Category: Articles

Do you know what 1.7 out of 10 equals. The number of iPhones Apple (AAPL) has sold in 2008 (Q1) vs the goal they have set. Now news comes of drastic prices cuts. Where is that crazy English guy who does the Sunday morning infomercials? He could move a few…

Because of this, it now seams Apple has realized the obvious and will accept iPhone’s being sold perhaps even below $200 and in an effort to help carries subsidize the price cuts, will be foregoing some of the monthly revenue they receive from subscribers.

Just over a year ago, before the iPhone hit the shelves I said “a $599 phone will not gain mass acceptance no matter what is does, lower the price to $299 and you’ll have something”

Not long after the launch, Apple dropped the price of the phone to $399 and was forced to issue $100 rebates to irate folks of questionable mental functionality who waited in line for days to BUY A PHONE.

Recent news has seen Apple fall farther behind Research in Motion’s (RIMM) Blackberry in the corporate market.

If that was not bad enough, Apple lost share to both RIMM and Palm in the total market for smart phones last month. Losing share to RIMM is one things, but Palm?

Apple fans will excuse this as Job’s and co. “emptying the shelves” of the old version to get ready for the new one. Right, because Job’s MO since day one has always been about willingly falling behind the competition. A better excuse is the 3G phone is just behind schedule and someone planned poorly. Remember, we have been hearing about this coming out “any day” since January.

Why did they fall behind? A pinched consumer will not pay $400 for a phone. I can get a Blackberry Pearl for $99 and a Palm for the same. Apple fails to realize (or only now has) that they are selling a phone, not a technological revolution. When you add recent and upcoming competitive products from Verizon (VZ) and Sprint (S), you further crown a market Apple is by far the most expensive in for a strapped consumer.

Apple fan will scream “tech talk” about why the Apple offering is so superior, pretty and “cool” at the top of their lungs. Guys………..IT’S A PHONE….PERIOD. You want to get $599 for it? Stop selling iPods, them folks will have to buy it in order to listen to their music. Not really too realistic though.

Steve Jobs will hit the stage Monday and reveal the “3G” that according the Apple fans will even be able to light my grill and flip the steaks. He will also for the first time accept massive price cuts on a superior product (to the old version). If this is not an admission Job’s and Crew misjudged the market, nothing is.

Apple fans will also claim this is some sort of “master plan” from Jobs. I seem to remember when I did not want to pay $399 for a ipod, I found one for $149 with less than half the memory and one for $99 for one with almost none. At no time did I have the ability to buy a superior version for far less money. Remember, an iPhone for under $200 will be a 50% price cut.

Will Apple hit their goal now? Probably. But, it is not because of a 3G version though. It is because they will most likely finally price the phone at a price point most sane people will actually pay FOR A PHONE.

Now that is done, Apple devotees are free to yell from the roofs at me, curse, swear, threaten, and take partial sentences mix them up to try to twist what I say all in an effort to ….well…..I do not know why they are like that.

Of, course what they could just as easily say is, “when we called you a $%#&$ last year for suggesting the phone was overpriced, we were wrong and you were right”. Doubtful though….

Disclosure (“none” means no position):Sold Apple July $280 calls in January

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After all the recent real estate news, I have decided it is time to go into the sector.

Here is the thing. I lack the ability to properly value a builder (so do they it appears from recent results) and most of us investors do not have the access to some of the more esoteric products out there that can provide superior returns. When that happens, it is time to look at someone who does.

I am going with Ken Heebner at Capital Growth Management (CGM) and his CGM Realty Fund (CGMRX)

From the prospectus

Definition
A company is considered to be in the real estate industry if construction, ownership, management, financing or sales of residential, commercial or industrial real estate account for at least 50% of its gross revenues or net profits. Companies in the real estate industry include the following:
• REITs that own properties or make or invest in construction, development or long-term mortgage loans;
• housing and building materials companies;
• real estate brokers or developers; and
• companies with significant real estate holdings, including hotel chains and mining, lumber and paper companies.

