rovo's Market Journal -- 2011

[rovo]

Here is what I have found.

Tokyo Steve Jobs-led Apple Inc may invest $1 billion in Sharp Corp's Kameyama factory to secure the supply of screens for iPhones and iPads, MF Global FXA Securities wrote in a sales note on Wednesday, sending shares in the Japanese consumer electronics maker up more than 2 percent.
Sharp could not be immediately be reached as it was closed for summer holidays. A likely investment amount of around 100 billion yen ($1.3 billion) has been reported in local media since late last year.

We think it is highly possible that Apple will make an investment in Sharp's Kameyama plant to the tune of around $1 billion in order to secure stable supply of screens for iPhones and iPads, analyst David Rubenstein said in the note.

This would have a material impact on Sharp's profitability. ($1 = 76.720 Japanese Yen)

[livinincali]

That makes some sense for Apple as they continue to sue all of their competitors for patent infringement. LG currently makes their screens and Samsung makes the A4 chip. You could see a scenario where competitors get fed up and stop making stuff for apple's products. It would be a major negative for apple if they have to secure a new supplier without planing ahead. Sharp isn't in the business of making phones and don't appear to be interested in that so it makes sense to secure a supply chain from Sharp. Of course Samsung and LG are much further along than Sharp when it comes to screen technology so. Flexible OLED is probably the next major technology in Smart Phones. Here's a short youtube video that demonstrates Samsung technology.

[yclept]

Sounds like a bad public relations move to me. With the mood of the country now, I don't see making a billion dollar investment in plant/equipment outside the US as politically astute. Especially since these manufacturing lines are so automated that labor costs are a small part of the component cost (and Japanese labor isn't much if any cheaper than US labor).

Google's move of buying Motorola's phone manufacturing spin-off (though it may well have been done primarily to obtain patents) will probably gain them favor with the "buy-America" crowd. Apple's move may only serve to highlight to that same faction that they don't have any of their products manufactured in the US. I view PR as Apple's only important product.

Switching to a supplier who formerly made only large screens also sounds a bit risky to me from a continuity of supply point of view. Kind of feels to me like awarding a contract for planting petunias to a guy who owns a backhoe, but doesn't own a trowel.

[rovo]

I read some blogs about the iPhone5 having an OLED display. While I would like to see technology used in an iPhone, I don't think it will be in the iPhone5. I think Cali has it correct in that the competition is heating up in the phone market and Apple needs to find some new screen suppliers so as not to be dependent upon phone competitors being their screen suppliers.

I don't think Sharp would have any problem making LCD screens for Apple despite the small size and modestly high resolution.

[rovo]

U.S. stocks scale back gains as tech hit12:02p ET August 17, 2011 (MarketWatch) NEW YORK (MarketWatch) -- U.S. stocks mostly advanced on Wednesday as earnings from Target Corp. and Staples Inc. topped expectations but a reduced revenue outlook from Dell Inc. hit technology shares.

The Standard & Poor's 500 Index gained 13.19 points, or 1.1%, to 1,205.91, with utilities up the most and technology hit the hardest among its 10 industry groups.

"Our target for the S&P 500 is 1,250 to 1,300 for the end of the year, and it looks like we had a pretty constructive selloff, where it was contained and rational, up until last week, where we had a lot of emotional selling to get to the low. It's not likely that we end up at that level again anytime soon, without any additional signs of weakness in the economy," said Stuart Freeman, chief equity strategist at Wells Fargo Advisors.

The Dow Jones Industrial Average rose 27.36 points, or 0.2%, to 11,433.29, with 21 of its 30 components rising.


Erasing gains, the Nasdaq Composite Index fell 9.31 points, or 0.4%, to 2,514.16 after PC maker Dell reported tepid consumer demand and as gains in market share by Apple Inc. curtailed its sales outlook. Read more on Dell's gloomy sales view.

For every stock falling more than two gained on the New York Stock Exchange, where 321 million shares traded as of 11:50 a.m.

