Intel’s Communication Group - Destiny Fulfilled

Intel corp (INTC) lands on Page A1 of the WSJ with a story covering their Analyst Day presentation in New York yesterday. The big news that is getting widespread coverage in many media outlets- including BusinessWeek - is that they are cutting $1BB (8%) in spending but without across the board job cuts.

The big problem is Intel’s work force grew 17% in the last year alone. So, the obvious path is to find businesses with high costs and low revenue, and spin those out to people who can manage them tighter. It sounds like this is exactly what Intel plans to do.
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DVD Format War Hype

As Godzilla thunders across Japan, the guardian monsters move to stop him. Baragon is the first to challenge Godzilla. Though he struggles valiantly, the burrowing reptile is no match for the overwhelming power of Godzilla. When Godzilla marches on Tokyo, the two remaining guardians, Mothra and King Ghidorah, combine their power in a final battle against the unstoppable juggernaut. Will Admiral Tachibana and the military be able to tip the scales in favor of the guardian monsters? Can Yuri stay alive long enough to tell the story? Can anything stop Godzilla?

Does anyone really care?

With all of the hype surrounding Blu-Ray and HD-DVD, you would think that Hollywood was trying to write a new Japanese B-movie script.

First, we get the trash talk from Matsushita (Panasonic) indicating that reconcilliation is impossible, and “The market will decide the winner.” Then, rumors abound that Sony (SNE) plans to ship the Playstation 3 in November, complete with Blu-Ray drive and $399 price tag - never mind that no working Blu-Ray player is on the market right now. It isn’t clear how $399 is economically feasible given Toshiba is wrapping $100 bills around every HD-DVD player it ships out at a $500 ASP. And even this is shocking given their HD-DVD player is commodtiy IDE PC drive disguised as home electronics.

I’m still sticking with the opinion that both formats win in different applications. This opinion appears to be echoed by Reed Hastings, CEO of Netflix Inc. (NFLX), during their latest quarterly conference call.

In Q2, both HD DVD and Blu-ray are soft launching, in preparation for a larger retail push in Q4. We believe Microsoft (MSFT) sees studio support of HD DVD as very important to their game format battle with Sony (SNE). We also believe that X-box and Vista will support HD DVD more directly with every one of their product updates.

Therefore, since neither Sony nor Microsoft will concede nor win in this format war for at least several years, there will be a protracted competition which will hurt the adoption of high-definition DVD, despite everyone’s best intentions to avoid a format war.

There is, however, a practical solution. If all studios were to embrace both formats agnostically, consumers would be reasonably comfortable buying either format and presumably making their purchase decisions based on hardware, price and features.

Studios have supported VHS and DVD for years, so supporting two formats is not something new.

Embracing both formats is exactly what studios will do, and they will use the formats to price differentiate their product.

The reality is that 10 years from now getting your media on a silly plastic disk will seem as ridiculous as…. watching a Godzilla movie marathon. Movies are going to be downloaded to your set-top-box/DVR/home theater PC.

Is It Different This Time?

A well proven leading indicator for economic disaster is when people begin to proclaim “It’s Different This Time” as a way of explaining how a short term movement becomes a long-term trend. Dig up your memories (and your forecasts) of Optical Networking from 1999 and you’ll agree.

I read GaveKal’s ““, a treatise on the new economy and thought it was excellent. The authors even poke fun at the fact that they are claiming it is different this time. The GaveKal book is a heavyweight analysis and is excellent reading, particularly their concepts of platform companies.

Andy Kessler recently opined in the same way, echoing opinions from his book ““.

Oil is over $70 a barrel, Iran’s got nukes, and soon they’ll price gas per ounce. The Fed has jacked short rates up 15 times. Guys, you’re killing us. The yield curve is as flat as a subsidized Iowa corn field. There’s $1 trillion of teaser rate Adjustable Rate Mortgages about to burst all over Southern California and ’burbs everywhere. Gold is over $600, commodities are roaring, the dollar is dropping again, there are trade deficits as far as the eye can see and GM is on life support. Drunken sailors in D.C. are running a sea of red ink and every time it’s sunny, some antigrowth global warming nutjob wags his finger at your $100-to-fill SUV. It feels like the ’70s all over again, a blaze of malaise. Except . . .

In order to inoculate myself from what increasingly seems like groupthink I’ve started to read Marc Faber’s ““. Faber is a really smart guy, more so because of his decision to isolate himself from day-to-day nonsense by living in Thailand. He is the antihesis of the “This Time It’s Different Crowd”.

I think the reality of the situation is best captured in a cartoon posted today at The Big Picture. No one can really explain how virtually every asset class has increased in value over the last three years. It simply makes no sense.

AT&T Project Lightspeed - Too Little Too Late

I’ve written in the past about the drawbacks of Project Lightspeed, AT&T’s ( T) program to provide video and broadband services to the home. In short, I think it’s a half measure at best and provides no competitive advantage over cable.

It looks like this opinion is starting to be echoed within the financial community. AT&T also neglected to offer any details on Lightspeed in their recent quarterly earnings call.

Investment pundits love to point out that Verizon (VZ) is being ‘punished’ for overextending themselves with FiOS capital expenditures, and praise the measured investment being made by AT&T with FTTN.

The reality of the situation is Verizon is purchasing infrastructre usable for the next 100 years with 6% long term credit. AT&T has chosen to delay an inevitable infrastructure upgrade. It’s hard to see how AT&T’s financial position will be significantly better 5 years down the road without making the upgrades now. Just like most homeowners refinanced their houses in the last few years, AT&T (to be fair, SBC) should have taken the cheap money and done the same with their residential network.

This is short-term Wall St. driven thinking at it’s finest.

Philidelphia Municipal WiFi Analysis

MuniWireless cracks open the terms of the Philadelphia Municipal WiFi contract with Earthlink Inc. (ELNK). It’s worth a look. The contract outsources virtually all business risk to Earthlink. It seems like a great idea. I thought the San Francisco proposal looked economically solid, but SFO is about as tech-savvy as cities get, and is an ideal environment for MuniFi. I’m not so sure about Philly.
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Future of Optical Networking - Lightreading Conference

I attended the Lightreading “Future of Optical Networking” conference in New York last week.

I had high expectations for the conference based on one I attended two years ago on Ethernet in the WAN. At that conference there were a number of participants from start ups and established companies who led a vigorous debate about what the future of SONET/SDH looked like. Even though I lived and breathed Ethernet over SONET/SDH at the time, and met regularly with the companies on the panel, the debate that ensued was highly educational and enlightening.
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Why Broadcom is a Scary Competitor

Broadcom (BRCM) is a scary company to compete with. They execute aggressively and have backup plans for when they don’t. They can bring to bear ridiculous amounts of resources, and justify the profligate fixed R&D expense on any one project by targeting high volume markets.

Here’s a question from Fridays Broadcom earnings call that highlighted yet another scary Broadcom trait.

Michael Masdea - Credit Suisse

…. As you converge more and more of certain pure play companies functionality into what youre doing, what kind of competitive responses are you seeing? Do you get worried when you start to take a company’s whole livelihood away that you’re going to see some irrational sort of competition?

Scott McGregor - CEO

Well there’s always a risk. What many companies do if they feel threatened is they cut their price to try and hang onto sockets. What our strategy is with our broad IP portfolio is we do integration of all the different technologies. So we end up eliminating sockets. It’s pretty hard to compete if the socket that you’re in today has been eliminated by being integrated into a larger SOC.

I.e. if you are a niche player you should probably accept that buyout offer from Broadcom before they nuke your business.

Transcript Courtesy Seeking Alpha