Random Notes on a Monday

Linkfest with just a few comments: 

Okay, this is worth ~5 minutes of your time because it has the potential to be very disruptive.   

http://www.bloomberg.com/news/videos/2016-06-06/knuedge-the-future-of-voice-recognition

They really asked him a question about Donald Trump?  WTH??

If you don't want to watch a video this is worth a read:  

http://venturebeat.com/2016/06/06/former-nasa-chief-unveils-100-million-neural-computing-chip-company-knuedge/

I have a lot of homework to do on this one.

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VR headsets are all over the place but even at $150 or less I am simply not moved to buy one. Now, a contact lens that delivers information (voice, video, you name it), record what you are looking at and anticipates what you are thinking?  A million other little features could be incorporated but when we are talking about an advance this makes total sense. Plunk your Virtual Assistant(s) right in to your eye: 

http://www.computerworld.com/article/3066870/wearables/why-a-smart-contact-lens-is-the-ultimate-wearable.html

This is going to take time to come to the market and I’m only noting it because this weekend my son and I were watching a Hero in a video-game-like movie, endowed with an amazing contact lens that pretty much told him everything. save the world and the life of the US President.  

Yes, over the last two days I have seen a vision of the future!  (pun intended)

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Last week the SIA released chip sales for the month of April.  Slow economic growth = slow, or lower, chip sales. Others have commented about this but in the big picture we know that because of really slow global economic growth chip sales could be up or down 5% this year. Right now production is ramping and the industry is coming out of pretty large hole. EPS estimates are ticking up as quarterly confessionals pointed to a build/ramp taking place at the largest smartphone maker in the US.  Do I have to tell you who it is?  No.

Earlier this year I thought that the industry would turn around sooner but the innovation side, coupled with a gentle phase of austerity, has put end demand on hold. I don’t believe consumers have abandoned tech upgrades. They will buy if there is a compelling reason. Right now, I don’t see any reason to rush out and buy today’s offerings. (If you need it, yes. If what you have is working then more than likely you are better off waiting.  JMO)

    

As for the stocks, my favorites continue to be the analog houses and some of the RF suppliers.  Drop a comment here or send a note to carl at infras dot com if you are interested in learning more.  

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Last week the SID Conference was held in San Francisco. This conference follows solid news of a ramp in OLED production and, at least to me, some signs of a product refresh for those companies that want to grab a share of your eyeball. A fairly decent overview of things presented at SID can be found here:  

http://www.oled-info.com/

Last Friday the Korea Herald did a tour of LG’s A3 factory in Gumi City, North Gyeongsang Province. LG believes OLED is the way of the future so they showed the visitors. flexible, rollable, large displays:   

http://www.koreaherald.com/view.php?ud=20160605000184

The last display conference I went to was held by the USDC (US Display Consortium). Advances in display technology have been noted in numerous presentations I have seen since that time but the overall pace of advancement has been hamstrung by a lack of standards and challenges in material science. I mean, back with the USDC was doing conferences in the late 90’s and early ’00’s there were showings of flexible, OALED and AMOLED devices. Quantum Dots were even talked about at the time!  There were interactive screens and projectors that could produce wonderful images from small form factors. 

Yes, it was all there but simply not ready to hit the street.

Now it is coming to a device near you.  (This is, perhaps, my most overused phrase)  

Oh!  And if this ramp is going to take a while to play out Applied Materials should really benefit.  Right now the ball is in their court.

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Amidst all the worry about sales of the coming iPhone the Monday Note writes about the iWatch and it’s success:  

https://mondaynote.com/apple-watch-why-let-facts-cloud-the-debate-8d9f9d73ed1b#.o9p4kmn7g   

It is not unusual for the Monday Note to reach for a silver lining in the Apple story. They recently wrote about the overlooked growth in Apple services. With iPhone and iMac sales hitting the skids you have to search for positives. Watches and Services are where it’s at right now.

If you think a bit about the progression between a watch all the way to connected contact lenses you can see that this tech cycle has a long way to go. I’m all down for the lenses. Would be nice to seem the application of some really big R&D dollars to advance this agenda.

As for the watch....  I will wait awhile.

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Next week in Las Vegas is the Confab and you can bet that toes will be bruised from kicking over IoT rocks. Global Foundries leads off and has a been calling the IoT the Golden Age for Semiconductors. 

