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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 21596  
Subject: random ideas Date: 10/10/2012 2:43 PM
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i was in a bit of funk last few months with new idea generation. i also discovered sitting on cash seems to demoralize myself. just in the last few days, i am starting to find more ideas and become more motivated.

FDX: wow. when was the last time a big-cap company just detail how they will produce $3 extra EPS regardless of macro? which large cap industrial company has a division accounting over 1/2 of profits growing volume at 10% clip and have structural cost advantage over the incumbent? this growth-at-any-cost company now cites rails' playbook? i haven't felt this excited about a large-cap name since GOOG/NWSA.

YHOO: yeah. same old thesis. stock hasn't gone anywhere in 2 years, but that's the beauty. assets quality/visibility have all improved. Big capital return on the horizon. Dynamic new CEO. Core biz essentially at $1/share despite throwing off 70c FCF. if turn-around doesn't work, there is that AOL playbook (which is just up 130% YTD). downside is dead money, but upside? sure feels better than cash.

AVP: admittedly dubious business model. looks expensive on current earnings, but margin is way below average/peers. Did people see the new chairman? He has only turned around and sold 2 giant companies before. (Pharmacia and SGP). there was some poster on this board (sorry i forgot his handle) a while ago with a turn-around candidate checklist. AVP seems to fit that template to a T.

INTC: oh, the dreaded PC market. i admit i have no special insight here. but at least they don't have the terrible B/S of HPQ. one could make a case for their server chip division is worth most of current EV. It also sports over 4% dividend yield, which is an "accidental high yielder" to borrow a Cramer term.

CHKP: 15% FCF/EV. enough said. i freely admit i buy software companies at 15% FCF/EV with eyes closed.
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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15088 of 21596
Subject: Re: random ideas Date: 10/10/2012 4:40 PM
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CHKP: 15% FCF/EV. enough said. i freely admit i buy software companies at 15% FCF/EV with eyes closed.


Just in case you were peaking out of the corner of your eyes, any thoughts about the business? In particular, how do they succeed in mobilizing an extra couple of hundred million from their balance sheet every year? Is this mostly pre-payment for subscription software while revenues grow quickly, meaning they have more and more cash which they can't count as earnings until the end of the year?

And why is a fast-growing debt-free software company trading at 13 (15?) times free cash flow? Could this be the market worrying about having a nuclear bomb pointed at the company's HQ in a few months,, by a guy who wouldn't like the sound of the names of the officers and directors?

Regards, DTM

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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15089 of 21596
Subject: Re: random ideas Date: 10/10/2012 5:11 PM
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yeah, most of the extra FCF is from W/C benefits. This could even increase as they shift their model towards subscription (they call it "blade").

it is an outstanding company. Operating margin has been 40%+ for ever. Mgmt is good with cost control and pretty good with capital allocation (they could only buy back so much stock under Isareli law), and the last big acquisition was a homerun.

As for the multiple, it is not threat of nuclear weapon, but the emergence of an upstart called Palo Alto Networks (PANW), which happened to be started by a former employee of CHKP. Investors appear convinced that PANW has come up with a better mouse trap and will destroy CHKP in no time.

i am not as concerned. At current FCF run-rate, the company could have 50% of market cap in cash by year end 2013. gives me some comfort. security vendors in worse situations (Bluecoat) were taken out at higher multiples.

as an aside, there are a bunch of software pairs, where the upstart trades at dispprotionate EV/sales or EV/FCF to incumbents. NOW vs. BMC, CRM/N/WDAY vs. ORCL, PANW vs. CHKP, etc. Maybe the market is right about the model change eventually, but i won't take the line given the valuation gap.

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Author: howardroark Big red star, 1000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15090 of 21596
Subject: Re: random ideas Date: 10/10/2012 5:57 PM
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FDX: wow. when was the last time a big-cap company just detail how they 
will produce $3 extra EPS regardless of macro? which large cap industrial company has a division accounting over 1/2 of profits growing volume at 10% clip and have structural cost advantage over the incumbent? this growth-at-any-cost company now cites rails' playbook? i haven't felt this excited about a large-cap name since GOOG/NWSA.

