At American Capital Ltd.'s investor relations page, one can get the Q42009 presentation PDF and a link to what will eventually be a rebroadcast of the earnings call.
ACAS: Cure Worse Than The Disease?
Slide 14 is interesting, as it offers some balm for the fear that ACAS is liquidating its valuable investments to raise cash to feed hungry creditors. The fear is, in short, that to avoid forced liquidation ACAS has been selling the best of its portfolio just to keep the lights on, and there will be nothing worth owning after. Enter Slide 14. Of ACAS' $1.1B in 2009 realizations, $820M was received in the form of principal payments on debt owed ACAS and the sale of loans made by ACAS. Only $323M of the 2009 realizations reflect the sale of equity. (In Q4, exits of $476M included $57M from equity and $419M from principal/debt.) This has two sides, of course; if the equity is valued low, the exit of equity may not result in much cash even though ACAS does, in fact, liquidate equity. Hence, the $716M in net portfolio realized losses reflected on slide 14. Slide 14 does offer some more balm to fears ACAS is liquidating the crown jewels out of desperation: the exits consisted of $122M in gross realized gains and $838M in gross realized losses. ACAS isn't just selling the winners, it's selling a lot of losers. Considering that these big numbers reflect the post-loss prices, the losers vastly exceed winners.
What's this mean for the future? ACAS' requirement to distribute a dividend is based on ACAS' taxable gains. The reason ACAS doesn't pay taxes itself is that as a BDC, ACAS is required to distribute taxable gains to investors, who are taxed on these amounts. If ACAS realizes losses – by selling investments that won't result in much profit and by letting losers get bought – ACAS can avoid having to pay cash dividends. ACAS may be setting itself up for a couple of years in which it need not pay any dividend at all. As ACAS accrues losses, ACAS' ability to reinvest without worry about liquidity issues brought on by dividend-paying requirements will improve.
The Portfolio
ACAS' portfolio remains diverse by industry (see Slide 45). If ACAS is indeed keeping the best investments for long-term gain, or even positioning itself for the particular economic cycle before it, ACAS could be trying to build a financial position from which to maximize the impact of the eventual economic recovery. An example of the future performance is illustrated by ACAS' investment in European Capital. At the close of 2009, ACAS' equity investment in ECAS had a FAS-157-compliant "Fair value" of $243M, but a NAV of $0.7B. The discount to NAV is based on (a) the status of credit facilities (e.g., ACAS' default of net-asset covenants and at least theoretical risk of fire sale), and (b) the NAV discount of publicly-traded funds thought to be "comparable" to ECAS. Although the short term marketplace is a voting machine, the long-term offers a weighing machine, and if ACAS keeps jewels like ECAS it's in a position to do much better than current NAV would suggest. ECAS, because it is discounted to NAV before entering ACAS' NAV, is available to shareholders at a double-discount. This is because the roughly 50% discount to NAV that ACAS has lately offered has allowed investors to buy for about $125M a portfolio ACAS carries at a $243M "fair value" but has a NAV of $0.7B. To the extent of ACAS' ECAS holdings, shareholders buy it at about 1/6 of NAV. What's crazier? This is after ECAS experienced a $124M Q42009 appreciation in "fair value" (see slide 36).
Given that ACAS' market capitalization has recently been in the range of $1.25,B, the fact that one ACAS holding suggests an undervaluation of nearly $500M should make one think about the remainder of the portfolio. Given that ACAS has historically traded at a premium to NAV, the mispricing of ACAS' holdings suggests good things to the patient investor.
No Big Discount?
A criticism of ACAS has been doubt that ACAS' portfolio investments could be sold for their claimed values. Yet, among my original investment theses in American Capital was that the illiquidity and opacity of small investments made by ACAS created opportunities for mispricing, leading to potentially outsized deals. Slide 16 shows that ACS has averaged almost exactly the claimed "fair value" on investment exits, with quarterly overall exist within a percent or two of "fair value" since the beginning of the economic crisis. Slide 16 makes clear that, at the moment, ACAS isn't able to sell holdings at a better price than recognized by FAS 157, but has not been forced to accept lower values, either. Thus, ACAS isn't a get-rich-quick scheme. It's a wait-for-rational-pricing scheme. It's a value-investing thesis.