Here is the agenda:  

http://theconfab.com/2016-conference/

This event is kinda close to my heart because years ago I was the Chairman for the Committee that ran this conference for SEMI The whole goal of the Strategic Business Conference (SBC) was to bring the material and equipment supply chains together with the semi-fab decision makers. It was a fantastic venue and in looking at the lineup Solid State Technology has put together I am sure this one is just as good. I should really consider going to this next week given that I am on the West Coast right now. 

Either way, someone will write up the presentations and give us a few hints about the conversations.  I will be listening.

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Let’s face it, all is not roses with the IoT. Many on Wall Street are skeptical about the hope and promise of this fully connected vision. I say Wall Street but there are members of the media covering the electronic industry that are just as perplexed: 

http://www.eetimes.com/author.asp?section_id=36&doc_id=1329624

http://www.edn.com/electronics-blogs/eye-on-iot-/4442115/Think-you-re-missing-the-IoT-wave--Don-t-panic-

Then again….. 

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Spinning today’s topic wheel for a couple more:

First hand experience:  I have brothers that are homebuilders and the labor shortage is strangling the growth of their business.  

http://csen.tumblr.com/post/145455151989/why-housing-is-about-to-eat-the-us-economy

Man, that is terrible. How are we going to deal with it?  Maybe it is not that gloomy but the stark reality is hard to grasp. How do you deal with it?  

I say, "All is not lost!"  Labor shortage?  No problem. Why not use 3D printers to build houses? Less labor, good use of material, blazing fast and cost efficient."  You've probably saw this a few years ago but it is worth another view: 

https://www.youtube.com/results?search_query=3d+printing+house

Sure, it’s not ready yet but if we can see a problem coming why not fix it now?  Never surrender, never give up!

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Fascinating…. The SEC wants leveraged ETFs (Exchange Traded Funds) to reduce their leverage because they are too risky for the average investor. Are hedge funds and banks experiencing the same thing?   

http://www.etf.com/sections/features-and-news/sec-rule-death-knell-geared-etfs

This particular piece is only of interest because I have been tracking the action in the Direxion Daily Semiconductor Bull 3X ETF (SOXL) since the first big bottom back in August of last year. It’s thinly traded but the performance has been pretty good.  

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Until my next post, enjoy the bull market and have a nice day!

15 Year Anniversaries

Today brings us to an anniversary of sorts.  15 years ago, right near the bottom of a massive bubble, Mary Meeker provided technology investors and pundits with an efficient and very digestible 25 slides.  It’s fascinating to look back and see how much has changed:  

http://www.kpcb.com/blog/july-2001-the-state-of-capital-markets-and-an-update-on-technology-trends

Every year since that first report we, the minions of the Internet, have been allowed to view Mary’s analysis of technology trends.  This year the title of her presentation is “Interent Trends 2016” and it’s a whopping 213 pages. I am going through it right now so while I am doing this I'll pitch out a few thoughts. 

If you are interested in following along, the 2016 report can be found here:

http://dq756f9pzlyr3.cloudfront.net/file/2016_internet_trends_report_final.pdf

Starting off, some context is probably in order. In the 2001 report Mary estimated that there were around 300 million Internet users  This, at the time, was about 5% of the world’s population and one-third the number of people using cell phones.  Today, the estimated number of Internet users is over 3 billion or, if you wish, 42% of the world uses the web. China and India now have the largest base of users - India’s numbers are growing rapidly.  The USA is number three on the user list.  

In the beginning PCs were the primary vehicle for Internet access. From a relatively non-existent level in 2001 mobile access to the Intenet went through a dynamic and rapid phase of adoption.  Most of us have a smartphone and we use it to access the Internet on a daily basis. 

Currently it is clear, and has been for more than just the past couple of years, that the growth rate of smartphone sales is slowing.  At the same time the cost of a smartphone has come under pressure. Average selling prices for Android smartphones have dropped from $403 in 2008 to half that level.  The report points out that Android smartphones held 81% market share at the end of 2015.  Market share for iOS devices during the same period, 2008 to 2016, went from 14% to 16%.  

This pressure has caused tremendous angst for those that are in the smartphone food chain.  Apple’s woes are well documented as are the weak start-of-year conditions in China. I don’t want to beat a dead horse but in my last blog (see below) I mentioned a quote from Mentor CEO Wally Rhines to highlight this phenomena:  

"Until recently, the emergence and rapid growth of smart phones kept the semiconductor market growing, despite some dramatic changes in leadership among the chip providers. But the growth to enormous volumes of cell phone units, the changes in handset and service provider models (like the Xiaomi low-hardware margin approach) and the relative stabilization of standards has reduced the number of suppliers as well as the chip prices. The same thing happened in the PC industry, as the industry consolidated from more than 100 manufacturers of IBM-compatible PCs. While temporarily painful, those remaining companies become very efficient. And, as always, semiconductor companies can prepare for the next great wave of applications that will drive billion-unit volumes of products that are yet to be identified and developed."   

