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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Jena McGregor wrote a piece for BusinessWeek that examined the surprising slow level of CEO turnover throughout the current recession. While overall unemployment during the same time frame has reached decade highs most top executives with obvious exceptions have managed to stay put. McGregor summed up the situation as follows:
When Abraham Lincoln and Franklin D. Roosevelt campaigned for reelection during wartime, they told voters it was a bad idea to switch leaders midstream. Today, CEOs seem to be convincing their boards of the same thing.
The reporter turned to Liberum for some of her statistics. As reported in the piece, Liberum anticipates an increase in top level turnover as we move into the Fall. Stay tuned.
John Mackey, the chairman and CEO of Whole Foods WFMI (NASDAQ), has found another opportunity to put his foot in his mouth. Mackey, Whole Foods’ controversial chairman and CEO, recently wrote a highly publicized op ed piece in the Wall Street Journal criticizing President Obama’s plan to reform healthcare. Many shareholders and shoppers at Whole Foods were quite distressed by Mackey’s comments in the piece. This is not the first time Mackey has found himself
on the hotseat. Back in 2007 he nearly destroyed his company’s efforts to acquire Wild Oats one of his firm’s key competitors. Mackey was discovered to be writing negative comments about Wild Oats under an assumed name on Yahoo’s Finance Message board. The controversy nearly cost him his job. Then recently he was quoted during an earnings call in which he said,
“We sell a bunch of junk.”
Mackey now finds himself under pressure from activist investor CtW Investment Group. The firm recently wrote a letter calling for his dismissal as chairman and for the firm to develop a succession plan for his CEO position. I think the latest controversy will not disappear quickly and it is quite possible his time is numbered. For details check out the deal.com.
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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This weeks Application Software Report features an interview with David Bayer Senior Research Analyst Cantor Fitzgerald When asked where he would be pointing potential investors he gave his view on where the industry is going;
“In general, even though we have had a nice rebound from the lows, I’m still optimistic that software is going to be a much better-than-average place to be within tech. The business model has two great legs to it and we have only seen one leg, the maintenance leg. We haven’t seen yet the leg where licenses start accelerating again, and then profitability can pick up. Cash flows will pick up dramatically when licenses start picking up. So I think that we have a short run based on people getting more comfortable with the maintenance model, but I still think we have another leg to go on the licenses. ”
Mr Bayer also had some specific company recommendation which are included in the full 111 page report.
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Joann S. Lublin wrote a story for the Wall Street Journal on the compensation package Valeant Pharmaceutical’s VRX (NYSE) CEO, J. Michael Pearson has had with his firm since 2008. Unlike so many CEOs, Pearson’s compensation was desig
ned to be a real performance package. According to Lublin’s story,
… Directors of the midsize drug maker required him to buy at least $3 million in stock (when be began), forgo routine annual equity grants and hold many shares for years before selling.
No single element is unique, but the combination is rare — for a public company.
… Pay experts say the deal gives Mr. Pearson incentives to boost long-term value for investors. For example, the 49-year-old CEO only gets to keep certain restricted shares if Valeant’s share price increases at least 15% a year through February 2011. Mr. Pearson can’t sell most restricted shares or exercised stock options for two years after they vest.
… “Many companies would benefit from imitating this or moving in this direction,” adds Steven N. Kaplan, a University of Chicago business professor and pay researcher. “More pay for performance is a good thing.
This is the type of compensation package that needs to get a great deal more attention by shareholders, the press and even government regulators. If more and more companies look at this model and try and use it as a guide we may actually see compensation excesses fade as an issue.
DuPont’s new CEO, Ellen Kullman, is beginning to place her stamp on the firm. According to a story by The Delaware Business Ledger, Kullman is beginning to put in place her management restructuring plan. For details check out the article.
Boeing CEO, James McNerney, just received another body blow. Yesterday the Seattle Times reported that due to the newly found wing flaw that was first discovered in May Boeing’s 787 Dreamliner would be unable to undergo a test flight in 2009. This information only complicates the ultimate delivery and success of the new plane which Boeing has been relying on to help maintain their lead over their prime competition European Airbus. McNerney may ultimately take the hit for these problems. Stay tuned.
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Our REITs report includes an interview with David Wigginton of Macquarie Capital (USA), Inc. he gave us his take on the sector:
“REITs sometimes get unfairly grouped with the overall commercial real estate industry. While they are commercial real estate owners and operators, unlike a lot of the smaller, private operators, they are much better capitalized, they have greater access to capital and typically own the better properties in the markets in which they operate. I’m speaking from a retail perspective only here. I think you can say there are signs of life, but they are faint. When looking at property fundamentals, vacancy rates are increasing and rental rate growth is declining. In addition, you’re facing macro headwinds in the form of high unemployment rates, declining consumer spending, negative consumer sentiment and stagnating wages in general. The federal stimulus package helped prop things up a little bit, but it’s still hard to get a clear read on what the run rate will be going forward.”
Mr. Wigginston breaks his coverage into two areas mall REITs and strip center REITs and has some top picks for each section but you will have to read that on our TWITTER