In the short run, however, Investors' best bet is that ACAS can find purchases that are mispriced. Because the exit pricing doesn't seem particularly exciting, the profit has to be made by entering the deals cheaply. Toward this end, ACAS has a "special situations group" whose whole purpose is to find opportunities (like the New England Confectionery Company, whose candy business and real estate holdings appeared much more valuable separated) for below-value investment. In a market characterized by distress, one might expect ACAS to be running around buying underpriced distress opportunities left and right. Unfortunately, this hasn't materialized as I'd hoped before now because ACAS has itself been distressed. However, Slide 41 shows that ACAS has bought a couple of new distressed portfolio companies – the majority of its Q4 investment – while making add-on investment for 4 existing portfolio companies (including funding one portfolio company's acquisition). In 2009, ACAS bought 18 distressed companies for $81M. (Slide 42) If these companies were as mispriced as ECAS before the end of the fourth quarter, investors could be in for a treat.
Rational Pricing?
Once ACAS has a deal with its creditors that alleviates the (misplaced, I believe; see Slide 26 and the continued ~2x interest coverage) fear that ACAS will end up in a forced sale, ACAS' share price and its NAV will likely be quite a bit closer. ACAS should then have the ability to raise capital to enter distress situations and to handle the business that first made me interested in it. Once the creditor crunch is over, ACAS' need to be coughing up penalty payments and other nasty earnings-impacting surprises will be replaced with the ordinary market risks we accept when we consider doing business.
Why hold ECAS to get a double-discount if ACAS hopes to get rational pricing? ACAS clearly expects someone to show up in the eventual future with an appetite for a mature portfolio of international investments. To the extent ACAS has already bundled them, ACAS can offer an interest in ECAS and the deal would be quick. Otherwise, the parties would dicker over which stocks would be in the basket, etc. This way, ACAS can say: "Here are the investments we put together while assembling a diverse portfolio in Europe, do you want a third?" and there's no need to quibble over which stocks are at issue. The deal will be faster when it happens. Since speed is an asset at ACAS, management is sensible to maintain preparedness even though the short-term result is NAV lunacy. So long as management doesn't sell ECAS at this crazy price, nobody is hurt except shareholders who bail from impatience.
With ACAS' NAV on the rise and the credit situation seemingly on the right track, investors who accepted stock-only dividends last year at $3.2199/sh are looking to be in good shape compared to those who were willing to take cash instead of discounted shares. Between my $1.80 purchase and the share dividend, my own basis has declined considerably. From my current position, I expect that as ACAS' NAV improves I'll see black ink again.
Preparedness
Slide 33 gives some color on ACAS' capacity to keep doing business. ACAS' closure of 7 offices and its slashing of headcount doesn't leave ACAS an empty shell waiting for the roof to collapse when creditors knock. ACAS retains 8 offices, 32 investment teams comprising 95 investment professionals, a 20-person operations team (to provide expertise and support to portfolio companies), and an audit and valuation team that reviews investments to do due diligence and portfolio monitoring on an ongoing basis. ACAS has folks whose jobs are to syndicate debt to third-party buyers, folks who perform various legal and human resources functions ... ACAS is a going concern, not an empty box of stock certificates.
ACAS appears entirely prepared for an active future.
Monday, March 1, 2010
Sunday, February 28, 2010
Starbucks Is Bad At Math
On 2/15, a the Starbucks on Montrose in Houston, I bought a drink for $3.84 using the card 6046 0431 9760 6044. Then, my friend arrived.
