| STRATEGIC NEWS SERVICE
The most accurate predictive letter in computing and telecommunications,
***SNS*** Small Computers vs. Big Phones:
“Mark is the smartest technology analyst in the industry, and if you don’t get his newsletter you ought to.” – Rick LeFaivre, Managing Director, OVP venture partners, and past VP, Advanced Technology Group, Apple Computer; in a quarterly newsletter to members.
__
Audio from the SNS Annual Predictions Dinner:
Mark And Bill Janeway’s Conversation:
The FiRe Box:
TWO DAYS LEFT ON SAVING $1K: See bottom of The FiRe Box for details.
“FiRe 2009: Shaping the Rebound: Technology Driving Economics”
“FiRe is my home, the place I come back to every year.” – Larry Brilliant, CEO, Google.org.
You’ve been watching Hewlett-Packard’s gravity-defying performance over the last few months, noticing that Chairman, President, and CEO Mark Hurd not surprisingly spends most of his time at work (and not at conferences), which explains these amazing numbers.
If you want to meet and hear Mark Hurd, perhaps the most successful technology CEO at work today, come to FiRe 2009.
But what else will you find?
“The Battle Over Bandwidth Economics,” with Telstra CEO Sol Trujillo.
How “Cloud 2.0” will support corporations and consumers.
“Unleashing the Power of Dynamic Network Infrastructure,” an advanced look at the design and performance of next-generation Net infrastructure.
“Fixing Healthcare: Technology Following the Demographics.”
“Wireless Broadband: LTE, WiMAX, and Other Global 4G Alternatives,” with a separate look at NASA’s most advanced wireless broadband technology AND NASA’s WorldWind software.
“The (Real) Science Behind Today’s Alternative Energy Solutions.”
“The Best-Selling Computer of All Time: Next Design Steps for the CarryAlong/Netbook/Mini.”
On-the-ground application of new green energy technologies in Hawaii and China.
“1:1 Educational Computing” in new Inkwell pilot programs in Mexico, the U.S., and Africa: perhaps the greatest computer sales opportunity of the decade.
“Supervisualization and Global Conferencing, and New Views of Supercomputing,” a series of stunning demonstrations by Larry Smarr and the “FiRe Lab,” Calit2 at UCSD.
“Nuclear Energy Without Nuclear Proliferation: A New Design.”
“Many people concerned about the consequences of future climate change would find abundant reason for optimism, were they to witness the spirit of innovation and commitment to solve this problem that pervades the discussions at FiRe.” – James McCarthy, Leader of the Nobel-Winning Intergovernmental Panel on Climate Change, and Professor of Oceanography, Harvard University.
Elon Musk will describe being the first private party to launch a rocket into orbit, bring us the newest version of the Tesla electric car, and update us on large SolarCity installations.
And much more.
Member Price Alert: Capture our Future in Review interim price of $3900 before January 31, and save $1000 off our $4900 registration fee. Use “firecode 2009” when registering, and save the usual member discount of $300. We have never offered this interim price before, but thought it might be a good answer to economic times and the need for some to use calendar 2009 budgets. Catch it now, before it slips away –
Date and Place: May 19-22, 2009, Hotel del Coronado, San Diego. Register here to join us for the best Future in Review yet:
» Small Computers vs. Big Phones: The Next War
I got a call this week from a reporter at the San Jose Mercury News, doing a story on Microsoft CEO (and SNSer) Steve Ballmer. I told her I thought Steve had pulled off the miraculous in re-branding the company, but that Wall St. would wait forever to be shown the next legs of the revenue stool before buying the stock.
I also suggested that Steve was pretty focused on sales and operations, and that the new triumvirate including (SNSer) Ray Ozzie and (SNSer) Craig Mundie was doing a pretty good job of taking the tasks once done by Bill Gates and Jon Shirley. Steve gets the above boxes, Ray works on Cloud and Collaboration future technologies, and Craig works on heads of state, education, longer-term technology trends, and perhaps being the company’s chief global ambassador.
Of course, you can never replicate the past person or generation. It’s true in MS’ case as well. And this is good and bad, as one would expect. The good: no more illegal behaviors. The bad: less incisive strategic movement on the playing field.
It occurred to me that, with Steve Jobs’ sudden stepping-aside at Apple, even if only for a time, we are passing generations now in technology. The generation that drove the greatest economic growth curve in global history is moving on: (SNS member) Bill Gates to philanthropy (yes, he still spends a day a week back at MS); (SNSer) Sun’s Scott McNealy, probably to golf; (SNS Secret Sharer) Steve Jobs, to health; Intel Chair Craig Barrett, this week announcing his impending retirement in July.
Some companies, such as Symantec, are already on their second or third post-founder generation, with CEO (and SNSer) John Thompson this week being tipped for Commerce Secretary.
Whatever you want to say about those days, they are now gone. The pioneers have been replaced, the landscape has largely changed, and the competitive issues now are somewhat different, as are the names on the doors.
One aspect of this shift is the de-emphasis on desktop computing. Almost all of the “old” (post-1984) wars were fought in this arena, and today, it is almost unimportant. Technology, Moore’s Law, and production economics have all pushed the action elsewhere, either to the very large or to the small.
In each of these new areas, as you’d expect, there is a lot of chaos.
On the large side, there is a good amount of argument over where data centers are headed, with many observers saying Cloud Computing is just hype, with usage dropping and its prime purveyors lacking in real customer-driven vision. I happen to be convinced of its future utility, and we will be having a special panel at Future in Review (www.futureinreview.com) on “Cloud 2.0,” which has a lot to do with moving beyond basic server farms/data centers and creating new remote compute platforms, available to anyone, anytime, anywhere.
We will be taking a look at related infrastructure changes, and how the world of very large and very small computing merge in this new plan. While everyone is working on the parts of the elephant, it seems important to spend a bit of time stepping back to make sure it has four feet, two eyes, and a trunk. Building the first Wall Computer would fall into this category of step-back design and innovation. Having now described it in detail (shades of the CarryAlongPC), I hope I’m there – or nearby – when it happens.
