Tag Archives: mature isvs

27
Jan

Lessons learned from Microsoft’s Q2 2015 Earnings Report

Posted by | Categories mature tech business | Tagged , , , , ,

2-Color-Design-Hi-Res-100px-widthIn the aftermath of Microsoft’s Q2 FY 2015 earnings conference call and webcast, it is clear a number of well respected Wall Street Analysts–including Rick Sherlund of Nomura Securities–have re-calibrated their future earnings expectations for the company. Sherlund now has a “hold” on the stock. Walter H. Pritchard of Citi changed his rating to sell; readers can read about Pritchard’s opinion in an article published on the StreetInsider.com web site titled UPDATE: Citi Downgrades Microsoft (MSFT) to Sell.

The important points, for me, from the webcast include the following. These points lead me to change my own opinion as to the near term future performance of the business:

  1. Microsoft management (Satya Nadella) presented the Hololens in the context of Windows 10, “Universal Apps” and the consumer market for PC operating systems
  2. Satya Nadella also reported on serious obstacles to further growth for Microsoft for the China and Japan markets
  3. Big improvements in the subscriber numbers for Microsoft’s cloud, IaaS, SaaS, and PaaS businesses (Azure, Office 365) did not translate into big revenue numbers
  4. Management was sanguine about the near term future potential for the business, contributing to the downward revision of earning forecasts
  5. Lots of opinions have been voiced about just what the earnings statistics portend for the company. A writer for the Geekwire website identified weaknesses in the devices market. Pritchard’s rating, which I mentioned above, made references to the cost of new product launches (coming this year) as a big drag on revenue. There are many more, which I do not need to summarize here

These 5 points, when considered alongside Microsoft’s ability to still hit the earnings estimate and actually exceed the expected revenue performance for the quarter, lead me to surmise we are all watching a business do what it needs to do to hit its numbers in whatever manner it can. Blackberry is another example of this type of performance. The method may not please the analysts, but the achievement remains the same.

One comment on the drop in OEM revenue for hardware devices: perhaps a contributor to this drop was management’s decision not to charge for licensing the Windows O/S to hardware OEMs building devices with screens 8 inches in size, and smaller. Unfortunately I did not hear this question asked during the webcast. But if this is the case, the tactic still makes a lot of sense, in my opinion, to protect the low end of the market from further incursion by Google’s Chrome O/S.

On the topic of the target market for the Hololens: I was disappointed to hear Satya Nadella affirm a consumer market target, short term, for the device.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

5
Jan

Intel brings to market 5th generation CORE processors

Posted by | Categories mature tech business | Tagged , , , , , , ,

2-Color-Design-Hi-Res-100px-widthOn the first day of the Consumer Electronics Show (CES), 2015, Intel® introduced its line of 5th generation CORE™, “Broadwell”, processors. These new additions include the CORE m processor, which was introduced in early December, 2014, and is notable as a first in consumer grade 14 nm chip technology.

Don Clark wrote about the debut of these CPUs in an article titled Intel Unveils New Flagship ‘Broadwell’ Chips for PCs. Intel has provided new pages on its website promoting these new CORE processors.

Readers unfamiliar with why the debut of consumer-grade 14 nm computing technology is an important event should consider the Microsoft Surface Pro 3 2 in 1 computer (tablet and laptop). The Surface Pro 3 empowers users with a completely functional personal computer powered with Microsoft’s Windows 8.1 O/S (not the Windows 8.1 RT O/S powering the Surface 2) in an ultra lightweight, comparatively small hardware form factor.

The capability of this hardware form factor (which works fine without a fan) to run completely standard versions of the current Microsoft O/S release should not be under-appreciated. HP is presently selling a model of its Envy consumer-grade PC line, powered by a CORE m and 8 GBs of RAM. This hardware can easily support a Linux Virtual Machine, not to mention any of the 3rd party software targeted to the Windows 8.1 user community.

