Category Archives: Cloud Computing

Amazon's cloud unit expands in China, with new partner in Ningxia

BEIJING (Reuters) – Amazon.com Inc said on Tuesday it was expanding its cloud computing business in China with a new local partner, aiming to win share in an increasingly crowded and highly regulated market.

FILE PHOTO: Amazon.com’s logo is seen at Amazon Japan’s office building in Tokyo, Japan, August 8, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Amazon Web Services (AWS) will start offering customer services based out of the northwestern Chinese region of Ningxia in partnership with local firm Ningxia Western Cloud Data Technology Co Ltd (NWCD), the U.S. firm said.

“AWS has formed a strategic technology collaboration with NWCD, and NWCD operates and provides services from the AWS China Ningxia Region, in full compliance with Chinese regulations,” Amazon said in a statement.

The move comes a month after AWS said it will sell the hardware assets of its Beijing-registered cloud unit for up to 2 billion yuan ($302.06 million) to its partner Beijing Sinnet Technology Co Ltd to comply with new regulations.

China launched strict new regulations in June that require foreign firms to store data locally and outsource hardware elements to local partners.

Cloud services have become a crowded and competitive field in China in recent years, with domestic companies, including Alibaba Group Holding Ltd, opening dozens of new data centers in just the past year.

Chinese firms account for roughly 80 percent of total cloud services revenue in China, according to Synergy Research Group.

U.S. companies Amazon, Apple Inc and Microsoft Corp must jump over hurdles to compete, facing new surveillance measures by China and increasing scrutiny of cross-border data transfers.

The infrastructure for the new data centers in Ningxia was built by NWCD affiliates using specifications provided by AWS, an Amazon spokesman told Reuters.

While the AWS services offered in China are similar to services offered elsewhere, they are separated from other regions globally and customers enter agreements with Sinnet and NWCD rather than with AWS, Amazon said.

(This story has been refiled to correct paragraph two to show Ningxia is a region, not a city. Specifies Ningxia is in northwest China.)

Reporting by Cate Cadell in Beijing and Jeffrey Dastin in San Francisco; Editing by Muralikumar Anantharaman

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Mint 18.3: The best Linux desktop takes big steps forward

I run many operating systems every day, from macOS, to Windows 7 and 10, to more Linux desktop distributions than you can shake a stick at. And, once more, as a power-user’s power user, I’ve found the latest version of Linux Mint to be the best of the best.

Why? Let’s start with the basics. MacOS has been shown to have the worst bug I’ve ever seen in an operating system: The macOS High Sierra security hole that lets anyone get full administrative control. Windows, old and new, continues to have multiple security bugs every lousy month. Linux? Sure, it has security problems. How many of these bugs have had serious desktop impacts? Let me see now. None. Yes, that would be zero.

Oh, and by the way, in using Linux desktops for over 25 years now, I have needed to use an anti-virus program because, for all practical purposes, there are no Linux viruses. Yes, I know you’ve read stories saying they exist. And, they do, but you must actively try to infect your system to get them.

Then, there’s ease of use. Despite ancient FUD, Linux, especially the new Linux Mint 18.3 but really all current Linux desktops, are simple to use. Mint’s Cinnamon interface uses a classic Windows, Icons, Menu, and Pointer (WIMP) interface. If you’ve ever used Windows XP, you’ll feel completely at home.

Want to install an application? Sure you can use shell-based tools such as apt-get on Debian-based Linux distributions or yum on the Red Hat family of operating systems. But, ordinary desktop users need not bother with these. Instead, they can just use an app store approach such as Mint’s Software Manager. You search for your app, you point, you click. Not very hard is it?

Want to update your system to a new one? With Macs and Windows, that can take hours. With Mint, it took me less than an hour and most of that was waiting for the download to complete. Compare that with Windows, where as a friend recently pointed out, just updating a Logitech mouse driver took about 10 minutes.

Linux desktops are also fast even on older hardware. High Sierra runs as fast as pouring maple syrup on a cold day on my maxed out Mac Mini with its 3.0GHz dual-core Intel Core i7 CPU and 16GB of RAM. Windows 10, on my Dell XPS 8700 with a 3.6 GHz Intel Core i7-4790 processor and 16GBs of memory, runs fast enough to be useful, but fast is not the word I’d use to describe its performance. Mint 18.3, on my 2011 Dell XPS 8300 with its 3.4GHz quad-core Intel Core i7 processor and 8GBs of RAM, charges along like a champ. I wouldn’t waste my time trying to run Windows or macOS on a six-year-old box.

