Monday, July 26, 2010

Good Money / Bad Money

With each new week, I worry just a little bit more that I'm boring my readers. After all, it seems like the same stuff surfaces each week in the news and, of course, I'm compelled to write about it. In a perverted way, I almost want to start my own hedge fund because it seems that the companies I've been writing about show up for a few weeks in a row and not for the right reasons.

Take, for example, Dell computer. Two weeks ago I told you about a lawsuit against them for knowingly selling computers with faulty parts in them. Ironically, the law firm defending them was a victim of the same crime with over 1,000 defective computers from the company.

This week, Dell is once again in the news but for other reasons. Apparently, it has been using subsidies paid to it by Intel to inflate its own earnings statements. In my personal opinion this should have never occurred but not because what it did was against the law. Instead, it is my opinion that the subsidies should have never been allowed in the first place, since Intel paid them to ensure that Dell never used computer chips from rival AMD in its products.

This violates the spirit of the Sherman Antitrust Act since doing this not only prevents fair competition but it encourages the premium that users pay for Intel chips. If AMD's market share increases then demand for Intel's products decreases resulting in a drop in price (according to supply / demand economics). Intel's actions, therefore, amount to an artificial inflation of the price, which is in essence fraud.

Regardless, Dell is paying the price (pun intended) for this by being assessed a $100mm fine for its actions.

If Dell was truly interested in making itself better, it would take a page out of the GM playbook. As you'll recall GM accepted bailout money from the U.S. Government in exchange for a second chance at staying solvent. This new lease on life gave it more time to establish itself in China, which now accounts for more unit sales than the U.S. market. The reasons are interesting, and I encourage you to read the article for which I have provided the link.

Since Facebook has been in my blogs a lot lately, here is my obligatory mention of the site. Firstly, Mark Zuckerberg is fighting a lawsuit where he apparently was hired to write Facebook according to a contract that the opposition has produced (with his signature on it), versus him writing the site after being inspired to do so. This has huge ramifications, profitability be damned, because if he loses a majority state in the company then he will essentially lose control over determining the path to profitability. Considering that this company's profits have a lesser chance of appearing than the release of Duke Nukem 3D under his leadership, this might not be a bad thing necessarily.

Finally, if you thought that the picture someone took of you in a pirate costume while blitzed at the party last weekend was funny, think again. I'm sure this isn't news to anyone, but considering that the web prevents anyone from forgetting anything, those embarrassing photos have become fodder for potential employers when they look for reasons to not consider your application for employment. And people laugh at conservative prudes like myself when I use discretion around people with cameras...

Tuesday, July 20, 2010

Collection of Thoughts

I arrived in Dallas late last night and, when I got up this morning to check my email, I realized that I didn't write an entry yesterday. ("For shame!") What could I discuss today?

Apple. They are becoming a piƱata because of their missteps. Last week, they admitted there were issues; said they would give free bumpers to people who requested them; and then said that every phone has this same issue. Of course, the other phone manufacturers called bullshit on Apple and hit back rather hard.

Goldman Sachs. They settled with the government; paid a $500mm fine (which is nothing to a company that practically mints their own dollars); and admitted no wrongdoing. I will be the one to call bullshit on this one and wonder aloud how our justice system is so screwed up that a major player in the financial meltdown essentially gets off with barely a slap on the wrist.

These topics have been overexposed that I'm sure you're tired of them, so here's something completely different.

Recognizing that companies are making a fortune mining your personal preferences from your usage of the Internet without your consent, two gentlemen formed a company called Bynamite that allows you to control who gets what from a "wallet" of personal information. Better still, because this information is so valuable to the marketing engines of almost every company in existence, they are already talking about it in the context of a business transaction, i.e. "I'll let you know what I like if you'll give me a 20% on this purchase."

Will it fly? The concept is more than logical. But my concern is that they may be a little too late to the party.

Before signing off, I'd like to say goodbye to Lt. Col. Pete Scaglione. I counted myself to be a good friend of his, though he was more of a fount of wisdom to me than anything else. Mr. Scaglione, whose youngest son is one of my best friends from high school, was a very decorated Vietnam helicopter pilot; a sage adviser; and a wonderful person to have as part of your life. He passed away on Sunday night, and is survived by his wife and four children. "Semper fidelis!"

Monday, July 12, 2010

The New Toyota, Part 2

After last week's entry, I received a fair amount of flack from readers complaining that I was anti-Apple and that the company's products really don't deserve the constant tongue lashing that the haters keep delivering. I can relate to their viewpoint: nearly 20 years ago I was berating the Windows lovers for hating OS/2, which was obviously a better operating system. It was frustrating because I was right on the technical points but I missed the bigger picture, which is that a company has an obligation to its user community to do the right thing. (IBM let the OS/2 user base down considerably back then, but that's a story for another day.)

