Category Archives: finance

Does an $intc short make sense?

30 Wednesday Apr 2014

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Job postings suggest Amazon is planning to make its own ARM-based servers.

Google eyes Power chips

Software Engineer, ARM Server ($FB)

Looks like everyone is evaluating ARM servers; makes sense to me. Small, cheap servers that can saturate a 100Mbps network connection…

I think $INTC is under attack on all fronts:

Servers: ARM could make serious inroads (classic Clayton Christensen, the innovation looks like a toy, flies under the price umbrella till it’s too late for the incumbent, who cannot (or will not) self-cannibalize based on something that looks like a toy …)

Mobile: $QCOM, $AAPL, SMSN:LI rule here…

Desktop/Notebook: As I posit in my last article, $AAPL may make a move here (or not). But the fundamental thesis is the same. Desktops will move to from the Core variants to the Atom variants. They’re nearly good enough now. $MSFT providing Windows free for low-end boxen? It’ll only add to the fire.

If the move from Core/Xeon series is towards Atom – it will margin compression. If it’s towards ARM, it will mean substantial loss of market share. And $INTC is now setup to be a player at scale. Not sure if they can compete like a scrappy little startup anymore. I wonder if that’s left in the DNA?

As a long term $INTC fan – nearly every compute device I’ve bought had Intel Inside, this marks the end of an era to me….

When will the transition be visible in stock prices? Is much of this already priced in?

With $INTC trading near the top of it’s 52W range ($27.24) I think the risk (for a short) is quite low. Say about $4  = 15% ($31), which is where many analysts are calling it. The gain could easily be $7 = 26% ($20). I think it’s time to nibble a bit…

Red:

Short interest seems to be under 1% of the float, why is it so low?

PE ratio is just 14; multiple expansion is easily possible if $INTC shows signs of life in the mobile space. $INTC has been talking about a better radio, which seems to be a key weakness for them….

There could be a revival in the desktop space (unlikely IMHO).

The main risk I see is that the move could take longer than I can hold … will a move take more than a year?

Amber:

I just love the Xeon Phi (in abstract terms). Can’t see the whole point of Tesla/GPU compute if you can do cheap enough, dense enough full-featured cores. A whole bunch of ‘em. But then there’s the fun projects like Parallella. The software effort required for to write apps for GPU compute languages has never made sense to me.

Green:

NUC is a joke.

Atom in the Datacenter means severe margin compression. ‘Course an Atom doesn’t measure up to the raw compute of the Core / Xeon E series … but then the price differential is substantial.

What’s the $INTC bull case?

1) Success in mobile – scaling down the Ivy-Bridge architecture to be competitive in the 2W TDP space.

I think $INTC is competitive already – but it’s not leading to design wins because:

1.1) Low-end is extremely price-conscious; INTC realistically has not much   chance of competing in this space. Sure they can ‘bribe’ companies (contra-revenue as they’re calling it) to use INTC, but I think this is akin to buying eyeballs….pointless in the medium term.

1.2) High-end, there’s no market outside of AAPL, SMSN and neither is going to use INTC at the moment. Perhaps Nokia (err… Microsoft Mobile Oy) may give it a shot? Lenovo? maybe, but really I can’t see a third player (at any scale) for at least the next few years.

Can INTC use the leverage it has – in terms of desktop/server to bully Apple? Don’t think so — Apple is perhaps one the largest single customers for INTC, they need Apple more than Apple need INTC.

2) Datacenter growth continues un-abated, with Intel continuing to rule the roost, picking up another couple of percent in terms of market-share by destroying what little remains of AMD?

I certainly think Datacenter will continue to grow pretty fast. The cloud is more important than ever. Indeed INTC bet that growth in mobile would require equivalent growth in datacenter and the margins in datacenter were much fatter….(find quote from outgoing INTC CEO here…). Is the relationship linear?

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Apple, intc

25 Friday Apr 2014

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I just had an idea. There’s some rumours that $AAPL is about to introduce a 12″ fanless, retina MacBook Air. Could this be the first non-$INTC MacBook? A MacBook Air that uses an Apple designed and fabbed, ARM ISA chip? 