The guy who sold me my drink told me, when I tried to buy my friend's identical drink, that the card had been "killed" -- that I needed to pay more for the drink than was on the card. So I handed him a $20 bill and told him to put the change on the card. Because there was some money charged on the card before I handed him the $20, the change should have been MORE than $16.16. I was not given any change except the card, and I didn't get the receipt (the clerks were talking with a customer and I didn't want to interrupt; I assumed the card had been charged as instructed).
The next day I tried to buy a drink at the Starbucks at the intersection of Buffalo and Westpark. I was told that the card was empty. EMPTY! It had to have over $16.16!
When I called about this, the friendly and understanding customer service assistant said she'd sort it out by sending me some coupons. Coupons aren't cash, so I can't spend them where I want if I grow dissatisfied, and they won't qualify me for rewards so they're not the same as having my card reloaded, but enough coupons could put me in an acceptable position. It sounded fine. In fact, I felt sufficiently appreciative of her effort to solve my problem that I spent extra time answering a little survey to make sure her supervisors understood she'd taken care to understand and offer a plausible solution to my problem getting shortchanged while reloading a card.
But today, I opened the envelope with the coupons. I was baffled. Knowing that I was buying drinks that cost $3.84, the customer service associate – who knew I'd been shorted change from a $20 – sent two (2) drink coupons. Unless I'm buying $10 drinks, this is the worst math I've seen in ages.
With math like this at the home office, or with customer service like this to make sure regular customers get as irritated as possible, one fears for Starbucks.
I'll watch carefully to see how Starbucks sorts this out. I can always buy people a drink someplace else.
UPDATE: Starbucks also can't code a feedback page that works, either. The evidence is that "submit" doesn't work when, in a text window claiming to accept 2600 characters, it refuses to submit the form when there are 2217 characters remaining:
UPDATE II: Starbucks' page for submitting ideas is broken, too. Clicking to submit an idea (like "Starbucks could buy a calculator") yields an instruction to sign in. However, there is no sign-in window even after you click to sign in. Nice, eh? So I fished around to send the webmaster feedback on the broken card-reloading-page feedback form. The result was amusing for a page dedicated to receiving feedback on technical issues on Starbucks.com:
Given these execution issues, I'd wonder about Starbucks as an investment thesis even if the company didn't appear besieged by high-volume commodity vendor competitors.
The guy who sold me my drink told me, when I tried to buy my friend's identical drink, that the card had been "killed" -- that I needed to pay more for the drink than was on the card. So I handed him a $20 bill and told him to put the change on the card. Because there was some money charged on the card before I handed him the $20, the change should have been MORE than $16.16. I was not given any change except the card, and I didn't get the receipt (the clerks were talking with a customer and I didn't want to interrupt; I assumed the card had been charged as instructed).
The next day I tried to buy a drink at the Starbucks at the intersection of Buffalo and Westpark. I was told that the card was empty. EMPTY! It had to have over $16.16!
When I called about this, the friendly and understanding customer service assistant said she'd sort it out by sending me some coupons. Coupons aren't cash, so I can't spend them where I want if I grow dissatisfied, and they won't qualify me for rewards so they're not the same as having my card reloaded, but enough coupons could put me in an acceptable position. It sounded fine. In fact, I felt sufficiently appreciative of her effort to solve my problem that I spent extra time answering a little survey to make sure her supervisors understood she'd taken care to understand and offer a plausible solution to my problem getting shortchanged while reloading a card.
But today, I opened the envelope with the coupons. I was baffled. Knowing that I was buying drinks that cost $3.84, the customer service associate – who knew I'd been shorted change from a $20 – sent two (2) drink coupons. Unless I'm buying $10 drinks, this is the worst math I've seen in ages.
With math like this at the home office, or with customer service like this to make sure regular customers get as irritated as possible, one fears for Starbucks.
I'll watch carefully to see how Starbucks sorts this out. I can always buy people a drink someplace else.