Wall Street offered little reaction after the Labor Department reported U.S. producer prices gained 0.2% in July.

Earnings and strong outlooks from discount retailer Target and office-supply chain Staples bolstered investor sentiment. Read more on Staples results.

"Favorable earnings reports appear to be boosting the appeal of stocks," said Kevin Giddis, a fixed-income analyst at Morgan Keegan. He noted that investors had at least temporarily resumed their on-again, off-again love affair with riskier assets.

I have a real problem when Dell, stating a not-so-hot outlook, drives the entire tech segment downward. The question, not asked or answered, is whether or not the "tech slow-down" is broad based or due to Dell's ineptitude. IMHO Dell ha done a terrible job over the last few years in offering products that actually work as advertised and/or work for any extended period of time.

[yclept]

"I don't think Sharp would have any problem making LCD screens for Apple despite the small size and modestly high resolution."

At the last company I worked, we made vacuum chambers for sputtering. Most of the ones we made were large (20 tons and up) for structural glass coating, but we also made some tiny vessels for Lam Research and small chambers for Sony (only about 5000 lb., but they were stainless steel!). Lam's chambers (tiny, less than 100 lb.) were for some sort of micro application (they didn't share much end-use information, just specified manufacturing requirements), Sony's were for TVs (and except for size were more similar to the large glass coating chambers). All I can say is that they were very different chambers in terms of configuration, vacuum levels, surface finishes (related to purity levels) and a whole bunch of other geometric and construction details.
I don't think the "horse-sense" applicable to any manufacturing process would transfer well from TV screen manufacture to making hand-held device sized screens. But that's just a guess on my part. I'm sure Sharp can do it, but the learning curve may be stiffer than one might expect. Learning curves cost time.

[mtntigger]

Good points cali, yclept and rovo! Those were the main concerns that I had --- Japanese plant (especially after the tsunami that impacted the auto industry) and further attention on the ongoing lawsuits. So, it is great to think that others were on the same wavelength. I also thought that this rumor may cause Samsung to raise its prices on Apple if the deal doesn't go through. Overall, I think it's a better move for Sharp than Apple as now they may have a new client and more of an incentive/direction to advance instead of floundering like it has been.

and/or work for any extended period of time.

My last two personal and three work laptops (in seven years) have been Dells because it's easier to have the same types of power cords at home and at work. Not happy, not happy with them at all; they die right before or right after the warranty expires.

[rovo]

Sharp has been making small LCD screens for quite a while. I remember spec'ing them into some of my designs a decade ago.

www.mouser.com/catalog/637/77.pdf

The quantity and specifications of the Apple screens dictate a dedicated factory provided the supplier can be assured continual sales in years to come.

Yes, there will be a learning curve since Sharp has not supplied Apple previously but the technology isn't that heavy for these screens. I too would rather have seen something done here in the USA for this product.

[yclept]

But Dell has such nice, fancy cases (I'm talking desktops).

I'm very happy with the no-name computer I bought through E-bay from the guy up in Washington who used to work for Microsoft. Strong machine, no problems whatsoever (Win 7 is the best operating system MS ever made) -- but it is noisy. It's all those fans in there. I'll bet Dell would have had a case that made it run a lot quieter (and probably hotter) and only would have charged me three times as much!

For a core i-7; 8 gb ram; 931 gb hard drive; Win 7 home; and the full Open-Office suite pre-installed, I'm willing to put up with a lot of noise! Especially since it was only about a thousand bucks.