“Kou says that Apple is working on an ultra slim 12-inch MacBook Air with some updated specifications. The new Air is said to be thinner than the current model, have no fan, and to feature a track pad with no buttons. A higher resolution display is also tipped, presumably of Retina quality.”

From <http://www.slashgear.com/12-inch-macbook-air-retina-rumors-surface-for-late-2014-launch-10324626/>

Why would Apple want to use a non-Intel chip?

The single biggest item in an MacBook Air’s Bill of Materials (BOM) is the CPU. Replacing the CPU will allow Apple to compete in the $500-700 laptop space while retaining margins.

Also there is now not that much to differentiate between a MacBook Air (13″) and a MacBook Pro (13″) in terms of weight and size. What is a logical evolution of the MacBook Air line? Especially if we assume that the Pro will slim down further, reaching or exceeding Air size?

The MacBook Air is defined by small, light, portable compute… it makes sense to drop the fan, slim down even more etc. This to me suggests a move to either an Intel Atom or an Apple designed & fabbed, ARM ISA chip, perhaps an ‘X8’ desktop chip instead of the A8 mobile.

Moving to an Atom would allow Apple to go fanless, reduce size, maintain battery life (even with a shrink in battery capacity, size and weight) while retaining compatibility with the x86/x64 binaries & drivers. But this can be replicated by others. Acer/Sony/Google or even a newly invigorated MSFT could make an Atom based laptop. They’ve kind of done this already – in the form of netbooks – though I think the timing wasn’t quite right – simply because the Atom’s of last year simply did not have the oomph to make it. Apple owns the OS and the hardware (apart from the CPU). Why not continue backward integration and take over the CPU too?

I’ve always been wondering why Apple, with it’s huge cash pile, doesn’t simply buy out INTC (or AMD) and the only answer I’ve been able to come up with is that Apple’s making its own fab. If you believe the semi-accurate news published by semiaccurate.com – then there’s reason to believe that Apple’s busy making its own fabs.

Napkin Math

MacBook Air current generation (mid-2013) retail price: $999 ($1099 for 13″ model with same CPU).

Intel Core i5-4250U, Tray: $315,  http://ark.intel.com/products/75028/

Apple A7, Tray: $20 (estimated)

Intel Atom E3827, Tray: $41

The Core i5 has a 15W TDP; 1.3 Ghz clock (turbo to 2.6Ghz); 2 cores, 4 threads. Sunspider 250ms.

The Apple A7 has a 2W TDP; 1.3Ghz clock; 2 cores, 2 threads. Sunspider 397 ms.

http://cpuboss.com/cpus/Intel-Core-i5-4250U-vs-Apple-A7

It’s not looking all that different! Esp. when you take into account that the A8 will be twice as fast (think Tegra K1) – i.e – a Sunspider score of 200ms maybe?

Any evidence at all?

Apple’s been calling the A7 a ‘desktop’ class chip. If the A8 is twice as fast, in a similar power envelope…. 

Thoughts

Assuming I’m not waaay off the mark: Will Apple upscale iOS or downscale OSX? Will it make:

  • A netbook : with downscaled OS X (+Atom)
  • A chromebook : with a whole new OS, i.e. not iOS and not OSX
  • Something entirely different: an upscaled iOS (with better keyboard integration?)

I think it’s a Chromebook – that’s the model that seems to be gaining traction (evidence: MSFTs anti-chromebook ads). Netbooks are dead, everyone knows that.

An `AirBook’ implies a new OS. Which lends a little more credibility to the idea of a new CPU …

Yet Another Use for the bitcoin ledger…

25 Friday Apr 2014

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From a recent email (estimize.com) comes this very interesting idea:

“Imagine a stock market where every trade has to be conducted on a public ledger for all to see. The SEC wouldn’t even have to lift a finger to find out who is doing insider trading. Because when one person commits insider trading it hurts other investors, the investment community would write algorithms to catch each other conducting illegal trading activity. Then they would report the public address codes of traders involved in highly suspicious activity to the authorities. From there the regulators would have some way to investigate and identify the perpetrator if the evidence was sufficient . Everyone would still be pseudonymous until the SEC is handed a complaint, then it could act as the enforcer that it’s supposed to be and crack down on the illegal activity discovered by other traders.