Teach me Fedex.

INTC: oh, the dreaded PC market. i admit i have no special insight here. but at least they don't have the terrible B/S of HPQ. one could make a case for their server chip division is worth most of current EV. It also sports over 4% dividend yield, which is an "accidental high yielder" to borrow a Cramer term.

Book recommendation:  The Man Behind the Microchip, by Leslie Berlin.  Robert Noyce Biography.  I liked it more than Isaacson on Jobs.


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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15092 of 21596
Subject: Re: random ideas Date: 10/10/2012 7:43 PM
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thanks for the book rec.

for FDX. here is my thought. love to hear your thoughts (or anyone else's). not at office so some numbers may be a bit off.

FDX has three main business units. Express, Ground, and Freight (LTL).

Freight is the smallest division, even though FDX is now the largest LTL player in the country with about 15% market share (same as YRCW). My estimate is this division is worth between $5-10/share. not a critical part. just want to get it out of the way.

Ground: FDX is known for the core Express division, but Ground division actually now generates over half of the group EBIT (partially due to depressed margin at Express). FDX got into the biz through a couple of acquisition 10 years ago, and it has been an absolute home run (one of the few deals that worked out for FDX). It now commands about 25% of market share, vs. UPS at 63%. The division has grown volume by over 50% over the last 5 years (quite an accomplishment considering the recession) mostly through share gains. Also important is that FDX uses a contractor model vs. UPS's teamster unionized workers, which gives FDX a structural cost advantage. Now neither UPS or FDX would discuss how much of a cost advantage that is, but it is clearly meaningful. FDX Ground does close to 20% op margin vs. UPS Ground around 15%, despite 1/3 of the density and similar pricing. I think FDX Ground's share gain/volume growth will moderate with a larger base and UPS possibly fighting back, but the cost advantage appears structural. FDX plans for 45% more capacity growth over the next 5 years while adding very few hubs. Increased density at high incremental margin should lead to margin expansion and earning growth. I'd argue FDX Ground deserves a higher multiple than UPS. but say we only pay 15x for about $4 EPS (depending on how you allocate corporate expense), $60 here.

Express: Now this is the bread-n-butter biz of FDX. Yet historically it has also been a mediocre business at best with op margin/ROIC never exceeding 10%. FDX Express did 9.6% op margin in FY '07 and actually achieved 10% in first couple of quarters in '08, before the recession took its toll. FDX mgmt banked on a similar recovery as in previous recessions, but it never happened, as average daily volume (ADV) is still 5-10% below 2007 peak. Now some of this is structural (technology, trading down to deferred/ground), some of it was just over investment/capacity. A few years ago, FDX mgmt stopped giving breakdown between Domestic Express and Intl Express, instead saying it is "one global network". I always thought it was ridiculous and just gave mgmt excuses to not manage domestic capacity to demand. Fast forward to last quarter, when Express produced an op margin of just 3%. I guess the number is so pathetic that even management cannot tolerate it any more. Note the number is worse than it appears, considering DHL (an irrational player at 10% market share) exited US back in 2009, so US domestic has become a duopoly. Also consider UPS Intl Express does about 15% op margin on similar revenue (different geographic mix). Anyway you slice it, this margin is pathetic.

So comes today's big restructuring announcement. i will leave to the sell side notes to discuss whether those are reasonable numbers. I happen to think they are, relative to UPS/DHL. The bears would say FDX Express is just an airline. maybe so, but it is still an airline operating in a duopoly. I believe both UPS and FDX are now serious about yield/pricing management. I am especially glad to see FDX mgmt quote the rail playbook several times today.

I guess my bull thesis rests on the assumption that Ground will continue to grow, and Express will return to respectable margins/returns appropriate given the industry structure.

If I am right, we could see $12 EPS in 2015 with a better US/global economy. If I am wrong, $7.50 is the trough EPS for this new cycle with the cost cuts. At $90, it presents pretty interesting risk/reward imho. S&P is within spitting distance of the peak, while FDX is still a good 25% off the previous peak in 2007, with meaningfully higher EPS power.

I am glossing over some legal challenges FDX Ground (whether contractors are really contractors or employees), and the effort by Teamsters to unionize FDX workers. rightly or wrongly, i view those as noise.

