Most multichannel TV forecasts assume a stable industry model facing incremental changes that will play out over many years. We believe that assumptions for robust ARPU gains, higher ad sales, and a stable subscriber base are unrealistic, given high current prices, pressures on consumer budgets, and increasingly strong competition. A accelerating cycle of a growing on-line audience, increasing internet ad spend, and improving streaming content, fueled by advancing technology is a serious threat to the status quo inherent in these forecasts. While recent cord cutting has been modest, as the on-line cycle approaches a tipping point where the audience reaches critical mass, we expect the phenomenon will strongly accelerate. As a result, we remain skeptical of the long term health of multichannel TV and favor companies levered against the eventual move to an on-line distribution model.
Archive for January, 2012
- Unlike Amazon and Google, Apple cares about margins and proved it in 1QFY12
- Set up for a strong 2012 if expectations don’t get too out of hand
- A successful transition to iCloud is the key to the next phase of Apple growth
After Apple’s odd earnings miss in its September quarter, the company gave bullish commentary for the coming Holidays and investors were left wondering whether the historic pattern of offering comically conservative guidance was over. Well, it wasn’t.
Hospitals trade at a 30+% discount (’13 PE forward) to cap-weighted Healthcare and the SP500; fundamental concerns appear centered on a combination of weak volume / procedure mix, and the effect of Budget Control Act (BCA) related Medicare rate cuts in 2013
US healthcare demand has slowed for almost entirely cyclical reasons; 2010 was a 50-year low for the cyclical components of demand (per-capita ‘units’ and ‘mix’). Improvements to volume and mix are more likely than either continuation of the 50-year low or further declines; this augurs well for volume-sensitive healthcare sub-sectors generally, and hospitals specifically Read the rest of this entry »
- Google miss may portend general economic weakness, but long term position is still extremely attractive
- Strong Intel sales curious given PC weakness reported by others, we’re still skeptical long term
- Microsoft gets strength from Xbox, beats despite weak PC biz, positioned for a play for the consumer market
- IBM is IBM, playing both sides of the game and winning on execution
Four tech bellwethers reported, three beats and one miss. Google delivered sales growth of 25%, obviously strong but disappointing relative to 33% YoY growth in the previous quarter and expectations that the company would deliver more of the same. While reasons abound for the shortfall – exposure to Europe, currency issues, a drop in click-through ad pricing – the concern is that the biggest issue is a softening advertising market that could portend weakness in the broader economy. Meanwhile, profits grew just 7% in the quarter after a 26% jump in Q3, as expenses outgrew revenues by more than 1000bp. The naysayers will see these results as prima facie evidence of Google’s inability to monetize its prodigious investments and project a further downward spiral in 2012. The believers will shrug off the quarter as hanging on short term market conditions and anticipate long-term payoff for the company’s aggressive strategy.
Virtualization and “the cloud” are NOT equivalent concepts. Virtualization is a software technology that allows many users to flexibly and securely share a computing resource. It can be implemented within a single private enterprise data center, or by a public host with a distributed network of Internet attached shared data centers. It is the latter example that is typically called “the cloud” and the large-scale providers offering this service have very different technology needs and buying habits than do enterprise IT departments. As enterprises shift focus from the virtualization of their own data centers, through web connecting them as a “private cloud”, and onto public cloud hosts, so will the basis of competition for most IT vendors. With incremental demand growth coming from public cloud hosts, IT hardware markets will commoditize, commercial infrastructure software vendors will lose share to self-supported open source solutions, and applications will see the rise of new cloud optimized rivals.
- YouTube keynote highlights the virtuous cycle of growing content, viewers and ad dollars
- Connected TV will be a battle royale
- Things I liked on the floor – OLED TVs, Dish Networks’ Hopper, Chinese smartphones, Android tablet proliferation, Windows 8, Toy helicopters
- Things I didn’t like on the floor – Me too Windows 7 ultrabooks, closed architectures for connected cars, Samsung Note, 3D TV
The last keynote for CES 2012 was delivered by Google YouTube head of global partnerships, Robert Kyncl, and featured a round table amongst an eclectic group of industry vets, including the creator of CBS’s CSI franchise, the CEO of Machinima (the wildly popular gaming channel on YouTube), a marketing executive from T-Mobile (representing ad buyers), an advertising industry executive, and Google’s VP of Sales, Lucas Watson. The prepared remarks rattled off statistics that should not have been surprising to those paying attention to the meteoric rise of on-line video but nonetheless appeared to shock fellow conference attendees sitting around me. YouTube serves videos to 800M people each month and is currently at a monthly run rate of 3 billion hours of video. Doing the math, Kyncl noted that it amounted to 30 minutes of video per month for every human on the face of the earth, or more importantly, 4.75 hours for each of the active users.
