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 Strategies & Market Trends | Gorilla and King Portfolio candidates - Moderated


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To: DaYooper who wrote (2907)1/31/2012 12:29:23 PM
From: Uncle Frank
2 Recommendations   of 2944
 
Hi Unq!

It ruled out Apple.

Wouldn't Moore have considered AAPL a king which should be held, although lightly?

Hey, Yooper! Do you remember Dr. Id? He championed AAPL, and we pooh-poohed it so much that he sold his position. Run the 10 year AAPL/QCOM comparison to see how wise we were.

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To: dPaule who wrote (2908)1/31/2012 12:32:07 PM
From: Uncle Frank
   of 2944
 
Thanks for the information on PANL, and thanks for your kind words, DP.

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To: Uncle Frank who wrote (2910)1/31/2012 1:40:44 PM
From: DaYooper
   of 2944
 
Yes I agree AAPL has way outperformed Q and nearly every other stock over the last ten years. But it’s not a logical progression to say that means the GG strategy was flawed. Better to ask why the strategy didn’t correctly identify AAPL as a gorilla.


The objective of our reading and writing here was always to find investments that would, due to their sustainable competitive advantage, outperform the market as whole. QCOM has done just that.

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To: DaYooper who wrote (2912)1/31/2012 2:14:02 PM
From: Eric L
2 Recommendations   of 2944
 
Times Change ...

<< Yes I agree AAPL has way outperformed Q and nearly every other stock over the last ten years. But it’s not a logical progression to say that means the GG strategy was flawed. Better to ask why the strategy didn’t correctly identify AAPL as a gorilla. >>

Because they WERE a chimpanzee when they were discussed on the original G&K Portfolio board. That did not rule them out as a potential investment back then, but the iOS Apple of today is not the PC and PC software maker Apple of yesterday and it is their reinvention that Geoff discusses in 'Dealing with Darwin' although his mention of their reinvention is relatively brief.

We did have some intelligent discussion of that in the iPod/iTunes day on this board without reaching any consensus, but that was in the pre-iPhone days which broke things open for Apple and caused considerable change in the mobile phone industry and the later dawn of the iPod era which broke things open even more and has led to the 'battle of ecosystems.'.

Qualcomm has also changed rather dramatically in recent years and has become the single largest manufacturer of mobile wireless ICs (in revenue if not unit terms) due in no small part to their willingness to change, engage, contribute and participate actively in the GSM/3GSM/4GSM committee based world of non-proprietary WCDMA/HSPA/HSPA+/LTE RAN technology architecture development.

Geoff's case studies in his single book on investment theory and strategy were based on the late 80's to early to mid-nineties cases.

Future Shock as Toffler would say. Times change. Rapidly and dramatically. Companies change with them or perish.

- Eric -

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To: Eric L who wrote (2913)1/31/2012 3:09:04 PM
From: DaYooper
   of 2944
 
Q's success is also "in no small part" thanks to the license fees ($billions$ in one case) and royalties collected on their proprietary technologies. Years ago I recall some disputed this eventuality.

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To: Uncle Frank who wrote (2910)1/31/2012 6:38:49 PM
From: Thomas Mercer-Hursh
5 Recommendations   of 2944
 
Two thoughts, one general and one specific.

People who focus overly much on the one book, The Gorilla Game, are missing most of what Geoffrey Moore has to offer. One could forget that book entirely and have some very valuable tools for analyzing companies. Trying to turn that insight into a cookie cutter investment approach was a mistake and ultimately not very useful if only because there are very, very few true pure gorillas and even when they seem to exist, they can be embedded in market conditions which make their position different than one would expect. QCOM has done OK despite all the push back, but RMBS turned into a litigation headache and never really got what they should have out of the technology.

As for Apple, how exactly is that a candidate for Gorilla? To be sure, lots of us missed out on big investment returns with Apple, but what proprietary technology did they control? Yes, they have managed to bring out three product lines which either innovated a new category of consumer good or at least made it appealing for the first time. But, imitators have been soon to follow, so there doesn't appear to be any technology lock. Yes, they have done well at continually upping the bar so that competition was mostly playing catchup ... but how long can that really go on? What more is one going to do to an iPod that hasn't already been done? Aren't we getting to the point where a cheaper smartphone that is good enough is going to start taking market share from the latest and greatest smart phone? Not to mention that there are other strong players in that market too so that Apple themselves has areas of catchup to do. iPad is newest and the most dominant, but there are signs like the Kindle Fire that this might not last forever and lots of competition. Is iTV the next big wave or the exception?

Just because it has been successful doesn't mean that it will be or that the reason for its success was being a gorilla.

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To: Uncle Frank who wrote (2906)2/4/2012 2:07:06 PM
From: Shane M
2 Recommendations   of 2944
 
The strategy is flawed.