But enough about Linux vs. the others, let’s talk about Linux Mint 18.3.

linux-mint-18-3-desktop.jpg

Linux Mint 18.3 is easy to use and works like a charm

sjvn

If you’ve never installed Mint before, you can download its ISO files from the Mint Downloads. There are still both 64-bit and 32-bit versions for the Cinnamon desktop, but unless you’re running a really old system, just down the 64-bit version. Then burn the ISO image to a DVD using a tool such as ImgBurn. Or, you can put it on a bootable USB stick with a program like Rufus.

Then, boot your computer using the DVD or stick and make sure Mint works with your computer. If it does — and I’ve never met a PC it wouldn’t work on — you can then install it. For further details see my How to install Linux Mint on your Windows PC article.

The one possible problem is if your PC has a newer NVIDIA graphics. In that case, for a better display, use NVIDIA’s own drivers rather than the open-source ones provided by NVIDIA. To do this, take the following steps:

  • Run the Driver Manager
  • Choose the NVIDIA drivers and wait for them to be installed
  • Reboot the computer

If you’re already running an earlier version of Mint 18, click on the Refresh button in Update Manager to check for any new version of mintupdate and mint-upgrade-info. If there are updates for these packages, apply them. Then, refresh the packages and install any updated package. Finally, launch the System Upgrade by clicking on “Edit->Upgrade to Linux Mint 18.3 Sylvia”. Within an hour, you’ll be running the latest, freshest version of Mint.

This version is based on Ubuntu 16.04.3. Like 16.04, it’s a long-term support version. Mint developers will support it until April 2021. This distribution is based on the 4.10 Linux kernel.

Linux Mint 18.3 Software Manager

Linux Mint 18.3 Software Manager

Anyone who tells you it’s hard to install programs on Linux doesn’t know what they’re talking about.

sjvn

This version features a revamped Software Manager. It’s now more attractive than ever, much — three times — faster, and, more importantly, it makes it easier than ever to find the programs you’re searching for.

The Software Manager also supports Flatpak. This is a Red Hat software installation system. It enables you to install bleeding-edge applications even if their dependencies aren’t included with Linux Mint.

Linux Mint 18.3 comes with Flatpak installed by default and the new Software Manager fully supports it. This lets you install such programs as GNOME Games 3.26, even though these games couldn’t ordinarily run in Linux Mint since it requires the GTK 3.18 Linux toolkit.

Another new addition, which I really like, is the almost completely rewritten default BackUp program. It, as Mint points out, “is now dedicated to making a backup of your home directory, nothing less and nothing more”. Once restoring, files are placed back where they were before with their original permissions and timestamps.

It also runs in user mode so you no longer need to enter your password. The steps required to perform a backup or to restore data are much simpler. Tour configuration choices are remembered so you can repeat backups often without the need to repeat your setup instructions over and over again. This makes backing up and restoring your most important personal files easier than ever.

What about your system files and installed software? No problem! Timeshift, which makes system snapshots easy, saves everything on your system, except your personal data. It works hand-in-glove with the Linux Mint Backup Tool.

If something goes awry with your desktop, the new System Reports makes looking at your crash reports much easier. This program can also be used to get a quick look into the state of your system and software.

Mint 18.3 also comes with the newest version of Cinnamon: Cinammon 3.6. This comes with many small improvements and one truly significant one. The important new feature is it now supports GNOME Online Accounts. For me, the real win is that you can now access Google Drive and the personal cloud program OwnCloud resources directly from the Cinnamon Nemo file manager.

This lets Mint users — like macOS with iCloud and Windows users with Microsoft OneDrive — work directly with Google and OwnCloud files from Nemo. Google has promised it would integrate Google Drive with Linux since Drive rolled out in 2012. Google never kept that promise. Today, if you want to work directly with Google Drive from Linux, you need to purchase InSync.

GNOME Online Accounts looks like it could replace InSync. It doesn’t. Yes, it gives you access to Google Drive files from your desktop, but it does it by mounting Google Drive in your file system. That means every time you access it from your desktop you have to connect with it over the internet. Even with my 120MB internet connection, that can be painfully slow. What’s really needed is a local copy of your Google Drive.

Still, it gives you cloud drive access directly from the file manager and that’s still handy. It also lets you sync your Gmail and Google Calendar with the Evolution email client. Evolution happens to be my favorite email program, so that makes me happy.

Mint also includes the usual collection of handy open-source user programs. These include LibreOffice, Firefox, GIMP, for photo editing, Slack, and Pidgin for instant-messaging clients. You can also install Chrome and other programs.

Now, at this point, I usually hear hardcore Windows users complaining about not having Microsoft Office. Guess what? You can. Office Online, Microsoft’s browser-based office-suite, gives you lightweight versions of Word, Excel, PowerPoint, OneNote, and Outlook. If you really, really have to have full Microsoft Office, CodeWeavers’ CrossOver 17 for Linux now supports MS-Office 2016.