UPDATE: Starbucks also can't code a feedback page that works, either. The evidence is that "submit" doesn't work when, in a text window claiming to accept 2600 characters, it refuses to submit the form when there are 2217 characters remaining:
UPDATE II: Starbucks' page for submitting ideas is broken, too. Clicking to submit an idea (like "Starbucks could buy a calculator") yields an instruction to sign in. However, there is no sign-in window even after you click to sign in. Nice, eh? So I fished around to send the webmaster feedback on the broken card-reloading-page feedback form. The result was amusing for a page dedicated to receiving feedback on technical issues on Starbucks.com:
Given these execution issues, I'd wonder about Starbucks as an investment thesis even if the company didn't appear besieged by high-volume commodity vendor competitors.
Thursday, February 25, 2010
Asian Beauties
While watching the Olympics' figure skating competitions, I realized I had seen some very nice Asian figures that I ought to have mentioned here.
The first are from China Armco Metals, the metal broker whose recent steel recycling plant investment will make it one of the top ten metal recyclers in China. Located within 3km of a deep-water port, and close to a major hub for automotive production (both a potential customer and a potential source of scrap, as local law requires auto manufacturers to recover and recycle abandoned vehicles), China Armco's facility seems well sited to take advantage of the steel industry as China begins firing on all cylinders during the worldwide economic recovery. Heck, why wait for the world? China needs steel now, has a large population with a growing middle class, and is consuming steel at a regular and growing pace.
China Armco's recent numbers include improvement, but don't show what investors need to know: those numbers are based on its old non-ferrous metals brokerage business. Although China Armco is growing its distribution business, that's not the company's future. And the future is bright: the company has gone from trimming 2009 revenue projections in its distribution business to announcing post-2008 recovery and predicting record revenues and projecting $0.45 or so profit per share in the full year of 2009.
The fact that China Armco will be earning these revenues in China offers an interesting hedge against the value of U.S. currency. Yet, these past earnings are not the reason China Armco is interesting. The company's future is in higher-margin production. The company's prospects have been discussed favorably from time to time online, but now that the company is listed on the Americal Stock Exchange under the symbol CNAM, it'll get more attention from analysts and will get noticed by folks who'd have shuddered to consider buying on the pink sheets.
CNAM currently trades 10x the earnings it projected for 2009, while offering a steady business in a currency that is deliberately kept mispriced and which could explode once China's government becomes unable to maintain the currency's artificially low value. It offers a chance to buy productive assets at a discount (being bought with underpriced Yuan), take a share of a business yielding an income stream in a non-US currency from a country lacking a banking or inflation crisis, and get a piece of China's expected national growth. It might not be getting in on the ground floor, but it's hard to get closer and be on a major exchange.
There are a few other Asian figures worth discussing, but it's late here in Houston. Good night!
The first are from China Armco Metals, the metal broker whose recent steel recycling plant investment will make it one of the top ten metal recyclers in China. Located within 3km of a deep-water port, and close to a major hub for automotive production (both a potential customer and a potential source of scrap, as local law requires auto manufacturers to recover and recycle abandoned vehicles), China Armco's facility seems well sited to take advantage of the steel industry as China begins firing on all cylinders during the worldwide economic recovery. Heck, why wait for the world? China needs steel now, has a large population with a growing middle class, and is consuming steel at a regular and growing pace.
China Armco's recent numbers include improvement, but don't show what investors need to know: those numbers are based on its old non-ferrous metals brokerage business. Although China Armco is growing its distribution business, that's not the company's future. And the future is bright: the company has gone from trimming 2009 revenue projections in its distribution business to announcing post-2008 recovery and predicting record revenues and projecting $0.45 or so profit per share in the full year of 2009.
The fact that China Armco will be earning these revenues in China offers an interesting hedge against the value of U.S. currency. Yet, these past earnings are not the reason China Armco is interesting. The company's future is in higher-margin production. The company's prospects have been discussed favorably from time to time online, but now that the company is listed on the Americal Stock Exchange under the symbol CNAM, it'll get more attention from analysts and will get noticed by folks who'd have shuddered to consider buying on the pink sheets.