Those who have heard my predictions for the coming year (see links at top of this issue) know that I have even more interest in the small side, and that’s what I want to focus on today.
There is a major strategic battle shaping up over this turf, and, behind it, an all-out war for hearts, minds, and a new set of platforms. We’ve been discussing this for nearly a decade, with pieces On “What Is a Phone?” and “What Is a Phone Company?” – and now it’s here.
The first sign of the fight goes way back to Intel’s messing with Microsoft, back when Wintel was an obvious and constant duopoly. Intel was running out of expansion space, and looked internally to have made up its mind to eat MS’ lunch, a bite at a time. NSP was the first nip, and the fur and feathers went flying, ending in a private meal and treaty between Billg and Andy Grove (and, I suspect, Craig Barrett).
Don’t tread on me – i.e., software – was the result, at a time when it was occurring to Intel that it really didn’t need MS any more and could just start writing its own software. Since then, the company has revolutionized itself, with more software engineers than hardware today. And many observers, once used to living in the fear-and-loathing shadow of the Old Microsoft in its most aggressive days, have since switched this emotional brand to Intel, as it continues to search for what it will be when it grows up.
Intel’s next big move was one of the few real disasters in company history, littered with many missteps but few catastrophes: moving into mobile chips. While Qualcomm was put on notice that Daddy was moving back home and would be at least sleeping on the couch, it turned out that years of effort and countless millions in R and D were for nothing. Intel moved out, sold the division, and continued to look for the Next Big Thing.
Having already joined SNS Project Inkwell and then gone out on its own in the education market with the ClassMate, Intel now has discovered the SNS CarryAlongPC. True to form, it has given it its own name, even though we can clearly track the pedigree from CAPC to MS CarryAlong to MS UMPC to Intel NetPC.
While I think the ClassMate is a good name, I have to say it: NetPC is the dumbest name in the world. OK, it’s time for yet another exciting SNS Pop Quizz:
Q: Why did Intel call it the NetPC?
1. Because it is the only PC that connects to the Net.
2. Because it connects better to the Net than do other PCs.
3. Because it doesn’t run things like MS Office apps, doing the most common PC chores.
4. Because Larry Ellison once invented a hobbled, non-MS device called the Net Appliance.
5. Because “Net” sounds really cool, even if it implies something that is technically and simply untrue, since the design of the unit has absolutely no Net-specific attributes not held by other machines; and, further, since anything a NetPC cannot do tonight, it will be able to do tomorrow, from games to video.
A: Yes, you’ve got it again: #5.
Maybe someone will next take an SNS design and rename it something like the Bathtub PC. You heard it here first.
Intel has been fighting a war with heat for most of this decade, and its competitors have added the correlative of power consumption as a critical design attribute: small things need to have long battery lives, heat or not. Intel thought it had a heat problem, coming from the days of large laptops; now, it turns out it has a power problem. Theoretically, that problem gets solved with the Atom, and a new series of chips at the small end.
Welcome back to the mobile computing arena, Intel.
(SNSer) Paul Jacobs, CEO of Qualcomm, was quicker off the mark this time around. For the last few weeks, he has been talking publicly of this fight, and how ready he and QC are to show Intel the difference between a phone and a computer. Among other things, Paul seems to have a deep understanding of the SNS AORTA (Always On Real Time Access) world, and how much more compelling it is than the normal PC world.
But wait! you say: my PC is now AORTA, always connected to the Net. Unlike in the past, when the phone was always on the Net but the computer was not, things have flipped: now the PC is always connected, but the mobile, by its nature, is a bit iffy.
Ready for a battle?
On Qualcomm’s side, you have a company deeply comfortable with the design issues that drives the mobile world, from connection quality to power consumption. As TV nets move down to the handheld form factor, QC has the engineering chops to make this transition with the least pain.
On Intel’s side, you have the world of computers. As computers get smaller, Intel has every intention of moving down the size parade. The Apple iPhone, perhaps the first full-on PC in a phone suit, is right on Intel’s technology track, and probably moved the company more quickly along the learning curve. If it wasn’t a phone company before SteveJ showed up, it is now.
Today about 30% of phones are Smartphones – i.e., they are running PC-like operating systems. The speed with which WindowsMobile, MacOS, and Linux/Android are moving onto phones is fairly breathtaking, and there is no reason not to expect that by 2010 that number will be in the 50-60% range.
Will the old “extend and embrace” Billg strategy work in the phone marketplace? Many people wrote off Nokia and Symbian long ago, and they still dominate the market. Phones really are different, so far, in what they offer users. Communications really is different from spreadsheeting.
Microsoft and Intel tend to design phone products as though they are little PCs, compatible with the 8086 instruction sets and screen interfaces that past customers expect.
Let’s presume that this war, like those in the past, gets fought on many levels, by many players:
Chips: QC vs. Intel Operating Systems: MS vs. Symbian vs. Google Applications: Everyone Hardware and Interface Design: Finland vs. Apple vs. Redmond vs. Taiwan vs. South Korea
(See, I had to add that last category just to represent the difference between these worlds. SteveJ used the BRIC touchscreen to achieve breakout iPhone sales figures. It’s a sign of his brilliance that a long-boring attribute on PCs became the category-killer feature for phones.)
The battle lines are clear, at the top of this list, but completely unresolved as we move down in size below the CarryAlongPC (about 9 inches by 7 inches).
If the CAPC is going to be the best-selling computer format of all time, as ABI Research (and we) believe, then the question arises: are the numbers for these smaller formats large enough to matter?
Yep.
Cellphones are already the top software platform in the world. My projection is that we will see something like 1.5-2B applications sold next year. Nothing else compares. From a unit sales perspective, nothing else matters.
Who else sees this?
Bill Gates has long envisioned cellphones – the first technology into new villages in emerging nations – as the educational platform for these communities; he may well be right. Just as likely, units designed for that purpose, having cell and handheld learning attributes, will be the answer.
Britain, perhaps seven years ahead of the U.S. in educational technology use and design, has been actively rolling out hundreds of thousands of handheld learning units over the last few years; the largest gathering on the subject, led by SNSer and Inkwell member Graham Jackson, happens in London.