Management Style.
Rather than following a particular style, the Fund’s investment manager employs a flexible approach and seeks to take advantage of opportunities as they arise. In making
an investment decision, the Fund’s investment manager will generally employ the following method:
• it uses a top-down approach, meaning that it first analyzes the overall economic factors that may affect sectors of the real estate industry and potential investments;
• it then conducts a thorough analysis of certain realty industries and companies that the investment manager believes have stable or improving prospects, evaluating the fundamentals of each on a case-by-case basis and focusing on companies that it determines are attractively valued based on price to earnings ratios and growth rates;
• the investment manager will sell a security if it determines that its investment expectations are not being met, better opportunities are available, or its price objective has been attained.

Portfolio Turnover.
The Fund’s objective is to provide a combination of income and long-term of capital and the Fund does not purchase securities with the intention of engaging in short term
trading. The Fund will, however, sell any particular security and reinvest proceeds when it is deemed prudent by the Fund’s investment manager, regardless of the length of the holding period.

Additional Information
The Fund may invest up to 20% of its total assets in debt or fixed-income securities of a quality below investment grade (i.e., securities rated lower than Baa by Moody’s Investors Service, Inc. (‘‘Moody’s’’) or lower than BBB by Standard & Poor’s Ratings Services (‘‘S&P’’), or their equivalent as determined by the investment manager)

These may include securities commonly referred to as ‘‘junk bonds’’. Investing in junk
bonds is an aggressive approach to income investing. The Fund may also invest up to 20% of its assets in repurchase agreements, by which the Fund buys securities with the understanding that the seller will buy them back with interest at a later date.

Heebner has a 38% annual return the last 5 years during both up and down real estate markets. The funds expense ration is .9% and has a $2500 minimum or $1,000 for IRA’s.

Disclosure (“none” means no position):Long CGMRX

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MONDAY’S PICKS
None

FRIDAY’S RESULTS
Jeff Macke is bullish on Microsoft (MSFT) $28.30 CLOSE $27.49 LOSS

Guy Adami recommends getting long Intel (INTC) $23.87 after Nat Semi revenues topped expectations.CLOSE $22.90 LOSS

Pete Najarian likes Excel Maritime (EXM) $52.77 on increasing shipping rates. CLOSE $49.09 LOSS

Karen Finerman thinks J. Crew (JCG) $36.89 is a buy. CLOSE $35.02 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 44-37-1
Tim Seymore= 17-14
Guy Adami= 48-37
Pete Najarian= 43-39
Karen Finerman= 42-33-1
Joe Terrenova= 1-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

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In this section Mr. Liveris and I discuss US energy policy (or lack thereof) and

Todd:
US energy policy. I had several questions planned here but you have been all over TV the last week and a half answering them for me..

Andrew:
(Laughing) And I am not done yet, I am determined to shake this all loose because we are just shooting ourselves in the foot very effectively as a nation.

Todd:
There was an “American Energy Production Act” Senate Republicans just introduced recently, have you seen it?

Andrew:
The drilling one right?

Todd:
Yes, they said it would produce an estimated 24 billion barrels of oil a day and 47 trillion cubic feet of nat. gas.

Andrew:
Certainly the bill recognizes the problem. It is a Republican bill and certainly I appreciate Senator Domenici’s work on it. However, the country need a bill both Democrats and Republican can support

I was in Washington yesterday and I had meeting after meeting. I actually think I might get deported here eventually [laughter] . You know I’m just screaming from the rooftops to get real with our energy policy.

Todd:
Let’s say you left Washington and they said “this guy is right, let’s do everything he said we should”. Even if they did that and they started at the earliest next spring, after the election, what kind of lag based on your experience is it 2 years, 5 years before anything they do now actually takes hold and excess production comes online.

Andrew:
Well we went through this in 2005 with the Lease Sale 181 in the inter-continental shelf of the US. The US gulf we were told that time and I think this is still very true that there are some known fields of oil and gas that can easily be tapped into current infrastructure especially on the US gulf they could be on the street in 12-18 months. Not as big as the numbers you just quoted, because on the outer edge that would be Anwar and that could be as far away at 4-5 years because of the pipeline.

