Friday, December 15, 2006

Adobe's Other Relationship with Google

Adobe (NASDAQ:ADBE) released earnings and held their conference call. (Transcript available on The running commentary and pre-open trading seems to be highly positive. Adobe seems to be on the march.

An interesting question was posed by Steve Ashley of Robert W Baird regarding the monetization of download revenues through Google. Currently the number seems to be buried in the “other revenue” category which is up $72 million. Shantanu Narayen President and CEO responds by saying the deal is confidential and that they cannot say more about that category.

If this becomes significant Adobe will have to lift the corporate veil and let everyone know what a good job they have done. Thinking speculatively Google (NASDAQ:GOOG) is on the march itself and may view a relationship with Adobe as an ends to a means such as overtaking Microsoft (NASDAQ:MSFT)

Relative market caps show Adobe at $24 Billion, Google at $148 Billion and Microsoft at $296 Billion. Google needs something like Adobe. Microsoft does not have the same perspective. Watch the other category at Adobe. Will it become a bear hug or just another strategic relationship?

Thursday, December 14, 2006

ADM's Inadequate Asian Disclosure

Archer Daniels Midland Company (NYSE: ADM - News) will contribute its direct holdings in its Wilmar-related agriculture processing joint ventures in China to Wilmar International Ltd. (WIL) in exchange for shares in WIL. WIL is a publicly-traded company on the Singapore Exchange Limited (SGX).

Wilmar will be considered by many to be Asia’s largest agribusiness group in Asia. (WIL also plans to acquire the worldwide oilseed-related assets of Wilmar Holdings Pte. Ltd. and merge with the Kuok Group in presumably the very near future) Its stock has nearly doubled in the past year. 05 net income was approximately US $58 million.

ADM will become the second largest shareholder. Presumably Kuok will be the largest although the press release was silent on this point. Given ADM’s relative size Wilmar seems financially insignificant. The play is obviously the future. However no financial information has been provided by ADM as to the future impact. Not even the bland comment about a possibly accretive effect at some point in the future.

ADM did the deal because they think it’s a good idea. Wil trades in Singapore and is subject to governance standards that differ from North America. Kuok is a private group. Many assets are in China. Much of Wil’s products revolve around Palm Oil which is reviled by nutritionists.

ADM can you provide some more colour, connect a few dots and maybe explain how this is going to work out. I am not saying its bad financially. But it would be really good to understand the investment

Wednesday, December 13, 2006

Goldman Sachs Tipping Point

The Goldman Sachs Group, Inc. (NYSE: GS - News) reported net revenues of $37.67 billion and net earnings of $9.54 billion for the year ended November 24, 2006. The results are big, huge, stellar and stupendous. The bonuses will be big, huge stellar and stupendous. Following the release the stock gapped down on the opening, rallied a little and then drifted down on higher than 90 day average trading volume.

The insider-trading story tells an interesting tale. No insider purchases in the past six months. No one was loading up as the train was leaving the station. Insider sales were a miniscule 215,000 shares. No one was really getting off either. Institutional holdings in the past quarter were trimmed by approximately 5.4 million shares or less than 2% of institutional holdings. This amounts to a pittance.

Goldman Sachs has been like a really great party, no one wants to go home. We all think we want another round of drinks. But the stock is trading close to its 52 week high. The results are really good but how do they continue at this torrid pace? The short interest spiked from just under 2.25% to just under 3.00% in mid Oct, before settling down to just over 2.25% in mid Nov. Momentum maybe is weakening.

But do you really bet against Goldman Sachs? Of course you do! If investors were slightly disappointed with this round of earnings they will soon become jaded frame and will not be pleased with another very good quarter or two. Who is left to buy the stock? However it will be difficult to replace, truly is a pity.

Tuesday, December 12, 2006

DuPont Guarantees Earnings?

DuPont (NYSE:DD) issued updated guidance and guaranteed to the market what their year end and Q4 earnings would be. The stock has run up handsomely since the summer from approximately $40 to slightly over $48 at the end of Nov. Profit taking pressure may have been a factor as the stock weakened slightly in early Dec. Did someone decide something had to be said or done?

DuPont issued some bad news about $200 million pre-tax write offs (actually called investment and streamlining plan) in the Ag and Nutrition division and a more intellectual honest announcement of a $50 million pre-tax write down in the industrial chemicals division.

Stewing the news mosaic DuPont also announced whopping insurance recoveries from asbestos Litigation and Katrina damage. The $60 million pre-tax recovery was not broken down between Asbestos and Katrina and no comment was provided about the possibility of additional recoveries.

The mosaic was bulked up with the whopping announcement of $500 million after-tax reversal of accruals relating to such mundane items as taxes and the poorly understood “repatriation of foreign earnings under the American Jobs Creation Act” The good news was there is a finalization of the foreign earnings issue which was an incredibly large number.

The investor guarantee of earnings comes in the first major paragraph of the press release which states “Including these fourth quarter significant items, the company anticipates 2006 reported earnings per share will be about $3.25 per share.”

You got to love a CFO who has something in his hip pocket that enables the team to get a first down. Where are the boundaries when the company comes out 43 days in advance of the Jan 23, 2007 scheduled announcement and lets the market know there is a virtual lock on the earnings?

Monday, December 11, 2006

Nokia Qualcomm Holy War

Qualcomm (NASDAQ:QCOM) is under siege by Nokia (NASDAQ:NOK). A strategic cross patent agreement is set to expire in April of 2007. The terms of the agreement are confidential but those in the know believe that Qualcomm received 5% of CDMA technology. Now that 3G technology has muscled its way up the food chain, Nokia wants a better deal.

William Plummer, Nokia's external affairs VP, summarized the company's grievance : "Qualcomm is trying to project its current business model into the future in an uneconomical, irrational way."

Nokia has plenty of company; Ericsson (NASDAQ:ERIC), Texas Instrument (NYSE:TXN), Broadcom (NASDAQ:BRCM) have all filed similar legal actions across the USA, Europe and South Korea.

World wide revenues from 3G over the next few years are expected to reach approximately half a trillion dollars. Any royalty arrangement will also be huge. Changes or modifications however small in percentage terms are worth many millions of dollars over long periods of time. While much of the action will be contested in the courts, regulatory bodies around the world will also influence the future when they adjudicate what constitutes "fair and reasonable". The term is included in almost all agreements and has now become a legal Trojan horse.