CNAM currently trades 10x the earnings it projected for 2009, while offering a steady business in a currency that is deliberately kept mispriced and which could explode once China's government becomes unable to maintain the currency's artificially low value. It offers a chance to buy productive assets at a discount (being bought with underpriced Yuan), take a share of a business yielding an income stream in a non-US currency from a country lacking a banking or inflation crisis, and get a piece of China's expected national growth. It might not be getting in on the ground floor, but it's hard to get closer and be on a major exchange.
There are a few other Asian figures worth discussing, but it's late here in Houston. Good night!
Tuesday, February 23, 2010
ACAS Reports 4Q2009
American Capital Ltd. announced its results for the fourth quarter of 2009 and for the whole calendar year. First, the good news:
The bad news is that NOI will be under pressure as interest rates rise, because ACAS owes all the money it borrowed to make its investments – and owes lots of this at a floating rate – but ACAS can only collect on its performing loans. ACAS' effective rate on its private debt portfolio is 9.9%, which is better than prime but nowhere near what ACAS expected when it entered the deals it's got on the books.
Interesting news in connection with the debt restructuring: "we are working towards launching an exchange offer during March[.]" Exchange offer? If this means management is preparing to swap shares for debt in order to bring its debt:equity ratio in line with expectations, this could help confidence in ACAS as a going concern (because it's not in default, because it is in compliance with required ratios, etc.) and help ACAS shares trade without a significant discount to NAV. On the other hand, exchanging shares for debt is terrible: ACAS' portfolio was picked for being expected to perform better than the cost of debt, so trading the debt for ownership of (part of) the portfolio (by issuing shares) works against the whole thesis of ACAS' prior practice of borrowing to invest. I'd like to see the economics of this transaction before passing judgment. At the right price, this might not be bad – but at the wrong price this is a concerning possibility. On the other hand, "exchange offer" might simply mean exchanging one debt for another – making unsecured creditors into secured creditors, changing existing debt holders into holders of debt with updated interest rates and expiration dates, etc. What management means by "exchange offer" is something that needs some understanding to evaluate.
In the past, ACAS has been good (e.g., ECAS, whose ability to realize NAV has improved due to improvements in the status of its credit facilities) about making good deals by issuing shares below NAV. Based on the representations in the proxy statement, I favored this below-NAV authorization, too. Let's look forward to more good things, including more NAV improvement, as the end of the economy's free-fall becomes clearer.
In the meantime, let's look for evidence that ACAS has an effective plan to stabilize NOI and normalize its credit situation.
- NAV up to $8.29/sh, up from $7.80 at the end of 3Q2009 (6% over the prior quarter)
- Realizations of $476m in the 4th quarter, for annual realizations of $1.1B
- Unrestricted cash of $835m, up from $445m at the end of 3Q2009 and $500m at the end of October
- Net earnings were positive in the quarter again, with earnings of $0.38/sh for 4Q2009, up from a loss in the year-before quarter of $8.13. For the year, the net loss narrowed to $-3.77, up from $-15.29 for the prior year. (These numbers reflect FAS 157, and therefore some unrealized changes in value.
- The realizations were within 1% of reported "fair value"
The bad news is that NOI will be under pressure as interest rates rise, because ACAS owes all the money it borrowed to make its investments – and owes lots of this at a floating rate – but ACAS can only collect on its performing loans. ACAS' effective rate on its private debt portfolio is 9.9%, which is better than prime but nowhere near what ACAS expected when it entered the deals it's got on the books.
