Our Featured Interview this week is with Allen Zhang of Pansoft Company Limited (PSOF)

Pansoft is a leading enterprise resource planning (ERP) software solutions and services provider for the oil and gas industry in China. Founded in 2001, the company is uniquely positioned to capture anticipated growth in customer driven software solutions and services by targeting large and mature business clients in the energy field in China. Pansoft has a strong balance sheet, solid revenue growth and impressive operating margins.

In our recent:DATA STORAGE-ROUNDTABLE FORUM Greg Mesniaeff of Principal & Senior Analyst Needham & Company, LLC  gave us his views on Equinox, Inc. (EQIX);

Mr. Mesniaeff: The only name in this area I officially cover is Equinix, and I like it a lot. It trades right now at about nine times EV to next year’s EBITDA and about four times EV to next year’s sales. That’s a slight premium to the group, but I think the premium is well deserved given the company’s unique franchise, its carrier-neutral model, its access to capital, its ability to maintain firm pricing, and also its ability to maintain healthy revenue growth in a challenging environment. Generally speaking, I do favor the carrier-neutral colocation providers, which would include Equinix as well as Switch & Data over the captive ones within the carrier organizations, such as AT&T and Verizon and Level 3. I think the carrier-neutral model is clearly superior on many if not on all fronts.

Another Positive trend for Equinix is as follows;

Mr. Mesniaeff: One thing I can point to about Equinix that I do like a lot is their recent successful foray into Europe. Europe has traditionally been several years behind North America in the macro trends that we have discussed. Added to that is the complexity of having lots of smaller countries with their own dedicated telecom carriers, which I think makes the carrier-neutral model particularly compelling in the case of an organization operating within the European Union, where there is a lot more complexity in negotiating tariffs with some of the local carriers. So that’s an area that I think Equinix has approached very well. The company has been steadily improving its profitability in some of its data centers that it acquired in Europe and continues to do so. I guess the message here really is that the globalization of these networks is creating new opportunities for carrier-neutral players like Equinix that have increasingly a global focus.

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In our recent 103 page Semiconductor  Report we conducted a roundtable discussion with Alex Gauna JMP Securities LLC , Hans Mosesmann Raymond James & Associates, Inc.  and Jeff Schreiner Capstone Investments about the Industry.

In times of trouble, there are opportunities. There are some interesting ideas for selectors who can look past the current economic uncertainty. There are definite trends going on within the semiconductor industry and some secular trends that are specific to programmable logic.

Mr. Gauna: “It looks like the indicators are cyclically moving in the right directions. They are not yet strong but they represent potential for the second half of 2010. That time period should also be helped by a lot of very encouraging upgrade cycles; you’ve got smartphones, you’ve got cloud computing and data centers, you’ve got ultra mobility factoring into the market, you’ve got a multimedia storm coming with all these exceptionally low priced LCD TVs that pretty soon are going to be wireless connected and with touchscreens.”

A lot of investors were and are astonished at the recovery and snap-back in this sector and semiconductor stocks tend to be a leading indicator in that they snap back quickly. Many investors are concerned that they might have missed and they remain under-invested in the space. But there are some solid names that have certain cycles that are in their back pocket and can deliver continuing growth.

Companies mentioned: in the roundtable: Silicon Labs (SLAB); Altera (ALTR); Xilinx (XLNX); Texas Instruments (TXN); Volterra (VLTR); Rambus (RMBS); Marvell (MRVL); NetLogic (NETL); EZchip (EZCH); NVIDIA (NVDA); LSI (LSI); Cypress (CY); Synaptics (SYNA); STEC (STEC); Intel (INTC); Broadcom (BRCM).

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As part of out Digital Media Report we spoke with Ralph Schackart of William Blair.  With Netflix already entrenched in the $50 billion dollar DVD market it has begun to position itself into the digital content market;

Mr. Schackart: What is attractive about Netflix is that its digital content can go global. And let’s say DVD is a $50 billion plus market worldwide. Netflix does not have to go find a $50 billion market; it’s right there. It’s not going to be a transfer or a change overnight. But our position is that if 2% of the market is digital today, that number will likely go up to 10% or 15% in the next five years. Just too many people know what to do with a shiny disc today. There are 265 million DVD players in the US alone, not including PCs. Hollywood studios have traditionally moved at the speed of an iceberg. They have a lot of different models and you just cannot change consumer behavior that quickly. So as it relates to Netflix, they are going to have a nice core DVD rental business by mail and they are going to attract more consumers, both with their current product and the nice feature on the streaming end. And we will see how quickly the market transitions over time to digital.

The DVD is not going to disappear overnight but it will go away and Netflix is getting ready for that eventuality.

In our recent Aerospace and Defense Report  our Roundtable Forum with Alex P. Hamilton of  Jesup & Lamont. and Richard Tortoriello of  Standard & Poor’s U.S. Equity Research focused on the defense budget and how cuts in spending would impact the sector:

Mr. Hamilton: My coverage of defense, by design, is to avoid some of the platform names. Those would include Lockheed Martin, Northrop, General Dynamics; those are the names that are historically associated with making platforms. That being said, I think what happens is when the defense budgets start getting cut, if I’m the defense contractor on several of these programs that are being cut and I’ve come off of record years of cash flow, I’m going to sit there and acquire some of the smaller names.