Agree, but there are lots of great observations about network value to file away and lots of good concepts to keep.

I think a couple of key "caveats" to consider about the Gorilla Game paradigm
1 - the world is changing faster and faster. Advantages that used to last a long time seem to have a shorter window to play out.
2 - the value of innovation has increased while the value of owning a "standard" has decreased (relatively).
3 - and the greatest weakness of Gorilla Gaming - the price you pay for a stock matters. The book had little, if anything, to say about valuation - other than the market always undervalues gorillas. This is not true. Take MSFT and and INTC post 2000. The companies kept on chugging like a diesel train growing revenue and profits, but the price you pay for the stock still mattered and those who bought at the top are still waiting to get back to even.

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To: Shane M who wrote (2916)2/4/2012 2:09:42 PM
From: kumar rangan
   of 2944
 
Agree with #3.

Facebook IPO is here, hyped on others.....

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To: kumar rangan who wrote (2917)5/23/2012 6:47:31 PM
From: kumar rangan
   of 2944
 
Facebook Inc and lead underwriter Morgan Stanley were sued by shareholders who claimed they hid the social networking company's weakened growth forecasts ahead of its $16 billion initial public offering.

The lawsuit came as Facebook and the banks that took it public face questions about the IPO, which culminated in a May 18 stock market debut plagued by technical glitches.

Facebook shares fell 18.4 percent from their $38 IPO price in their first three trading days. They were up $1.08, or 3.5 percent, at $32.08 in Wednesday afternoon trading.

The lawsuit claimed that the defendants, including Facebook Chief Executive Mark Zuckerberg, Goldman Sachs Group Inc and JPMorgan Chase & Co, concealed "a severe and pronounced reduction" in revenue growth forecasts resulting from greater use of Facebook's app or website through mobile devices.




reuters.com

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From: kumar rangan11/20/2012 3:30:49 PM
   of 2944
 
H-P Blames $8.8 Billion Charge on Bad Deal




Updated November 20, 2012, 1:57 p.m. ET

H-P Blames $8.8 Billion Charge on Bad Deal

By BEN WORTHEN Hewlett-Packard Co. surprised investors Tuesday when it claimed it had been duped into overpaying for one of its largest acquisitions, a U.K. software maker, that will result in an $8.8 billion charge.

Hewlett-Packard leveled serious accusations against a software company it bought last year, saying it would take a $8.8 billion write-down after it claimed Autonomy's leadership misrepresented its performance.

The technology giant, whose board has faced withering criticism for its handling of past two CEO ousters, said an internal investigation revealed "serious accounting improprieties" and "outright misrepresentations" with Autonomy, which H-P acquired for $11.1 billion in October 2011.

H-P, already trading near a 10-year low, plunged another 12% on Tuesday.

The write-down—H-P's second straight quarterly multibillion-dollar charge—resulted in a nearly $7 billion loss for the Palo Alto, Calif., company.

H-P said Autonomy—before it was acquired—mischaracterized some sales of low-margin hardware as software and recognized some deals with partners as revenue even when a customer never bought the product.

H-P Chief Executive Meg Whitman said H-P has alerted the U.S. Securities and Exchange Commission and the U.K. Serious Fraud Office and requested that they open an investigation. The company said it's also seeking recourse through private litigation, though Ms. Whitman stressed any such outcome could take years.

Of the $8.8 billion charge related to the write-down, more than $5 billion is related to the accounting issues.

The SEC is launching an investigation into the fraud allegations, according to a person familiar with the matter. An SEC spokesperson couldn't immediately be reached.

Hewlett-Packard has claimed that the leadership at Autonomy, the software firm it acquired last year, misrepresented its performance as the deal was being negotiated. WSJ's Ben Rooney profiles the company and its founder, Mike Lynch. Photo: Bloomberg




Related Coverage


Previously

The U.K.'s Serious Fraud Office declined to comment on H-P's announcement.

A Silicon Valley icon, H-P became the world's largest technology maker by revenue from selling personal computers, printers and other products and services for businesses. But it's been hurt by a several factors, including CEO and executive turnover, slowing demand for some products and mounting debt.



A History of Hewlett-Packard

The Autonomy allegations and write-down added a new element.

Even before H-P announced its acquisition of the software maker in August 2011, rumors swirled that Autonomy's growth was due partly to fuzzy accounting. A dossier questioning some of Autonomy's growth was widely circulated around the time that the acquisition by H-P was announced.

Mike Lynch, Autonomy's CEO at the time, denied any such irregularities in an interview then. Mr. Lynch left H-P in May.

In an interview Tuesday, Mr. Lynch said the allegations are "completely and utterly wrong and we reject them completely." He added that he wasn't made aware of the allegations until H-P's press release was issued Tuesday.

