could be headed into a realm in phones like the one in PCs: Lots of folks sell boxes, but only Apple makes real money in the deal. (MSFT's trivial incremental cost of selling a license makes its software extremely profitable; to gain phone share, though, MSFT may be willing to take a serious haircut on the theory that it needs to choke off competition. NOK's decision to dump its own OS in favor of one with a per-handset licensing fee is an odd choice for a high-volume producer otherwise.)

Does someone outside Apple have a moat in premium phones?