A Tribute To BlackBerry

From the NYT

Sheldon's T-Shirts on The Big Bang Theory

I am a big fan of the TV show The Big Bang Theory. This graphic is so interesting that I just had to post it. Thanks to the folks at Cool Infographics. Check out this link for the full details on data collection and interpretations.

HP Needs a New Way

I have a particular fondness for HP because I remember reading "The HP Way" when it first came out in 1995. The book is written by David Packard and tells the story of HP from the beginning. In the book Packard explains that he is not a big fan of the MBA degree but is more interested in the MBWA (Management By Walking Around). HP's success was built on excellent products, technological innovation, knowing the customers, and adapting to change.After reading the book, I though, "wow! what an amazing company". HP was admired by many people and many business cases were written about it. HP is after all, credited as the founder of Silicon Valley.
 
In the 2000s HP pursued an aggressive expansion strategy that involved buying big companies (the merger with Compaq in 2002, the acquisition of EDS in 2008, the acquisition of 3Com in 2009 and the buyout of Palm in 2010). With this many big deals in such a relatively short period of time, critics wondered where the synergies were coming from. Along the way, HP had a number of product issues and accounting issues.
 
Now the company is in a death spiral. The stock is now trading at a 10 year low after recently announcing a $8.8 billion write-down and poor quarterly results (see here). HP is reeling from its $11 billion purchase of Autonomy. This was a move designed to help HP move farther into software and services (something that IBM has successfully done).

Over the past 2 years HP is down almost 70%. DELL has also had a difficult past 2 years, while  MSFT is holding steady.

HP can be compared with its competitors to see how efficient it is. To calculate technical efficiency I use data envelope analysis (DEA).  DEA is a non-parametric approach to the estimation of production functions. I use three inputs (employees, total assets, total operating costs) and one output (total revenues). Data are averages over the years 2004 - 2011. For those interested in the technical details, I use the 2 stage input approach with variable returns to scale (VRS).

The DEA results are presented in the above table. Total technical efficiency (CRS_TE) can be broken down into pure technical efficiency (VRS_TE) and a scale effect. The total technical efficiency measures indicate that Apple, Google, Dell, Microsoft and Accenture are efficient since their CRS_TE measures are equal to one. Cisco and HP are inefficient. HP. for example, can reduce its inputs by 1% and still produce the same output. In the case of HP, the pure technical efficiency measure of 1 indicates that allocation of inputs to output is efficient and the inefficiencies are coming from the scale effect which measures the size of the company. HP exhibits decreasing returns to scale (RTS) which means that given its production possibility frontier it is producing too much output. Value creation under decreasing returns to scale is difficult because decreasing returns to scale means that HP needs to get smaller.

An Update on Canada's Broadband Performance

Here is an update to my previous post on broadband performance. Average broadband download speed in Canada has improved 50% from last year. This data is current through October 2012.

How Efficient is Reseach in Motion?

Watching Research in Motion's (RIMM) stock price fall over the past few years has been difficult. While RIMM gets singled out for its poor stock price performance and Apple becomes the most valuable company in the world by stock market capitalization, it is important to point out that some of RIMM's competitors have not been doing so well. Over the past year, Apple has been the clear winner, but Ericson, Nokia and Research in Motion have each underperformed.

One thing to remember about companies based on cutting edge technologies is that no company can be the leader forever. The product landscape changes. What is new today becomes common place in the future. Think about the cutting edge technology companies of 15 years ago (Microsoft, Cisco, Dell). These companies are still in business but now they are no longer considered young dynamic upstarts but rather established mature companies. In my view, handset makers are entering a more mature phase in which the explosive growth in hand sets is going  to slow considerably. A new United Nations report reveals that there are now 6 billion cellphone users in the world. That means that 86 out of every 100 people now have a cellphone.

A different way to compare RIMM with its competitors is to calculate how efficient it is. To calculate technical efficiency I use data envelope analysis (DEA).  DEA is a non-parametric approach to the estimation of production functions. I use three inputs (employees, total assets, total operating costs) and one output (total revenues). Data are for the year 2011. Samsung is omitted from the comparison because it is a huge multi-product conglomerate. For those interested in the technical details, I use the 2 stage input approach with variable returns to scale (VRS).

The DEA results are presented in the above table. Total technical efficiency (CRS_TE) can be broken down into pure technical efficiency (VRS_TE) and a  scale effect. The total technical efficiency measures indicate that Apple, Google and Research in Motion are efficient since their CRS_TE measures are equal to one. Ericsson, Motorola are Nokia are inefficient. Nokia. for example, can reduce its inputs by 29% and still produce the same output. In the case of Motorola, the pure technical efficiency measure of 1 indicates that management is efficient and the inefficiencies are coming from the scale effect which measures the size of the company. So, while Research in Motion's stock price has suffered over the past year, it is, at least by these calculations, an efficient company.

