Street Speculator

The SPEC’s has just figured out the key to grow the U.S. economy. The U.S. needs to promote Engineering and Science disciplines to our students at a younger age. The promotion needs to be swift, focused, and calculated. And more important than anything else, the promoters need not be “failed lawyers” (We meant to say Politicians). Ironically, one of the SPEC’s happens to be an attorney!

What do they know anyhow. The last time we checked, and correct us if we are wrong, there are no former Medical Doctors, Engineers or Scientists (Any discipline in Engineering and Science)in either Congressional body. There are also no Economists either. Congressmen and women basically listen to whatever the lobbyists tell them, grab a microphone and disperse this information to the American public.

Get back to the fundamentals. Yes, the economy is not doing so well, BUT only in certain sectors (Financial, Retail, Automotive, and Airline industries). TECH, however, is booming.

Most U.S. based tech companies are investing billions of dollars into new Research & Development centers in Asian nations (Which nations also happen to graduate 60% more Science and Engineering degree disciplines than does the U.S.). These companies include Intel (Symbol: INTC), IBM (Symbol: IBM), Cisco Systems (Symbol: CSCO), GOOGLE (Symbol: GOOG) and Microsoft (Symbol: MSFT). When you get the opportunity, go to the website of these companies and look at the number of technical jobs they have available; positions they CANNOT fill because of a lack of qualified candidates.

The balance sheets of these companies are a dream come true to any active investor. Ignore the low stock prices. Stock prices always fluctuate. Plus, these companies would survive if their stock were trading at $1/share. Look at these balance sheet numbers:

Pharmaceutical/Medical Group:

Pfizer (Symbol: PFE)  $26 billion in cash

Johnson & Johnson (Symbol: JNJ)  $13 billion in cash

Merck & Co. (Symbol: MRK)  $9.9 billion in cash

Tech Companies:

eBay (Symbol: EBAY)  $4 billion in cash, NO DEBT

Google (Symbol: GOOG) $12 billion in cash, NO DEBT

Microsoft (Symbol: MSFT) $21 billion in cash, NO DEBT

Need we say more! Remember, these are not “DOT-COM” companies.

Not that it matters one bit but China will control more than our financial markets in the near future (The People’s Republic of China is one of the largest purchasers of U.S. Treasury Bonds). They have the power to also control a larger portion of the U.S. economy through innovation and production. With the high number of engineers, the number of U.S. patents from Chinese enterprises is sure to increase as well.

Conclusion: Science and Technology education needs to be taken seriously. The popular social networks and electronic products we all love were created by future SCIENTISTS and not solely Entrepreneurial minds.

    vs.    

GOOGLE (Symbol: GOOG) and Microsoft (Symbol:MSFT) have been battling for Internet supremacy for the past 4 to 5 years. Google leads, or rather has the higher percentage in the Internet search market. Microsoft owns a monopoly in the computer operating systems with its Windows products and controls the lead in the Internet browser market with the Internet Explorer. Google, although 10 years young and counting may grab a large share of Microsoft’s browser %.

The Internet browser battle began only a few days ago. Google released a beta version of its new Internet browser, GOOGLE CHROME. Is this GOOGLES’ attempt to control the Internet?

Microsoft spends about $5 billion/year in Research and Development (R&D) but they have not produced anything sexy or iPhonish in years. The closest they have come is with the XBox. However, the components they use to design the machine are so expensive that Microsoft has not yet made a profit on this gadget.

The really interesting thing about this new 2.0 war for Internet supremacy that it has occurred before. Microsoft vs. Netscape, EXCITE, GO.com, etc… These companies are now history. GOOGLE, if successful will not completely eliminate Microsoft (Microsoft has too much cash on its books), but they could make them irrelevant.

On the other hand, GOOGLE is growing at an alarming pace. History tells us that the larger a company grows and expands the more bureaucratic it becomes, like government. It then ceases to innovate (Ex. AT&T, GE, Cisco Systems). Then it uses acquisitions to compensate for its stagnation of innovation. CASH then becomes the new king of Innovation.

In the mid-90’s, the TECH BUBBLE consisted of anything with the words “dotcom” at the end.

The new TECH BUBBLE is any social networking platform. Facebook, Digg, Twitter, Ning, etc…

These companies, to their credit, generate more traffic than anything other web medium. The problem lies in their ability to, or lack thereof to monetize their web traffic ($$$$$$$$).

