Got lots of cash? How about clubbing your competition with the green stuff? That’s what HP seems determined to do to Dell
On the surface, bidding $2 billion for a company that hasn’t made an operating profit in the last five years looks nuts.
Dig deeper, though, and the battle between Dell (DELL) and Hewlett Packard (HPQ) to buy data storage company 3Par (PAR) doesn’t look nuts. It’s looks insane. Sales are projected to hit all of $235 million for the year that ends in March 2011. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected at just $21 million.
On August 28 Hewlett Packard bid $2 billion for 3Par, topping Dell’s previous bid, which topped Hewlett Packard’s previous bid, which topped Dell’s bid. Dell proposed paying $1.5 billion for 3Par. The latest bids come to roughly 95 times EBITDA for 3Par.
Aren’t these companies certifiable?
Well, if you’re even asking that question you don’t understand where we are in the economic cycle and how that’s driving company strategy in the technology sector.
This isn’t an age for valuation when companies carefully figure out how to get the best value for the cash they’re about to spend.
This is the era of Cash as Bludgeon. Cash rich companies are looking to club their poorer competitors over the head with dollars. At worst, the result of this spending will be a competitor unable to climb off the canvas for years. At best, this spending might be able to crush a competitor forever.
Put the Dell/Hewlett Packard contest over 3Par into competitive context and it starts to make sense, in spite of the insane valuation awarded to 3Par.
Update Intel (INTC)
Blow out quarter. Stunning increase in guidance. A totally justified 4.3% gain in the after-hours market on the day it announced earnings.
Now we’ll see if Intel (INTC) can juice the rest of the technology sector. (Look today to see how Microsoft (MSFT) reacts, for example.)
After the market closed on April 13 Intel announced earnings of 43 cents a share. That was 5 cents above Wall Street projections. Earnings for the first quarter of 2009 came to 11 cents a share. Revenue increased by 44% to $10.3 billion. Analysts had projected $9.84 billion. Gross margin climbed to 63.4%. That was above the company’s January forecast of 59% to 63%.
My guide to how to worry: Know what to worry about and when if you don’t want to get spooked out of a rally–or get killed in a correction
(Originally posted on October 14 but several readers have asked me to repost.)
What me worry?
On a day when the Dow Jones Industrial Average closes above 10,000 for the first time in a year and when the Standard & Poor’s 500 stock index closes within kissing distance of 1100 at 1092 ?
Of course.
When the market is rallying and everyone is getting kind of giddy, it’s exactly when you should be worrying. You don’t want to head for the exits just because an index has crossed some arbitrary number. That’s silly. But you would like to know what the chances are that something will go wrong.
How bad it might be if something did go wrong.
And when. Don’t forget the “when.” Deciding to sell because you’re worried that something bad is set to happen in 12 months is a guaranteed way to leave a big chunk of change on the table.
So what are my worries and what timetable are they running on?
Buy Taiwan Semiconductor (TSM)
Sure you want a piece of the technology action. Who wouldn’t after Apple (AAPL) broke to an all-time high after the company announced earnings on October 19. But isn’t everything priced out of reach? After all, we’re not exactly in the early stages of this rally.
I’ve found one late stage tech stock, though, that’s still cheap and that has, in my opinion, lots of potential.
Intel’s earnings should be enough to keep the technology rally rolling
After the market close on October 13, Intel (INTC) reported earnings that beat Wall Street estimates and–this is what’s really important this quarter if the rally is to keep going–raised its guidance for fourth quarter revenue to a top of the range $10.5 billion. That’s a full $1 billion above Wall Street estimates.
That set the stock soaring by almost 7% in after-hours trading. The entire chip sector moved up on the news.
The technology-heavy NASDAQ Composite Index is up 36% in 2009, outstripping the performance of the Standard & Poor’s 500 and the Dow Jones Industrial Average by two to one. This news should keep that out performance going.
Two other technology bellwethers Google (GOOG) and IBM (IBM) report on October 15. Texas Instruments (TXN) reports on October 19 and Microsoft (MSFT) on October 23.
Intel actually went so far as to contradict the consensus view that the personal computer industry wouldn’t grow in 2009.
