Daily Archives: January 1, 2007

AT&T Net Neutrality Pokes Cable In The Eye

Stocks:  (T)(BLS)(CMCSA)(TWX)(CVC)

Sweet irony. AT&T agrees not to charge large websites like Google and Yahoo! extra fees for their traffic over its broadband pipes, so-called "net neutrality" to gets its merger with BellSouth approved by the FCC. Good for the big web companies.

But, bad for the cable companies that AT&T is fighting to get customers for voice, broadband and video services. With AT&T acting the part of the great beneficent provider of an internet gateway, how can companies like Time Warner Cable, Comcast, Cablevision, or Cox go to that largest websites and ask for tolls for their traffic? Especially when those tolls will almost certainly be passed on to consumers in the form of higher prices.

To get is merger done, AT&T has set up a situation that is almost certain to block its competition from creating a new revenue stream from their huge networks.

AT&T gets it merger, but it also hampers the competition. Smooth move. The next thing you know, T will be giving away free subscriptions to Vonage. That would PO the cable guys.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 1, 2007 – 7:42 pm in Telecom

How Did These Companies Make The Forbes 400 Best Companies?

Every year, Forbes puts together a list of the 400 Best Big Companies. The selections are based on a screen of 1,000 companies and take into consideration stock market returns, growth in EPS, and debt-to-equity ratios.

Some of the companies really dont’s belong:

Lowe’s. (LOW) Revenue and earning have been fairly flat the last four quarters after years of growth. Over the last year, the stock is down over 7%, more than larger rival Home Depot (HD). The S&P is up about 12% over the same period.

Sprint/Nextel. (S) The company’s five year total return is only 2.2%. Sprint’s stock has fallen almost 20% over the last year, while Verizon’s is up about 22% (VZ).

3M. (MMM) WIth its stock down 5% over the last two years, the S&P has moved up almost 20%. On a quarter-over-previous quarter basis, revenue and operating income are flat over the last year.

Texas Instruments. (TXN)  With a five year annual return of -1.6, the stock has gone up only about 5% over the same period. The S&P is up 25% over that time.

Automatic Data Processing. (ADP). The company’s stock is off almost 15% over the last five years. The last year’s quarter-over-previous-quarter for revenue and operating income is mediocre, at best.

Bed Bath and Beyond. (BBBY) The stock is down over 5% over the last two years. And, very little revenue growth in the last year.

Molex. (MOLX). The stock is price is flat over the last five years. In October, the company announced poor results and a lackluster forecast.

Analog Devices. (ADI). Stock is off 30% over five years. Over the last three months, stock has been downgraded by Bernstein, HSBC, and Robert W. Baird.

Amdocs. (DOX). Flat stock over the last five years. The company recently guided below Wall St. expectation.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 1, 2007 – 10:07 am in Research

The XM/Sirius Merger Gets Old (XMSR)(SIRI)(AAPL)

The price of newsprint must be dropping. Or, business reporters have run out of story ideas for the holdidays. One of the oldest stories from Wall St. is getting even older. Sirus and XM might merge.

The New York Times has the latest installment in a series of articles about the potential business combination that now must run in the hundreds. The Washington Post has done the piece. So has the Motley Fool. Ditto Forbes, The Los Angeles Times, and The Chicago Tribune. And, that is just the tip of the iceberg.

The New York Times points out that if the firms merger there will be cost savings in programming and personel costs. That’s novel. The Times quotes one industry pundit: “The services mirror each other tremendously,” said Richard Doherty, an analyst with the Envisioneering Group, a research firm. Well, yes.

The large open issue with a merger are that the two companies would have a combined debt of over $2 billion, and might have to go back to the capital markets for cash. There would be a fierce battle over control of the combined company and percentage ownership. The FCC might not approve the transaction. And, satellite radio subscription growth rates are slowing. There are, of course, many compeitors, like multimedia cell phones and the Apple iPod, the did not exist when satellite radio was in its infancy.

Other than that, it’s a good idea.

Posted on: January 1, 2007 – 9:22 am in Satellite

“The Next Google” Doesn’t Exist (TWX)(MSFT)(YHOO)(GOOG)

A number of technology companies are being funded based on the fact that they can leap-frog Google as the best search engine technology platform. It won’t happen.

According to The New York Times, venture capitalists have put $350 million into 79 search engine start-ups since 2004.

When Google took on Yahoo! and Microsoft in search five year ago, both of the big internet operations were in the process of becoming portals, much like AOL. Search was a fraction of their service to online customers. MSFT and Yahoo! assumed that internet users wanted to go to one destination for everything from news to personals to email. Both were, in a sense, wrong. At least in terms of making money. Search, and the ability to match advertising to targeted web behavior, became the most valuable activity online.

Habits are hard to break, even in terms of which search site consumers use. It took years for Google to catch Yahoo! in search share and audience. It has taken years for Yahoo! to get back in the ad targeting search game with Panama. And, with all of Yahoo!’s resouces, it may well not work.

It is also very safe to assume that Google is improving its own search technology. Perhaps the company will be cruelly competitive and introduce Google 2.0 right after Panama goes live. Without question, Google must put hundreds of millions of dollars a year to improve its own base technology.

The next Google? VCs are throwing money down a rat hole.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 1, 2007 – 9:05 am in Internet

If Oil Falls (CVX)(COP)(XOM)

"The news events that used to drive the energy bull market just don’t get the mileage they once did," said energy analyst Peter Beutel of Cameron Hanover.

There is still an assumption among many who own oil stocks that terrorist activity in the oil fields of the Middle East, demand in China, or OPEC tightening will take oil prices back to $70.

But, new reserves that could not be tapped before because the technology was not available are coming online. China is making an active effort to reduce its dependence on foreign oil and seek alternative energy sources. OPEC’s last comment that it would reduce supply had little if any effect on prices.

The markets sometimes forget that oil is not an asset. It is a commodity. As prices rise, demand naturally slackens over time. As the Chinese say: "The wind does not blow all morning, the rain does not fall all day."

Stock prices of companies like Chevron, Conoco, and Exxon may well be in for a very tough year. Conoco’s stock price is up over 70% in the last two years. Exxon is up 55% and Chevron 45%.

It won’t last.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 1, 2007 – 8:52 am in Oil & Gas