Interesting news in connection with the debt restructuring: "we are working towards launching an exchange offer during March[.]" Exchange offer? If this means management is preparing to swap shares for debt in order to bring its debt:equity ratio in line with expectations, this could help confidence in ACAS as a going concern (because it's not in default, because it is in compliance with required ratios, etc.) and help ACAS shares trade without a significant discount to NAV. On the other hand, exchanging shares for debt is terrible: ACAS' portfolio was picked for being expected to perform better than the cost of debt, so trading the debt for ownership of (part of) the portfolio (by issuing shares) works against the whole thesis of ACAS' prior practice of borrowing to invest. I'd like to see the economics of this transaction before passing judgment. At the right price, this might not be bad – but at the wrong price this is a concerning possibility. On the other hand, "exchange offer" might simply mean exchanging one debt for another – making unsecured creditors into secured creditors, changing existing debt holders into holders of debt with updated interest rates and expiration dates, etc. What management means by "exchange offer" is something that needs some understanding to evaluate.
In the past, ACAS has been good (e.g., ECAS, whose ability to realize NAV has improved due to improvements in the status of its credit facilities) about making good deals by issuing shares below NAV. Based on the representations in the proxy statement, I favored this below-NAV authorization, too. Let's look forward to more good things, including more NAV improvement, as the end of the economy's free-fall becomes clearer.
In the meantime, let's look for evidence that ACAS has an effective plan to stabilize NOI and normalize its credit situation.
Apple's Opaque Application Guidelines
While the Jaded Consumer previously argued that Apple's walled-garden approach to application deployment on its mobile devices was a win for security and customer experiences, the news on Apple's hard-to-understand policies on application availability has taken a turn for the strange.
Apple wants content on the iPad, including previously-published-on-pulp content whose vendors have had a rough time as the world has gone digital. However, applications that make amusing photo manipulations but don't include any photo content have been shut out of the store on the grounds that the apps contribute to complaints against the quality of what's visible to children (i.e., are not rated PG or cleaner). Hmm. Anybody notice this app? Ahh, but content from GQ, SI's Swimsuit Issue, or Playboy is safe, even if containing plainly-suggestive content or bald-faced pornography. (Granted, in pornography it's not the face that's typically depicted bald. Still.)
The real answer is obvious: place ratings on content and enable parental controls. Censorship shouldn't be about what Apple will let people view (Apple's position on Playboy and the Swimsuit Issue makes it clear Apple recognizes some material is so widely available that it's pointless to restrict one more outlet), but about making sure people don't accidentally disgust themselves. Want to not hear foul language in music? Want to not see nudity? This stuff is only a click away. Halting eBooks because a character uses a foul word is silly; foul language has been on the required reading in high school for years. The issue is how Apple will make sure that customers' experience is a quality one, not to make sure it's the experience they might find at a Disney attraction.
Get with the program. The quality of the experience is a big part of what makes people love products and shouldn't be ditched over something like a photo manipulation app that makes a user's own photos into a titillating experience.
UPDATE: Apple now reportedly offers an "Explicit" category for applications submitted by developers, which may go live soon. (Or not.)
Apple wants content on the iPad, including previously-published-on-pulp content whose vendors have had a rough time as the world has gone digital. However, applications that make amusing photo manipulations but don't include any photo content have been shut out of the store on the grounds that the apps contribute to complaints against the quality of what's visible to children (i.e., are not rated PG or cleaner). Hmm. Anybody notice this app? Ahh, but content from GQ, SI's Swimsuit Issue, or Playboy is safe, even if containing plainly-suggestive content or bald-faced pornography. (Granted, in pornography it's not the face that's typically depicted bald. Still.)
The real answer is obvious: place ratings on content and enable parental controls. Censorship shouldn't be about what Apple will let people view (Apple's position on Playboy and the Swimsuit Issue makes it clear Apple recognizes some material is so widely available that it's pointless to restrict one more outlet), but about making sure people don't accidentally disgust themselves. Want to not hear foul language in music? Want to not see nudity? This stuff is only a click away. Halting eBooks because a character uses a foul word is silly; foul language has been on the required reading in high school for years. The issue is how Apple will make sure that customers' experience is a quality one, not to make sure it's the experience they might find at a Disney attraction.