Such is the way in the smartphone business…..

I follow, er study, economics each and every day. I have been doing this since my career started back in 1983 at Merrill Lynch. One thing I have learned early in my career is that you should never trust a technology analyst to tell you what is going to happen in the economy. This comment is directed at the sections in the report detailing Global Macro Trends. Yes, Global Real GDP Growth has been slowing.  And yes, China’s excessive spending, the last 6 years being greater than the last 30, is problematic. Yes, interest rates are at historic lows. Yes, rates are low because growth is slow and monetary authorities have been desperately trying to stimulate some activity (or, extinguish fires). Yes, commodity prices have plunged because of weak demand and overcapacity.  Yes, the world’s population growth is slowing, aging and living longer.

The negatives are known by pretty much everyone with half a brain. 

Notable to me is how these macroeconomic factors, when they were in just a bit more of a positive mode, were the ones that were supposed to drive further incremental growth. Notable, at least to me, is how these negatives are interpreted as a “once-in-a-generation” phenomena - never to occur again. 

Hmmm….  I better get away from this section because I don’t want to go into a long-winded diatribe about forecasting and how general observations can become a big problem for investors. I am just going to say that I don’t like using the phrase “once-in-a-generation”.  Age doesn’t matter to me so I don’t know what constitutes a generation. <sarcasm on>  

Admittedly, Wall Street seems to be good at coining some trends so a bit of the research might be worth a view.  Earlier this year I thought this one was pretty good on Millenials:

http://www.goldmansachs.com/our-thinking/pages/millennials/. 

Yes, there's a section on Millenials and their preferences in Mary's report.

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Next section(s)…..  Oh boy, advertising followed by retail.  I could spend all day wrapping words around these two areas but the first word that comes to mind for me is “eyeballs.”  Pretty soon the word won’t be eyeballs it will be "voice."  Yes, voice is going to make a comeback - IA (Intelligent Agents) are springing up everywhere and this is just the beginning. Just ask Alexa, Cortana, Siri or Google Voice. They know.  

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There’s much more:  Platforms (think Facebook, SnapChat, Instagram, etc), video (including live streaming) and various forms of messaging are noted.  

There are slides that talk about Autonomous vehicles, Uber, China (668 million Internet users), the biggest Internet companies (Amazon, Google, Facebook, Microsoft, Baidu, Alibaba, Tencent, to name a few), M&A by non-tech companies, technology financing (bullish, go figure) Data Platforms, Data Privacy, Security, a bit on the Cloud and then back to Privacy.

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I am getting bleary eyed watching these slides roll forward.  

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No mention of the IoT, IoE, or the advances in medical and education platforms.  To be honest, I don’t find that disappointing. Actually, it's par for the course.  Biggest trends ever getting totally (almost)  ignored in a 213 page State of the Internet report.  <facepalm>

If you choose to view, here’s the link again:  

http://dq756f9pzlyr3.cloudfront.net/file/2016_internet_trends_report_final.pdf

Your mileage may vary.

  

CEO Chattershoot

I am desperately trying to avoid mainstream media right now. Doom and gloom sells. Idiots running rampant. Exclamation points are working overtime.  

Such is life on today's Internet.

2016 is not looking like a great year for those focused on the broadest measures of the semiconductor industry. The biggest markets, smartphones and PCs, are mature and saturated. There is anticipation in the analyst ranks that a bounce in PC sales, after an abysmal stretch, is forthcoming. Given the misplaced optimism of the past I wouldn't bet the ranch on it. These two product lines, smartphones and PCs, have become replacement markets and while there is still growth, the pace is far from what we have experienced over the last 30 years. The emerging market, 3rd Wave, IoT, IoE, Sensorization, however you want to define it, is not going to blow chip demand through the roof in the very near future. Long term, there is no denying the possibilities. I'll be writing more about this in future posts.

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Ed Sperling serves up 10 high level interviews with CEOs representing parts of the chip industry:
http://semiengineering.com/ceo-outlook-2016/

The subjects expressed by these executives are not all that surprising: Continuing M&A, the emerging market known as IoT, continued growth of semiconductor content in automobiles, questionable demand for new smartphones, the need for better power management, more innovation, more R&D spending and macroeconomic turbulence.