Will there be more opportunities in this size realm? Of course. It’s going to be the Wild West, the California Gold Rush, all over again.
This time, customer-centered integration wins, as SteveJ so ably proved. It isn’t the hardware, the software, the Net – it’s the customer experience.
Most SNS members are familiar with the pro-free-trade paper done using the iPhone as an example of the U.S. keeping its IP, and its value-added, even as manufacturing goes offshore. What the author missed, unfortunately, is that this is a sport case. Almost all design is now taking place in Finland, Taiwan, and South Korea, followed by Japan. While the U.S. still has most of the customers, it has given up most of its design heft by giving up manufacturing.
Today, ODMs (Original Design Manufacturers) have replaced OEMs (Original Equipment Manufacturers) in Taiwan; almost all laptops and notebooks are designed there. Whether this was intended or not, it made good sense to the Compals and Quantas of the world to creep up the food chain, and U.S. makers were only too happy to offload the costs and risks of, first, manufacturing, and soon after, design.
How big will this war be? I’ve tried to give you the right picture: global. It will involve mercantilist countries with strong industrial policies, Nordic countries that can’t afford to lose, old-line companies with no other future vision, newer firms defending home turf, and big monopolists trying to get bigger.
Just when you thought things were quieting down for the recession, the largest war in computing history was launched. The smart players know that it is in times like this when the most new territory can be gained, both through R and D spending and through aggressive moves, even as your competition backs off.
For those who understand this set of opportunities, it is time to get busy and achieve strategic goals that will provide company revenues for the next several decades.
Your comments are always welcome. Sincerely,
» Upcoming SNS Events
Our highest appreciation to The Rodel Foundations, returning as the Thunderbird Internship Sponsors of FiRe 2009:
Many thanks to Deloitte LLP as a Primary Sponsor of FiRe 2009:
Sincere thanks to Qualcomm as a Special Events Sponsor for FiRe 2009:
Thank you to Cisco
Thank you to Infoblox
Sincere thanks to Lux for its Media Sponsorship of FiRe 2009:
For inquiries about SNS Events and/or Sponsorship opportunities, please contact Sharon Anderson-Morris (“SAM”), SNS Programs Director, at sam@tapsns.com or 435-649-3645.
» SNS Media
A new library for a new year: here are your favorite books, including who has proposed them, whether they’re fiction or nonfiction, and ready clicks to Amazon:
http://www.tapsns.com/members/books.php
“SNS iNews is a terrific idea.” – Peter Petre, Author and Past Sr. Editor, FORTUNE magazine
Are you an AORTA (Always On RealTime Access) member of SNS? Use SNS iNews™ to stay in touch, in real time, with what your fellow members and FiRe Thought Leaders are achieving – and then help them get there.
Click here for the current iNews digest: www.snsinews.com
(For ID and password assistance, email lynne@stratnews.com)
Mark’s Top Ten Predictions for 2009: http://www.tapsns.com/media/nydinner2008/nydinner2008-predictions.mp3
» AmEx Going Down: Two Types of (non) Credit Cards
Very few people have taken a close look at American Express – at least until this last quarter, when its net dropped 79%. Many merchants will not carry the firm, because of exorbitant fees for handling money (up to 4%).
Historically, the firm has relied on a business model using its Traveler’s Cheques that approaches larceny. In a sentence: you buy our useless paper using real cash, we will charge you a whopping fee for the privilege. We know the chances are huge that you will not cash in all of this scrip, leaving it in your purse or wallet for the next trip. For all those dollars, and all those months or years, we will have the use of your real money, while you get nothing. And, best of all, some of you will just leave that useless scrip sitting somewhere forever, long forgotten and essentially lost but unclaimed.
What a scam!
Did I mention the AmEx card? For this well-advertised privilege, you couldn’t carry a balance. Wow! Thanks, AmEx!
But there’s more: Get the Card, and there is no spending limit. Really! Double Wow!! Until you find out that this means you can’t find out your limit, either, so you really can’t trust the card.
Most people are too smart for this stuff today: they just take Visa cards to London and extract cash at going exchange rates from ATM machines as necessary. Less security worries, and no AmEx to pay. As a result, AmEx has more aggressively moved into the “real world” of providing services to customers, like allowing month-to-month balance carries on its cards.
Oh, that was yesterday. The company has suddenly started restricting credit, only days or months after offering it, no doubt in response to its horrible off-the-cliff earnings performance.
For merchants, like SNS, that clear transactions on their websites for AmEx cardholders, the “company that invented the float” has an even better deal: it takes our customers’ money, say, on a Monday, and we see it maybe four or five days later. In an era of all-electronic transactions, I decided to ask AmEx why I couldn’t have my money immediately.
There was a long silence on the phone. “You always have the option of not using American Express,” came the lame answer. Translation: We’re going to use your money for five days, and you can’t stop us.
Finally, there is an obvious problem that most investors seem to have figured out, based on the stock’s performance: unlike its competitors, as AmEx is forced back out of the lending business, and as spending in general falls, it has no secondary revenue source to fall back upon.
Most business schools teach companies they need to be customer-centric. A few have prospered with a model of customer abuse, but not for long.
I think AmEx’s day is past. Why would anyone bother with it?
» Verizon’s Numbers
SNSers know I have liked this company for a long time, and its strategy just seems to get better, and clearer, as time goes by. In a period and sector when and where all looks pretty glum, Verizon looks to have a bright future.
Here are the numbers:
For Q4, net income was up 15% YTY, earning $1.24B vs. $1.07B; on revenues of $24.6B, up 3.4% YTY, but slightly under Thomson Reuters expectations.
Verizon Wireless added 1.4MM subscribers in the quarter, only 100k down QTQ. At year end, the company had 72.1MM customers. Add in Alltel’s customers, from an acquisition that closed January 9th, and the total is now over 80MM, making Verizon Wireless Number One in the U.S. market. Congratulations, Ivan!