Get with the program. The quality of the experience is a big part of what makes people love products and shouldn't be ditched over something like a photo manipulation app that makes a user's own photos into a titillating experience.
UPDATE: Apple now reportedly offers an "Explicit" category for applications submitted by developers, which may go live soon. (Or not.)
Monday, February 22, 2010
Apple Selling Internationally
As foreshadowed in earlier posts about how Apple's software platform supported international expansion, Apple has moved in the last year from making the majority of its sales in the U.S. to making more than half its sales internationally. According to Gartner, Apple's globally minuscule share has taken a step forward when Apple became a top-five computer vendor France. Considering that Apple claims half the US computer sales share (not by units, which can be a money-losing place to compete, but by money spent), a trend toward success in the international market could be big.
Since Apple's operating system offers a single backdrop for all Apple's third party development, and is optimized by Apple for the specific hardware Apple ships (or in some cases Apple-designed chips), Apple's control offers it an advantage against competitors. Moreover, Apple's object-oriented and runtime-linked deployment environment means that as Apple updates system components from which developers inherit functionality, those developers' products inherit Apple's performance improvements. This inherited optimization goes deeper than Microsoft's ability to ship a "fixed" DLL applications might ask to perform functions: Apple's runtime linking means that commonly-used objects in the Cocoa environment, whose object-oriented-descendants appear in applications from every vendor of Cocoa applications, will not only answer to calls from applications for help from system libraries, but will appear in developers applications themselves and offer performance, stability, and security enhancements as soon as Apple deploys them -- without need of a developer update. Every bit of performance Apple wrings out of its Cocoa environment on any Apple platform will be multiplied in user benefit because the improvements will appear on re-launch in every application on the platform.
As performance becomes a selling point -- and the battery life of mobile devices has long been a selling point -- Apple's power to influence performance deeply in every application on the platform will enhance Apple's ability to deliver a product users will experience as superior.
Oh, and Apple's localization scheme allows developers to deliver one application to all users, and on launch the application will launch in the best-fitting language supported by the developer automatically based on the logged-in user's language preferences. Even multiple users on one machine can experience their favorite language with just one application installation. The days of separately-bought applications in different languages are numbered. Can you say worldwide installation image? Can you see how Apple would be the preferred platform vendor for international hardware partners?
Add to this Apple's apparent interest in supporting new hardware platforms, and one sees the makings of Apple as the basis for user-friendly interfaces on hardware all over the world. (The position described in the article involves managing the bring-up of the iPhone's operating system on new platforms and requires understanding of design at the system-on-a-chip level.) Apple's touch-interface UI and its embedded/SoC platform are an excellent way to license Apple's way into the UI of high-end consumer devices like car stereo/navigation, home security, DVR systems, and the like.
Expect more Apple products in different markets.
Expect Apple's sales, PC and non-PC, domestic and foreign, to continue to improve.
Since Apple's operating system offers a single backdrop for all Apple's third party development, and is optimized by Apple for the specific hardware Apple ships (or in some cases Apple-designed chips), Apple's control offers it an advantage against competitors. Moreover, Apple's object-oriented and runtime-linked deployment environment means that as Apple updates system components from which developers inherit functionality, those developers' products inherit Apple's performance improvements. This inherited optimization goes deeper than Microsoft's ability to ship a "fixed" DLL applications might ask to perform functions: Apple's runtime linking means that commonly-used objects in the Cocoa environment, whose object-oriented-descendants appear in applications from every vendor of Cocoa applications, will not only answer to calls from applications for help from system libraries, but will appear in developers applications themselves and offer performance, stability, and security enhancements as soon as Apple deploys them -- without need of a developer update. Every bit of performance Apple wrings out of its Cocoa environment on any Apple platform will be multiplied in user benefit because the improvements will appear on re-launch in every application on the platform.
As performance becomes a selling point -- and the battery life of mobile devices has long been a selling point -- Apple's power to influence performance deeply in every application on the platform will enhance Apple's ability to deliver a product users will experience as superior.