Crime and law enforcement have always been and will always be in a technological arms race. Utilizing the transparency of the blockchain protocol and shifting the burden of detection away from the SEC and into the hands of the crowd could be a much better way to do it. Other traders obviously have a much stronger incentive than the SEC to be vigilant and proactive in eradicating insider trading because they’re the ones who stand to lose money when it goes undetected.”

Shiny apples

12 Saturday Apr 2014

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[Edit: 17-Apr-2012, scuttlebutt is the iPhone 6 will cost $100 more than the iPhone 5s (retail) and that Apple is asking telcos to absorb some of this increase, to which there is some push-back. See bottom of post for more analysis.]

Idle speculation, whilst on the treadmill ….

Where could $AAPL be planning to use its Sapphire? (too much smoke for there not to be a fire; Apple’s planning something to do with Sapphire, but what?)

1) iPhone screen – ok, so every other dude and his dog, thinks this is the plan.

Criticisms: It’s too expensive – about 10x the cost of Gorilla Glass ($GLW) they say

It’s too heavy, denser than Gorilla Glass….

It’s harder, but not more shatter proof. It’ll scratch less but may not be more durable.

It’s less transparent.

So assuming all of the above is true to some degree:

It’s heavier, less transparent, at greater risk of shattering and costs 10x more –> but is much more scratch-resistant. There’s some scepticism…but is it a case of hater’s gonna hate?

2) iPhone Back – no one’s saying this (at least no one I’ve heard as yet …)

iPhone backs (the metal bits) are what seems to get scratched the most; a very thin sheet of Sapphire coating the back would make it super-awesome. Shatter-resistance would come from being bonded to the metal underneath?

3) Trackpads – Sapphire is insanely smooth; much much smoother than glass. Fingers glide so much more freely.

Not as big as screens. Less to worry about in terms of weight and transparency. Perhaps it’s trackpads on MacBooks?

4) Some new device altogether – perhaps some kind of remote….?

Go on, tell me what you think ….leave a comment….

It has begun ….

29 Monday Mar 2010

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The globalization of the internet …

  • Google: 890mm worldwide visitors, 745mm non US – 84% non US
  • Facebook: 471mm worldwide visitors, 370mm non US – 78% non US
  • Twitter: 74mm worldwide users, 53mm non US – 72% non US

The BRIC countries are going to be the most important markets going forwards…. now is the time to invest in Internet properties in India/China etc. Properties with an Indian focus like say Rediff.com are going to be increasingly important, possibly more important than Facebook and Twitter in the coming decade.

All your base….

Note: stats nicked from a post by Fred Wilson who is superb at detecting trends before they’re "trendy”.

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CoCo’s reinvented …

19 Friday Mar 2010

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I just love how the FT can misreport stuff and get away with it. Like “Snakes on a Plane”, it’s so bad, it’s good!

Check out:

http://www.ft.com/cms/s/0/76bc2ae2-e34c-11de-8d36-00144feab49a,s01=1.html

“Are they bonds? Are they stocks? Or are they actually catastrophe insurance?

Bankers declared the birth of a new asset class – contingent convertible capital notes, nicknamed CoCos – after Lloyds Banking Group announced a successful take-up of a £9bn exchange of CoCos for some of its existing hybrids.

Regulators think these instruments are the answer to banks’ capital prayers because they clear up the uncertainties of existing hybrids by converting into equity at a pre-set trigger and price.

But how do CoCo bonds work? Our interactive feature explains.”

You’d think that CoCo’s are a new asset class?

Nope! Old scam. CoCo’s were used as a means to inflate reported earnings. You did not have to report CoCo’s as equity when computing fully diluted earnings. You could pretend the contingency would never arise and therefore, pretend that your yield was that much higher than any sensible definition (based on pragmatism) would allow.

In 2004:

“I don’t like deals that don’t have a real reason other than an accounting gimmick," says Ted Southworth, a fund manager at Northern Trust. The CoCo, he says, is "close enough to a gimmick that we’d probably be better off without it."