Wireline revenue was (predictably) down 2.6%, to $11.9B, with 12.2% residential wirelines canceled. BUT, the company added 303K TV customers, and 282K high speed Net customers on its FiOS fiber system, a new record.
Summary: There are two big ways to make money as a telecom today: cellphones and fat-pipe Internet. In the U.S., Verizon now owns them both.
Both of these trends will, I think, continue, with the one big question of whether 4G will change the player list in wireless or wireline. For the near term, Verizon, unlike its Vodafone parent, is on its game.
» Technology Layoffs: Two Stripes
The media is full of bad news these days, particularly when it comes to layoffs. There seems to be no difference now between technology and, say, construction or finance, as the disease moves out from subprime sectors into the rest of the economy.
Right?
Well, not completely.
If you take a second look at the companies SNS has been highlighting, it turns out that these “rebounders” are just trimming a little sail, getting ready for the rebound.
True, aging industries, and sectors in transition, are seeing that demise hastened by current difficulties; it’s natural. This is Schumpeterian “creative destruction” at its best, even when it hurts.
We also have real layoffs in technology. Nortel is evaporating before our eyes, as is Sun, both called out earlier here. And Texas Instruments, facing the same telecoms downturn, just announced 12% layoffs. But here, even at TI, it turns out that of the 3,400 jobs to be cut, only 1,800 will be layoffs, with the other 1,600 done via retirement and voluntary departures.
And this sets the table for the big kids in software and services. While some companies are just doing real layoffs (HP comes to mind here) as real-time cost-cutting exercises, this is the exception. The rule is more like what we saw from Microsoft and IBM in the last week.
MS made big headlines with a 5k layoff announcement during its conference call, after weeks of rumors. But here is a closer look: the figure is over three years, and local figures were only 1,400. Of those, only 800 or so were listed with the state, so it was unclear if there were more for the year. Oh, and by the way, the company will be hiring 3,000 or so more during that time, so the net loss, for the moment, is only 2,000. And if things change over the three years, then –
In other words, except for those few who get the call, this is a real nothing.
Then comes IBM, another headliner this week. “IBM Slashes 2,800 Jobs in Sales, Software Units,” according to the Wall Street Journal.
Here are the details: earnings and profit margins for Q4 hit an all-time record. True, it looks a bit like 8.6% of the software group got the hatchet, probably in exchange for jobs going to India, something IBM has been up to for a while, and for which it gets increasing scrutiny in the U.S.
However, the company added 14k employees over 2008, up to 400k from 386k at the end of 2007. So, for the year, IBM is up 11,200 jobs. My guess is that it will indeed add more jobs in India, making the whole story a wash – again, unless you are the one getting the pink slip.
All of this suggests that, contrary to what the business media usually tacitly teach – layoffs are good for shareholders – the opposite is likely true in this case. Companies that were already well-positioned going into the decline are just trimming and shaping in preparation for future global growth. Those are the companies that should be leading the Rebound coming out, and this faux layoff schema may be the perfect leading indicator for those who care.
Executive Postings
SNS members are encouraged to share postings that would be of interest to fellow members. This might include vacation rentals, job postings, jobs sought, business opportunities, funds needed for startups or expansion (no priced solicitations), and other categories. There is currently no charge for posting, and we reserve the right to veto offerings deemed unsuitable. We hope this will afford members yet another way of communicating and benefiting from their membership.
– mra.
For Rent: Old City Barcelona Apartment
I would be delighted to offer our small one-bedroom apartment in the heart of Barcelona’s old city to fellow SNSers, should they come to this great city.
SNS Member Discount Pricing:
For Rent: Luxury Home, Winter Wonderland
$600/night prior to the Sundance Film Festival (January 15th-25th) $1000/night during the Sundance Film Festival
Quotes of the Week
“I spent my whole life at Goldman Sachs believing in mark-to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices.” Robert Rubin, former U.S. Treasury secretary, during a discussion at the 92nd Street Y late Tuesday.
“Some of the things we find are frankly bizarre. We find that how interconnected your friends are depends on your genes. Some people have four friends who know each other and some people have four friends who don’t know each other. Whether Dick and Harry know each other depends on Tom’s genes.” Nicholas Christakis, Harvard University, who helped conduct a study showing a genetic contribution to social networks.
“Today, a WTO panel found that a number of deficiencies in China’s IPR (Intellectual Property Rights) regime are incompatible with its WTO obligations. We will engage vigorously with China on appropriate corrective actions to ensure that U.S. rights holders obtain the benefits of this decision.” Acting U.S. Trade Representative Peter Allgeier.
“These comments do not only not accord with reality, they are also a misinterpretation of the main reasons for the financial crisis, and will encourage the rise of trade protectionism in some Western countries.” China’s official Xinhua news agency in commentary last Sunday, after comments by U.S. Treasury Secretary Timothy Geithner, who said Beijing was “manipulating” the value of the yuan.
“As we strengthen our work on domestic intellectual property rights, we will continue to promote international exchanges and cooperation, in order to encourage the healthy development of trade relations.” Chinese Ministry of Commerce spokesman Yao Jian, insisting Beijing had made great progress in curbing piracy, and expressing regret that the WTO panel had not found in China’s favor in areas such as copyright law, but promising China would work with the international community to resolve the issue.
“Nobody, surely, in their right mind, can say that is being partial towards the victims, as if somehow they deserved the fate they got. The thing that worries me, is that there is now an overcomplication of regulation and compliance and policy, and that in the course of that, common sense, and, I regret to say, humanity, seem to have been left behind.” Sir John Tusa, a former head of the “BBC World Service,” on the BBC refusing to air a 3-minute appeal for aid to Gaza children, noting the scenes of distressed families in Gaza were a matter of “common humanity.”
The most common complaint, acknowledged but denied by the BBC, was that Israel had pressured the Beeb not to air the piece, which led to massive demonstrations throughout London.
