Friday, May 30, 2008

Marvell Reality Tops Goldman Downgrade

Earlier this week an analyst at Goldman Sachs downgraded Marvell Technologies (MRVL). The stock price dropped about 3%.

Yesterday Marvell announced its results for the quarter that ended May 3, 2008. At the analyst conference (See my summary) Marvell executives appeared very confident and had no trouble explaining why they were doing so well and expect to do well going forward. Today a bunch of firms upgraded Marvell and its stock jumped to over $17 per share.

All of this was reasonably foreseeable, as I can prove by directing you to my past articles at my main Marvell Technologies page.

Of course, reality sometimes turns the best analysis about the future wrong. Marvell has all the risks associated with the semiconductor industry.

Rather than re-analyse Marvell when my prior analysis is holding up pretty well, let's look at that Goldman Sachs downgrade. Maybe the guy was just wrong. Several analysts seemed to have bought into the idea that Marvell's position as the market share leader in the hard-drive controller chip industry is threatened by competitors. But it seems the competition is literally blowing hot air; their chips produce three times the heat as Marvell's, so only fools use them.

Sometimes a firm has advanced news of an event with market impact. Simple guys would just buy or sell on the news. But smart guys with a lot of money and political protection can issue an upgrade or downgrade, then buy or sell the stock at a better price and make even larger profits on the advanced information.

Don't think it has never happened, or won't happen again. In any case it is nice to see people who think upgrades and downgrades mean automatic profits get slaughtered once in a while.

Best to do your own analysis. And stay diversified!

See also

Monday, May 26, 2008

Rackable System Misses Microsoft Container Boat

Rackable Systems (RACK) makes energy-efficient racks of servers for datacenters. Microsoft is a known client. Rackable has designed and built server farm units that fit in 40 foot standard shipping containers, calling them ICE Cubes. So imagine the disappointment of investors like myself when Microsoft announced that it would fill its new Chicago datacenter with servers in chipping containers - but not ICE Cubes. Apparently Microsoft decided to make its own customized containers, which it calls CBlox. Microsoft had installed a few of Verari Systems Forest containers in another location, and liked the overall design concept enought to plan to scale it out in Chicago. Sun also makes containerized server systems. Doubtless others will enter the fray.

Rackable has disappointed investors a number of times in the past couple of years. It is an innovative company that created a new space, the super-energy efficient datacenter. But once bigger players like Sun, IBM, HP and Dell saw what was happening, they sometimes underbid Rackable with their own less energy efficient designs and have raced get Greener in this expanding market.

One factor in the Microsoft decision was probably that Rackable does not use blade servers. So far management has been resolute in refusing to go the blade server route, claiming that such servers are actually inefficient compared to Rackable's half-depth server rack systems (with some data to back up that assertion). In any case the CBlox design, as well as Verari's, does use blade servers.

Rackable's stock has been mostly going up the last few weeks despite the Microsoft loss. Part of that is that the overall market is up due to increased liquidity. RACK's price was way low in the first quarter of this year, in my opinion. I suspect also that Rackable has its hands full with customers for its Eco-Logical servers and storage systems, and is going to sell plenty of ICE Cubes too. Most companies can't do their own engineering the way Microsoft can. One ICE Cube would go a long way for most corporations; few need to build hundreds of the things, as Microsoft does. I suspect the ICE Cube is much more portable than Microsoft's CBlox. The Pentagon will be wanting some to move around, and you can put one in a parking lot. Hook it up to electricity and the Internet and it will function just fine, without the expense of a building.

Of course we won't know more until Rackable announces its Q2 2008 results, which won't be until July. In the meantime see my summary of the Rackable analyst conference for Q1 2008.

More data:
My main Rackable page

Tuesday, May 13, 2008

I Buy Onyx Pharmaceuticals (ONXX)

Friday, May 9, 2008, I bought my first shares of Onyx Pharmaceuticals. Since I have been writing about Onyx for a while, and intend to continue to write about the company, this is just a disclosure to my readers.

I consider Onyx to be promising but risky. My initial position is a small fraction of my small portfolio.

To see all my writing on Onyx, including my summaries of past analyst conferences, go to my main Onyx page.

Keep diversified!

Wednesday, May 7, 2008

Onyx In The Black

Onyx Pharmaceutical reported GAAP net income yesterday for Q1 2008, a first. It has been a long road for Onyx, which was set up in 1992. Nexavar (sorafenib) for advanced kidney cancer (also referred to as RCC, renal cell carcinoma), was approved by the FDA in December 2005. It was developed with Bayer, which also does the sales and marketing.

Onyx reported no revenues for Q1. How, then, can it make a profit? All Nexavar sales are by Bayer. Onyx has always reported their joint venture as an expense item. Their joint expenses are deducted from sales. Half of the remaining profit or loss in the joint venture is transferred onto Onyx's statements. Until Q4 2007, this had been a loss. The joint venture loss was added to Onyx's own operating expenses to get their net loss.

In Q4, the joint venture netted Onyx $4.4 million from Bayer, but that was swamped by Onyx's own expenses. This latest quarter the joint venture was $37.7 million, quite a leap, and allowing Onyx to show an overall profit of $15.4 million, or $0.24 per share.

You might think the stock price would have jumped today, but it opened down. Maybe some traders just sold on the news. But probably this was a result of the guidance Onyx gave and its responses to analysts' questions about the guidance (See my Onyx Analyst Conference Summary for Q1 2008 for details). The low end of guidance for revenue for all 2008 was basically flat against Q1 revenue.

A couple of things might be going on here. This is the first time ever management has given forward guidance. They probably just wanted to give a number they are sure to beat. On the other hand growth in revenues has been heavily dependent on introducing Nexavar to new countries internationally. If for some reason introductions are delayed, it is conceivable that revenue growth could flatten out.

Right now Onyx is a one drug company, so growth depends on three things. Of course they will try to sell more Nexavar for liver and kidney cancer, for which they have received approval. They also have a number of trials underway for other types of cancers. Third, they may license other drug candidates for development.

Downside risks are the usual for a pharmaceutical development company. Some downside to Nexavar that did not show up in clinical trials could appear -- that is what happened to Amgen. And it might turn out that Nexavar is not good for anything besides renal and liver cancer. There has already been one disappointment, the failure of a study last year of Nexavar for non-small cell lung cancer.

Probably the future is bright for Onyx. I have it on my short list of potential buys.

Keep diversified.

More data:

Onyx Pharmaceuticals corporate web site
My main Onyx page