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Author: bcs123 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15093 of 21596
Subject: Re: random ideas Date: 10/10/2012 8:15 PM
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There are interesting Buffett/Noyce ties via Grinnell College (Noyce was an alum and trustee, Buffett gave some endowment advice and I think may have been on board at one point). I think this is detailed in one of the Buffett bios and this old Zweig column hits some of the intesting points.
http://money.cnn.com/2000/06/01/zweig_on_funds/zweig_on_fund...

Gocanucks, what is your SOTP math on YHOO that gets you to $1/share for core business?

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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15094 of 21596
Subject: Re: random ideas Date: 10/10/2012 9:37 PM
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Bob Noyce personally recruited my father to come make semis/etc at Intel before they went public.

My father decided to stay at Univac.

When he met with Bob Noyce to tell him that, Bob already assumed he was accepting and started giving him stuff to work on.



I didn't want to inherit $100m anyway....where's the fun?

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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15095 of 21596
Subject: Re: random ideas Date: 10/10/2012 9:43 PM
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and the effort by Teamsters to unionize FDX workers. rightly or wrongly, i view those as noise.

Not sure I can agree on this point if they are successful. JMHO.

Like the writeup, tks.

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Author: TMFEnochRoot Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15097 of 21596
Subject: Re: random ideas Date: 10/11/2012 8:59 AM
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there was some poster on this board (sorry i forgot his handle) a while ago with a turn-around candidate checklist. AVP seems to fit that template to a T.

That would be Mithrophon, I remember his posts as among the very highest wheat/chaff ratio of any poster ever.

http://boards.fool.com/LastPosts.asp?limit=88&submit=Go&...


Cheers,
ER

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Author: StuyvesantGrad70 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15098 of 21596
Subject: Re: random ideas Date: 10/11/2012 9:56 AM
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The turn-around candidate checklist, by Mithrophon, 6/7/2007:
http://boards.fool.com/pattern-recognition-25567513.aspx

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15118 of 21596
Subject: Re: random ideas Date: 10/15/2012 10:33 AM
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there are a bunch of software pairs, where the upstart trades at dispprotionate EV/sales or EV/FCF to incumbents. NOW vs. BMC, CRM/N/WDAY vs. ORCL, PANW vs. CHKP, etc. Maybe the market is right about the model change eventually, but i won't take the line given the valuation gap


These are always intriguing. You might add F/GM/Fiat-Chrysler etc vs TSLA, FB vs LNKD (where the latter's valuation seems much too high,not to say that the former's isn't too), GPS vs LULU, SPLS vs AMZN, STX/WDC vs VMW, etc. The general theme being that the funeral notice is premature.

But to keep humble, I always remember how ludicrous it seemed that some upstart bookseller with no profits was actually worth more than the two profitable behemoths, Barnes and Noble and Borders, combined!! How ludicrous!! Now that AMZN has buried them both, that long BKS/BGP short AMZN trade is not looking so great (which I fortunately never made, but I could have been tempted.)

Regards, DTM

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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15119 of 21596
Subject: Re: random ideas Date: 10/15/2012 4:03 PM
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But to keep humble, I always remember how ludicrous it seemed that some upstart bookseller with no profits was actually worth more than the two profitable behemoths, Barnes and Noble and Borders, combined!! How ludicrous!!

Someone could prolly write a best-selling book about how you can c-c-c-c-crush the market in 15 hours a week by simply buying firms that:

a) have lots of optionality,

and

b) benefit from network externalities.


Avoid those that don't. Simple.



Maybe I'll do one of those $0.99 e-books....

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Author: CM001 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15123 of 21596
Subject: Re: random ideas Date: 10/17/2012 12:39 AM
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INTC: oh, the dreaded PC market. i admit i have no special insight here. but at least they don't have the terrible B/S of HPQ.

The interesting trade would be shorting INTC and going long HPQ. If HPQ and DELL are toast then so is Intel. IF INTC does good, after all HPQ have more optionality than Intel servers, then HPQ does well too because they are #1 on Intel servers for last 10+ years.