Mark,
Put your comments on WiMAX standardization and your reply on standardization together and you have something I’ve been pondering recently; quis custodet ipsos standards-bodies? Pardon the cod latin…
The bare-knuckles fight over Microsoft’s XML document format and the open source Open Document Format cast a great deal more heat than light (they do different things; we probably need both of them), but it also brought up the question of cherry-picking standards bodies. Microsoft ‘won’ in ISO but the process was politicized and subject to significant amounts of FUD by opponents, including some from the IBM camp; the analysis of the opposition by someone who used to work with the metropolitan police smoking out agitators was fascinating and the arguments had little to do with technical merit in the majority of cases.
Other Microsoft-originated technologies are more often proposed as standards through OASIS; the promising information cards proposal is going that route (check out the new Equifax over-18 cards that allow you to prove age without disclosing your date of birth) and having talked to a lot of identity architects and developers from a wide range of companies (including IBM) over the last few years it seems to be a good proposal being steadily worked on. But I’ve had people say in an off-hand way ‘oh, you can get anything through OASIS’…
IBM recently announced that it was going to review all the standards bodies it works with and walk out of the ones it doesn’t feel are sufficiently independent. Is there a problem with the independence of standards bodies – real or perceived? Would it be IBM you’d choose to judge and police that?
All the best
Mary Branscombe Technology journalism & consultancy London
Mary,
I wouldn’t pick any company, alone, to arbitrate standards. I don’t have experience with OASIS, but I know that Intel and others have gamed the IEEE, for instance, by flooding targeted meetings with voters. Systems that easy are made to be gamed.
As you know, we have been running a standards operation at SNS Project Inkwell for the last few years, which I include both as a disclosure and perhaps as a qualification for commenting on this question.
Although we had trouble with Intel, since resolved, we have not had problems with any other company. It would seem that most companies, even when the stakes are high, appreciate having a safe place to share and develop IP, and will play fair if others do as well.
The difficulty in general may be in finding hosts who are willing to play this role, and who are good at it.
Mark Anderson
Mark,
There seems to be one aspect of our currently ‘broken system’ about which more should be written.
Corporate leadership and responsibility.
While it is expedient to blame market conditions for one’s problems, it is the mark of a true leader to recognize and then take personal ownership of corporate missteps. This helps restore the confidence of both employees and investors.
Further, it should not be for a board’s compensation committee to calculate what CEO compensation the market will bear, rather it is for the CEO who truly understands his or her people and company to activate their moral compass and to have the gumption to step forward and take less than they might be able to justify when times are tough.
The most revered Generals were those that would not eat until their men were first fed.
Nobody minds executive bonuses when honestly earned and the business is truly profitable.
But multi-million dollar pay packages when thousands of employees are being laid off is bad business and unconscionable.
Jim Sinegal of Costco’s $350,000 salary, as leader of a $72 Billion company with 140,000 employees, is an oft-cited example. He loves what he does. Employee retention rates are high and their respect for Sinegal is legend. He takes care of them and they know it.
And they in turn take care of their customers. A winning combination. Which seems like common sense. Would that some other CEOs look deep into their inflated souls and follow this simple example.
Hopefully we’ll all learn something from the current debacle and will emerge wiser, stronger and more reasonable.
Cheers,
Paul Suzman Seattle
Paul,
I think people like Jim Sinegal are born, and not made; that is, it is very difficult today to find someone with his combination of modesty and ability. I think we should mention that Jim was among the founders of Costco, and I have no doubt that his wealth is in stock, not from annual cash payments.
To that degree, his is much like the Bill Gates model. I think Bill got a dollar a year for many years, ending up in the $100k+ region somewhere. I mean, who needs it, when you own most of the company you started?
So the question may more properly go to the second-round+ managers, who come in with no stock at all in the company: how do you motivate them? They couldn’t care less about Home Depot or, say, Chrysler (yes, you can tell who I’m talking about here), but they sure care about pay.
I worry that this problem will only be solved by compensation committees, which themselves are enough afraid of shareholders or regulators that they stop rubber-stamping huge stock deals and cash payments to the golf buddies who brought them to the party.
Mark Anderson
Mark,
I’m a relatively new subscriber, having joined last year at the suggestion of Ty Carlson at Microsoft. I’ve enjoyed your newsletters and thought you might find the following highlighted tidbit of interest. (5th item down, starting “Foreigners sold…”)
That foreign capital sources are drying up is perhaps not overly surprising, given the worldwide nature of the current contraction. However, I think it possibly portends something more: A new and much less flexible future for the US government’s ability to finance current consumption (as opposed to productive investment) on the backs of foreign investors with the promise of repayment from future taxes at a time when the boomers start to retire en masse and the REAL crunch begins to hit home.
Best regards,
Robert Hadley Principal Hadley Properties, LLC Seattle
From: Sonnenblick-Eichner Company [mailto:Sonnenblick-EichnerCompany@sonneich.com]
1-16-09
Bonds are lower this morning as the flight to quality bid shrinks as the government steps up to provide more funding as the taxpayer bailout of Bank of America increases and the FDIC is planning to extend its bank debt program. Economic reports have played little role in market activity. Thirty-year bonds are down 24/32, yield 2.90%. Ten-year notes are down 28/32, yield 2.30%. Two-year notes are unchanged, yield .71. The government extended to Bank of America an additional $138 billion which includes a cash payment of $20 billion and loan guarantees $118 billion. The company’s dividend was lowered to $.01 vs. $32. The government’s actions were taken to help the bank absorb loan losses associated with the Merrill acquisition, BoA CEO Lewis said it was in the best interest of the country and their shareholders to go forward with the original terms of the deal. The bank announced that they lost $1.79 billion in the fourth quarter which does not include a $15.3 billion loss at Merrill. The FDIC appears to be planning on extending its guarantee of bank sector bonds from three to ten years. Citigroup announced it lost $8.29 billion in the fourth quarter (double estimates) and will be divided into two units and will divest its CitiFinancial and Primerica Financial Services units as the company attempts to rebuild its capital. Foreigners sold a net $21.7 billion of long term (over one year) US securities in November vs. sales of $400 million the previous month. A gain of $15 billion was expected. Including short-term securities foreigners bought $56.8 billion vs. a gain of $260.6 the previous month. This is a troubling report as foreign demand for our assets outside of the safest short-term securities has evaporated. [Robert]
Robert,
Well, I have worked quite hard to find some way to disagree with your finding, but – no luck.