We take a window and if you said “let’s go now” I think the earliest is 18 months and the latest is five years. But something else happens which is very important. The world as speculators look at supply very differently. We have a real supply issue because demand is surging and everyone thinks that there is not enough supply. Supply is bottle-necked in two places. One is availability of actual oil and gas of course in our Country we’re not accessing it and it will take 18 months to five years to accomplish that. Overseas its ships and freight and there are not enough ships on the water to get all this oil to everyone to get all this gas to everyone. So that’s one bottleneck.

The second bottleneck is refining capacity which as you know this country won’t permit refineries. I think the only one under construction today is Valero’s (VLO) in Texas. No one wants a refinery in their back yard. So you have this ridiculous situation of Reliance building the world’s largest refinery in India and all the products are for exporting to the United States.

So those two bottlenecks will take several years, if you take those two bottlenecks out by passing laws, I think there will be an instantaneous reaction to price.

Part Three: Dow Ag

Disclosure (“none” means no position):Long Dow, None

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In an SEC filing Bruce Berkowitz of Fairholme funds continued selling TAL International (TAL) selling 24,000 shares at $26.68 bringing his total holdings down to 2.463 million shares.

It was the second SEC sale filing in a week in the company.

Disclosure (“none” means no position):None

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The week’s top insider transaction by dollar amounts.

Community Bankers Acquisition Corp (BTC)- $4,675,000
Information Services Group Inc (III)- $3,075,000
eLoyalty Corp (ELOY)- $2,297,000
Pharmacyclics Inc (PCYC)- $2,082,000
TCF Financial Corp (TCB)- $2,009,000
Perini Corp (PCR)- $1,887,000
Marchex Inc (MCHX)- $1,815,000
Powerwave Technologies Inc (PWAV)- $1,604,000
Enterprise Products Partners L P (EPD)- $1,557,000
Align Technology Inc (ALGN)- $1,467,000
Huntsman Corp New (HUN)- $1,270,000
Dick’s Sporting Goods Inc (DKS)- $1,254,000
ev3 Inc (EVVV)- $1,066,000
Insight Enterprises Inc (NSIT)- $1,021,000

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The week’s top insider transaction by dollar amounts.

Community Bankers Acquisition Corp (BTC)- $4,675,000
Information Services Group Inc (III)- $3,075,000
eLoyalty Corp (ELOY)- $2,297,000
Pharmacyclics Inc (PCYC)- $2,082,000
TCF Financial Corp (TCB)- $2,009,000
Perini Corp (PCR)- $1,887,000
Marchex Inc (MCHX)- $1,815,000
Powerwave Technologies Inc (PWAV)- $1,604,000
Enterprise Products Partners L P (EPD)- $1,557,000
Align Technology Inc (ALGN)- $1,467,000
Huntsman Corp New (HUN)- $1,270,000
Dick’s Sporting Goods Inc (DKS)- $1,254,000
ev3 Inc (EVVV)- $1,066,000
Insight Enterprises Inc (NSIT)- $1,021,000

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Adam, Lehman, Barnes & Noble, Blackberry beats iPhone

– Adam Warner is a tremendous judge of writing

– They are toast

– Can’t argue

– Is anyone really surprised?

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Yahoo (YHOO) cannot beat Icahn at this game. They know that, right?