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Author: BeatleMartian Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15125 of 21596
Subject: Re: random ideas Date: 10/17/2012 9:48 AM
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CHKP: 15% FCF/EV. enough said. i freely admit i buy software companies at 15% FCF/EV with eyes closed.

huh....

I have owned for a while. Today's report -

*sales up 7.8%
*net income up 13.6% (operating up 15%)
*share count down with lots of buybacks
*75c vs. 65c
*as usual, more cash flow than they know what to do with - ytd, 613m CFFO with 4.9m CapEx (not making this up)
*BS still flush with cash and securities - 3.2b with no debt

I'm thinking - solid report.

And then I get a quote and it is now down 12% as a type this....

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Author: originalupndn Big red star, 1000 posts Old School Fool Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15126 of 21596
Subject: Re: random ideas Date: 10/17/2012 9:53 AM
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And then I get a quote and it is now down 12% as a type this....

Saw this as well. Guess they want blow out forward estimates, just gave conservative in line.

Takin' a nibble <42.

JT

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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15129 of 21596
Subject: Re: random ideas Date: 10/17/2012 10:12 AM
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guidance was not good. deferred revenue down, implying negative billings.

first time in a while, they are clearly losing share. earnings/costs looked better due to strong USD, which may reverse. they actually added 15% more headcount.

at current run-rate FCF, 50% of mkt cap will be in cash by year end 2013. but who cares when there is no growth.

i am continuing my contrarian indicator status. oh well.

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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15130 of 21596
Subject: Re: random ideas Date: 10/17/2012 10:13 AM
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i should have looked up the share holder list. Top 1 owner is Contrafund. i bet he is liquidating his position today.

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Author: BeatleMartian Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15131 of 21596
Subject: Re: random ideas Date: 10/17/2012 10:32 AM
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how are you so sure they are losing share? Revenue was up. I don't know enough about the the parties they compete against but some are small and obviously are going to grow hard and faster for that reason. Like they've suggested before, the growth is in the software updates, etc. which was up close to 13%. Deferred revenue was down in previous quarters and it hasn't always translated into slower growth or not, right?

Confused...

And why would Contrafund unload? The cash balance would mean nothing?

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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15132 of 21596
Subject: Re: random ideas Date: 10/17/2012 10:52 AM
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the adjusted billing (change in revenue - change in deferred revenue) turned negative. so what they sold this Q (revenue recognition came with a bit of delay) trailed competitors, not just the small guys but also CSCO. but maybe there is some seasonal/random movement that exaggerated the market share change.

Bad news equals sell for Contrafund. cash/PE/FCF means close to 0 to him. he already started selling in August and has probably sold more since.

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Author: BeatleMartian Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15133 of 21596
Subject: Re: random ideas Date: 10/17/2012 11:02 AM
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Bad news equals sell for Contrafund. cash/PE/FCF means close to 0 to him. he already started selling in August and has probably sold more since.

curious, what do you think of this? I don't want to dismiss anything from Danoff, but why would he feel this way and do you think it makes sense? I bot more CHKP but have a small position and feel out of my depth in understanding competitive environment. But the numbers make sense. Course, I thought they made sense 12% ago....so wondering if I'm just plain wrong here. I have started nibbling hard on DLTR and have absolutely no worries there for my planned holding period (in fact, I'm rooting for a lower price).

Thinking of Lynch's objective to catch the turn in a company's fortunes, not pick up fat FCF low EV/E companies.

thoughts appreciated...

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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15134 of 21596
Subject: Re: random ideas Date: 10/17/2012 11:56 AM
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curious, what do you think of this? I don't want to dismiss anything from Danoff, but why would he feel this way and do you think it makes sense?

Different people have different criteria/prioritize different factors on what makes a stock attractive over time frame X?

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Author: gocanucks Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15139 of 21596
Subject: Re: random ideas Date: 10/17/2012 3:57 PM
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i know better than questioning what Danoff does with his stocks. i guess to each his/her own.

on DLTR, i understand where you are coming from (they have a niche), but it is kinda interesting that both DLTR (last week) and DG (today) came out and said sales are tracking to the low end. could be a blip of course. could also be store growth/tough compares/other companies' initiatives catching up. multiple is not exactly low.