Canada's Broadband Performance

I often get frustrated by slow internet download speeds and wonder how download speeds in Canada compare with other parts of the world. Here is a chart comparing Canada's broadband performance with some other countries. Download speeds in Canada are a little below those in the US, but the real surprise is that download speeds in Canada and the US have not changed much over the past 4 years. South Korea, Lithuania. Latvia, and Switzerland are some of the countries that enjoy download speeds at least double what we have here in Canada. I view slow download speeds as a barrier to increased productivity. As more content switches to an online format, it is important to have high speed access to this content.

R&D Spending in Canada

In relation to my previous post on global competitiveness, and how important R&D spending is for global competitiveness, here is a chart showing R&D spending as a percentage of  GDP for some OECD countries.


According to the OECD (see here):
"Expenditure on research and development (R&D) is a key indicator of government and private sector efforts to obtain competitive advantage in science and technology."

As the chart shows, Canada spends less than the OECD average on R&D. Canadian spending on R&D peaked in 2001, just before Nortel Networks imploded. Since then, however, the trend has been down. In 2010, R&D expenditure as a % of GDP was 1.8% for Canada and 3.8% for Finland. The private and public sectors in Canada need to spend more on basic R&D. With the recent troubles that RIM is having I fear that private sector spending on R&D in Canada is about to take a further hit.

Canada Slips in Global Competitivness

The World Economic Forum has released their latest global competitiveness ranking. As was the case last year, Switzerland  tops the list followed by Singapore. Switzerland's top ranking is due to strong innovation performance, labour market efficiency, and a well functioning business sector. Switzerland has some of the best research institutions in the world and their is strong collaboration between the research centers and business. Switzerland has the second highest rate of patenting per capita.

Canada is ranked 14, two spots lower than last year. Canada  has slipped 5 places since 2009.Canada scores high in health and primary eduction but investment in education, research and development and entrepreneurship are weak. Since these factors are key drivers to the wealth creation process, Canadian governments and businesses would do well to invest more heavily in education, R&D, and entrepreneurship.

European countries do fairly well in this ranking which is a bit surprising given all of the debt problems in the Euro zone. Among the BRICs, China ranks 29, Brazil 48, India 59, and Russia 67.

High Frequency Trading

What does high frequency trading look like? For mere mortals, here is a link to an interesting video that shows what one second of high frequency trading looks like as it is spread out over one minute.

High frequency trading is a concern because, by some estimates, it accounts for between 50 and 60 percent of total trading market volume.

NON_CARBON BASED LIFE FORMS from arc w on Vimeo.

Global Smart Phone Sales

RIM has been heavily criticized for lagging sales on its products, but as this chart from Reuters shows, at least RIM sales of smart phones have not fallen as fast as Nokia's. RIM is ready to release some new products. Here in Canada, RIM’s new BlackBerry Bold 9900 and BlackBerry Torch 9810 are scheduled for release in the next few days.

Forget About Cost Cutting: RIM Needs to Increase Sales

Research in Motion (RIM) announced that it is cutting 2,000 jobs. Job cuts are cost cutting measures and even in the best of times, job cuts are disruptive. Cost cutting is operational. RIM needs to think strategically. What RIM needs to do is stop worrying about cutting costs and instead focus on increasing sales.RIM needs to role out its new operating system and get some cool new products in the stores for the fall.

Two of the Four Horsemen Stumble

There has been much discussion over the past two weeks about the sagging fortunes of Research in Motion (RIM). RIM's stock price took a real hit dropping from a few cents short of $ 70 US on February 18, 2011 to $25.89 on June 20. RIM's June 16 press release reported strong revenue growth between 2010 Q1 and 2011 Q11, but also reported an expected slowdown in sales through at least Q2 and possibly beyond. Expected sales slowdowns in the fast paced tech sector is not what investors want to hear. RIM's press release came at an unfortunate time, because information technology as a sector has been weak since February 2011.


RIM is one of the "New 4 Horsemen". RIM along with Apple, Amazon, and Google constitute what many to consider as the 4 essential companies of the current information technology age. For a perspective on how the stock prices of the 4 Horsemen have fared over the past five years, look at the chart below.

RIM was clearly the leader in stock appreciation up until the middle of 2008. Then the Great Recession hit and RIM's stock price fell quickly as business spending on IT and communications dried up. Notice that today, two (Google and RIM) of the four horsemen have share prices only slightly higher than they were five years ago. RIM is having a tough time right now and I expect them to pull through (see here), but investors in Google have not had much to cheer about either. To me, this looks like a transition for some information technology and communications companies from growth companies to value companies.