Price is a drawback. HP displayed a price of $949.99 for the Envy device on its website on January 5, 2015. On the same date, I noted Lenovo promoting a “Yoga 3 Pro 2-in-1” powered by the CORE m at an even higher price of $1,199.00.

The initial market for this technology is, therefore, the high end of the laptop/notebook consumer, which may limit its sales promise to consumers in need of a refresh for existing hardware. But a combination of better marketing communications, together with consumer appreciation for the capabilities of the hardware I have not discussed in this post (readers are recommended to read Clark’s post, or to review the pages I have mentioned on Intel’s website to obtain this information), should help these devices make a positive contribution to the Intel OEMs opting to bring them to market.

I will discuss the marketing communications point in the next post to this blog. The point of the communications effort is to better inform consumers about the benefits of devices like these, which are powered by a full-featured O/S (Windows 8.1), versus lower cost competitive options with neither the support of a comparable O/S, nor a reliable promise of an upgrade path given a plethora of versions (I’m thinking squarely about Android here).

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

28
Oct

Let’s not underestimate the importance of hybrid cloud computing to Microsoft’s recent successful business quarter

Posted by | Categories mature tech business | Tagged , , , , ,

During Microsoft’s recent Q1 2015 earning conference call, Brent Thill of UBS asked a question at the start of the analyst Q&A. This question provided Satya Nadella with an opportunity to present something about the importance of hybrid cloud computing to Microsoft’s success for the quarter. When asked what makes Microsoft’s cloud experience different from its peers, Nadella answered:

“As it turns out the technology that we build for our cloud is what we incorporate in our server products, in fact our R&D expense is the same expense. And that’s made our server products very competitive. And so again those our traditional competitors we’re seeing significant share gains across the entire infrastructure line of our server products in particular. And we hope to architected our cloud very differently. We are the only hyper scale cloud provider that also thinks of our server product at the edge of our cloud.” (quoted from a transcript of Microsoft’s Q1 2015 earnings conference call as published on Seeking Alpha)

The reference to “server product at the edge of our cloud” introduces hybrid cloud computing — where on premises and cloud servers are architected into a coordinated, comprehensive computing solution — to this otherwise purely financial discussion of Microsoft’s business performance for the quarter.

Microsoft certainly is uniquely capable of demonstrating the veracity of Nadella’s point, at least with regard to its more obvious cloud competitors — Google and Amazon. Noticeably absent from the comparison was IBM, which, (along with other mature ISVs firmly established in the typical data center for a large enterprise business), is, truly, an example of the only competition Microsoft is likely to face for this application of client server computing. Neither Google, nor Amazon supports an installed base of on premises client server computing for their own IP, so they cannot compete with Microsoft in the hybrid cloud computing space.

Regardless of who else offers solutions capable of satisfying enterprise business consumer appetite for this type of computing method, the appetite is nevertheless real and strong. A lot of research is available on the topic from most of the most popular analysts, but for readers otherwise unfamiliar with market demand for this type of computing platform, take a look at this blog post published yesterday, by Richard Fichera, and Analyst at Forrester®.

In this writer’s opinion a lot of the momentum in Microsoft’s cloud earnings report can, and should, be attributed directly the role played by Microsoft’s installed base of hybrid cloud systems. We have first hand, absolutely current experience with SharePoint and how organizations are implementing Office 365, SharePoint Online, in conjunction with SharePoint on premises. These organizations represent, literally, thousands of users. Therefore, the financial impact of this customer base should not be underestimated.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

24
Oct

Google’s earnings for the latest quarter miss analyst estimates, leading to some negative sentiment on the long term health of its ad business

Posted by | Categories mature tech business | Tagged , , , , ,

On Thursday, October 16, 2014, Google reported earnings after markets here in the US closed. Fiscal performance for the latest quarter failed to meet analyst expectations, for both sales and net income. A lot of business writers produced copy on the topic of whether or not Google’s performance for Q3 2014 says something about the future of their core business — meaning pay per click (PPC) advertising.

