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Logitech Focuses the Lens on LifeSize for $405 Million - November 11, 2009

November 11, 2009

Logitech (LOGI)

Logitech Focuses the Lens on LifeSize for $405 Million

Logitech has agreed to acquire LifeSize Communications for $405 million in cash. LifeSize Communications is an $80 million dollar startup company that specializes in offering HD video conferencing technology and services to businesses. Logitech has been looking for an opportunity to expand its market scope, and LifeSize appears to be it. However, Logitech's strong suit is more aligned with providing telecommunication and computer peripheral products to consumers not businesses. Despite the difference in targeted customers, Logitech seems eager to break out of its comfort zone and breach new horizons. But why is Logitech so anxious to enter an industry flooded with powerhouse competitors like Cisco (CSCO: Charts, News, Offers), Microsoft (MSFT: Charts, News, Offers), and IBM (IBM: Charts, News, Offers)?

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Stock Analysis Logitech believes that LifeSize's technology will, "make lifelike, HD-quality video communication as mainstream and seamless as a telephone." It is with this rationale and purpose that Logitech enters the teleconferencing industry. Logitech intends to expand on LifeSize's current business model of offering affordable videoconferencing technologies. Logitech International will continue to service the traditional business clients with boardroom installations, but it also recognizes that LifeSize's affordable technology has the ability to push the breadth of potential customer markets much wider. Logitech sees the opportunity to offer HD teleconferencing capabilities to home webcam users at a reasonable price, which it believes to be a lucrative market.

The synergy of Logitech's customer experience and LifeSize's technology make this a very enticing proposition. LifeSize Communications has already demonstrated the ability to produce affordable HD videoconferencing equipment, but has not rolled the product out to the commercial market. The expansion of LifeSize's customer base is where Logitech enters the picture. The Swiss webcam manufacturer is very familiar dealing with commercial customers, particularly home users. Logitech hopes that it can open the HD teleconferencing technology to an entirely new market, but it needs LifeSize's technology. So, Logitech decided to buy LifeSize Communications.

Overall, Logitech seems to have a strong entry plan to the teleconferencing industry. The combination of LifeSize's affordable technology and Logitech's commercial expertise look like a very nice fit for expanding the teleconferencing market to home users. In addition, Logitech will have the opportunity to build on LifeSize's current business and revenue stream. However, Logitech International will be met with heated competition from industry rivals as it tries to carve out market share. There is a concern that LifeSize and Logitech may not be able to streamline the price enough for it to be appealing to domestic customers. Despite these obstacles, Logitech is focused on the big picture, and sees great potential in its newest acquisition, LifeSize Communications.

Other Logitech Related News:

Video Communication: Now in High Definition -- A closer look at Logitech's new lineup of product offerings .

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SMART Modular Technologies Boosts Q1 Forecast -- What has SMART (SMOD: Charts, News, Offers) so optimistic about the future?

Macy's Reports Loss; 2009 Forecast Trails Estimates -- Macy's (M: Charts, News, Offers) misses Wall Street expectations. How does this department store titan feel about this year's holiday shopping?

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Electronic Arts Hits Dead End, Makes Strategic U-Turn - November 10, 2009

November 10, 2009

Electronic Arts (ERTS)

Electronic Arts Hits Dead End, Makes Strategic U-Turn

Today, Electronic Arts (ERTS: Charts, News, Offers) posted a wider quarterly loss than expected. It earned 6 cents a share below the average analyst estimate of 7 cents. Revenue for the quarter ending September 30 fell 12 percent to $788 million down from $894 million in the same period a year ago. As a result, it announced another strategic move to once again focus on its established and successful franchises. This means EA will kill a dozen of projects, shut down facilities, cut about 1,500 jobs, and reduce the number of titles it planned to publish in 2010 to less than 40, down from the 60 plus titles published in 2008. But in a separate move, EA bought an online game company Playfish for $275 million in an attempt to gain a foothold in the social media game market. How many strategic turns can a company make before it withers on spot? Are these the right moves for EA?

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Stock Analysis First, let's take a look at the product line. Earlier this year, Electronic Arts' CEO John Riccitiello claimed that EA had previously been too reliant on licenses and franchises, and intended in future to focus on creating new IP of its own. The result has been a string of new video games that include Dead Space, Mirror's Edge, and Spore. However, the success of these new titles has been mixed at best, and Spore was probably the biggest disappointment of the year. So the company decided the strategy didn't work and is working on a change that is essentially a 180 degree departure from the original goal. On top of the 11 percent workforce reduction last year, the company will cut another 1,500 jobs, or about 17% of its workforce, close several facilities, and terminate almost half of its lineup. "We're cutting the projects and the support activities that don't make economic sense and freeing up more resources ... to push our key titles even harder," Chief Financial Officer Eric Brown said in an interview.