The past administration has overspent the country by so much, on such economically wasteful things, that we will never see that money back (outside of court), and I have no idea who will actually pay for that monstrous spree. Clearly, China will not. And in general, despite the continued strength of the dollar, I don’t think there are any foreign treasury secretaries who I would call “stupid.” That means, they, too, won’t likely be buying our debt.
Perhaps if the new administration moves from repair mode to a balanced budget operation, the attractiveness of our debt, after some paydown, will be reestablished.
It’s hard to understand how much damage was done by so few people, in so short a time.
Mark Anderson
Mark,
Just read the latest issue on broken systems, rebound markets over coffee this morning. Excellent as always. Reminded me of the conversation regarding “fair trade” and US competitors’ policies. Note it is the Chinese government promoting policy of canceling orders while concurrently handing $26B loan (I assume at favorable terms) to their developing aviation company.
Please do not attribute this info to me in print at this time.
BTW, noodling on a couple of the predictions which I agree with - phone software and my perennial favorite - integration. If thoughts gel into something cohesive, I will contribute my 2 cents worth sometime soon.
I hope to see you at FiRe, or perhaps visit when the clouds break a bit here.
best,
China’s struggling airlines get tax break Seattle Post-Intelligencer 01/09/2009 Author: Joe McDonald / Associated Press (Copyright 2008) BEIJING -- China is taking new steps to shore up its aviation industry amid global economic turmoil, giving struggling airlines a $360 million tax break and $26 billion in loans to its main aircraft maker, state media said Friday.
The airline aid follows injections of government capital to help two of China’s three main state-owned carriers through a travel slump. The lending to Aviation Industry Corp. of China reflects Beijing’s continued desire to build up a civilian aircraft industry despite a decline in demand for planes.
Airlines will be exempt from a tax on fuel surcharges through 2010, a move that will save them up to 2.5 billion yuan ($360 million), the newspaper Shanghai Securities Journal said. It said the step is retroactive to Jan. 1, 2008.
China’s airlines lost 7 billion yuan in January-November, according to state media. Beijing has injected a total of 13 billion yuan into China Eastern Airlines and China Southern Airlines.
Meanwhile, a group of 10 state-owned banks signed an agreement with AVIC on Thursday on a rotating credit line of up to 176 billion yuan, the newspaper China Securities News and the Xinhua News Agency reported.
AVIC is a co-owner of Commercial Aircraft Corp. of China, the lead company in the Chinese government’s effort to produce large passenger jets to compete with global giants Boeing Co. and Airbus Industrie.
AVIC general manager Lin Zuoming said the money will be used for projects by the company’s subsidiaries but gave no details, the Securities News said.
The push into commercial aviation comes despite government orders for carriers to cut back on aircraft purchases.
“We encourage airlines to cancel or delay 2009 aircraft orders,” Yang Guoqing, deputy chief of the Civil Aviation Administration of China, said this week, according to the China Daily newspaper. “It is the duty of airlines to cut capacity, defer plane orders, return leased aircraft and ground or sell older planes.”
China’s first homegrown commercial aircraft, a 90-seat model made by an AVIC subsidiary, had its maiden flight in November and the government says it hopes to produce a 150-seat plane by 2014 to compete with Boeing and Airbus. The lending group was led by Industrial & Commercial Bank of China Ltd., the country’s biggest state-owned lender, according to news reports. They said ICBC, China Construction Bank Ltd. and China Citic Bank Ltd. each contributed 30 billion yuan, with the rest coming from smaller lenders.
[Name Withheld Aerospace Industry U.S.]
Dear [Name Withheld],
We all seemed to see this coming. I wonder when the world, in general, will catch on to China’s predictable behavior, whether in aerospace, cars, or wireless technology?
Now the WTO has ruled against the Chinese (see “Quotes of the Week”) on stealing IP. Will this change their behavior? I have no doubt it will not; only their outward willingness to discuss the subject will change.
Many people use the metaphor about boiling the frog. I wonder, at what point during the letting of blood, does the patient realize he can no longer get off the bed? George Washington would have said, “Too late.”
Someone beyond SNS needs to start making this a public story.
Mark Anderson
Mark,
Regarding:
Robert Peston 17 Jan 09, 12:04 PM
“I don’t know why the Government hasn’t knocked on the head the idea that it’s working on the creation of a bad or toxic bank that would buy our biggest banks’ dodgy loans and investments.
“What I expect it to announce on Monday (although the timetable could slip a day or so) is the creation of the mother-of-all bank insurance schemes.
<http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/01/a_bank_insurer_not_a_toxic_ban.html>
CEO TECSA Diss, UK and LeTouque, FR
P.s. Re: A New Goal For TARP Money: Create Mutual Banks A New Goal For TARP Money: Create Mutual Banks
Call this a wild idea, but if the government wants to leverage its efforts in encouraging credit in the US economy, it should consider seeding mutual banks. The US government would contribute money to 435 new banks (say $250 million to each), one for each congressional district, with the provision the government’s stake could be bought out at 1.5x what it put in. The government would have a preferred dividend of 3 month LIBOR plus 5% or so.
<http://alephblog.com/2009/01/10/a-new-goal-for-tarp-money-create-mutual-banks/>
Intelligent, creative ideas are not quite dead in the US. There is hope yet, but not much. [Tim]
There is a lot of frustration here over banking issues. One investment specialist I talked with the other day says that banks are indeed lending again; the same day, a story noted commercial lending down 40% among the big banks. A third story had a 5-x increase in refinance applications, the most in several years, but only one-fifth of them were able to make the now-tougher credit hurdles.
I continue to believe in the “Musical Chairs” theory: that banks had been misbehaving before the subprime mess, running investments and swaps off their balance sheets, and cheating on reserve requirements, so that we got a triple-whammy when the music stopped: not only did they have to fix the subprime problems, but they had all kinds of other misbehaviors that also had to be fixed, without our knowledge or approval.
