Archive for June, 2006
1995-2000 - Euphoria in Perspective
On July 17, 1995 the NASDAQ Index crossed 1,000 for the first time; just 5 1/3 years later, on March 9, 2000 it crossed 5,000. In the period perhaps $12 Trillion of wealth was created in US stocks.
The five following stocks of the era, the ‘nifty five’, grew in market cap by almost $2 trillion during the five plus year period, accounting for 1/6th of this stock wealth creation.
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The Future of FTTH in China - Part V
What we’ve learned
- Part One - A radical change in demographics is creating an optimal situation for a fiber build out in China
- Part Two - GE-PON has taken hold in other countries with similar demographics
- Part Three - The economic and market conditions appear to favor GE-PON
- Part Four -The activities by the largest Chinese Telecom actor reinforces this choice
In this fifth and final installment we will examine what questions remain that prevent accurate forecasting of PON deployments in China.
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Microsoft - Wealth Creation Champion
No stock characterized the wealth creation institutional era more than Microsoft where over $600B in market value was created in just 15 years (1986-2000).
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SFP+ … Yet Another 10G Optical MSA?
This article is an anonymous submission from a dedicated reader and frustrated engineer
A decade or more ago life as an “optical guy”…as grad student or a professional, revolved around fairly simple things…moving photons over here, a little “guvment” money over there, a product or two now and then…good times, good times. And if you were lucky enough to score a (gasp!) postdoc (swoon!) at Bell Labs, why ANYONE would work grueling hours for Dickensian low pay for a chance to work on things like… SONET…. DWDM… FIBER… BANDWIDTH… DATACOM…
Economics, ROI, quarterly growth, P/E, investor guidance and things of that sort, well that simply did not matter. For the truly patient investor, the general idea of a “boutique investment” applied well…a fairly complex science understood by the few in service of fewer still.
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The Long Term Growth of the US Market
One of the interesting data sets the Fed Flow of Funds Report provides is the total market value of publicly traded equities on the US market. Year End 2005 data available on-line indicates the value was $18.2 trillion.
In 1980, a quarter century prior, it was only $1.5T, an increase of $16.7T. A pretty good quarter-century of wealth creation for stockholders! In other words, 91.8% of the stock market values was ‘created’ in the last 25-years.
Below are two charts, both representing the value of U.S. stocks from the end of World War II in 1945 to the end of last year. In 1945 the entire US stock market was valued at $117 million ($282m in 1955; $735m in 1965; but only $632m in 1974!).
Note: The y-axis (left side ofchart) on a linear chart is scaled to represent the same dollar value increase regardless of the valuation level; the log chart is scaled so that the same percentage increase moves up the same level on the chart regardless of the valuation level. Log charts should be used when values are viewed over more than a few years. Expressing numbers as a logarithm scales them to allow comparison of their difference over time…$100 to $1000 (1949-1969 approx above) is same as 1000 to 10,000 about 20 years later.
The Future of FTTH in China - Part IV
This is part IV in a continuing series. Part III can be found here.
Enter the Dragon
China Telecom (CHA) recently assembled a very quiet, closed door session of suppliers in order to orchestrate implementation of several extensions to the IEEE 803.3ah GE-PON standard. This event has gone totally unreported in the press. Obviously, knowing which companies attended would be valuable- this is what I have been able to conclude.
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Fed Flow of Funds Statement - An Unseen Treasure
For us, perhaps the most comprehensive quantitative financial publication, which also happens to be free and downloadable off the internet, is the Federal Reserve’s Quarterly Flow of Funds Statement. While informative and free, most investors probably have never referenced it. If you haven’t, you should do so.
Even better, all of the data in this publication is available for download into database or Excel format.
The publication is issued quarterly. A wealth of economic data is provided dating back to the Depression when - coincidentally - the government began its collection of statistics. This financial history is sufficiently far enough back even for us!
Print the six back issues available on the web site, you’ll have all of the data from 1945-2004 (1945-54; 1955-64; 1965-74; 1975-84; 1985-1994; 1995-2004), while the last publication on June 8th covers 2001-2003 and the four quarter endings for 2004 and 2005.
Leaving Saturday
I’m leaving for my bi-annual extended vaction this Saturday the 17th. Those of you who need to already know how to reach me. I’ll have my mobile and hopefully should have email access through that. I may even try a little blogging from it.
Several people volunteered to contribute articles. While not all have been received as of yet, there should be an interesting mix.