Second, EA bought an online social media game company Playfish for $275 million in cash plus a $100 million bonus if the company performs well after the transaction. Playfish launched its first game, called Pet Society, in December 2007. Today Playfish has 60 million users a month for its 10 games, and is the second-largest social network gaming company. These games are free, but Playfish makes money by selling virtual goods and accessories to enhance the gaming experience. In addition, it also sells one iPhone game for 99 cents a pop, and has two more on the way. Although the company doesn't release detailed financial information, Playfish is profitable according to Kevin Comolli. Mr. Comolli is a partner at venture capital firm Accel Partners, which was Playfish's first investor.

So, are these two drastic moves the right prescription for the ailing gaming company? In theory, these strategic moves are excellent ideas --focus on profitable products, cut laggards, and diversify beyond console and computer into the rapidly growing online and social network space. However, the execution is questionable. The truth is, EA is too well-known and too reliant on its core products, especially their sports games. The earlier all-in strategy was a failure because it was spending too much on unproven products, but this doesn't mean EA should give up and essentially kill its R&D. In fact, it needs to continually invest in new IPs and try to break the stereotype. The move into social networking gaming space via M&A is also good, but EA may have overpaid for this acquisition and will probably be disappointed by Playfish's future contribution to the company's financials.

Other Stuff Related to Electronic Arts:

What EA Sees in Social Gamer Playfish -- An analysis of Electronic Arts acquisition of London-based Playfish.

Electronic Arts Job Cuts: Grim Outlook for Game Industry -- The game industry is shedding jobs faster than it can absorb, this is bad news for everyone.

Electronic Arts (ERTS): M&A And Layoffs Meet At A Crossroad -- Cost cutting and big acquisition in the same breadth. Is this a good move, or a recipe for a disaster?

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Beazer Homes posts Q4 profit -- The Atlanta-based home builder (BZH: Charts, News, Offers) recorded fiscal fourth quarter net income of $33.8 million, and narrowed its fiscal year 2009 loss.

Merkel says GM has to pay most Opel revamp costs -- German Chancellor Merkel asked General Motors (GM: Charts, News, Offers) to present a restructuring plan for Opel, and said GM should not count on government aid.

EU To Focus Oracle Probe On MySQL, Despite Critique -- Oracle (ORCL: Charts, News, Offers) planned $7.8 billion acquisition of Sun Microsystems (JAVA: Charts, News, Offers) hits anti-trust barrier in Europe.

Sprint Plans to Cut Jobs as Subscriber Rolls Shrink -- Sprint Nextel (S: Charts, News, Offers) continues to suffer as it loses subscribers to rival. The company to cut up to 6 percents of its workforce.

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Kraft Still has a Sweet Tooth - November 9, 2009

November 09, 2009

Kraft (KFT)

Kraft Still has a Sweet Tooth

With mergers and acquisitions, sometimes things start on good terms and other times things can quickly head south. The cut throat business world sparks a lot of determination in companies that really want something specific, whether it is another company or something else. Kraft Foods has had its eye set on Cadbury for a while and now the company has switched its strategy to try and close this deal. Kraft has launched a formal hostile takeover bid for Cadbury two months after the UK confectioner rejected its initial offer. What caused Kraft to switch its acquisition approach with the company? Will this hostile bid actually hurt or harm the company's chances?

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Stock Analysis Kraft Foods is definitely not wasting any time. The company just announced back in September that its initial offer of $16.7 billion for Cadbury was rejected. At that time, Cadbury turned its nose up as the bid and made is crystal clear that the offer was inadequate. Chairman Roger Carr complained in a public letter to Kraft's chief executive, Irene Rosenfeld, that the idea of Cadbury being absorbed into Kraft's "low growth, conglomerate business model," was an "unappealing prospect�. Kraft obviously didn't like the quick rejection of its offer, so it decided to approach the situation in a different manner the second time around. Kraft is now offering $16.3 billion dollars in a hostile bid for Cadbury and did not increase the offer before taking the matter to shareholders mainly because Kraft's share price has fallen in the interim. Why didn't Kraft just come back to the table with a regular bid for the company? There are a couple of things that may account for the recent change in plans. One of the motivating factors may have been the possibility of another company acquiring Cadbury. When it was reported that Kraft had made an initial offer, other companies started paying attention and evaluating a possible acquisition. The hostile offer doesn't eliminate this threat unless shareholders approve the offer quickly. If another company launches a competing bid in the meantime, the takeover battle could drag on even further.