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with
your oversight of Yahoo! Again, I stand by my characterization of your “poison
pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan.
Much like the rhetoric in many well known political campaigns, you keep
repeating misstatements in the hopes that by repeating misstatements enough
times it will convince your shareholders that these misstatements are valid. For
example, you repeated, “the plan was fully disclosed at the time of its adoption
and should be no surprise to anyone at this point.” This is simply not true. The
egregious magnitude of the dollar amount cost of the plan was never fully
disclosed, nor was the email from your compensation advisor calling the plan
“nuts.” While you keep repeating that the severance plan was in the “best
interests of shareholders”, you neglect to mention that the financial cost of
the plan could be immense. The documents obtained during discovery and released
in the shareholder complaint show that Yahoo! estimates the maximum change in
control severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an acquirer
may be even higher as the perverse change in control severance incentives may
diminish the work effort of Yahoo! employees. In case you do not understand the
plan, in addition to the $2.4 billion of severance expenses, I believe the plan
will negatively impact employee behavior and degrade the ability of an acquirer
to successfully integrate the acquisition. In the event of a change of control,
the employee may decide not to work as hard in the hopes of cashing in on a
robust severance package that awards up to two years salary and benefits,
$15,000 of outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee who
may decide on his or her own to resign for “good reason” at any point within two
years of a change in control. It is quite obvious to me that this plan impacts
the price an acquirer would pay. Is it any wonder than an acquirer, once fully
comprehending this plan, might not wish to negotiate any further? I again call
upon you to honor your fiduciary duty to your shareholders and rescind this
“poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!” I will give you my perspective on that.

o First, I would work to have the board replace your “poison pill”
severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google’s success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo”. Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.
———————————————————

o Fifth, to the extent Microsoft does not want to make a proposal, I
will ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don’t you, now that you have the opportunity, remove the “poison
pill” severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the
entire company on a friendly basis. So why don’t you stop dancing
around the subject and publicly offer to sell the company to Microsoft
for $34.375 per share and promise to cooperate completely?

o Why are you still giving hope to Microsoft that there is a possible
“alternative deal”? As long as there is the possibility of an
“alternative deal”, isn’t it obvious that Microsoft will not make a
bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Disclosure (“none” means no position):None

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Yahoo (YHOO) cannot beat Icahn at this game. They know that, right?

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with
your oversight of Yahoo! Again, I stand by my characterization of your “poison
pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan.
Much like the rhetoric in many well known political campaigns, you keep
repeating misstatements in the hopes that by repeating misstatements enough
times it will convince your shareholders that these misstatements are valid. For
example, you repeated, “the plan was fully disclosed at the time of its adoption
and should be no surprise to anyone at this point.” This is simply not true. The
egregious magnitude of the dollar amount cost of the plan was never fully
disclosed, nor was the email from your compensation advisor calling the plan
“nuts.” While you keep repeating that the severance plan was in the “best
interests of shareholders”, you neglect to mention that the financial cost of
the plan could be immense. The documents obtained during discovery and released
in the shareholder complaint show that Yahoo! estimates the maximum change in
control severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an acquirer
may be even higher as the perverse change in control severance incentives may
diminish the work effort of Yahoo! employees. In case you do not understand the
plan, in addition to the $2.4 billion of severance expenses, I believe the plan
will negatively impact employee behavior and degrade the ability of an acquirer
to successfully integrate the acquisition. In the event of a change of control,
the employee may decide not to work as hard in the hopes of cashing in on a
robust severance package that awards up to two years salary and benefits,
$15,000 of outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee who
may decide on his or her own to resign for “good reason” at any point within two
years of a change in control. It is quite obvious to me that this plan impacts
the price an acquirer would pay. Is it any wonder than an acquirer, once fully
comprehending this plan, might not wish to negotiate any further? I again call
upon you to honor your fiduciary duty to your shareholders and rescind this
“poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!” I will give you my perspective on that.

o First, I would work to have the board replace your “poison pill”
severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google’s success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo”. Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.
———————————————————

o Fifth, to the extent Microsoft does not want to make a proposal, I
will ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don’t you, now that you have the opportunity, remove the “poison
pill” severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the
entire company on a friendly basis. So why don’t you stop dancing
around the subject and publicly offer to sell the company to Microsoft
for $34.375 per share and promise to cooperate completely?

o Why are you still giving hope to Microsoft that there is a possible
“alternative deal”? As long as there is the possibility of an
“alternative deal”, isn’t it obvious that Microsoft will not make a
bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Disclosure (“none” means no position):None

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