We think the quarter’s performance does say something on the above mentioned topic. Click advertising, with Google at the helm, has been a big example of how to move the kind of “lowest common denominator” marketing communications found everywhere on television, to the web. Instead of evolving into a tool promising big returns to average advertisers (meaning SMBs), PPC advertising has become even more difficult to capitalize upon, especially for intangibles.

This trend doesn’t look to change anytime soon. A big factor putting “meat to this motion” is the obsession of Wall Street with explosive growth. The only venue where advertisers can expect explosive growth in the number of ad impressions, is mobile computing, which is dominated by small screens (smart phones and tablets). So click ad campaigns have to be built to look good on “cards”, etc.

But does anyone looking for a complex solution to a business need think about surfing the “mobile web” from a smart phone to find a solution? We don’t think so. Apparently a lot of Google’s advertisers agree. The company reported an over twenty five percent drop in the rate of growth at which its paid click business is growing (17% for the current quarter vs 25% for the same quarter in fiscal 2013), year-over-year, for the 3rd Quarter 2014. This drop might not look like a big deal to Google fans, but to anyone considering the quarter from a perspective to render an opinion as to the long term viability of the click ad business, “it ain’t looking too good”.

We don’t think Google is especially pleased with its core business, hence all of the efforts it continues to make to horizontally stretch the horizon of its business into completely disconnected product paths. Maybe someone will sum all of this product marketing chaos into the picture of a “right move”, but we don’t think this likely until one of these forays into the “wild blue yonder” of tech product land takes off.

Will it be robotics? Self Driving Cars? Cheap DNA tests? Smart Phones as eye glasses? We’re not sure, but stay tuned. Google is sure to go there, and go there before anybody else. At least as long as they have the cash to pay for the ride.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

6
Oct

Google continues to challenge sensible technical product marketing principles to what end?

Posted by | Categories Commodities | Tagged , , , , ,

In an interview with Bloomberg TV’s Market Makers show, which was recorded on Wednesday, September 24, 2014, Eric Schmidt echoed what should now be considered a familiar position held by most mature ISVs. On the topic of product marketing, he noted Google’s interest in working with people looking to build big products, rather than with people looking to enter new markets. Schmidt referred to this type of person as a “smart creative.” The dialogue between Schmidt, Stephanie Ruhl, Eric Schatzker, and former Google Senior Vice President Jonathan Rosenberg (who co-authored a book with Schmidt) was filled with abstractions, depicting these “creatives” “building products for this new world” based on their “[belief] in the slogans” as they go about “living the vision”.

Anyone watching this interview will likely note a curious disconnect between the implicit passion of these terms and the matter-of-fact manner in which they arose in the conversation between the participants. To their credit, Ruhle and Schatzker exhibited more passion than either Schmidt or Rosenberg. So, when Ruhle attempted to pull the cover off the table and asked Schmidt if “the rhetoric is, perhaps, too flowery”, Schmidt’s reply, which claimed Google’s hiring process actually includes a candidate screen on the topic of “do they care about changing the world”, rang something less than true, at least to this writer’s ear.

But neither the demeanor of the participants in this interview, nor the color of the language is the reason for this post. What is the reason for this post is what we think is an unfortunate misreading, which appears to be spreading across a lot of the public relations content we review from mature and early stage ISVs, of what markets are about and why they need products. There isn’t enough space in this post to treat such a broad topic, but the core of it is worth some words:

In this writer’s opinion, “changing the world” has become a rationalization for building products either completely irrelevant to palpable market needs, or products intended to stimulate markets to produce needs. We think both of these rationales are far off target. Perhaps they are simply euphemisms for the kind of buckshot product marketing approach characteristics of businesses with a lot of cash and little sense of direction of where they ought to go next.