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15146 of 21596
Subject: Re: random ideas Date: 10/18/2012 11:32 AM
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at current run-rate FCF, 50% of mkt cap will be in cash by year end 2013. but who cares when there is no growth.

i am continuing my contrarian indicator status. oh well.



Still a very convincing idea. I opened a small position at $45.70, and by sheer luck, closed it at $47.25, just because I try to scale back my exposure when the general market goes up, and CHKP was the logical candidate for reducing exposure, being a position I am less familiar with. So I have been able to reestablish my .5% position at a much more favourable price ($41.50) thanks to this not very worrying report and guidance, and would certainly consider increasing it on any further weakness.

So you can add my contrarian indicator status to yours, but with a little dumb luck for once...

Regards, DTM

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Author: redrackam One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18233 of 21596
Subject: Re: random ideas Date: 9/25/2013 2:13 AM
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Book recommendation: The Man Behind the Microchip, by Leslie Berlin. Robert Noyce Biography. I liked it more than Isaacson on Jobs.

I am just finishing this book and (probably because partly I am not too smart or partly because I work in SV) didn't see a lot of insight that one could also glean from news articles about Intel.

The fact that picking technological winners is so tough is well known and confirmed by the various anecdotes in the book. For eg
a) Despite his (second) wife Ann Bowers being Apple's Human Resources VP (in 1980), and his being Jobs's mentors and Markkula's friends, Noyce still did not think Apple was going to be a success. Noyce testimony before Congress - "If I can't pick technological winners, how can we expect the US Govt to do so ?"
b) The microprocessor was really a side project that Noyce handed off to Hoff when the cost of producing multiple logic chips for a Japanese firm turned out to be prohibitive and Hoff thought that he could combine multiple of them into a single general purpose chip - which was the predecessor to the Microprocessor. Basically the book suggests that Noyce probably gave the go ahead to Hoff because he was really important to Intel (despite R&D resources being stretched at that time) and did not want him to feel the same way he (Noyce) had under Shockley which had exacerbated the defection of the traitorous eight to go and form Fairchild.
c) Noyce funded a LOT of small "shoebox" startups (he kept the investment records on little slips of paper which be put into a shoebox), none of which (except one I think) did well.

I was kind of more interested in Warren Buffet's association with Noyce (through Grinnell) but not too much insight there - "Even WB ... was willing to abandon one of his fundamental rules of investing - only put money into things you understand - in this particular instance", remarking "We were betting on the jockey, not the horse" - when he was on the Grinnell board. Also, when Grinnell wanted to sell some of Intel stock, Buffett wrote "Intel seems to me the best vehicle we have, or likely to have, to gain a quantum jump in our endowment" and so Grinnell decided to keep their position in Intel. On Noyce - "Everybody liked Bob. He was an extraordinarily smart guy who didn't need to let you know he was that smart. He could be your neighbor, but with lots of machinery in his head".

That part about options, benefits (in SV) as a way against unions is interesting - how it came about - but I think it is a well known fact now.

In general, I think my biggest takeaway was the cream of the crop (in tech) usually are the safest to bet upon - note the many startups by ex-Fairchild guys and Intel was definitely the most successful. Interestingly, AMD was also founded by an ex-Fairchild employee: salesman - Jerry Sanders. I think Bill Gates referred to a metric once "IQ per square foot or smarted people per square foot" once - something that Google is probably attempting to do now - get the smarted pHDs on the planet in one place and see what happens.

I thought the part about Arthur Rock being so successful as a VC was very very interesting. Noyce attributed it to Rock being very competitive. He had a $5million fund, $3 million was never invested and the remaining he turned into $100 million - picking big winners - Intel, Apple, Teledyne and Scientific Data systems. Actually, I was more interested in how Rock approached his investments because much of Tech investing (and VC investing especially), is about people.

Interesting to see how the Japanese gained proficiency in memory chips (they were sold the rights to the earlier ICs by Noyce in return for a 4 cent royalty per dollar of sales) and they used the knowledge to compete with American firms - similar to what Samsung is doing to Apple.

That turned out to be just a rant.

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