Thursday, November 29, 2012

The Surface: I Came, I Saw, I Left


 I went to the Microsoft store in Times Square yesterday to see for myself the new Surface tablet with the spiffy keyboard, since nobody I know actually has one yet. 
 I had an open mind [“Open” in the sense that he assumed the Surface would be unnecessarily complicated given Microsoft’s Achilles’ Heel, which is the need to promote Windows in everything it does—ed.], and was hoping that it would give me something unusual to say: i.e. that Microsoft had finally figured out what consumers actually want. [Fat chance!—ed.]
 And first impressions about the store itself weren’t bad: while small relative to the Apple mega-store on 57th Street, the Microsoft store has most of the same touches, i.e. glass windows and long counters with tethered products to play, and plenty of blue-shirted Microsoft people to help. 
 Unfortunately, they do not have many customers to help—for despite long lines at the TKTS discount booth just a couple of blocks away, and the usual pre-holiday masses streaming by on the sidewalk right outside, there were no more than two dozen potential customers in the Microsoft store itself, and none were lingering at the tables playing with the merchandize with wide eyes and no sense of the time, the way they do at Apple stores.
 And playing with a Surface tablet, I found out why: the Surface feels a bit chunky, i.e. not as smooth as an iPad, and it has more of a toy plastic play-thing feel than a smooth, business-ready metal-thing feel.  [He’s not much for technical jargon, is he?—ed.] 
 But it’s not the feel that’s the problem: it’s the way it works. 
 And the way it works is non-intuitive. Unlike your first time with an iPad or a Galaxy, it’s hard, in a short period of time, to figure out how to find what you might want to play; how to get out of programs once you’ve gotten into them (weirdly, things somehow feel more like programs than apps on the Surface); how go back to where you began; and how to look for new stuff. 
 Certainly, you can run spreadsheets on it, and yes you can use Word, but the cool new keyboard, being flat, is not easy to type with.  Anyway, not many people were bothering to even try the keyboard, once they messed around with the screen.
 I like to poke fun at Microsoft’s new product approach by claiming they make so many versions of things there’s even a “Model Train Enthusiasts’ Edition.” And while there was no “Model Train Enthusiasts’ Edition” of the Surface [That he could see—ed.], it does seem like, once again, Microsoft has been undone by its corporate culture of striving to make everything for everybody, in one package, that promotes Windows.
 Apple’s Tim Cook has been saying for some time he didn’t see the need to blend two form factors—notebooks and tablets—because you’d end up with a compromised muddle.   Converging “a toaster and a refrigerator,” is how he put it.
 He’s right.  But that’s not just my opinion.  I saw not one person actually purchase anything, or look like they were getting ready to purchase something, or just be really engaged in a product, in the brief time I was there.

Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2012)    Available now at Amazon.com

© 2012 NotMakingThisUp, LLC
                                   
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

Saturday, November 24, 2012

Tap Dancing to Work: The NotMakingThisUp Book Review


 Carol Loomis is an editor at Fortune Magazine who not only brought Warren Buffett to the attention of a wide American investing audience through her own beautifully written articles in Fortune, but also became the one person Buffett himself trusted to edit his now-famous annual shareholder letters, which he writes longhand before getting her input in a process that takes several months each year. 
 Loomis has also been a close friend, not to mention a bridge partner, of his for decades, and Buffett thinks so highly of her integrity that he put the 2006 blockbuster announcement of his $40 billion charitable gift to the Bill & Melinda Gates Foundation in her hands a month before the actual press release went out, so Fortune could break the news in a cover story.
 Oh, and she always asks the first question at the Berkshire shareholder meeting, pulling no punches for her friend in the process.
 So if there were one person you’d like to see a Buffett book from, it would be Carol Loomis. 
 And although this book isn’t that book—it’s more a Fortune Magazine compilation, edited by Loomis, of pieces about Buffett by many people, including Loomis—it still has plenty of insights from which any investor, whether a Buffett fan or not, would benefit.
 The best, not surprisingly, come from those closest to him…for example, Bill Gates, who, in a 1996 “book review” of Roger Lowenstein’s excellent Buffett biography describes the intellectual spark that bonded him to Buffett the first time they ever meet.
 For sure, Gates is not much of a reviewer—he called Lowenstein’s book “competently written,” which is like calling Copolla’s The Godfather “competently filmed”—but he tells us a few very interesting things about Buffett that we haven’t already heard a million times.
 And there are just enough of those, from Gates and others, to make this book worth buying, and reading: the “model in his head of the whole world” Buffett carries; the dice trick he tried to spring on Gates, who nevertheless figured out the trick; the way he structures incentive pay depending on what drives each of Berkshire’s CEO’s businesses; and how he—an old-fashioned knee-jerk liberal Democrat—challenges others to think about the world at large (not just about investments).
 As for the Buffett book we’d like to see from Carol Loomis, it’ll probably never happen, at least in Buffett’s lifetime.  But if it were, readers would be treated to insights on Buffett one can only imagine, with the kind of sentences only Carol can write—as these first paragraphs of one of her “Tap Dancing” contributions reminds us:
 Just in from Omaha and making a do-it-yourself delivery, Berkshire Hathaway chairman Warren Buffett strolled into the downtown Manhattan offices of Harris Trust on March 5 [1995] and handed two envelopes to a Harris officer.  In Envelope No.1 was stock worth, gulp, $2.5 billion, Berkshire’s 20 million shares of Capital Cities/ABC, being delivered to the company’s purchase, Walt Disney Co.
 In Envelope No. 2, sealed and marked “Do not open until 4:30 P.M. on March 7,” were Buffett’s wishes—kept secret from even the managements of Disney and Cap Cities—as to how he wanted Berkshire to be paid for the contents of Envelope No. 1…”
 Would that “Tap Dancing to Work” was a true Carol Loomis memoir of her of decades with Warren Buffett…but as collections go, it’s worth plenty on its own.

Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2012)    Available now at Amazon.com

© 2012 NotMakingThisUp, LLC

Tuesday, November 20, 2012

The Question We’d Like to Have Heard Today


 When your company reports a loss per share of $6.41, or roughly half your own stock price, thanks in good measure to the write-off of most of the book value of a $10 billion acquisition [actually $11.1 billion by the time it closed thanks to currency moves] you made barely one year ago, you should probably let more than nine analysts ask questions on the earnings call…especially when you’re going to blame almost everybody but your own employees for the horrible, terrible, no-good, very bad acquisition.
 But HP management, keeping up a pattern of playing the Wall Street fiddle about as well as a public company management can play it, did just that, mainly by yammering for a very long period of time from the “script” before opening the call to questions.
 Here’s how CEO Meg Whitman (not the architect of the Autonomy acquisition, but now serving as the undertaker) spun the deal before the Q&A:
 “Autonomy remains a work in progress as we move this business from start up to grown up. There is a big market opportunity for this business but operational improvements are needed to take full advantage of these opportunities. While we expect these efforts will improve the future of our Autonomy business, we announced today an $8.8 billion non-cash impairment charge related to Autonomy. Let me spend a moment giving you some detail about the situation.
 The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures, and out right misrepresentations that occurred prior to HP's acquisition of Autonomy [emphasis added] and the associated impact on the expected financial performance of the business over the long term. The balance of the impairment charge is linked to the recent trading value of HP stock. These improprieties were discovered through an internal investigation after a senior member of Autonomy's leadership team came forward following the departure of Mike Lynch on May 23.
 “Based on this information, HP initiated an intense internal investigation into the allegations, including a third party forensic review of Autonomy's historical financial results. HP has contacted the SEC's Enforcement Division and the UK's Serious Fraud Office. We have requested that both agencies open criminal and civil investigations into this matter. In addition, HP intends to seek regress against various parties in the appropriate civil courts to recoup what we can for our shareholders.
 “I want to stress that we remain 100% committed to Autonomy and its industry leading technology. We will continue to fully support our new and existing customers and we believe Autonomy's technology will play a significant role in our growth strategy over the long term. To that end, we recently announced Robert Youngjohns as Senior Vice President and General Manager our Autonomy IM business unit. Robert is a seasoned software executive who was most recently President of Microsoft North America.
 The second way HP assured itself of a Q&A session lacking fireworks was that those nine analysts who were allowed to ask questions are all polite sell-siders, as opposed to actual, angry HP shareholders.  And polite sell-siders are not going to ask the really juicy questions you’d want to hear asked.  Still, the first analyst, Ben Reitzes, of Barclays, gave it a reasonable shot out of the gate:
Ben Reitzes
“Yes, thanks a lot. Meg, with regard to the Autonomy situation, we understand what you're doing in terms of going after the folks that you feel misled you but what about internally? Whose responsible internally for the acquisition, how are you analyzing yourself internally, the Board, I think everybody at the Board was there when the Autonomy decision was made except for Mr. Whitworth, so what's the, what are you doing internally to make sure that you have the right processes and who are you holding accountable internally if anyone to make sure this doesn't happen again and that maybe even there's some folks internally that need to be held responsible and we could see repercussions of this in the near future. How are you looking at it internally?”
Meg Whitman
 Yes, well first of all, the CEO at the time and the Head of Strategy who lead this deal are both gone...[emphasis added] With regard to the Board you're right. Most of the Board was here and voted for this deal and we feel terribly about that. What I will say is the Board relied on audited financials, audited by Deloitte, not Brand X accounting firm but Deloitte and by the way, during our very extensive due diligence process, we hired KPMG to audit Deloitte, and neither of them saw what we now see after someone came forward to point us in the right direction. That said, obviously, we have not done any big acquisitions and we will review the acquisition process.
 “What I will say is due diligence and M&A now reports to our Chief Financial Officer. At the time when I came to the Company I was surprised to find that due diligence and M&A reported to strategy as opposed to the Chief Financial Officer. I've never seen that before in my career and that's a decision I made right away before I knew any of this, so I understand your point of view and we have made a few changes in that regard but in the end, you have to rely on audited financials [emphasis added] and we did and we will now carry on and as you know we've reported this to the SEC as well as the serious fraud office and we will take it from here.”
Ben Reitzes
 “And in terms of internal personnel though, based on what you see right now the organization can remain stable based on this occurrence?”
Meg Whitman
 “Yes, it can. I mean really the two people that should have been held responsible are gone and that's the way I see it right now so I feel good about sort of the stability it of leadership.”
  Longtime readers can see where we’re going with this.
 According to HP’s CEO, there were only “two people” in all of HP who “should have been held responsible” for the Autonomy acquisition, which saw the evaporation in about a year of nearly all the value ascribed to what $11 billion worth of HP’s cash had been used to buy, and both those “two people” are happily gone.
 But if my friend, fellow blogger and ace hedge fund manager John Hempton could have told me the Autonomy books were well and truly “dodgy” way before today’s news, based strictly on a reading of the same “audited financials” that HP’s CEO said today “you have to rely on”...then where on earth was HP’s entire senior management team, which presumably contains a few people who know as much about how the audited financials of a software company should look as a guy in Australia reading 10Ks and 10Qs, when this deal was getting done? Out of the office making a Peets coffee run?


Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2012)    Available now at Amazon.com

© 2012 NotMakingThisUp, LLC
                                   
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.