ARM' CEO, Simon Segars, comments that the outlook for market growth in 2016 is not fantastic and that pricing pressures will lead to more M&A. Synergy and innovation, in Mr. Segars view, are the positives that come from these trends.

Amkor's CEO, Steve Kelley. pins success in 2016 to the embrace of new smartphones from Apple and Samsung. He points out that 55% of the semiconductor market is tied to the mobile world.  Have to admit, that's sort of frightening when one considers recent news about weak demand for smartphones.

Jack Harding voiced a realistic opinion that looked positively at the long term impact of the IoT but at the same time downplayed the near term. Like Mr. Segars, Mr, Harding is hopeful that M&A ultimately generates innovation and more dollars for R&D. Mr. Harding voiced concerns about the macroeconomic scene - a question mark for everyone these days.

I am not going to go through each one....  You can read the rest here:  http://semiengineering.com/ceo-outlook-2016/   

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Mentor Graphics CEO Wally Rhines has offered a review and preview at several publications over the last few years. His take on 2015 and 2016 can be found at the Tech Design Forum:

Part I:  http://www.techdesignforums.com/practice/technique/walden-rhines-2015-review/

In my opinion the comments about chipsets becoming commoditized, another part I've talked about over the years and one that is definitely related to the maturation process, is something for investors to keep in mind.

"Until recently, the emergence and rapid growth of smart phones kept the semiconductor market growing, despite some dramatic changes in leadership among the chip providers. But the growth to enormous volumes of cell phone units, the changes in handset and service provider models (like the Xiaomi low-hardware margin approach) and the relative stabilization of standards has reduced the number of suppliers as well as the chip prices. The same thing happened in the PC industry, as the industry consolidated from more than 100 manufacturers of IBM-compatible PCs. While temporarily painful, those remaining companies become very efficient. And, as always, semiconductor companies can prepare for the next great wave of applications that will drive billion-unit volumes of products that are yet to be identified and developed."

Part II contains an outlook for 2016:  http://www.techdesignforums.com/practice/technique/walden-rhines-2016-forecast/

Yes, there is much more to write about..... 

Strategy Read

Two posts in one day!  Mother of all miracles what is going on?

Well, it's a three day weekend for the financial markets and that provides ample time to share what we are reading.  Not that last week's market crush has anything to do with this - we read all the time.

What you will find below is a link to a big picture, macro strategy tome from one of the largest and most successful investment firms in the world.  Sure, there are millions of these out there but this one caught my eye because it speaks to so many things we have been discussing this year.

Now before you get the idea that I am touting KKR I will tell you that I am not.  I've been around long enough to know that no one is going to be 100 percent right and no one is going to be totally wrong.  I read things like this to help me understand what could happen and how I can profit from it.  This has become very important when assessing the health of the end markets.

KKR's Outlook for 2016 is appropriately titled "Adult Swim." I mentioned this in a Tweet (see the stream to the right of this page) but I think it is worth mentioning once again.

Some of the observations are very much mainstream:  tepid global GDP prospects, trouble in the Emerging Markets, pain with China's transition from a manufacturing/export economy to a consumer driven economy, the continued deflation of high risk assets and more volatility.

I do think the sections on credit, the US consumer and trade are worth reading.  Overall it's a piece I highly recommend.  

You can read the web version or download the complete report from this link:

http://www.kkr.com/global-perspectives/publications/outlook-2016-adult-swim-only

Call it, $0.02 for the jar.

Invest or Trade?

A three day weekend has provided us with a good respite from the turmoil in the financial markets.  Not that the turmoil is going to subside anytime soon - we just needed a break.  We needed a break to clear the fog and tune out the noise.

World economies are growing at a snail's pace so questions about end demand have technology investors on the edge of their seats.  News about Apple grabs the center stage each and every day.  Until Apple releases their quarterly the purported weakness in iPhone sales will haunt a good portion of the chip sector.

When Intel reported last week very few were expecting strong numbers.  There were indications from the motherboard houses that PC and notebook builds were waning.  The datacenter group continues to lead the charge but even growth rates in that segment slowed (granted, there were tough comparisons against the previous year but slower is slower no matter how you slice it).  Intel's memory business is growing nicely but it's not a needle mover.  If all the production issues are put to bed 3D XPoint will take the center stage in the last half of this year.  3D XPoint is much, much more important than the memory that comes off today's production line.