I’ve been running Mint 18.3 since it first showed up on November 27. Like its predecessors, I’ve found it to be not merely the best Linux desktop, but the best full-featured desktop of any sort. Download it now and find out why I love it so. Enjoy!

Related Stories:

Related Posts:

  • No Related Posts

AI Is Still Dumber Than a 5-Year-Old, Say Scientists

In previous columns, I’ve explained that there’s a lot of hype surrounding the incremental improvements of the decades-old programming techniques collectively identified under the marketing buzzword “Artificial Intelligence” aka “AI.” 

What’s NOT hype is that those programming techniques (pattern recognition, neutral nets, ect.) have gotten incrementally more effective than they were in the past at playing games and performing speech recognition, automated translation, and so forth.

What IS hype are the all-too-common and all-too-visible claims that AI will soon be able to perform complex tasks that involve anything resembling common sense, such as negotiating business deals, customer support and selling products.

Don’t believe me? Well, maybe you’ll believe a team of AI experts at Stanford University that is measuring the progress of AI. The press release issued last month announcing the index makes the following, startling (but not to me) admission:

“Computers continue to lag considerably in the ability to generalize specific information into deeper meaning, [while] AI has made truly amazing strides in the past decade… computers still can’t exhibit the common sense or the general intelligence of even a 5-year-old.”

As you’re probably aware, AI is very good at playing games like poker, GO, and (most famously) chess. Chess programs now play the game at a level that could reasonably be described as “superhuman.”

When it comes to anything that requires common sense, however, AI is almost helpless. To illustrate this, examine these three chess pieces carefully:

An AI program might be able to figure out (by image comparison) that the piece on the left is a knight and the piece in the middle is a queen. I say “might” because the AI program might also think that they’re simply statues or knick-knacks. 

However, even if the AI identified the two objects as chess pieces and correctly identified their rank, it could never figure out what’s immediately obvious to anyone who plays chess: that the piece on the right combines the moves of the knight and the queen.

Furthermore, without being reprogrammed by a human, no chess program could play and win a game using that piece. By contrast, a human chess player would and could immediately adapt to game play using that piece.

Here’s another example. Carnegie Mellon has a poker program, Libratus, that can play Texas Hold ’em at a tournament level and win against human opponents. This is impressive because, unlike chess or GO, poker involves unknowns.

More precisely, it contains “known unknowns” in the sense that the number of cards and their values are known but their specific position within the deck is unknown. Also, while a specific wager is unknown, the nature of the wager is within known bounds.

But what happens if we introduce unknowns that are not known to the program? If the players decided, for example, to make “suicide cards” wild or to play with a Tarot deck rather than a standard deck, Libratus wouldn’t even be able to identify a winning hand.

This is an important point because many of the wilder claims surrounding AI conflate games like chess and poker with human behaviors and institutions that are infinitely more complex.

Put simply, playing a game with pre-defined rules never requires common sense. Playing in real life always requires common sense.

For example, the co-creator of Libratus founded a firm that’s will apply the technology to “business strategy, negotiation, cybersecurity, physical security, military applications, strategic pricing, finance, auctions, political campaigns and medical treatment planning.”

Some of those applications, such as business strategy and negotiation, are unbounded human behaviors that have flexible rules that constantly change. They require common sense.

Consider: the rules for poker and Texas hold’em can printed on three sheets of paper using standard fonts. By contrast, Amazon currently lists 32,163 books on “business negotiation.” That’s a lot of complexity!

While poker seems like a good metaphor for business negotiations, such negotiations are far more complex and involve numerous “unknown unknowns.” 

For example, I heard a rumor that during the negotiations for IBM’s acquisition of Lotus Development Corporation in the mid-1990, an IBM executives displayed a loaded gun during a meeting in a conference room.

The story may apocryphal but I’ve encountered behaviors equally weird and emotion-laden, if perhaps not quite as dramatic. Unlike games, functioning in the real world requires “the ability to generalize specific information into deeper meaning.”

Which AI still can’t do and where there has been no progress or breakthroughs. 

By the way, many of the systems and applications advertised as “AI” in fact use humans, sometimes hundreds of them, as backups, according to a recent, aptly-title article in the Wall Street Journal, “Without Humans, Artificial Intelligence Is Still Pretty Stupid.”

In short, there’s a huge amount of hype surrounding AI, most of it coming from AI experts and executives who stand to profit if the business world, in general, believes that AI is a huge leap forward rather than just the repackaging of well-established tech.

Related Posts:

  • No Related Posts

Top Dividend REIT Idea For 2018, Yield 5.5%, 30-50% Upside

This research report was jointly produced with High Dividend Opportunities co-authors Jussi Askola and Philip Mause.