[rovo]

Switching back to the iPhone for 1 additional comment. Sharp was a screen supplier for the iPhone1 so they know what is required.
www.eetimes.com/electronics-products/other/4096316/Sharp-is-bottleneck-for-iPhone-says-report

[livinincali]

I'm not saying sharp can't make screens, it's just they don't seem to be at the bleeding edge of the technology. Flexible OLED allows for a screen that cannot be shattered by dropping it and can be curved around many shapes. Samsung is making the A5 processor initially but production is expect to move to Taiwan Semiconductor at a later date (TSM is the ticker if anybody is interested, it trades at a lower valuation than AAPL). I just think AAPL is cutting themselves off from the bleeding edge technology suppliers, in order to teach them a lesson for competing against them. Apple's intuitive user experience will always be valuable and sought after but 2 new suppliers for the core components of the phone could cause hardware quality to suffer in a very competitive game. In addition Foxxconn the one that puts the iPhone and Ipad together is thinking about moving operations to Brazil. Seems like a lot of moving parts for things to potential go wrong in my eyes.

Foxxconn move
www.forbes.com/sites/kenrapoza/2011/04/13/apple-iphone-maker-foxconn-considering-brazil-move/

Taiwan Semi Conductor
www.eetimes.com/electronics-news/4213873/Apple--TSMC-to-expand-foundry-ties

[rovo]

Apple is sucking up a lot of the world's supply of components and are putting themselves in a somewhat precarious position because of this (as mentioned by Cali).

The match up I would like to see, and expect to see, is AAPL and INTC. I expect to see , within a few years, INTC suppling the bulk of the silicon devices to AAPL. Desk-top sales are flattening and INTC needs to move silicon. Portables are booming and AAPL needs reliable, noncompetitive suppliers. Two U.S. companies, great fit.

I also expect AAPL to abandon the ARM architecture at the same time and use a new in-house design. This design would be produced by INTC in the new 3D 22-nanometer transistor process. Significantly lower power consumption and increased processing power would allow cell phones or any portable to have a much longer battery life. Then all we would need is a U.S. supplier of OLED screens to have the majority of the cost based in dollars and produced in the U.S.

www.technewsworld.com/story/72387.html

[Trongersoll]

I'm quite happy with Intel's Atom Processor. I'm considering using one the next time i upgrade my File Server.

[rovo]

Today's data points are all in and the numbers are weak. The only bright spot is the Leading Indicators.

Title ................................ Date .......... Actual .......... Consensus
Initial Claims ................... 08/18 ........ 408K .............. 400K
Continuing Claims ........... 08/18 ........ 3702K ........... 3698K
CPI ................................. 08/18 .......... 0.5% ............ 0.2%
Core CPI ......................... 08/18 .......... 0.2% ............ 0.2%
Existing Home Sales ........ 08/18 ......... 4.67M ........... 4.87M
Philadelphia Fed ............... 08/18 .......... -30.7 ............ 1.0
Leading Indicators ............ 08/18 .......... 0.5% ............ 0.2%

Factory activity weakens sharply in Philadelphia..10:08a ET August 18, 2011 (MarketWatch)
WASHINGTON (MarketWatch)-- Manufacturing activity weakened sharply in the Philadelphia region in August, the Philadelphia Federal Reserve reported Thursday. The bank's business condition index fell to negative 30.7 in August from 3.2 in July. This is the lowevel level since March 2009. The size of the decline surprised analysts. Economists polled by MarketWatch expected a slight decline in the index to 0.5. The headline business condition index is a separate question and not a buildup of components. As a result, economists pay close attention to the details of the report, which were also very weak. The index for new orders fell to negative 26.8 in August from 0.1 in July. The index for number of employees decreased to negative 5.2 in August from 8.9 in the prior month. The prices paid index declined to 12.8 in August from 25.1 in July.

[rovo]

Leading indicators up, modest growth seen ... 10:17a ET August 18, 2011 (MarketWatch)
WASHINGTON (MarketWatch) -- The economy should expand at a "modest pace" through the fall, the Conference Board said Thursday as it reported that its index of leading economic indicators grew 0.5% in July.

"The economy is slow, with little momentum, and shows no indication of acceleration. The gains in the [leading economic index] are modest, especially the nonfinancial indicators," said Ken Goldstein, a Conference Board economist, in a statement.

Economists polled by MarketWatch had expected a 0.4% gain for July. In June, the LEI rose 0.3%.