Mr. Tortoriello: I cover  the large defense contractors. I’m neutral on them, on Lockheed, Northrop, Raytheon (RTN), and General Dynamics, but the neutral opinion is primarily just a reflection of the low valuations currently as the stocks have already come down in anticipation of weak defense spending ahead. That being said, I wouldn’t recommend getting into these names at this point. I think we’re in a long-term environment of constraint in defense spending. I do agree that there will be spending in other areas – cyber security is certainly one of them – but I don’t think that that spending will be enough to offset the cuts that I believe we’re going to see over the next several years to the defense budget.

In our recent Corporate Software report Kevin McVeigh of Credit Suisse First Boston explores Iron Mountain’s Growth Opportunities:

Mr. McVeigh: They have both domestic and international growth opportunities. Penetration rates tend to be low in both regions. What is unique about the model is that you get a fair amount of internal growth from its existing customers. Every year existing customers tend to generate higher levels of storage activity. If you layer in new sales opportunities and price increases, you get a model that has been growing 7% to 9% internally on an annual basis for a long time. We don’t expect that to change. One caveat is in 2009, the company reduced its internal growth target to 5% to 7%, but the 200 basis point reduction was due to a reduction in commodities in one of the less predictable business lines.

Now nothing is recession proof but a predictable business models like Iron Mountain’s works well in this macro environment .

In our special focus on Corporate Software, analyst Mark Schappel of The Benchmark Company has some good and some bad news to share on the nature of M&A activity in the Corporate Software space:

The Good

• “On the plus side, several large and mid-sized software vendors have a lot of cashto spend. Most software companies are profitable, have little if any debt and don’t pay a dividend. So they have plenty of cash, good cash flow and positive operating margins.”
• “Another positive is that smaller vendors and some startups may be motivated sellers, especially if they are having cash troubles. Some of these smaller companies don’t have the access to the financing the way they did a few years ago. Also, valuations are low.”

The Bad

• “Some impediments include fewer buyers than in the past. For instance, over the years, Oracle bought PeopleSoft, Siebel, Hyperion and BEA Systems. All those acquired vendors were themselves buyers at one time. Now there just aren’t as many buyers in the software space as there used to be. The PLM space or the business intelligence space is another good example. Most of the big business intelligent vendors have been bought — Hyperion by Oracle, Cognos by IBM and BusinessObjects by SAP. So the available buyers are fewer.”
• “Another M&A impediment in this environment is the lack of available credit that has sidelined some of the financial buyers, such as private equity funds. It’s
  also keeping some of the acquisitive minded software vendors on the sidelines as well, such as Open Text or Infor that have relied on debt to help finance their acquisition sprees.”

For the complete Corporate Software report, including a full interview with Mr. Schappel, as well interviews with a variety of other analysts giving a complete overview of this space, click here.

For our special focus on Corporate Software, analyst Walter Pritchard of Cowen & Co., LLC gives us his pick in this space, McAfee (MFE):

Mr. Pritchard: I think investors are going to be shocked at how resilient the consumer security business is…In a market where PC shipments are slower, you fall back on your installed base, and all those companies have done a good job of up-selling the installed base.  For McAfee specifically, the number of computers they ship on right now versus a year ago is up significantly, so there’s a share gain going on in the PC market for McAfee independent of what’s going on with PC shipments.

For the complete Corporate Software report, including a full interview with Mr. Pritchard, as well as a wide variety of other analysts in this space, click here.

In our interview with Jason Helfstein of Oppenheimer as part of our Internet Services Report he mentioned Move Inc. and why they stand out from the rest;

Mr. Helfstein: Move owns Realtor.com. They’re the leading real estate Website by a significant factor. They’ve made a number of changes over the last two years to position the company much more aggressively from a content Website standpoint and they have an exclusive relationship with the National Association of Realtors (NAR), which basically gets them the best data. So really if you’re a consumer and you’re looking to buy a house, that’s the place you go. They’ve got very strong relationships with agents and brokers around the country, and while all the listings are free, they then try to convince those agents and brokers to kind of upsell. They also have the leading CRM or client relationship management software for real estate brokers and agents, and I think there is an opportunity for them to tie that into the Website. So just like Google, you only pay, as in advertising, if somebody clicks, you can track the effectiveness, and I really believe there is an opportunity for that to happen over the longer term in the real estate sector with Move’s Website. In the short term, are they feeling pain because of the real estate cycle? Of course, but in the most recent quarter, the core part of their business was down just a few percent, and that’s pretty impressive, given what’s going on.

Internet is cyclical but the good news is that, in some cases,it is less cyclical than other areas of advertising. Search advertising and e-commerce are both taking market share so they aren’t seeing the negative trends that exist in the more traditional advertising market.

After Yahoo! (YHOO) failed to merge with Microsoft (MSFT) last year, the company’s shares took a nosedive. But now, according to analyst Youssef Squali of Jefferies & Co., this is a time to reexamine Yahoo!:

Mr. Squali: We’re recommending it because we feel that the core fundamentals — the search business of the company — has actually stabilized in the last four months. Yahoo! has gained some market share and the feedback we’re getting from a number of online agencies and advertisers that work with Yahoo! is that the Yahoo! search platform has actually improved recently and they’re spending incrementally more money on it, which I think is significant and not recognized by the market. On the display side, things are not improving just yet, but frankly we think the weakness in the display side is already well baked into Yahoo!’s estimates and valuation at 5 times forward cash flow. Longer term, we see display as a major source of revenue growth for Yahoo! as vertical content becomes the place to be again. 

For the complete Internet Services issue, including the full interview with Mr. Squali, as well as CEOs from top Internet Services companies, click here.