Time was also not on Kraft's side. The company was facing a looming deadline for 5 p.m. today, or it had to walk away from the deal for at least six months. Since Kraft didn't plan on increasing its offer, which Cadbury had already deemed as too low, it went ahead and initiated a hostile bid for the company. With any hostile bid, feathers get ruffled and sometimes the company fights even harder to get the offer rejected. Cadbury has already rejected the second offer and stated that it doesn't come remotely close to the true value of the company. However, the decision doesn't rest with them anymore. It's up to shareholders to decide if the deal is worth pursuing.

Kraft may have put itself in a bad place if shareholders reject this second offer. The company has definitely burned bridges with Cadbury, so chances of the company accepting another offer are probably slim to none. This is a risk that any company initiating a hostile bid takes and obviously Kraft thought it was worth it. Kraft has 60 days to collect enough shares to seal the deal from the day it publishes its prospectus.

Other Stuff on Kraft and Cadbury

A Long, Sickening Chocolate War -- When you have an initial bid rejected as derisory it is probably not a good idea to come back with a lower offer expecting a big change of heart from your prey.

Kraft Banking On Lack Of Competition -- No competitor has raised its hand in the intervening period.

Stocks in the News

Dish Shares Jump on Subscriber Growth -- Dish Network (DISH: Charts, News, Offers) posted a decline in its third-quarter profit, but the satellite TV provider's subscriber growth accelerated.

McDonald's Same-Store Sales Rise -- McDonald's Corp.'s (MCD: Charts, News, Offers) global same-store sales rose 3.3% in October.

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It's Game Time for AT&T - November 6, 2009

November 06, 2009

AT&T (T)

It's Game Time for AT&T

The nation's second largest wireless carrier is approaching a pivotal time period and the quality of its decision making and execution over the next few months could end up shaping its future for years to come. There is the growing threat of smart phones from rival carriers (each of which is getting closer to catching the iPhone), the perceived and real problems with its network, its lack of 3G coverage and the looming expiration of its exclusivity agreement with Apple over the iPhone Given that the landline business is fast approaching extinction, investors are looking for the company to survive largely on its wireless interests. But will AT&T let them down?

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Stock Analysis The Dallas, TX based communications giant reported third quarter earnings late last month. The quarter was good not great as earnings/share came in at $0.54 (the street was at $0.50) and revenue was basically in line with estimates. The show stopper in the report was the activation of 3.2 million iPhones during the slow summer months in a recessionary environment. This helped the company attract 2 million new wireless subscribers, a large chunk of which no doubt defected from rivals Verizon (VZ: Charts, News, Offers), Sprint (S: Charts, News, Offers) and T-Mobile. The iPhone deal has some negatives. Margins have been pressured given the payments to Apple (AAPL: Charts, News, Offers) and the subsidies AT&T offers to consumers who buy the phone. The proliferation of the iPhone has also overwhelmed the carrier's wireless network as consumers treat the device as less of a phone and more of a mini-computer. AT&T's reputation as a reliable carrier has taken a major hit and subjected the company to ridicule. But on the balance, the exclusivity deal with Apple was a major plus given the number of new subscribers and the higher data fees that these customers pay. Also, it's been 2.5 years since the first iPhone was launched and rival manufacturers are still trying to come up with phones that match the iPhone's functionality. AT&T aligned itself with the correct horse in Apple and that is why it is still ahead of the market.

However, Verizon is not sitting still and the company's latest smartphone, Droid, manufactured by Motorola (MOT: Charts, News, Offers), which goes on sale today, has by most accounts, come very close to replicating the iPhone experience. It even exceeds the iPhone in certain areas (e.g. physical keyboard, ability to run multiple apps simultaneously) and falls short in others (e.g. multi-touch functionality). No doubt, the iPhone is still better but the gap is closing. Droid should help slow the number of defections form Verizon to AT&T over the upcoming holiday season though AT&T is supposedly planning to release an 8GB version of the iPhone 3GS for $99. Then there is the issue of the exclusivity agreement with Apple which is scheduled to expire next year. Most observers believe Apple will start making the phone available via Verizon and that would be the rational choice given how far Apple has already penetrated AT&T's customer base and the fact that Verizon offers a 80 million strong new pool of potential iPhone customers. AT&T would have to make a very attractive offer to retain Apple exclusively, something it probably will not and should not do given the huge numbers it would take to compensate Apple for continuing to ignore more than half of the US wireless market.

Given these factors, it is absolutely essential that AT&T continue to improve its wireless network and do so as soon as possible. AT&T is currently suing Verizon because it claims that the latter is misrepresenting its wireless coverage but all the lawsuit does is bring more attention to the fact that AT&T's 3G coverage is much spottier than Verizon's. If the reliability of AT&T's wireless network continues to be an issue when the iPhone is available through other carriers, then we could start seeing customer defections out of AT&T. Apple has given AT&T a lot of new customers, it's AT&T's job to retain them.

