Month: November 2012

The Surface: I Came, I Saw, I Left

Post author By jeff matthews
Post date November 29, 2012
10 Comments on The Surface: I Came, I Saw, I Left

I went to the Microsoft store in Times Square yesterday to see for myself the new Surface tablet with the spiffy keyboard, since
nobody I know actually has one yet.

I had an open mind [“Open” in the sense that
he assumed the Surface would be unnecessarily complicated given Microsoft’s
Achilles’ Heel, which is the need to promote Windows in everything it does—ed.],
and was hoping that it would give me something unusual to
say: i.e. that Microsoft had finally figured out what consumers actually want.
[Fat chance!—ed.]

And first impressions about the store itself weren’t
bad: while small relative to the Apple mega-store on 57th Street, the
Microsoft store has most of the same touches, i.e. glass windows and long
counters with tethered products to play, and plenty of blue-shirted Microsoft
people to help.

Unfortunately, they do not have many customers
to help—for despite long lines at the TKTS discount booth just a couple of blocks
away, and the usual pre-holiday masses streaming by on the sidewalk right outside, there were no more than two dozen potential customers in the Microsoft
store itself, and none were lingering at the tables playing with the merchandize with
wide eyes and no sense of the time, the way they do at Apple stores.

And playing with a Surface tablet, I found out
why: the Surface feels a bit chunky, i.e. not as smooth as an iPad, and it has more
of a toy plastic play-thing feel than a smooth, business-ready metal-thing feel. [He’s not much for technical jargon, is
he?—ed.]

But it’s not the feel that’s the problem: it’s
the way it works.

And the way it works is non-intuitive. Unlike your
first time with an iPad or a Galaxy, it’s hard, in a short period of time, to
figure out how to find what you might want to play; how to get out of programs
once you’ve gotten into them (weirdly, things somehow feel more like programs than apps on
the Surface); how go back to where you began; and how to look for new
stuff.

Certainly, you can run spreadsheets on it, and
yes you can use Word, but the cool new keyboard, being flat, is not easy to type
with. Anyway, not many people were bothering
to even try the keyboard, once they messed around with the screen.

I like to poke fun at Microsoft’s new product
approach by claiming they make so many versions of things there’s even a “Model
Train Enthusiasts’ Edition.” And while there was no “Model Train Enthusiasts’
Edition” of the Surface [That he could see—ed.], it does seem like, once again,
Microsoft has been undone by its corporate culture of striving to make
everything for everybody, in one package, that promotes Windows.

Apple’s Tim Cook has been saying for some time
he didn’t see the need to blend two form factors—notebooks and tablets—because
you’d end up with a compromised muddle. Converging “a toaster and a refrigerator,” is
how he put it.

He’s right.
But that’s not just my opinion. I
saw not one person actually purchase anything, or look like they were getting ready to purchase something, or just be really engaged in a product, in the brief time I was there.

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing,
2012) Available now at Amazon.com

The content contained in
this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and
clients advised by Mr. Matthews may hold either long or short positions in
securities of various companies discussed in the blog based upon Mr. Matthews’
recommendations. This commentary in no
way constitutes investment advice, and should never be relied on in making an
investment decision, ever. Also, this
blog is not a solicitation of business by Mr. Matthews: all inquiries will be
ignored. And if you think Mr. Matthews
is kidding about that, he is not. The
content herein is intended solely for the entertainment of the reader, and the
author.

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Tap Dancing to Work: The NotMakingThisUp Book Review

Post author By jeff matthews
Post date November 24, 2012
No Comments on Tap Dancing to Work: The NotMakingThisUp Book Review

Carol Loomis is an editor at Fortune Magazine
who not only brought Warren Buffett to the attention of a wide American investing
audience through her own beautifully written articles in Fortune, but also became
the one person Buffett himself trusted to edit his now-famous annual
shareholder letters, which he writes longhand before getting her input in a
process that takes several months each year.

Loomis has also been a close friend, not to
mention a bridge partner, of his for decades, and Buffett thinks so highly of her
integrity that he put the 2006 blockbuster announcement of his $40 billion
charitable gift to the Bill & Melinda Gates Foundation in her hands a month
before the actual press release went out, so Fortune could break the news in a
cover story.

Oh, and she always asks the first question at
the Berkshire shareholder meeting, pulling no punches for her friend in the
process.