- Intel has 2 Medfield customers – yawn
- Auto makers promise consumer electronics that are not obsolete when you drive them off the lot
- FCC Chairman Genachowski is frustrated with Congress, but expects more spectrum soon
The only suspense at Intel CEO Paul Otellini’s Tuesday night keynote was which Smartphone manufacturer executives would appear on stage to pledge support for Intel’s Medfield mobile solution. The answer was Lenovo’s Liu Jun, who was pulling double duty after appearing at Qualcomm CEO Paul Jacobs’ keynote earlier in the day, and Motorola Mobility’s CEO Sanjay Jha. Lenovo will produce the first Medfield smartphone, already dubbed the K800, for delivery in China for the second half of 2012. (N.B. Lenovo also pledged to deliver the first smart television based on Qualcomm’s Snapdragon processor in China on the same timetable.) Motorola’s commitment is less concrete, but involves “multiple devices, over multiple years” according to Jha.
We had generally expected brand drug pricing to decelerate into 2012, but the January price trend is fairly convincing evidence that we simply got this wrong – real pricing gains for brand drugs are continuing apace
As we’ve shown previously, brand drug pricing tends to decelerate into the primary seasons (i.e. now) of general election years, particularly when prices grew in real terms in the pre-election year (as they plainly did in ’11, Exhibit 1). What’s different this time is the extent to which the brand drug subsector depends on real pricing for revenue growth (Exhibit 2). Not only are pricing actions a whole number multiple of US revenue growth, the companies also are under rising sales pressure as EU conditions weaken. This level of need presumably explains the industry’s continued real price growth into the election season Read the rest of this entry »
US Healthcare Demand Slow for Cyclical (i.e. Temporary) Reasons; Volume-Sensitive Names are Undervalued
From 1960 to 2007 average per-capita ‘units’ and ‘mix’ of care (which we follow using an aggregate measure termed ‘elasticity/mix’) grew 2.2% (real, per-capita) annually, then fell 40bp each year from 2008 through 2011, reaching a 50-year low in 2010
Changes in per-capita elasticity/mix are starkly cyclical, and account for the entirety of the post-2007 fall in US healthcare demand. The fall in per-capita ‘units’ of care (e.g. physician visits & acute care admissions) appears to have been more important than any change in the ‘mix’ of care Read the rest of this entry »
- Microsoft dog and pony emphasis on Metro as a unified interface suggests they “get it”
- Consultant led panel on “over the top” TV suggests that many companies don’t “get it”
- C/Net names “The Ecosystem” as the next big thing – we obviously agree
- BIG battle brewing over who manages consumer access to internet based content
Reportedly, there are 140,000 people here at CES in Las Vegas, and I estimate that at least 5,000 are technology bloggers. In hopes that I can rise above the chatter, here is my take on day one, which really began with Steve Ballmer’s keynote last night. As usual, there was the de rigeur celebrity drop in – this time, Ryan Seacrest, who really does have too many jobs – and the obligatory demo flub – another voice recognition error, at least they could have been original. Given that Microsoft had no real announcements for the show, Ballmer covered familiar ground as he methodically worked through his consumer end markets. The emphasis was on the Metro user interface, common to Windows Phone, the upcoming Windows 8 and in the near future, X-Box. Even though the operating systems in each of these cases is different, the user experience is tied together via Metro, and Microsoft is endeavoring to assure application continuity across the platforms as well, meaning, if it works one way on a Windows Smartphone, it should work the same way on a Windows 8 tablet or ultrabook. This makes a lot of sense, particularly if Microsoft can create common APIs across the platforms to minimize the burden for developers.