Possible Accounting Change May Hurt Convertible Bonds
Aaron Lucchetti.  Wall Street Journal (Eastern Edition). New York, N.Y.:Jul 8, 2004.  p. C.1

In 2005:

FASB Rule 128 dented the enthusiasm somewhat. CoCos became forgotten. Now being revived with the active connivance of the FASB which has been diluting all kinds of rules off late 🙂

In 2009:

So why is this old scam being revived? ‘Cuz CoCo’s count as equity when it comes to computing “Tier-1” Capital. Figured that out from the FT’s interactive graphics? Good on you!

So what happens when err… a bank’s totally safe, ‘AAA’ rated assets fall in value? CoCo’s convert into? worthless equity further diluting existing shareholders, causing equity value to fall, triggering "protection” money being robbed from us tax payers. And we can blame it all on the “derivatives” bogey-man.

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India Budget 2009 – Early Reaction

06 Monday Jul 2009

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Nothing big bang; disappointing overall

Sensex Down:Sensex on Jul 6 2009

Notes

  • Surcharge on personal tax scrapped.
  • Fringe benefit tax scrapped.
  • Personal tax limit increased to 2.4 lakhs for senior citizens , 1.9 lakhs for women, 1.6 lakhs for others
  • No change in Corporate tax.
Disappointing for housing, they were expecting a lot more.
Only small changes in terms of personal tax — which means people will have a little more to spend. Perhaps this will benefit FMCG. Certainly not enough for housing.
Fairly good for infrastructure, some bank loans will be refinanced but less than expected. Hence infra stocks down
Emphasis on education
Good for IT Sector. Earlier had to pay excise & service tax –> now pay only service tax on transfer of licenses
Overall some simplification of taxes.

Budget Highlights http://indiabudget.nic.in/ub2009-10/bh/bh1.pdf

Full text of Pranab Mukherjee’s Speech: http://indiabudget.nic.in/ub2009-10/bs/speecha.htm

Coverage on Yahoo Finance: http://in.budget.yahoo.com/live-coverage.php

Agency Ratings – An idea

03 Friday Jul 2009

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Attending a CF class at the moment, where we’re talking about ratings (‘AAA’) and the like. Just wondering why people would bother with agency ratings when its clear that most agencies have really pathetic track records.

Why not just use an implied rating? I mean the spread between a company’s current cost of debt and govt. cost of debt scaled to between ‘AAA’ and ‘BBB-‘ or something…? We use implied vol, implied corr, implied everything … so why not implied rating?

Consider http://www.mscibarra.com/resources/pdfs/market_implied_ratings.pdf … really straightforward. Take a peek at Table 1 (from the paper)

46% of companies with an ‘AAA’ agency rating have an implied ‘AAA’ rating.

54% of companies with an ‘AAA’ agency rating have a different implied rating! Shocked?

Just Google for “implied ratings”. Tons of good material

I mean if we don’t need to pay S&P it is better for the world economy as a whole right?

I think it would be a good idea to setup a neat open-source, implied rating website for the common good.

  • What is a good source of bond spreads (free, open)?
  • What are the rules relating to the use of S&P ratings? Are they available free for use on a website?

Update 22/7/09
Just noticed this. SACRAMENTO — The nation’s largest public pension fund has filed suit in California state court in connection with $1 billion in losses that it says were caused by “wildly inaccurate” credit ratings from the three leading ratings agencies.

Update 17/01/10

Really good video which explains the whole problem. Just realized that Fitch, Moody’s and S&P are the only three agencies that have a mandate from the government. This means that pension fund managers and others who are forced to buy ‘AAA’ rated securities must rely on the dodgy and obviously crap ratings given by Moody’s, Fitch & S&P.  Why not let the fund manager decide what to buy and find some other way to align the fund managers interest with that of the funds beneficiaries? I mean that’s what everyone else does right? Trying to align manager’s incentives with their own and then let the manager do whatever he/she likes?

In the meantime .. need to think of a good way to profit from this “insanity”