Longer term, you have to worry about the attractiveness of all wireless stocks including AT&T's. These companies' fortunes are so dependent on those of handset manufacturers. The only differentiating factor is the reliability and speed of their network and once that reaches its technological limits or gets to a point where users cannot discern any improvements in speed, the wireless business could get further commoditized and be grouped with other utilities such as electric and water, in terms of attractiveness.

Other AT&T related news

AT&T's Rivals Still Seek Answer To iPhone - The Palm Pre made some noise over the summer, now it's the Droid's turn to take a shot.

AT&T's lawsuit over Verizon ads could backfire, some argue - AT&T should have probably ridden this one out instead of making a fuss about it.

There's Something About Droid - The commercials were impressive, the phone itself apparently does not disappoint.

What else is going on?

Deja Vu: Wal-Mart, Amazon, Target in DVD Price War - First books, now DVDs, what is next?

Unemployment hits 10.2% - The jobs report was a disappointment this morning.

Three cheers for college football towns - Besides great Saturdays, you also get great affordability

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CVS Investors Pained by its Weak Pharmacy Benefits Division - November 5, 2009

November 05, 2009

CVS Caremark (CVS)

CVS Investors Pained by its Weak Pharmacy Benefits Division

CVS Caremark Corp. is a company that wears many different hats. The company runs a network of over 7,000 CVS drugstores, maintains pharmacy locations within those drugstores, and now also owns a pharmacy benefits company (Caremark). Although these businesses are very closely related, the acquisition of Caremark was questioned by many investors. Investors saw this as a risky move which might help the company, but one which might also cause more pain than it was worth. This quarter, as it has been with every quarter since the acquisition, investors and analysts waited to see if the results would help them determine if this was indeed a good decision or not. And based on the response of the investors after the earnings announcement, they got a very clear answer.

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Stock Analysis If you asked the analysts, CVS posted a strong third quarter report, beating analysts' expectations. Profit rose 39%, jumping from 50 cents to 71 cents per share, while analysts had been expecting 64 cents per share. Revenue also rose, from $20.86 billion to $24.64 billion, just beating the estimates of $24.61 billion. Revenue from the drugstore division rose almost 18%, and revenue from the pharmacy benefits division rose over 23%. Looking a little closer, same-store retail sales rose 5.7%, with same-store pharmacy sales rising 8%, which combined with the other numbers paint a rosy picture for CVS Caremark.

However, the investors have looked beyond the expectations and the profits, and focused more on the future. CVS CEO Tom Ryan reported that Caremark lost $2 billion in business in the last couple months and approximately $4.5 billion in contract losses for 2010, losing contracts to people who are also eligible for Medicare or Medicaid. Ryan reported that although the client retention rate was a strong 92%, that Caremark had lost a number of important clients. Ryan had previously remarked a strong hope that CVS would experience a 13 to 15% profit increase next year, which he has now reported to be an unlikely possibility, as a hopefully strong retail number will have to balance out a possibly weak benefits number.

It is clear that for CVS Caremark investors, the latter data is what they are focusing on. Before the announcement, CVS shares were up 18% over the last year. However, since the market has opened today, the company's stock has fallen over 20%. If things don't turn around, and Caremark continues to drag CVS down, investors will grow increasingly frustrated with the acquisition, and this could become a virus attacking this otherwise healthy company, which CVS must figure out how to either treat, or remove completely.

CVS Commentary:
CVS Caremark 3Q Net Jumps 39% On Revenue Gains - A close look at the earnings report, and an analysis of why investors reacted the way they did.

CVS cuts short flu-shot clinics due to shortages - An early report which indicated CVS may have trouble finding enough flu vaccines to meet demand.

CVS to move subsidiary headquarters to R.I. - CVS also confirmed yesterday a change in headquarters for the MinuteClinic division, which will result in about 150 layoffs.

More Stocks in the News:
Toyota Joins Ford By Turning A Profit - Investors are stunned as Toyota (TM: Charts, News, Offers) becomes the second major auto manufacturer to post an unexpected profit .

Cisco's Chambers: 'Very Tangible Results' on Recovery - After reporting a disappointing earnings report yesterday, Cisco's (CSCO: Charts, News, Offers) CEO comments on the future of the company and the technology sector.

New York sues Intel over bullying, bribes - Intel (INTC: Charts, News, Offers) faces trouble again, this time being sued for its alleged illegal techniques to get computer manufacturers to use their chips.

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