And that, I think, is the real problem: a period of zero regulation led to many more aberrant behaviors than we’ve seen publicized, and it takes 3-5x more money to fix the hidden disasters that no one wants to talk about.
Mark Anderson
Mark,
Ben,
First, what an enlightened letter. I agree with your comments about how easy it is to culturally misjudge what we are seeing in Japan, when looking with a Western lens.
I will let William Saito, the author of the past letter, respond in his own words to your comments.
But I will note my continued hammering away at the misunderstandings the West seems to have, not just of the cultural deltas, but of the economic systems: we just don’t get mercantilism. The idea that the other guy will do everything possible to stop our imports, while going so far as to build factories here to build exports (and, la Toyota, avoid dumping duties and Super301 penalties), is just – beyond our understanding.
We’re like children playing poker with gunslingers, and we don’t quite get it when we lose every hand (industry).
I do think your second point, about helping Japanese domestic entrepreneurs go wild in Washington State, is a bit off: there aren’t any/many, as far as I can tell, for all the reasons you so eloquently state in your opening. Having been raised in a country that flattens the tall nail, entrepreneurs are not the thing that Japan has to export. Rather, the Japanese are now expert at: redesign, reverse engineering, using American theories of manufacturing excellence (through W. Edwards Deming) so well that they are now Japanese, robotics, assembly-line efficiency, customer-based product design, employee empowerment.
I wish we could export ALL of these skills to the U.S., and I have no doubt that other Western countries feel the same. Entrepreneurs, we have. Manufacturing skills, we could use.
Wednesday morning, Japan announced that the government would soon be investing directly in corporations. It strikes me that this is just a continuation of a mercantilist policy we don’t see clearly, or don’t understand. The government and corporations already have been working hand-in-hand on pre-agreed industrial policies; now, it seems, the government will use the fog of Western government investments to save the global banking structure, to further weld the union between the Japanese government and business.
Mark Anderson
Mark,
I just read through the below economic turn-around plan and was quite impressed (at least initially) with its innovative approach – enough so that I believe that it is a plan worth putting some quality time into thinking about it:
http://remortgageamerica.blogspot.com/
Even if the concept is found to be imperfect, it does seem to possess a solid foundation worth building a plan around. The first potential negative that pops into my head is that a lot of banks may go bankrupt. But hey, considering that their off-balance sheet bad/greedy decision policies played a very large role in getting us into this horrible mess… sympathy is an emotion that should not stand in the way of saving the patient which they are responsible for making prematurely terminal. Even if this intended rapid recovery plan is found to be overly flawed, I believe it represents the type of ‘outside of the box’ thinking that needs to be taking place. We need ‘a new deal’ and we need it fast. Anyway, I’d love to hear your thoughts concerning this idea.
One other note…
I recently had a side-bar with a retired Wall Street exec who had also owned what was then one of the largest real estate agencies in the U.S. Among the many interesting points that he made, one of the ones that sticks in my head the most is when he stated that he has lived through a number of severe up-and-down cycles but this is the first one where very wealthy individuals are genuinely frightened. He was referring to that particular group which has attained so much wealth that a 30% to 40% reduction in assets still typically doesn’t faze them. For the first time they fear being wiped-out and are unsure exactly where to hide their assets for confident protection. I found this statement to be profound. John Petote CEO / Angel Investor Santa Barbara, CA
P.s. Regarding [your] quip about Russia’s Prime Minister: “Our name for this lad is Putin/Stalin.” May I propose a re-arrangement to “Stalin/Putin.” The reason is that this configuration can then be abbreviated to “Sta/Put,” and pronounced “stay put.” And that pretty much sums up the lad.
John,
Regarding Dr. Poulaha’s proposal, of giving every American a mortgage at 1.5%, up to $500k, in place of giving all of this subsidization to banks or businesses –
Since it is putting us, the taxpayers, in debt anyway, why not give us the money, and do it in the industry which, by turning around, will most likely re-awaken the whole economy?
People would still be on the hook for the principal for these mortgages, but would probably see an average drop from 7% to 1.5%, perhaps, as he notes, cutting their payments in half.
I have not done the math on what this would actually cost, but if the figures are the same or less, it makes sense to me. I don’t see any gotchas. There would certainly be unintended effects: houses owned today, whose value is constrained by mortgage costs, would escalate in value, just as happened during Refi Madness, so there would be an inflationary effect on housing prices.
Is that bad? On the other hand, mortgage costs and rents might come into closer union, which would be good.
If you need real proof that this idea is getting some traction, I will note that comedian John Stewart brought it up, as a serious proposal, to PBS’ Gwen Ifill (managing editor / moderator, Washington Week, and senior correspondent for The NewsHour) during an interview this week on The Daily Show on Tuesday night. Yes, this is true. He actually wouldn’t let her offstage until she agreed to consider pushing the idea.
Thanks for sharing it with us.
Mark Anderson
» New Members’ Welcome
I would like to welcome, among others, these new members to the SNS family: William Ruckelshaus, Principal, Madrona Venture Group, Seattle, WA; Hector Romero, Investor Relations, Grupo Salinas, Mexico City, MX; John Lepes, Investor, Flanders, NJ; William Kendall, Principal, Vollman Brothers, London, U.K.; Dorothy Butler, President, Butler Books, Durham, NC; and many more.
If you are a Premium SNS Member, you now get:
Direct email privileges enabling you to contact Thought Leaders via SNS iNews™ stories
Automatic inclusion in the SNS iNews Thought Leader Pool: FREE global news distribution to thought leaders worldwide whenever you appear in any press or blog story
Searchable access to the Archives of past SNS issues
Invitation to a complimentary Premium Member Breakfast with Mark at FiRe 2009
Other privileged Premium website content, and
Free posting privileges on the brand-new (about to be announced) SNS Business Board
To upgrade from Standard to Premium membership, go to http://www.tapsns.com/orders/?page=account (login required).