The LEI is a weighted gauge of 10 indicators that are designed to signal business cycle peaks and troughs. Among the 10 indicators that make up the LEI, six made positive contributions in July, led by the real money supply. Other positive contributions came from the interest rate spread, average weekly initial claims for unemployment-insurance benefits, stock prices, manufacturers' new orders for nondefense capital goods, and manufacturers' new orders for consumer goods and materials.

The largest negative contribution came from the index of supplier deliveries. Other negative contributions came from the index of consumer expectations and building permits. Meanwhile, average weekly manufacturing hours were unchanged.

"With the exception of the money supply and interest rate components, other leading indicators show greater weakness -- consistent with increasing concerns about the health of the economic expansion," said Ataman Ozyildirim, a Conference Board economist, in a statement. "Despite rising volatility, the leading indicators still suggest economic activity should be slowly expanding through the end of the year."

Longer-term gains are slowing down, with the index up 2.9% in the six months through July, compared with 3.2% in the prior period.

[rovo]

A couple of biased comments from me concerning Dell and HPQ.

Dell commented in the earnings report about computer sales not being spectacular and claimed Apple was taking market share from Dell.

HPQ recently announced and they too are having trouble moving computers. In addition, the HP Tablet is just sitting on the shelves and in the warehouses. If it isn't named iPad it isn't moving.


Disclosure: I'm long AAPL.

[rovo]

A couple of news items from this morning relating to APPL. (I'm long AAPL)

Apple Suppliers Making Cheaper iPhone Version With 8GB Drive: Sources - Reuters4:52a ET August 23, 2011 (Dow Jones) Apple Suppliers Making Cheaper iPhone Version With 8GB Drive: Sources - Reuters

DOW JONES NEWSWIRES

Apple Inc.'s (AAPL) Asian suppliers have begun manufacturing a lower-priced version of its iPhone 4 with an 8-gigabyte flash drive, Reuters reported Tuesday, citing two unnamed sources.
The flash drive is being made by a Korean supplier, the report on the Reuters website said. Currently, Samsung and Toshiba supplies the flash drives for the iPhone, the report said.
The iPhone 4S will have a bigger touch screen, better antenna and an 8-megapixel camera, the report said. The source also confirmed the iPhone 5 is being set for an end-September launch, according to the report.

Full story: in.reuters.com/article/2011/08/23/idINIndia-58918720110823

(END) Dow Jones Newswires
08-23-11 0452ET
Copyright (c) 2011 Dow Jones & Company, Inc.BT201108230013622011-08-23 08:52:00.0004SCRABUMUTAC056VL8I464FA1JDJNF

United Continental pilots get 11,000 iPads
9:29a ET August 23, 2011 (MarketWatch) WASHINGTON (MarketWatch) -- About 11,000 pilots at United Continental Holdings will begin receiving iPads on Tuesday as the world's largest carrier converts to paperless cockpits. The iPads, built by Apple Corp. [s:aapl], replaces paper flight manuals and navigational charts with applications such as Jeppesen Mobile FliteDeck. Using the iPad should improve safety and efficency becuase pilots will no longer have to thumb through thousands of sheets of paper to find what they need during a flight, the airline said. Furthermore, the move saves 16 million sheets of paper and 326,000 gallons in fuel because of the lighter weight. Alaska Air and American parent AMR Corp. have announced similar moves.

[livinincali]

Steve Jobs has resigned and AAPL is getting pounded in after hours right now. Maybe after the panic is over we can see if it's a good buying opportunity.

[mtntigger]

I just read that. Wow! I'm not sure if I would buy AAPL now when the key visionary is gone.

ETA: Maybe I should explain that statement a litte. In my mind, AAPL went from a garage start-up company (David in David and Goliath) to a multibillion dollar company ensnared in an exorbitant amount of lawsuits.

[livinincali]

Man today is wacky. Down 1% rally 2% in 20 minutes so we're up 1%. Then sell off again. Great for the day traders I guess.