So if there were one person you’d like to see
a Buffett book from, it would be Carol Loomis.

And although this book isn’t that book—it’s more a Fortune Magazine compilation, edited by Loomis, of pieces about Buffett by many people,
including Loomis—it still has plenty of insights from which any investor,
whether a Buffett fan or not, would benefit.

The best, not surprisingly, come from those
closest to him…for example, Bill Gates, who, in a 1996 “book review” of Roger
Lowenstein’s excellent Buffett biography describes the intellectual spark that
bonded him to Buffett the first time they ever meet.

For sure, Gates is not much of a reviewer—he
called Lowenstein’s book “competently written,” which is like calling Copolla’s
The Godfather “competently filmed”—but
he tells us a few very interesting things about Buffett that we haven’t already
heard a million times.

And there are just enough of those, from Gates
and others, to make this book worth buying, and reading: the “model in his head
of the whole world” Buffett carries; the dice trick he tried to spring on Gates, who nevertheless figured out the trick; the way he structures incentive pay depending on
what drives each of Berkshire’s CEO’s businesses; and how he—an old-fashioned
knee-jerk liberal Democrat—challenges others to think about the world at large
(not just about investments).

As for the Buffett book we’d like to see from
Carol Loomis, it’ll probably never happen, at least in Buffett’s lifetime. But if it were, readers would be treated to
insights on Buffett one can only imagine, with the kind of sentences only Carol
can write—as these first paragraphs of one of her “Tap Dancing” contributions reminds
us:

Just in from Omaha and making a do-it-yourself
delivery, Berkshire Hathaway chairman Warren Buffett strolled into the downtown
Manhattan offices of Harris Trust on March 5 [1995] and handed two envelopes to
a Harris officer. In Envelope No.1 was
stock worth, gulp, $2.5 billion, Berkshire’s 20 million shares of Capital
Cities/ABC, being delivered to the company’s purchase, Walt Disney Co.

In
Envelope No. 2, sealed and marked “Do not open until 4:30 P.M. on March 7,”
were Buffett’s wishes—kept secret from even the managements of Disney and Cap
Cities—as to how he wanted Berkshire to be paid for the contents of Envelope
No. 1…”

Would that “Tap Dancing to Work” was a true
Carol Loomis memoir of her of decades with Warren Buffett…but as collections
go, it’s worth plenty on its own.

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing,
2012) Available now at Amazon.com

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The Question We’d Like to Have Heard Today

Post author By jeff matthews
Post date November 20, 2012
2 Comments on The Question We’d Like to Have Heard Today

When your company reports a loss per share of
$6.41, or roughly half your own stock price, thanks in good measure to the
write-off of most of the book value of a $10 billion acquisition [actually $11.1 billion by the time it closed thanks to currency moves] you made barely one year ago, you should probably let more than nine analysts ask questions on the earnings call…especially when you’re going to blame almost everybody
but your own employees for the horrible, terrible, no-good, very bad
acquisition.

But HP management, keeping up a pattern of
playing the Wall Street fiddle about as well as a public company management can
play it, did just that, mainly by yammering for a very long period of time from
the “script” before opening the call to questions.

Here’s how CEO Meg Whitman (not the architect
of the Autonomy acquisition, but now serving as the undertaker) spun the deal
before the Q&A:

“Autonomy
remains a work in progress as we move this business from start up to grown up.
There is a big market opportunity for this business but operational
improvements are needed to take full advantage of these opportunities. While we
expect these efforts will improve the future of our Autonomy business, we
announced today an $8.8 billion non-cash impairment charge related to Autonomy.
Let me spend a moment giving you some detail about the situation.

“The majority of
this impairment charge is linked to serious accounting improprieties,
disclosure failures, and out right misrepresentations that occurred prior to
HP’s acquisition of Autonomy [emphasis added] and the associated impact on the expected
financial performance of the business over the long term. The balance of the
impairment charge is linked to the recent trading value of HP stock. These
improprieties were discovered through an internal investigation after a senior
member of Autonomy’s leadership team came forward following the departure of
Mike Lynch on May 23.

“Based
on this information, HP initiated an intense internal investigation into the
allegations, including a third party forensic review of Autonomy’s historical
financial results. HP has contacted the SEC’s Enforcement Division and the UK’s
Serious Fraud Office. We have requested that both agencies open criminal and
civil investigations into this matter. In addition, HP intends to seek regress
against various parties in the appropriate civil courts to recoup what we can
for our shareholders.

“I
want to stress that we remain 100% committed to Autonomy and its industry
leading technology. We will continue to fully support our new and existing
customers and we believe Autonomy’s technology will play a significant role in
our growth strategy over the long term. To that end, we recently announced
Robert Youngjohns as Senior Vice President and General Manager our Autonomy IM
business unit. Robert is a seasoned software executive who was most recently
President of Microsoft North America.”

The second way HP assured itself of a Q&A
session lacking fireworks was that those nine analysts who were allowed to ask
questions are all polite sell-siders, as opposed to actual, angry HP
shareholders. And polite sell-siders are
not going to ask the really juicy questions you’d want to hear asked. Still, the first analyst, Ben Reitzes, of
Barclays, gave it a reasonable shot out of the gate:

Ben Reitzes

“Yes, thanks a lot. Meg, with regard to
the Autonomy situation, we understand what you’re doing in terms of going after
the folks that you feel misled you but what about internally? Whose responsible
internally for the acquisition, how are you analyzing yourself internally, the
Board, I think everybody at the Board was there when the Autonomy decision was
made except for Mr. Whitworth, so what’s the, what are you doing internally to
make sure that you have the right processes and who are you holding accountable
internally if anyone to make sure this doesn’t happen again and that maybe even
there’s some folks internally that need to be held responsible and we could see
repercussions of this in the near future. How are you looking at it internally?”

Meg Whitman

“Yes,
well first of all, the CEO at the time and the Head of Strategy who lead this
deal are both gone…[emphasis added] With regard to the Board you’re right. Most of the Board
was here and voted for this deal and we feel terribly about that. What I will
say is the Board relied on audited financials, audited by Deloitte, not Brand X
accounting firm but Deloitte and by the way, during our very extensive due
diligence process, we hired KPMG to audit Deloitte, and neither of them saw
what we now see after someone came forward to point us in the right direction.
That said, obviously, we have not done any big acquisitions and we will review
the acquisition process.

“What
I will say is due diligence and M&A now reports to our Chief Financial
Officer. At the time when I came to the Company I was surprised to find that
due diligence and M&A reported to strategy as opposed to the Chief
Financial Officer. I’ve never seen that before in my career and that’s a
decision I made right away before I knew any of this, so I understand your
point of view and we have made a few changes in that regard but in the end, you have to
rely on audited financials [emphasis added] and we did and we will now carry on and
as you know we’ve reported this to the SEC as well as the serious fraud office
and we will take it from here.”

Ben Reitzes

“And
in terms of internal personnel though, based on what you see right now the
organization can remain stable based on this occurrence?”

Meg Whitman

“Yes,
it can. I mean really the two people that should have been held responsible are
gone and that’s the way I see it right now so I feel good about sort of the
stability it of leadership.”

Longtime readers can see where we’re going
with this.

According to HP’s CEO, there were only “two
people” in all of HP who “should have been held responsible” for the Autonomy
acquisition, which saw the evaporation in about a year of nearly all the value ascribed to what $11 billion worth of HP’s cash had been used to buy, and both
those “two people” are happily gone.

But
if my friend, fellow blogger and ace hedge fund manager John Hempton could have
told me the Autonomy books were well and truly “dodgy” way
before today’s news, based strictly on a reading of the same “audited
financials” that HP’s CEO said today “you have to rely on”…then where on
earth was HP’s entire senior management team, which presumably contains a few
people who know as much about how the audited financials of a software company
should look as a guy in Australia reading 10Ks and 10Qs, when this deal
was getting done? Out of the office making a Peets coffee run?

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing,
2012) Available now at Amazon.com

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The Question We’d Like to Hear for H-P Today

Post author By jeff matthews
Post date November 20, 2012
4 Comments on The Question We’d Like to Hear for H-P Today

Now that HP has come clean and fessed up to the almost-literally-mind-boggling waste of shareholder money on the now-being-reported-to-the-Serious-Fraud-Office Autonomy acquisition, there is one question we’d like to hear asked by one, just one, of Wall Street’s Finest.
We’ll report back some time after the call, but our hopes aren’t very high.
JM