Oh, and Apple's localization scheme allows developers to deliver one application to all users, and on launch the application will launch in the best-fitting language supported by the developer automatically based on the logged-in user's language preferences. Even multiple users on one machine can experience their favorite language with just one application installation. The days of separately-bought applications in different languages are numbered. Can you say worldwide installation image? Can you see how Apple would be the preferred platform vendor for international hardware partners?
Add to this Apple's apparent interest in supporting new hardware platforms, and one sees the makings of Apple as the basis for user-friendly interfaces on hardware all over the world. (The position described in the article involves managing the bring-up of the iPhone's operating system on new platforms and requires understanding of design at the system-on-a-chip level.) Apple's touch-interface UI and its embedded/SoC platform are an excellent way to license Apple's way into the UI of high-end consumer devices like car stereo/navigation, home security, DVR systems, and the like.
Expect more Apple products in different markets.
Expect Apple's sales, PC and non-PC, domestic and foreign, to continue to improve.
Saturday, February 13, 2010
ACAS: Confusing News
The news that ACAS shareholders have approved issuing shares below NAV will no doubt result in share price depression as people banking on a return to NAV lose hope.
Are they right to bail?
Depends where you stand.
If you believe that management can't value investments, then you should bail regardless whether ACAS does or does not issue more shares. If you believe management does not warrant your confidence, invest elsewhere. Since the first quarter of 2009, when ACAS last entered one of these below-NAV issuance transactions, ACAS has done pretty well.
If ACAS wants to repeat that feat, I say let 'em.
Nicolas Marshi's apparent argument that funds raised in the issuance could be paid to lenders makes little immediate sense. Although ACAS' 4Q2009 results are not yet published, ACAS enjoyed $463m in realizations in 3Q2009 and ended that quarter with hundreds of millions in cash: "Unrestricted cash and cash equivalents totaled$445 million as of September 30, 2009 and approximately $500 million as of October 30, 2009 ." This cash trove was presumably intended to satisfy the expected cash pay-down of debt obligations under its already-developing agreement with creditors. Adding a couple hundred million in a defensive move against a future payment date makes little sense: if ACAS didn't meet internal guidelines for raising capital for pay-down, ACAS could always have an emergency fundraiser later.
If one credits management's competence, one likes to see management gain the freedom to make deals for shares. Meanwhile, there are genuine distress opportunities to be had, and ACAS has a division specializing in distress opportunity. A while back, ACAS was itself one of the distress opportunities. However, its 6.85% unsecured notes due in 2012 have gained value from "up to in the 60s" to $0.97 on the dollar.
I don't think ACAS' transaction is retiring its own debt, unless there's some illiquid debt not priced as quoted above. I suspect distressed opportunities.
Are they right to bail?
Depends where you stand.
If you believe that management can't value investments, then you should bail regardless whether ACAS does or does not issue more shares. If you believe management does not warrant your confidence, invest elsewhere. Since the first quarter of 2009, when ACAS last entered one of these below-NAV issuance transactions, ACAS has done pretty well.
If ACAS wants to repeat that feat, I say let 'em.
Nicolas Marshi's apparent argument that funds raised in the issuance could be paid to lenders makes little immediate sense. Although ACAS' 4Q2009 results are not yet published, ACAS enjoyed $463m in realizations in 3Q2009 and ended that quarter with hundreds of millions in cash: "Unrestricted cash and cash equivalents totaled
If one credits management's competence, one likes to see management gain the freedom to make deals for shares. Meanwhile, there are genuine distress opportunities to be had, and ACAS has a division specializing in distress opportunity. A while back, ACAS was itself one of the distress opportunities. However, its 6.85% unsecured notes due in 2012 have gained value from "up to in the 60s" to $0.97 on the dollar.
I don't think ACAS' transaction is retiring its own debt, unless there's some illiquid debt not priced as quoted above. I suspect distressed opportunities.
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