- SFP+ and it’s negative impact on the optical components industry
- Fed Flow of Funds Statement - An Unseen Treasure
- Long Term Growth of the US Market Capitalization
- Microsoft - Wealth Creation Champion
- Nasdaq - Euphoria in Perspective
In addition, I’ve already cached Part IV and V of The Future of FTTH in China, they will appear Tuesday mornings. I will be doing no additional professional blogging, but may post some updates on my trip. If anyone would still like to contribute an article, long or short, the final final deadline is Friday.
In leiu of congratulations and good wishes, please say a small prayer for my wife, who will be solo with my young children while I frolick in the Alps. I’m a very lucky man.
I return on July 4th.
The Future of FTTH in China - Part III
This is part III in a continuing series. Part II can be found here.
We believe China Telecom (CHA), as well as other Chinese actors, will choose GE-PON. They are motivated by factors that transcend technical specifications, factors that matter most to the selection process.
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Microsoft Windows Media Player 11 (Beta)
Installed it this weekend. Very nice. You can install it on your own Windows XP machine by downloading here. It can be uninstalled by using the Windows ‘rollback’ function. If you don’t know what that is, then don’t install this Beta!
I have not tried the URGE online music service, I am completely in-hock to Yahoo! and their music service- changing at this point would require that I identify and re-download all of the subscription tracks I currently own. Lucky for me, WMP11 plays all of the downloads from Yahoo.
Yahoo’s software interface is horrible - if the URGE service is as good as the player itself, Real Networks Rhapsody/Yahoo Music/Napster are in for some tough sledding.
I’m not going to make the “Apple iTunes is Dead” statement as the device has legions of committed users (I use the word ‘users’ in the same way a heroin addict would). But this player, combined with the new syncing infrastrucutre built into Vista will certainly stop the bleeding.
Chinese Speculation - Theirs and Mine
Great article in the WSJ today on the rising cost of apartments in China, and the efforts of a Zou Tao, a citizen blogger, to bring the issue to the attention of the public. He argues that it is the work of rampant speculation and is leading a grass-roots campaign to educate the public and influence the government.
While the focus of the article is on Mr. Tao there is great statistical information about the rising costs of housing and the socio-economic impact it is having in China.
Allow me to speculate.
Recent events in China (currency exchange deregulation, failure to reign in lending, commodity price explosion, end of cheap money worldwide, rampant speculation in multiple sectors) have me concerned. There isn’t one particular piece of news or event that I can point at but when summed together qualitatively it feels like a negative trend.
I stand by my personal view that the greatest test of China’s ascendency is yet to come, and the unwinding of the incredible industrial production and property boom is an event that could provide the trigger. China’s future will be shaped by how they face this challenge. It will also provide an excellent investment entry point.
It would be valuable to have lived in the USA during 1890-1950 and have used those experiences to view the developments in China. The USA was plagued by the same problems as China during these times. Someone with such experience might be less alarmist than I.
Regardless, it certainly is positive when a Chinese capitalist unwittingly channels Voltaire.
Li Ning, a marketing manager for Shenzhen’s newest office tower, the 52-story Times Square built by Hong Kong-backed Excellence Group, offers a guarded view of Mr. Zou’s campaign. “I may not agree with what he says, but I support his right to say it,” he says.
Birinyi Associates published a snapshop of global bear markets this weekend. Note China’s position in the upper right.
I completely exited an investment in IShares FTSE/Xinhua 25 ETF (FXI) (4/28 and 5/24) based on the increasingly negative confluence of economic events I saw in the non-mainstream press.
Intel - CPU Roadmap Looking Good
Perhaps investors will pause for a moment from their ritualistic dead-horse-beating about the demise of Intel (INTC) and the ascendency of AMD (AMD). They should read a recent performance benchmarking from AnandTech, “Intel Woodcrest, AMD’s Opteron and Sun’s UltraSparc T1: Server CPU Shoot-out“.
It’s a great overview of the performance of Intel’s new Woodcrest Server chip, and how the Core architecture is improving the performance of their chips across the board. In my discussion of the New Four Horsemen, I also linked to an article comparing the Intel Core versus AMD’s K8 architecture.
Intel is not without troubles. But the idea that AMD is going to continue to take large share gains is absurd. AMD clearly took advantage of the horrific Xeon performance in the server space. Much of the Intel share loss and most of the profit hit was from losing this high margin business. Read the Anandtech articles and it’s clear to me that the days of easy share gain for AMD are over.
Add to the fact that one analyst is seeing the signatures of a nasty price-war developing and I think we are seeing what Andy Grove likes to call an inflection point.
Now they just need to fix their awful marketing.