As we have written earlier in this blog, we don’t think product marketing works if “creatives” ignore market needs.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

16
Sep

New Product Introductions, Hosted by Big Tech Businesses, as a Genre of Marketing Communications Event, Need a Makeover

Posted by | Categories Communications | Tagged , , , , , ,

Mature ISVs, including Microsoft, Apple, Google, Oracle, and Salesforce.com, to mention merely a few of the most prominent businesses in this industry segment, have made a habit of hosting new product exhibitions on a quarterly, or semi-annual basis. One of the usual objectives of this genre of corporate event is to magnetize someone prominent in the media to write about the new device before her, or him, as a great example of innovation. But, if some of the new products under scrutiny are representative of current trends in product marketing, perhaps the term innovation, itself, needs a makeover. Therefore, these events, in this writer’s opinion, may prove to be more of a waste of cash than anything much more.

Apple’s debut of the iPhone 6, and the iWatch on September 9, 2014 is a case in point. An enormous amount of editorial content has been created around the event, and, one can argue, Apple has benefited from a public relations success. A substantial segment of its target consumer market is sure to have more awareness about the products exhibited than would otherwise be the case.

But, we would argue, the public relations currency, upon which the presumption of benefit from the event is based, is grossly inflated. One buck in this new currency has the buying power, this writer would argue, of a penny of the older PR currency these events used to create.

The problem at the root of this spreading worthlessness, is a real disconnection between the items debuted and any semblance of a panacea for the burning needs of the targeted consumer market for the product category. In this writer’s opinion, the iPhone 6, the iWatch, and Apple’s announced tap and pay payment system are not what most consumers of smart phones, wrist gadgets and retail shoppers are after. It would not be a surprise if sales prove to be much lower than anticipated for these devices.

The difficulty of the notion of innovation is the abstraction inherent to the term. Innovation simply means different things to different people. But perhaps the common landscape beneath most credible notions of innovation includes the familiar accoutrements of either substantial lower acquisition and life cycle maintenance costs for consumers, or a substantially increased set of functionality. If either, or both of these types shrubbery are absent, there is little likelihood anything really innovative is at hand and we are all standing in a desert.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

26
Jun

Blackberry is Turning Around, But at a Slower Pace Than Previously Expected

Posted by | Categories Investors | Tagged , , , , , , ,

Blackberry reported on earnings for the first quarter of fy 2015 on Thursday, June 19, 2014. As reported on the MobileWorldLive web site, John Chen, CEO, mentioned a likely return to profitability in fy 2016. But the pace of improvement is much slower than expected, based on management comments from earlier earnings reports.

Does the gap between the timeline Mr. Chen presented back in December, 2013, as part of his presentation to investors, and his latest pronouncements present a challenge for anyone following the performance of this business? Back then, many proponents of Mr. Chen’s ascendancy to the CEO position at Blackberry spoke positively of his past successful experience turning around Sybase, and seemed to look forward, eagerly to the second phase of his plan — marketing BlackBerry’s Messenger service to the market for enterprise mobile device management (MDM) software.

But, as I wrote earlier to this blog, Gartner has since released its Magic Quadrant for Enterprise MDM. Unfortunately, BlackBerry’s BBM is included, simply, as a “niche solution”, and certainly not one of the market leaders, at least according to Gartner.

So we can only conclude the first phase of Mr. Chen’s December, 2013 plan is still in process. Ken Willard, who wrote this article for MobileWorldLive notes “[t]he remainder of sales was made up by hardware (39 per cent) and software & other revenue (7 per cent).” On the other hand, the services business (not a focus of Mr. Chen’s December, 2013 plan) “represented more than half of Q1 turnover (54 per cent).”

In fact, it looks much more likely Mr. Chen will remain deeply engrossed with the challenge of squeezing profitability out of the hardware business at Blackberry for the next few quarters. Mr. Wieland quotes Mr Chen as using an abstraction to describe the pace of BlackBerry’s progress on this objective, “Chen admitted that BlackBerry had still to hit breakeven point on hardware, but added it was getting ‘very close’.” What may be very close for Mr. Chen maybe very far off for investors. Perhaps it is safe to say simply reporting the numbers, and leaving the task of “connecting the dots” to analysts would have been a better approach.