It seems as every social networking site initially uses the Google AdSense program, where they split revenue with Google when site visitors clicks on one of the advertisers links. But with the social networking sites, most users are there because of the ability to communicate with friends and organizations. Very little attention goes to the ads alongside web entries (When was the last time you were on Facebook and clicked on one of the ads along the left column?)

The bubble will be felt by the venture capitalists (VC’s) funding these companies and not the investing public as before. (So, your 401K’s for now are safe) The VC’s invest with the expectation of cashing out their interest when the company goes public. However, the IPO (Initial Public Offering) market stinks right now with the credit crisis/crunch and all. Plus, any post 1995 tech company attempting to go public with no revenue (dotcom or not) will not draw very much, if any investor interest. Therefore, the VC’s will be playing a longer than usual waiting game with equity trapped into the speculation of a company’s worth.

The only valuation of a social networking company we have to date is that of Facebook. Microsoft invested $240 million into the company for a 1.6% interest, which then values Facebook at $15 billion.

If you can guess where the next social networking meal ticket will come from, let the SPECULATORS know.

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Remember this: Google purchased YouTube for over $1 billion only a few years ago. It has yet to realize a significant return on its investment although, and according to Google CEO Eric Schmidt, that there are over 10,000 videos uploaded to YouTube every minute.

Never would I imagine writing a story calling Microsoft (Symbol: MSFT) a DINOSAUR. What happened to the innovation?

It seems that Microsoft is replicating the trend of other companies in becoming so big and so quick that they have lost their unique edge.

I am all for growth. Growth is extremely healthy. However, I believe that internal growth is more beneficial than growth through acquisitions. Growth through acquisitions gives the impression that an organization has lost some flair they may have had as a start-up.

Microsoft probably has the best looking balance sheet of all publicly traded companies. $21.17 billion dollars in cash AND $0 DEBT. Financial reports have Microsoft generating over $1 billion/month with sales from the Office Suite and the Windows operating system alone.

But somehow, somewhere, Bill Gates, Paul Allen, and Steve Ballmer abandoned their original core principles. The trouble started with the decision to eliminate Netscape, creator of the Netscape Navigator browser. Microsoft told computer manufacturers that they would charge them a higher price for incorporating Windows if the Netscape Navigator was included with desktop. Those that did not incorporate the Netscape browser was charged a lower price for windows. Also, Microsoft would allow the computer manufacturers to include the Microsoft Internet Explorer browser for free. This behavior was deemed anti-competitive and was the central reason the U.S. government pursued Microsoft in court for Antitrust violations. Netscape filed a subsequent civil suit as well. This suit was settled for a little over $700 million after Netscape was purchased by what was then known as AOL Time Warner.

Microsoft’s behavior in this matter set a pattern that would continue. Their central focus was to eliminate the competition or purchase them. Microsoft became a follower instead of the leader, or trend setter. Analyze this chart and see if you agree with us:

COMPETITION                                             MICROSOFT’S ANSWER

Sony- The Playstation                                               XBOX

Apple- The iPod                                                         Zune

Google- Search Technology                                       Acquire Yahoo?

The only innovative product I can remember Microsoft producing within the past 10 years was the Tablet PC.

But, this gadget did not create the buzz everyone expected it would. So, where is Microsoft now?

They are trying to compete with Google in “SEARCH TECHNOLOGY”. Their internal research and development has not produced anything significant. They subsequently attempted to acquire Yahoo and before this, AOL, hoping to reduce Google’s market share in SEARCH.

The problem with Microsoft as with other companies is that the more they grow the more bureaucratic they become. This stifles growth and innovation (LOOK NO FURTHER THAN THE U.S. GOVERNMENT FOR PROOF).

StreetSpeculators.com Solution. Microsoft should split into separate divisions: Software Products and Entertainment & Consumer Products. Maybe then we would see the old Microsoft. Now, sad to say, when people think of Microsoft, they only think of how rich the Founder is and not any new and exciting products coming from Redmond, Washington.

FUTURE DINOSAURS?

Time will tell

Oracle- Purchased around 37 companies within the past 5 years

Cisco Systems- Recent purchase of Scientific Atlanta & small tech co.’s

Google- purchase of YouTube, Blogger, and huge AOL investment