I'm not going to rehash last week's story, but I find it ironic that accusations have been leveled again against Apple after it appears that several iTunes accounts have been hacked. The Infoworld article describes how several hundred accounts have had unauthorized purchases made on behalf of the account owners, sometimes vaulting the purchased applications into Apple's Top Picks section of the App Store (according to something I read elsewhere regarding this).

Is Apple responding to the problem? Yes they are, but they are doing it Ostrich-style: they are putting their head in the sand and pretending that the problem doesn't exist. Or at least that's what they are publicly telling the world. "iTunes is an impenetrable application store architecture!" is the feeling I'm getting from Cupertino.

Am I being too hard on Apple? You tell me.

At least Apple - with regards to the iTunes situation - is reacting to a situation they did not initiate. Dell apparently initiated the situation and pretended that they did not know about it. From 2003 to 2005 they intentionally sold computers with faulty parts to resellers and customers alike. Ironically, the law firm defending the company from the ensuing lawsuit owned 1,000 of these computers, which Dell refused to fix after they stopped working.

What is wrong with these companies? I'm at a loss to explain it. Am I suggesting that all companies should be altruistic or at least have good intentions behind everything they do? I'm not naive - I know that'll never happen - but there are certain companies that represent more than just capitalism, e.g. Apple with its never ending pursuit of elegant and sleek design; and Dell with its exceedingly high standard of product quality and customer service.

Are these companies now relegated to the stable of companies that have made headlines for the wrong reasons such as Enron? Certainly not. But one can't help but feel a tad disappointed at the way companies that used to be untouchable (at least in my eyes) have fallen from grace just a little bit when it was quite preventable.

Tuesday, July 6, 2010

The New Toyota

Apple has finally "jumped the shark." For those of you who aren't familiar with the idiom, it was originally coined in response to an episode of Happy Days when Fonzie jumps over a shark to prove his courage. Critics and viewers alike consider this point in the show's history to be the beginning of its decline. In general, the idiom is used to describe a moment of downturn for a previously successful enterprise.

In my opinion, Apple is close to reaching that point if it hasn't already. Granted, Steve Jobs and Company have never been in the majority in terms of market share, but they've always had a rabidly fanatical following. Still, when you call your user community a bunch of idiots and fail to acknowledge that the real problem lies with your untouchable product then you start to sow the seeds of your own ruin.

And this is exactly what has happened. CNN recently reported that Apple's response to users' complaints about cell phone reception quality (or the lack thereof) is to not hold the phone a certain way. Due to the fact that the antenna is wrapped around the outer edge of the case, Apple claims that people holding the phone with their hands wrapped around a specific corner are going to cause significant deterioration in signal strength. But (!), they continue, there is also a software bug that displays bars indicating that the strength is higher than it really is. So we'll fix that and you, Mr. User, should avoid holding the phone with anything other than a part of plastic tongs that grip the phone like Thetis did to Achilles when she dipped him in the River Styx.

User: Dr. Jobs, my phone doesn't work when I do this.
Dr. Jobs: don't do that then.

Let's be clear: I'm not predicting the eventual filing of bankruptcy by Apple. They will never go away. Historically they've done not much more than have ebbs and flows of popularity. These are sometimes severe, but that's all that's ever really happened to them. You can confirm this by looking at their 5 year stock chart.

But when a company that was hitherto considered untouchable due to the forethought they put into their product's design refuses to admit that their product has a crucial design flaw in it then you have to wonder when the sting of being slapped in the face will wear off of its user community. And, more importantly, will they start to consider joining the ranks of those who decided that phones based on Google's Android operating system aren't so bad after all.

This is an especially critical question since Google started rolling out Android 2.2 (code named Froyo) to phones. Froyo is widely considered to be an extremely strong alternative to the iPhone and contains many features that iOS 4 does not.

Additionally, I have to wonder how Apple could have missed the "cover the corner and watch the reception go down the tubes" problem. Or, since they are claiming that a software bug is causing a higher number of bars to be displayed than what reflects reality, did they know about it but thought they could get away with it?

R&D: Our product has a significant flaw in it.
Sales: Who cares? We're on top of the world!
R&D: I'm not sure that is a good idea.
Sales: We're untouchable! No one will notice.
R&D: But people will feel betrayed.
Sales: Ha! What are they going to do? Leave us for another company?

Apple? No. Toyota.