Disclaimer: I liquidated my entire investment in BBRY back in May, 2014

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

19
May

NVIDIA’s Notebook Gaming Business Grew by more than 50%, CAGR for the past three years

Posted by | Categories Investors | Tagged , , , ,

During the first few moments of NVIDIA’s Q1 fy 2015 Earnings Conference Call, Chris Evendon, who heads Investor Relations for NVIDIA reported the company had achieved better than 50% CAGR for “the last 3 years” for NVIDIA’s notebook gaming products. Mr. Evendon also claimed NVIDIA has grown its market share of the PC workstation gaming business to its “highest level since 2010”.

NVIDIA’s performance in the PC Gaming market brings into question their product marketing plans. Does it make sense for the company to maintain activity across a horizontal set of new markets?

  • Tablet Computers via the Tegra® Chips
  • Cloud IaaS via NVIDIA’s GRID product
  • Automobile In-Dash Displays via the Tegra Chips
  • Vehicle Manufacturing (Tesla is the leading example), via NVIDIA’s “GPU-based machine learning” product

Rather than focusing further on the PC Gaming market?

Readers sharing my interest in this question might want to consider each of the following points:

Tablets
If rumors can be believed, Microsoft® plans on replacing the NVIDIA Tegra chip with Qualcomm’s SnapDragon for the next generation of its Surface tablets. The greater tablet market may produce further substantial challenges for NVIDIA as Intel® enhances Atom to better meet market needs and wins over more OEMs to its architecture. Of course, Intel is only one of NVIDIA’s chip competitors in this market.

GRID
The largest market opportunity for GRID seems to be enterprise business’ needs for a desktop virtualization solution for graphics displays. Mr. Evendon reported “a 25% increase in the number of boards sold over the previous quarter.” The big question, of course, is desktop virtualization market size. I am not aware of a definitive answer to this question. In my opinion, Microsoft’s decision to sunset the Windows XP O/S was a big driver for desktop virtualization, and U.S. Government organizations were likely the biggest category of users likely to look for this type of fix. But older PCs powered by Windows XP, in 2014, are not likely to be big consumers of Graphics software. Bottom line: I am not sold this is the kind of big market warranting a lot of product attention from a business with an annual run rate under $8 Billion.

Automobile In-Dash Displays
In contrast, the market for in-dash graphics and multi media displays is, in my opinion, is a substantial opportunity. NVIDIA has scored some big wins at the high end of this market — Audi, Porsche, Lambourghini, etc. But the real volume is at the lower end. So it would be comforting, for investors, to learn about some wins for NVIDIA with high volume automobile manufacturers.

But this quarterly report does not include any mention of a win, or even serious discussions with a mainstream automobile manufacturer.

GPU Machine Learning
NVIDIA’s continued success with Tesla is, once again, good news, but not the big volume sales indicator some investors may be after. The reports of healthy levels of interest from IBM and Google, on the other hand, are encouraging, but some time will be required to see just how these opportunities develop for the business.

Summary
One would hope NVIDIA continues to add the kind of features the PC gaming market (across workstations and notebooks) continues to be after to ensure no slow down in the velocity of this business as the company works on new sectors. Perhaps management will opt to reduce the horizontal extent of its new product development efforts to ensure adequate resources are available, as they are required, to add to early evidence of success.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

16
May

Apple Apparently Plans on Acquiring Beats Electronics

Posted by | Categories Developing Products | Tagged , , , , , ,

According to an article written by Ryan Faughnder and Chris O’Brien, titled Apple may be buying Beats Electronics for $3.2 billion, which was published on the LA Times web site on the evening of May 8, 2014, on May 8, 2014, the Financial Times published a report of talks between Apple and Beats Electronics. The driver for the report amounted to a strong likelihood Apple intends to acquire Beats Electronics. A sale price of $3.2 billion is included in the LA Times article.

In a short video clip titled ‘Apple: Can-Kicking’ Alan Livsey and Joseph Cotterill of the Financial Times opine on the merits, or lack thereof, of Apple proceeding with the acquisition.