H-P's internal team was aware of the allegations at the time of Mr. Lynch's departure, people familiar with the matter have said. There was broad concern when H-P announced its intent to acquire Autonomy in August 2011 that it was overpaying—rival Oracle Corp. even ran a publicity campaign stating that it had a chance to buy Autonomy but passed because it was too expensive.

At the time, one of the people familiar with the matter said H-P was looking for a way to unwind the deal before it closed but couldn't find any material accounting issues. On Tuesday, Ms. Whitman said the company relied on Deloitte's audit of Autonomy and had hired KPMG for an additional review.

Neither firm found any irregularities, she said. H-P's internal investigation was launched after a senior Autonomy executive came forward in May, following Mr. Lynch's resignation from H-P.

Spokespeople for Deloitte UK and KPMG declined further comment beyond noting the allegations, citing client confidentiality.

Ms. Whitman, who was on H-P's board when the Autonomy deal was announced, blamed the mistake on her predecessor, Leo Apotheker, and the company's former strategy chief, Shane Robison.

"The two people who should have been held responsible are gone," she said, noting that the mergers and acquisition function now report to H-P's finance chief.

In a statement, Mr. Apotheker said he was "both stunned and disappointed" to learn of H-P's allegations. He said "the due diligence process was meticulous and thorough, and included two of the world's largest and most respected auditing firms working on behalf of HP." He added that he will assist H-P and the authorities "to get to the bottom of this."

Mr. Robison didn't immediately respond to requests for comment.

H-P general counsel John Schultz said in an interview that he was aware that there were rumors about accounting issues at Autonomy before the deal closed, but that H-P was shown "significant documentation from former Autonomy executives refuting the allegations." In hindsight, "It's fair to say those refutations were questionable," he said.

H-P's decision to buy Autonomy in August last year was part of Mr. Apotheker's dramatic plan to revamp H-P by splitting off or selling its personal-computer business. Mr. Apotheker was ousted a few weeks after the announcement, and his successor, current CEO Ms. Whitman, eventually chose to keep the PC division.

When H-P bought it, Autonomy was Britain's biggest software company, and second-largest in Europe after Germany's SAP AG. It has customers that include intelligence agencies, big corporations, banks and law firms.

Autonomy's software searches through unstructured information—such as emails, instant messages, recordings of phone calls, still and video images—looking for patterns of lucrative or nefarious activity. Intelligence agencies use it in analyzing intercepted communications; the dealings of Jérôme Kerviel, rogue trader at Société Générale SA, were also tracked using Autonomy's technology.

Even without the Autonomy charge, H-P's business suffered.

Overall for the fiscal fourth quarter ended Oct. 31, H-P said it swung to a $6.9 billion loss while revenue fell 7% from a year earlier. It was the technology giant's fifth straight quarter of big declines, a trend Ms. Whitman said is likely to continue.

H-P last month said it expected revenue in the current fiscal year to fall in each of its biggest businesses. It said it expected per-share profits for the year of $2.10 to 2.30, or between $3.40 and $3.60 excluding one-time charges. The company reiterated that guidance Tuesday, while projecting current-quarter earnings between 34 cents and 37 cents per share, or between 68 cents and 71 cents excluding one-time charges.

The forecast assumes that the second half of the new fiscal year will be better than the first, which contributed to Tuesday's sell off. "I think that's pretty optimistic," said Rob Cihra, an analyst at Evercore Partners . "Management's credibility isn't that high so when they guide for a recovery in the second half, investors take that with a big bag of salt."

He said investors expected an Autonomy write-down, just not for the cited reasons. "Things just keep getting worse, not better," he said.

H-P's revenue for the quarter was $30 billion compared with $32.1 billion a year earlier.

Revenue in its PC business fell 14% from a year ago to $8.7 billion. Sales to consumers were hit particularly hard during the quarter, decreasing 16%, though sales to businesses also fell 13%.

The overall market for PCs has slipped lately, as people instead buy tablets and smartphones. Research company IDC said that overall PC shipments declined more than 8% in the third quarter of 2012, the largest such shortfall in more than a decade. H-P's shipments declined 16%, IDC said.

Sales in H-P's printer group dropped 5% to $6.1 billion, while revenue from products like servers and networking gear used by businesses declined 9% to $5.1 billion. In H-P's big services business, which the company has identified as a problem area, sales fell 6% to $8.7 billion.

—Ian Sherr, Drew Fitzgerald, Paul Sonne, Rolfe Winkler and Ben Rooney contributed to this article. Write to Ian Sherr at ian.sherr@dowjones.com and Ben Worthen at ben.worthen@wsj.com

Corrections & Amplifications
Hewlett-Packard lost $6.9 billion in the most recent quarter. An earlier version of this article incorrectly said H-P's quarterly loss was $6.9 million.

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