» How to Subscribe (All rates $USD)
If you are not currently an SNS subscriber, the SNS newsletter has been sent to you for a one-month trial. If you would like a one-year subscription to SNS, the current rate is $595, which includes approximately 48 issues per year, plus special industry alerts and related materials; two years are $995. Premium Subscriptions, which include passworded access to additional materials on the SNS website, are $895 per year. Subscriptions can be purchased, upgraded, or renewed at our secure website, at: www.stratnews.com. Conversion of your trial to full subscription will lead to 13 months of SNS, no matter when you convert.
UPGRADE YOUR SUBSCRIPTION TO PREMIUM LEVEL for $300 per year, and enjoy email access to our FiRe Conference speakers through our new service, SNS Interactive News (SNS iNews™), along with other Premium benefits. After logging in to your Account, go to: http://www.tapsns.com/orders/?page=account
VOLUME CORPORATE SUBSCRIPTION RATES: More than half-price savings, for up to 10 members: $2950. Additional members: $295. Contact lynne@stratnews.com.
SMALL COMPANY SITE LICENSE (for companies with fewer than 10 employees): Deep discount (far less than half price), for up to 10 members: $1495. Additional members: $295. Contact lynne@stratnews.com.
TEACHERS’ GROUP RATE (five teachers): $295. Contact lynne@stratnews.com.
STUDENT and INDEPENDENT JOURNALIST RATE: $295 per year. Contact lynne@stratnews.com.
RENEWALS: Your one-year Standard subscription to SNS continues at the current rate of $595, which includes approximately 48 issues per year, plus special industry alerts and related materials. Two years: $995. Premium subscriptions, which include passworded access to additional materials on the SNS website, enhanced access to SNS iNews features, and other benefits: $895 per year. Subscriptions can be purchased, upgraded, or renewed at our secure website, at: www.stratnews.com. Or you can call Lynne Mercer at 360-378-1023 for personal assistance with your subscription. Conversion of your trial to full subscription will lead to 13 months of SNS, no matter when you convert.
This service is intended for strategic thinkers who depend upon business technology planning. The SNS charter is to provide information about critical computer and telecommunications issues, trends, and events not available to managers through the press. Re-purposing of this material is encouraged, with proper attribution.
» May I Share This Newsletter?
If you are aware of others who would like to receive this service, please forward this message to them, with a cc: to Mark Anderson at sns@stratnews.com; they will automatically receive a free one-month pilot subscription.
ANY OTHER UNAUTHORIZED REDISTRIBUTION IS A VIOLATION OF COPYRIGHT LAW.
» About the Strategic News Service
SNS is the most accurate predictive letter covering the computer and telecom industries. It is personally read by the top managers at companies such as Intel, Microsoft, Dell, HP, Cisco, Sun, Google, Yahoo!, Ericsson, Telstra, and China Mobile, as well as by leading financial analysts at the world’s top investment banks and venture capital funds, including Goldman Sachs, Merrill Lynch, Kleiner Perkins, Venrock, Warburg Pincus, and 3i. It is regularly quoted in top industry publications such as BusinessWeek, WIRED, Barron’s, Fortune, PC Magazine, ZDNet, Business 2.0, the Financial Times, the New York Times, the Wall Street Journal, and elsewhere.
Email sent to SNS may be reprinted, unless you indicate that it is not to be.
» About the Publisher
Mark Anderson is CEO of the Strategic News Service™. He is the founder of two software companies and of the Washington Software Alliance Investors’ Forum, Washington’s premier software investment conference; and has participated in the launch of many software startups. He regularly appears on the CNN World News, CNBC and CNBC Europe, Reuters TV, the BBC, “Wall Street Review”/KSDO, and National Public Radio programs. He is a member of the Merrill Lynch Technology Advisory Board, and is an advisor and/or investor in OVP, Ignition Partners, Mohr Davidow Ventures, Voyager Capital, and others. » SNS Website Links
For additional predictions and information, please visit:
SNS Blog, “A Bright Fire”: www.abrightfire.com
SNS Media Page: www.tapsns.com/media.php
SNS Future in Review (FiRe) Conference website: www.futureinreview.com
SNS FiRe 2008 Photo Gallery: http://futureinreview.smugmug.com/FiRe%202008
FiRe TV on YouTube: http://www.youtube.com/futureinreview
SNS Project Inkwell: www.projectinkwell.com __
» Where’s Mark?
On February 13th-16th, Mark will be participating in the Aspen Institute Socrates Society series on “Whither Innovation: Can we be this shortsighted and succeed?” led by Judith Estrin. On March 26th-27th, he will be keynoting a special guest CEO meeting hosted by Orange Wireless in London. On March 31st, he will keynote the 2009 CRIM (Centre de recherche informatique de Montral) Crystal Ball Conference, at the Palais de Congres de Montral, on the subject “Combining Economic Landscape with Technology Trends: Shaping the Rebound.” On April 27th, he will be the opening keynote speaker for the 2009 Accenture International Utilities and Energy Conference, talking on “A Future View of Energy: Technology Driving Economics,” at the Hotel Regency Vancouver, in Vancouver, B.C. And on April 29th, he will be speaking at the Family Office Circle 2009 conference, at the Hotel “Europischer Hof,” in Heidelberg, Germany, on the subject “Root Causes of the Economic Collapse, and How the Obama Program Will Affect U.S. and Global Economics.”
In between times, he will be moving farm gates in the falling snow, making the neighboring field ready for lambing season. Eagles and vultures overhead, foxes in the nearby woods, and a special, yearly hideaway, in the near corner. Why would God, or Nature, invent something so small, new, warm, and loud?
Copyright 2009, Strategic News Service LLC.
“Strategic News Service,” “SNS,” “Future in Review,” “FiRe,” “SNS Ahead of the Curve,” and “SNS Project Inkwell” are all registered service marks of Strategic News Service LLC.
ISSN 1093-8494 |
Recent Issuesscott2022-09-20T16:01:24-07:00
SNS: Small Computers vs. Big Phones: The Next War
Enjoy 7,000 ft. altitude “Wow!” views from this Winter Wonderland Luxury Home for rent in Park City, Utah.