Joseph Cotterill sums up what will likely prove to be a popular investor concern about the deal: “Where else could [Apple] have spent the $3 Billion?”

Messrs Cotterill and Livsey go on to delineate why the deal fails to make a lot of sense:

  • iTunes, which back in 2008, according to Mr. Cotterill, amounted to a $16.00, per subscriber, business, is now just a $1.00 per subscriber business. He sees the Beats subscription service as, essentially, more of the same
  • Mr. Livsey characterizes Apple as the quintessential brand, and wonders why it makes sense for them to buy another heavily branded business — Beats Electronics
  • Finally, Cotterill notes Apple will not be buying the Beats Electronics hardware business, just the subscription engine they have developed, which though highly regarded, still has far fewer subscribers than Spotify

Is this Apple’s attempt to build its own SaaS, cloud offer? In other words, is the Beats Electronics subscription service Apple’s attempt to cobble together their own version of Microsoft’s highly successful Office 365 cloud SaaS offer? Certainly the target market is entirely dissimilar (SMBs and enterprise businesses on the Office 365 side, vs music lovers with a credit card for Apple/Beats side), but the recurring revenue, low maintenance, presumably high margin business is very much the objective of both attempts. Presumably we will all know a lot more about the rationale behind the deal if Apple makes a formal announcement about it.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

4
Apr

Gartner Releases Its First Quarter, 2014 IT Spending Forecast

Posted by | Categories Commodities | Tagged , , , , , , , , , , , , ,

On March 27, 2014, Gartner, Inc. published a press release announcing public availability of its 1Q14 IT Spending Forecast. The release mentioned some report findings:

  1. The top end market for “mobile phones” (Gartner’s term) continues to contract, while most of the growth in overall users is to be found at the low end, with smart phones powered by Android a clear leader
  2. The continued shrinkage in the number of PC users will carry with serve to further define the remaining market. This segment will be “more engaged” (quoted from Gartner’s release), which I interpret to mean more inclined to purchase higher end PCs
  3. The market for tablet computers and what Gartner refers to as “ultramobiles” will be characterized substantial growth (the “Tablet (Ultramobile)” category looks to nearly double in size from 2013 – 2015. This growth is not treated in the release, but is very much the subject of another Gartner release, this one dated March 27, 2014, and titled Gartner Says Worldwide Traditional PC, Tablet, Ultramobile and Mobile Phone Shipments are on Pace to Grow 6.9 Percent in 2014
  4. Enterprise Software sales will grow the most, 6.9% year-over-year, and 12% from 2013 to 2014

1) Continued Shrinkage in the market for top end smart phones

Nothing new here, though I would caution interested readers to avoid the pitfall of assuming this, necessarily means lower sales growth for Apple’s top of the line smartphones. We need some glimpse into iPhone sales into the China Mobile market before we can reach a defensible conclusion on this one.

2) Buyers acquire fewer, more powerful and full featured PCs

If the PC sales forecast included in this report proves true, then a lot of the low end devices PC OEMs have pushed onto the market (as tablet competitors) may end up sitting on shelves. Acer and Asus may feel more of the pain. But HP has made some potentially risky changes in online buying options for the SMB and Home markets, which could contribute to some problems for them, as well (I will write a post to this blog shortly with further detail).

3) Tablet and Ultramobile computer sales look to be very robust for the year

The forecast of the number of new units sold is very impressive, but the actual dollar impact on overall IT spending from this segment is comparatively insignificant. Despite explosive growth, Gartner sees 4.4% growth, year over year from the devices segment. So is there much money to be made in these devices? From these figures I would say it make sense to answer this important question with some caution.

4) Enterprise Software Sales are the fastest growing segment

The big news here, which is to be found in the note at the bottom of the release, is the growing enterprise appetite for databases and analytics. This may very well point to good years for Mature ISVs, including Oracle®, Microsoft®, IBM®, EMC and SAP. Microsoft’s Cloud offers — Office 365 and Azure — may also continue to record very healthy sales figures, while IBM scrambles to increase its cloud real estate in a catch up mode.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved