Yesterday Oracle (ORCL) issued stunningly good results for its 4th fiscal quarter (Q4) 2011 ending May 31st. The price of the stock promptly took a major dive in after-hours trading, and is still down substantially as I write.
Usually when this sort of thing happens, a good report followed by a price fall, it is because either: (1) investors expectations were even higher or (2) guidance for the next quarter is below analyst expectations.
This time the issue is something far more specific: the revenue derived from a specific segment, computer hardware, that was acquired with Sun Microsystems last year. Before reading my commentary below, you might want to first familiarize yourself with Oracle quarter results with my notes on Oracle Q4 2011 Analyst Call.
Despite an overall increase in Oracle revenues of 13% from year earlier, hardware systems product revenues were $1.16 billion, down from $1.23 billion in the year-earlier quarter. That raised some flags with some analysts. Which mostly shows these guys have too many stocks to cover, or were hired for their connections, not their analytic ability. Oracle management explained their strategy before, and they explained it again during the question and answer session.
I'm with management on this one: Sun was poorly run from a business perspective, and Oracle is not obligated to repeat Sun's business mistakes. Rather than looking at specific products, Oracle looked at the overall Sun problem: low margins. Fortunately, those low margins were not all of a kind.
Oracle decided to stop selling low margin computer hardware products whenever possible, with the exception of those that margins could be raised over time. So a year later, they are selling slightly less product, but making far more profits on it. Not only that, but they are gearing up to sell a lot more product, in particular their Exadata and Exalogic lines. What is there not to like about that?
Oracle is a rapidly growing, undervalued technology stock. We are not in a tech bubble. A gold bubble, yes. A bond bubble, yes. Idiots are holding bonds at this point. Bonds are trash, in most cases not bringing in enough returns to keep even with inflation. Their principal is just as much at risk as it would be if invested (wisely) in quality stocks.
I don't own Oracle stock at this point, but with the price drop and a bright future, I could buy ORCL in my next buying round. The competition is mainly small cap tech and biotech stocks that may grow even faster, and yet are also cheap right now. [See what I own at William Meyers current stock portfolio]
One aspect of the situation not mentioned was Oracle's current war with HP over Intel Itanium based computers. I don't see much downside for Oracle here. Oracle software can run on many types of hardware. Itanium was always a bad idea, and Oracle should not be obligated to support two different Intel chip architectures.
Showing posts with label sun. Show all posts
Showing posts with label sun. Show all posts
Friday, June 24, 2011
Friday, April 17, 2009
Dot Hill Data Storage Preliminary Q1 Results
Dot Hill's sales of data storage equipment fell in the March 2009 quarter more than expected. But sales did not fall off a cliff. I am still sticking with the theory that the one technology product that enterprise-sized corporations must buy this year is more storage capacity. It is the law.
Dot Hill's products are very well positioned to take advantage of enterprises needing more storage but wanting to cut back on capital expenditures. While serving only a tiny sliver of the market so far, it is clear tht Dot Hill has gained considerable market share during this last year. In the past three years it has transitioned from being highly dependent on sales to a single OEM, Sun, to having three solid large clients, Sun, HP, and NetApp, plus a host of smaller OEMs and channel distributors.
Preliminary estimates for Q1 were released on April 14, 2009 [See also Dot Hill Preliminary Q1 press release]. Revenue probably came in just below $54 million. Non-GAAP net loss should be $0.05 to $0.07. At the Dot Hill Q4 analyst conference on February 26, 2009 guidance was for Q1 2009, with admitted low visibility, was $56 to $63 million in revenue with non-GAAP EPS negative $0.06 to $0.11. So despite being somewhat below the bottom of guidance on revenue, they did well on EPS.
Management has done a great job reducing costs. Any sort of firming of the global economy should result in a revenue ramp-up that puts Dot Hill back in the black. They have a good cash reserve, about $54 million at the end of the quarter.
Market capitalization has shot up since the announcement, but it is still just $38 million as I write. If they can do a profitable quarter by the end of the year, with over $200 million a year in revenues, you can bet this stock will shoot up. I have; I own the stock (so weigh that against my obvious enthusiasm).
Aside from the possibility that this recession will last into 2010, the main potential risks for Dot Hill are price competition from competitors and the danger of being dependent on Sun, HP, and NetApp for most of their sales.
See also:
My Dot Hill main page
www.dothill.com
Dot Hill's products are very well positioned to take advantage of enterprises needing more storage but wanting to cut back on capital expenditures. While serving only a tiny sliver of the market so far, it is clear tht Dot Hill has gained considerable market share during this last year. In the past three years it has transitioned from being highly dependent on sales to a single OEM, Sun, to having three solid large clients, Sun, HP, and NetApp, plus a host of smaller OEMs and channel distributors.
Preliminary estimates for Q1 were released on April 14, 2009 [See also Dot Hill Preliminary Q1 press release]. Revenue probably came in just below $54 million. Non-GAAP net loss should be $0.05 to $0.07. At the Dot Hill Q4 analyst conference on February 26, 2009 guidance was for Q1 2009, with admitted low visibility, was $56 to $63 million in revenue with non-GAAP EPS negative $0.06 to $0.11. So despite being somewhat below the bottom of guidance on revenue, they did well on EPS.
Management has done a great job reducing costs. Any sort of firming of the global economy should result in a revenue ramp-up that puts Dot Hill back in the black. They have a good cash reserve, about $54 million at the end of the quarter.
Market capitalization has shot up since the announcement, but it is still just $38 million as I write. If they can do a profitable quarter by the end of the year, with over $200 million a year in revenues, you can bet this stock will shoot up. I have; I own the stock (so weigh that against my obvious enthusiasm).
Aside from the possibility that this recession will last into 2010, the main potential risks for Dot Hill are price competition from competitors and the danger of being dependent on Sun, HP, and NetApp for most of their sales.
See also:
My Dot Hill main page
www.dothill.com
Monday, March 2, 2009
Dot Hill Stores Well
Dot Hill (HILL), a maker of data storage devices, reported a solid fourth quarter of 2008, in contrast to many equipment manufacturing in the data storage industry. Revenues were $72.4 million, down 5% sequentially from $76.6 million but up 40% from $51.8 million year-earlier. Dot Hill is still operating in the red, with GAAP losses of $8.6 million or $0.19 per share. That included a non-cash goodwill impairment charge, so on a cash basis they are getting close to break even.
Why the prosperity? Partly data storage equipment is a necessity, rather than a luxury, for modern enterprises. Every bit of data needs to be stored in an accessible manner, and data is generated in ever increasing torrents.
Dot Hill also has picked a pretty sweet space in the data storage arena. The firm was in disaster mode in 2006 and 2007. Most of its revenue were from sales to Sun, which was having its own troubles and then bought a different data storage company. Sun started phasing Dot Hill out. So the engineers at Dot Hill got busy and came out with a variety of new products designed to meet end user needs. HP and NetApp are now big customers, and a number of smaller OEMs are taking the Dot Hill products as well. Surprisingly, the business from Sun has fallen off more slowly than expected. Not only did customers want to build out the Dot Hill products they already had, but replacement parts has become a good business. Even the economic slowdown is helping, as some firms would rather just replace the drives in their Sun-Dot Hill systems than buy totally new equipment.
Of course if tech spending continues to dry up, Dot Hill could get hurt like so many other companies. HP closed the last two weeks of 2008, hurting revenues in the reported quarter. Q1 is traditionally a seasonally slow quarter for data equipment hardware. Management made it clear they don't really know what Q1 revenues will be, but threw the figures of $56 to $63 million to analysts. They said that was a cautious estimate, but it could still be too high in a worst case scenario.
Dot Hill had $56.9 million in cash at the end of the quarter. Management believes that as long as the economy is not too bad, they should be profitable on a non-GAAP, cash basis in the second half of 2009.
If the economy recovers at all, Dot Hill should be a very sweet play. It is an under $1 stock today, trading around $0.52 lately. I own some stock and intend to accumulate it (up to the maximum my portfolio model allows) at this price, presuming the equipment keeps selling.
Keep diversified!
More: My Dot Hill 2/26/2009 analyst conference summary
www.dothill.com
Why the prosperity? Partly data storage equipment is a necessity, rather than a luxury, for modern enterprises. Every bit of data needs to be stored in an accessible manner, and data is generated in ever increasing torrents.
Dot Hill also has picked a pretty sweet space in the data storage arena. The firm was in disaster mode in 2006 and 2007. Most of its revenue were from sales to Sun, which was having its own troubles and then bought a different data storage company. Sun started phasing Dot Hill out. So the engineers at Dot Hill got busy and came out with a variety of new products designed to meet end user needs. HP and NetApp are now big customers, and a number of smaller OEMs are taking the Dot Hill products as well. Surprisingly, the business from Sun has fallen off more slowly than expected. Not only did customers want to build out the Dot Hill products they already had, but replacement parts has become a good business. Even the economic slowdown is helping, as some firms would rather just replace the drives in their Sun-Dot Hill systems than buy totally new equipment.
Of course if tech spending continues to dry up, Dot Hill could get hurt like so many other companies. HP closed the last two weeks of 2008, hurting revenues in the reported quarter. Q1 is traditionally a seasonally slow quarter for data equipment hardware. Management made it clear they don't really know what Q1 revenues will be, but threw the figures of $56 to $63 million to analysts. They said that was a cautious estimate, but it could still be too high in a worst case scenario.
Dot Hill had $56.9 million in cash at the end of the quarter. Management believes that as long as the economy is not too bad, they should be profitable on a non-GAAP, cash basis in the second half of 2009.
If the economy recovers at all, Dot Hill should be a very sweet play. It is an under $1 stock today, trading around $0.52 lately. I own some stock and intend to accumulate it (up to the maximum my portfolio model allows) at this price, presuming the equipment keeps selling.
Keep diversified!
More: My Dot Hill 2/26/2009 analyst conference summary
www.dothill.com
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:
www.rackable.com
My main Rackable page
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:
www.rackable.com
My main Rackable page
Friday, March 14, 2008
Dot Hill Q4 2007 Results
Dot Hill (HILL) stock plunged today on the news that ... there was no real news. I always wonder who is being stupid here, the people who bid up the stock when Dot Hill announced a new deal with HP, or the people who dumped the stock when the HP deal did not retroactively make Q4 2007 a wonderful quarter. Maybe they are the same people.
There was, of course, the illusion of news, or lack thereof, and the analyst conference did offer some insight into the trajectory of Dot Hill, a storage technology company. It was mostly glass half full stuff.
The biggest item was a non-cash write-down of goodwill. At $40.7 million it swamped everything else. I've seen quite a few of these lately, mostly at companies that have made acquisitions and then seen their stock prices drop. They are required when reporting GAAP (Generally Accepted Accounting Principles) numbers under rule SFAS 142. This is one of the rare cases when I think GAAP numbers are misleading. Goodwill is mostly an accounting fiction, and writing down a chunk in a single quarter tells you nothing about how a company performed in that actual quarter.
Revenue was $51.8 million, up 13% sequentially from $45.7 million in Q3 but down 14% from $59.4 million year-earlier. Non-GAAP net revenue loss was $5.7 million or $0.12 per share. See my summary of the Dot Hill Q4 2007 analyst conference for more data.
On the one hand Dot Hill management always seems to think profitability is just over the horizon. Years of losses keep the stock price low, with occasional bouts of optimism. The company had $82 million in cash at the end of the quarter, but it used to have a lot more and cash has been draining out quarter by quarter.
On the glass-half-full side, Dot Hill has transitioned out of a difficult situation and shown truly substantial progress on this. Dot Hill is in the data storage component business. A few years ago most of its business was acting as a supplier to Sun. Even then the situation was competitive, but then Sun bought a storage equipment company and is gradually phasing out the Dot Hill products. Yet the Dot Hill products were quite good. Sun is still the single largest customer, and sales to Sun were better than expected in Q4.
So Dot Hill has been looking for new customers and creating new products for them. They reported they now have 26 customers, mostly relatively small OEMs. But they work with big OEMS too. NetApp (formerly Network Appliances) became their second biggest customer after carrying a new line of products starting in Q4.
The problem with the transition has been the time required to develop new products, and the cost. Dot Hill has handled this well, conserving their cash better than most companies would. R&D expense in Q4 was only $5.9 million. They have also been finding cheaper ways to manufacture their products (while keeping quality high), which helps them compete and have a chance at being profitable.
It costs money to service any new customer, and quite a bit of money to get started on a volume ramp, as they have done with NetApp and are doing with HP. There is the danger that you can spend this money and then not sell enough goods to recoup costs, much less make a profit.
If Sun sales continue to ramp down slowly and HP and NetApp and other OEM sales ramp up relatively quickly, I believe management is right that Dot Hill can become (non-GAAP) profitable in some quarter of 2008. Want me to guess? I'll pick Q3.
I own a bit of HILL, so I might be overly optimistic, but I think I'm being pretty cautious. At this moment market capitalization (number of shares times price per share) is $119 million. That is for a company with $82 million cash, ballpark $200 million annual sales, and new contracts with NetApp and HP. I call that undervalued, but risky, since profitability is the key to real value.
Keep diversified.
More data:
My main Dot Hill page
www.dothill.com
There was, of course, the illusion of news, or lack thereof, and the analyst conference did offer some insight into the trajectory of Dot Hill, a storage technology company. It was mostly glass half full stuff.
The biggest item was a non-cash write-down of goodwill. At $40.7 million it swamped everything else. I've seen quite a few of these lately, mostly at companies that have made acquisitions and then seen their stock prices drop. They are required when reporting GAAP (Generally Accepted Accounting Principles) numbers under rule SFAS 142. This is one of the rare cases when I think GAAP numbers are misleading. Goodwill is mostly an accounting fiction, and writing down a chunk in a single quarter tells you nothing about how a company performed in that actual quarter.
Revenue was $51.8 million, up 13% sequentially from $45.7 million in Q3 but down 14% from $59.4 million year-earlier. Non-GAAP net revenue loss was $5.7 million or $0.12 per share. See my summary of the Dot Hill Q4 2007 analyst conference for more data.
On the one hand Dot Hill management always seems to think profitability is just over the horizon. Years of losses keep the stock price low, with occasional bouts of optimism. The company had $82 million in cash at the end of the quarter, but it used to have a lot more and cash has been draining out quarter by quarter.
On the glass-half-full side, Dot Hill has transitioned out of a difficult situation and shown truly substantial progress on this. Dot Hill is in the data storage component business. A few years ago most of its business was acting as a supplier to Sun. Even then the situation was competitive, but then Sun bought a storage equipment company and is gradually phasing out the Dot Hill products. Yet the Dot Hill products were quite good. Sun is still the single largest customer, and sales to Sun were better than expected in Q4.
So Dot Hill has been looking for new customers and creating new products for them. They reported they now have 26 customers, mostly relatively small OEMs. But they work with big OEMS too. NetApp (formerly Network Appliances) became their second biggest customer after carrying a new line of products starting in Q4.
The problem with the transition has been the time required to develop new products, and the cost. Dot Hill has handled this well, conserving their cash better than most companies would. R&D expense in Q4 was only $5.9 million. They have also been finding cheaper ways to manufacture their products (while keeping quality high), which helps them compete and have a chance at being profitable.
It costs money to service any new customer, and quite a bit of money to get started on a volume ramp, as they have done with NetApp and are doing with HP. There is the danger that you can spend this money and then not sell enough goods to recoup costs, much less make a profit.
If Sun sales continue to ramp down slowly and HP and NetApp and other OEM sales ramp up relatively quickly, I believe management is right that Dot Hill can become (non-GAAP) profitable in some quarter of 2008. Want me to guess? I'll pick Q3.
I own a bit of HILL, so I might be overly optimistic, but I think I'm being pretty cautious. At this moment market capitalization (number of shares times price per share) is $119 million. That is for a company with $82 million cash, ballpark $200 million annual sales, and new contracts with NetApp and HP. I call that undervalued, but risky, since profitability is the key to real value.
Keep diversified.
More data:
My main Dot Hill page
www.dothill.com
Wednesday, January 24, 2007
AMD, Intel and Sun Microsystems
Yesterday I listened to three analyst conferences, and you can read my summaries of them if you like: Advanced Micro Devices (AMD), Yahoo (YHOO), and Sun Microsystems (SUNW). I currently own stock in AMD; once I lost some money holding Sun waiting for a turnaround back in 2003.
Often you learn about general trends in an industry from listening to management trying to explain their results at an analyst conference. For instance, a number of semiconductor chip makers had slow third and fourth quarters of 2006. Several claimed that end-user demand was fine, but that manufacturers who incorporate their chips into products like cell phones had tightened up on inventories. Thus slower sales. So everyone is predicting growth in 2007, unless the global economy sinks. It is a reasonable story, but still might not be true, especially for an individual company.
Yesterday I learned something important about AMD's long and short term outlooks during the Sun conference. Sun has worked with AMD closely for about 3 years now, producing high-quality, relatively low cost servers based on Opteron chips. Monday Sun and Intel announced a deal: in return for also using Intel's new line of Xeon chips, Intel would allow anyone, including Sun's competitors, to license Sun's Solaris operating system, which almost every tech pundit acknowledges is the best Unix around. Solaris is way better than Red Hat Linux or Novell's Linux, so they say (I run Windows, so this is hearsay). By getting some of HP and IBM's and even Dell's customers to switch to Solaris, Sun can create an important income stream for itself (I think Solaris is now free but you have to pay for technical support).
With respect to AMD, Sun's management made it clear, saying it several times during the conference, that they expect more sales of servers with AMD Opterons in them, not less. They are adding Intel Xeon based servers which they expect to cut into sales of competitor's Xeon servers. Solaris is already available for AMD Opterons.
The timing of this move is important as well. There will be no significant shipments of the Xeon servers until the second half of 2007. By then the new generation of Quad core Opterons will be competing with quad-core Xeons. Both companies will be at 65 nm process, leveling that playing field. Xeons will still have external memory management; Opterons their famous, but improved, Hypertransport on-chip memory controller. AMD says their chips will be the clear leader in performance and performance per watt and performance per dollar. We won't know until independent testing is done, but if it is true, then AMD will continue to gobble up market share and maybe even have gross margins that pump up the stock price. But this is not a stock for short-term investors. While Intel is still stuck in short-term mode, the management at AMD thinks long term. They were not afraid to say that to analysts yesterday. Their honesty is refreshing.
Often you learn about general trends in an industry from listening to management trying to explain their results at an analyst conference. For instance, a number of semiconductor chip makers had slow third and fourth quarters of 2006. Several claimed that end-user demand was fine, but that manufacturers who incorporate their chips into products like cell phones had tightened up on inventories. Thus slower sales. So everyone is predicting growth in 2007, unless the global economy sinks. It is a reasonable story, but still might not be true, especially for an individual company.
Yesterday I learned something important about AMD's long and short term outlooks during the Sun conference. Sun has worked with AMD closely for about 3 years now, producing high-quality, relatively low cost servers based on Opteron chips. Monday Sun and Intel announced a deal: in return for also using Intel's new line of Xeon chips, Intel would allow anyone, including Sun's competitors, to license Sun's Solaris operating system, which almost every tech pundit acknowledges is the best Unix around. Solaris is way better than Red Hat Linux or Novell's Linux, so they say (I run Windows, so this is hearsay). By getting some of HP and IBM's and even Dell's customers to switch to Solaris, Sun can create an important income stream for itself (I think Solaris is now free but you have to pay for technical support).
With respect to AMD, Sun's management made it clear, saying it several times during the conference, that they expect more sales of servers with AMD Opterons in them, not less. They are adding Intel Xeon based servers which they expect to cut into sales of competitor's Xeon servers. Solaris is already available for AMD Opterons.
The timing of this move is important as well. There will be no significant shipments of the Xeon servers until the second half of 2007. By then the new generation of Quad core Opterons will be competing with quad-core Xeons. Both companies will be at 65 nm process, leveling that playing field. Xeons will still have external memory management; Opterons their famous, but improved, Hypertransport on-chip memory controller. AMD says their chips will be the clear leader in performance and performance per watt and performance per dollar. We won't know until independent testing is done, but if it is true, then AMD will continue to gobble up market share and maybe even have gross margins that pump up the stock price. But this is not a stock for short-term investors. While Intel is still stuck in short-term mode, the management at AMD thinks long term. They were not afraid to say that to analysts yesterday. Their honesty is refreshing.
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