The real loser here? Sun Microsystems (SUNW) and their build-their-own CPU strategy pulled from the playbook of virtually every computer company that went out of business in the last 20 years, something we pointed out six months ago.
In the semiconductor business, the clock re-starts every two years. You put yourself out of business or the other guy will. There is no permanant advantage. And the clock just restarted. Game on boys.
Finisar Zealots Leave the Island
It looks like the cleansing of the optical component sector is nearing completion. This is something I have been waiting for in expectation of a more rational investing environment in which I can apply my principles and philosophies. As readers know, I own no optical component stocks (yet). I strongly suggest you read my post in the previous link. Here’s an excerpt:
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Blogging a FiOS TV Franchise Meeting
I attended a Winchester, MA town meeting tonight. The sole purpose of the meeting is to vote on cable franchise application from Verizon for FiOS TV. Meeting ran from 7:30PM to 10PM. Other than a small zoning meeting I once attended, this is my first town meeting.
I am a FiOS customer and follow FTTH issues from a financial and technical basis pretty closely.
THESE ARE RAW NOTES. I reserve right to change them if I get my hands on a transcript from the meeting.
Analysis to follow in a later post.
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Guy from Comcast sitting next to me taking notes. Keeping tabs on the competition. Very friendly, do I detect even some sympathy for what Verizon is about to endure?
Lots of people here… they all know each other. They are all Verizon employees who live in Winchester. A little grass roots corporate push.
Board kicks off Meeting
Nortel / Huawei Joint Venture Dead
On February 2, 2006, the day the Nortel/Huawei Joint Venture was announced, Google directed a search to this site with the following terms. My Web Stat software picked it up.
I guess I found the fact that someone from Nortel was trying to understand problems with the Huawei / 3COM venture after they had just completed one themselves was, ironic.
Now, it looks like the Joint Venture between Nortel and Huawei is over. It’s hard to say whether this is positive or negative, since so little was known about the intent in the first place.
From yesterdays 10-Q filing (Page 50):
On November 9, 2005, we and Huawei Technologies Co., Ltd. entered into a non-binding Memorandum of Understanding to establish a joint venture for developing ultra broadband access solutions. We and Huawei have now decided not to proceed with a joint venture,” reads the filing.
Hat Tip to Lightreading
FiOS TV Rollout and Franchise Approval
This weekend was Town Day in the Boston suburb where I live. One of the street vendors was Verizon (VZ), who was promoting their FiOS service. Comcast (CMCSA)was there too.
I took the opportunity to quiz the Verizon rep on how deployment was going. The rapidity and completeness of his answers was either the result of rehearsal or intense pride.
He indicated that the surrounding towns, where FiOS TV was available, FiOS penetration was at 20%. I asked him what 20% meant and he said “One in every Five Homes”. I asked - “No tricky accounting?”. He said no, and that things were going very, very well. I asked about my town, where FiOS TV is not available and he said that penetration was about 10%, and that the lack of video impacted penetration in a big way. Towns with Video service see much higher subscriber take rates.
I was in disbelief - 20% penetration after six months of service was astounding. I pressed him for a few more minutes and he stood firm on his answers.
I then asked him when they would be getting the franchise approval in my town and he said - the Town Meeting is this Wed. Today.
Should be interesting to see what machinations are required to secure a video franchise. I’m going to go.
The Future of FTTH in China - Part II
This is part II in a continuing series. Part I can be found here.
Technology Selection – GE-PON vs. G-PON
Chinese carriers will be forced to select between two competing standards for Passive Optical Networks (PON) for Fiber to the Home (FTTH) Deployments.
Intel Communications Unit - Unofficially on the block
The San Jose Mercury News picks up on ’several unnamed sources’ who confirm what we predicted weeks ago - that Intel (INTC) is selling their communication semicondustor business.
Read my original post, from April 29.
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Immenstar and the Quad OLT
I first came across Immenstar, a provider of GE-PON silicon, while researching The Future of FTTH in China. These are the most notable things about Immenstar.
- R&D in China. Helps win Chinese business
- Funding from UT Starcom, and likely their lead customer
- They have a quad OLT chip
They were recently profiled in Lightreading and in the comments a short debate ensued on the merits of a quad OLT.
Microsoft’s Guanxi
The importance of Guanxi for companies seeking to win business in China varies depending on the sector. Trying to secure shelf space for beer? Guanxi is pretty important. Trying to win a $10MM semiconductor deal at Huawei? Not as important.
I found that merit counts more than Guanxi when selling high tech to big companies in China. Every time we thought we could win based on Guanxi, we lost.