[IPAfan]

I've been quite busy so haven't been posting very much. I also invest for the long term (although I change my ideas and reallocate as I think prudent) so sometimes there just isn't much going on. That's been the case recently. My investments are basically riding in 5 companies right now (with 5-10 more that don't make that much difference) and about half allocated to Terra Nova.) So Terra Nova shares have seen a lot of weakness recently, dropping to an intraday low of around 6.85 before the earnings report. I used all my available cash to add to my position close to the low, but that only increased my total holdings by a bit more than 20%.

The company has given some clarification about its future and continuing restructuring. The company plans to distribute about $1.60 per share in "non-core" assets. This distribution may be in cash or a spinoff. However, the conference call seems to indicate that the goal would be to essentially provide the cash to shareholders in the fairly short term. Otherwise, the company will focus exclusively on the commodities trading/resource business going forward. I believe this distribution of assets will allow the company to earn a higher ROE on its overcapitalized capital base, continue to pay the same (hopefully growing) dividend, and still have plenty of cash for some acquisitions in the resources / commodities distribution sector to grow with its current business. The business will change its name to MFC Industrial Ltd to reflect its new focus.

The question for me will be where to reinvest this substantial distribution (cash or proceeds from a spinoff). One option might be to reinvest in MFC Industrial shares. This is definitely an option, and may be a great idea especially if the shares still trade at a similar discount to NAV. However, considering my huge concentration in this position I'd consider investing in another long term position. I'd possibly be inclined to invest the proceeds into PM/MO (with a larger investment in PM). Right now PM trades at about 15X 2011 earnings. The company has continued to show strong growth in net income, regularly beats estimates, and raises guidance. The company also returns a lot of cash plus by buying back shares and paying an increasing dividend. Keep in mind the healthy growth in net income is distributed among a dwindling number of shares (as shares are bought back with free cash flow). If you consider the current price to represent fair value, then the annual future returns should be similar to the growth rate + the dividend rate. Right now the shares yield about 3.5%, so if income per share can grow by 10% returns should be good, and if they can grow by 15% returns should be excellent. I personally believe there is a strong likelihood of EPS growth per share in the realm of 10-15% for at least the next 5 years. Investing this distribution in PM would improve my portfolio's diversification and dividend yield.

On another note, I still see insurance companies to be good buys at this point. However, I'm happy with the insurance investments I have now (ENH and FRFHF) and don't see the need to increase my stake. I see about the same amount of potential upside in the insurers as I do in the other companies I'm interested in, but a lot more risk and uncertainty. I've considered reallocating some of my investments in insurance to other investments, but the insurance portion of my portfolio only represents about 20% so I wouldn't consider it terribly overweight at this point.

[IPAfan]

This message has been deleted.

duplicate post by Beerfan

[mtntigger]

Just wanted to let you all know that I'm deleting my account here. I appreciate all the time and energy that you all gave me. I've gained a tremendous amount of confidence in trading and investing after listening to all your opinions and strategies. Now... if only that confidence could be turned into money.
I wish you all the best both in investing and in life.

[rovo]

That really sucks.

[2kids10horses]

rovo,

what's up? I saw the mtntigger post last night, but I didn't realize that was SBS.

Did she get in a fight in another thread?

What's with all the defections recently?

[rovo]

2&10, I'm in the dark about as much as you are about why SBS left the board.

Defections? What can I say. Some unhappy campers have left us and I expect more.

[Bluerobin]

Rovo, why do you expect more? I think I have learned something from everyone here, and hate to see anyone leave! SBS, come back!

[uncle23]

YES...Please come back SBS..!

[ModE98]

Rovo.....To lose SBS is a real bummer. It is a very sad event. Hope she may change her mind, but perhaps not.
In case she may still have her account and read this.... WE WILL MISS YOU.

[kadee79]

I agree with the others SBS! I have no idea what happened but was just glad to have another gal to swap with!
Would love to see you come back, at least to this board.