A good summary of the Intel earnings report can be found here: http://www.nextplatform.com/2016/01/15/the-glass-house-is-still-intels-piggy-bank/

Here's a decent piece on 3D XPoint as presented during this year's Industry Strategy Symposium:  http://www.eetimes.com/document.asp?doc_id=1328682

Not to be forgotten, the next quarterly report will shed some light on the integration of Altera's $400 million quarterly run rate.  Not much was said on the conference call other than things seem to be moving forward.  FPGA sales are tightly linked to growth in the economy,  Keep that in mind.

As the end markets for smartphones and PCs mature the IoT has become the next big driver for all things semiconductor.  IoT encompasses just about anything you can fathom and one can only surmise that it is in the nascent stage of implementation.  The biggest players in the chip business are screaming from the rooftops but Wall Street seems reluctant bite on the hype (I tend to agree).      

A couple of links for posterity:

Intel's IoT hoopla was all over the news during CES:

 http://www.pcworld.com/article/3019557/internet-of-things/intel-embraces-internet-of-things-puts-sensors-on-everything.html

Global Foundries foresees a Golden Age (seriously?):

http://www.timesunion.com/business/article/GlobalFoundries-sees-golden-age-of-chips-in-6754275.php

And Marc Andreesen grabs on to the 3rd technological revolution, aka, "Sensorization":

http://www.telegraph.co.uk/technology/internet/12050185/Marc-Andreessen-In-20-years-every-physical-item-will-have-a-chip-implanted-in-it.html


I could probably create a Drudge-like page and fill it with stories hyping the IoT.

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Does one belly up and buy chip stocks, Intel, on this weakness?  Volatility in the markets is exceptional right now so opportunities to trade, if one has such an inclination, are available on a daily basis.  Given how I am viewing the coming year I feel as though trading seems like the right strategy.

Of course, I reserve the right to change my mind at the drop of hat.

     

Market Tuition

During a year end Skype chat with some market participants I have known for a long time, I expressed my bullishness about the coming year.  <ahem>

Right on cue, global equity markets pummeled my view by dropping like a lead balloon. You name it, we got it. A crash in the Chinese market, lower and lower oil prices, weak economic reports, gloom and doom from Apple's supply chain, and a super-sized serving of financial media/pundit pessimism.

Yeah, I know things.....

By no stretch of the imagination do I believe the world is ending. I realize the *issues* in the global economy and the financial markets are not going away overnight.  In the 30+ years I have been following capital markets I can't tell you how many times the world was about to end. One thing I do know is that every single one of those periods provided the opportunistic investor with a chance to purchase some outstanding bargains.

Patience is key.....  

Earnings season is upon us and the preliminary indications suggest tough sledding in the semiconductor food chain.  During the past week the focus was on the business at Apple. Suppliers Qorvo (QRVO) and Cirrus Logic (CRUS) lowered their numbers. Samsung chipped in with tepid earnings guidance and Hon Hai Precision saw December sales drop 20%. TSMC's December sales were down 16% year-over-year and 8% vs. November sales.

I could go on but you get the drift. Taking just these few into consideration is enough to give one pause. Weakness appears widespread and no one wants to own a company that is about to release a crappy report.  These next few weeks will be telling.

From a strategy perspective my top priority is to check my ego at the door and really focus on what the tape is saying. Opportunities are going to appear - it is not a matter of if, but when.  

From a non-market perspective I am on a quest to do more research on disruptive technologies. It really feels like we have reached a tipping point where years of R&D in the tiny-science field will soon touch a market near you.  More to be said about this in future missives.  

Domain Transfer

FYI....   The transfer of the infras.com domain has been initiated and barring any blackholes in the transfer process the address of this site will soon change to www.infras.com.   According to the engineers at the hosting companies the transfer process could take 5 to 7 business days.

So, if you happen to be one of the faithful that actually ventures over here be forewarned that there may be a brief dead period.

Personally, I am quite happy about this because forward momentum is a good thing!  :-)

Carl

Good Intentions - No Follow Through

Sadly, I have neglected this site for almost a full year.  How dreadful......

The goal of publishing more often was set aside and given little consideration for reasons too tedious to explain.  Time just seemed to slip away.

Believe it or not, I have been following the developments in technology and I have been constantly in touch with the action in the financial markets.  There are a few folks out there that can attest to this but when it comes to this website that means little because there is nothing here to show for it

I'll be rewriting some pages, transferring the infras.com domain to Google (yes, I still own it) and filling some archives over the coming days.  Changes are necessary.

It is the start of a new year (saying this is so lame - isn't everyday the start of a new year?) and, once again, hope springs eternal.

Carl