Introduction

The market is expensive today. The low interest rate environment has resulted in much capital flowing into the stock market, causing some equity sectors to become increasingly expensive. This is especially true for many Technology, Growth and Momentum Stocks.

This is also true for some “blue-chip” growth stocks such as Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP), Procter & Gamble (NYSE:PG), or Johnson & Johnson (NYSE:JNJ), to name just a few. These are companies that are characterized by a generally lower risk profile, a significant track record and a well-established market positioning. It is no surprise, then, that blue chips are rather expensive and that opportunities are rare.

There is no free lunch at Wall Street, and in this sense, a lower risk is supposedly rewarded with a lower risk premium and, ultimately, a lower return.

But is the market really that efficient? We doubt that. Rather, we think the market often fails to correctly assess the risk aspect by letting emotions take over fact-based reasoning. This is well reflected in how share prices of relatively stable companies keep fluctuating over a wide range over short time periods. One quarter the market feels a company is safe, just to do a complete 180 degree and change its risk premiums drastically a few quarters later.

Sometimes this is well justified, but in other cases much less so.

We feel that one company in particular that has suffered from such unwarranted change in market perception is Tanger Factory Outlet Centers (NYSE:SKT), a blue-chip REIT with solid fundamentals but with a very negative market perception.

Image result for tanger outlets logo

In less than 12 months, the share price was almost cut in half despite achieving growth in FFO, dividend, and asset value over the same time period.

Tanger ranks among the highest-quality Real Estate Investment Trusts (REITs), as it combines:

  1. A unique portfolio of assets with superior business economics.
  2. Best-in-class management with a significant track record of overachieving.
  3. Adequate balance sheet with conservative leverage ratios.

It is rare to find a REIT that incorporates above-average qualities in all 3 areas; it is even more rare to find one selling at an opportunistic valuation.

Lower-Risk, Internet-Resilient Retail Portfolio

One of the key reasons why we favor Tanger relative to other large retail REITs such as Simon Property Group (NYSE:SPG), Macerich Company (NYSE:MAC), GGP Inc. (NYSE:GGP) and Taubman Centers (NYSE:TCO) is that we prefer the risk/reward potential of outlet centers compared to regular malls.

We believe retail properties cannot all be put into the same basket when talking about risk. Some are much more affected by e-commerce than others, and it is hence crucial to identify the relatively more defensive segments.

In this sense, we consider good quality outlet centers to be more defensive than the average mall because of the lower price point of the offered goods which makes outlets more competitive with Amazon (NASDAQ:AMZN)-type companies. Everyone likes a bargain, and this is exactly what outlets are here to offer. As the CEO of Tanger likes to put it:

In GOOD times people LOVE a bargain, and in TOUGH times, people NEED a bargain.

Steven Tanger

By allowing manufacturers to directly sell their merchandise to the public, outlets are essentially cutting out the middlemen, resulting in discounted prices and unique offers that can hardly be found online.

Therefore, we believe outlet centers to be better positioned to stay relevant in a digitalized world where everything can be ordered online. Just like T.J. Maxx (NYSE:TJX) or Ross (NASDAQ:ROST), outlet centers provide a sense of treasure hunting… a shopping experience that e-commerce cannot replicate.

This is why outlets have grown in number and achieved great success. People enjoy spending an afternoon here and there walking through an open-air outlet and hunting for bargains. Regular malls, on the other hand, are unlikely to offer great bargains – making their pricing less competitive and the shopping experience less differentiated.

Don’t get us wrong – we are bullish on malls as well, and we don’t consider them to be greatly endangered by the growth of internet; we just think outlets may be even more resilient. Tanger is so confident about its pricing that it offers its shoppers an instant cash refund of the difference if they should find an item purchased at Tanger advertised for less. The Best Price Promise gives its customers confidence that they are getting a great deal each and every time they shop. Most malls just can’t compete here.

Image result for tanger best price promise

The company has understood this at an early stage and truly pioneered the market by building the country’s first outlet center. Today, Tanger’s portfolio of outlet centers has continued to expand and includes 44 outlet centers in 22 states coast to coast and in Canada.

Here are a few random pictures of Tanger outlet centers to give you a better idea of what we are talking about.

Tanger Factory Outlet Centers – Myrtle Beach:

Image result for tanger outlet center

Tanger Factory Outlet Centers – Savannah:

Tanger Outlets Savannah | I-95 Exit Guide

Tanger Factory Outlet Centers – Grand Rapids:

Image result for tanger outlet center

Tanger Factory Outlet Centers – National Harbor:

Image result for tanger outlet center

A lot can be learned from this small sample of pictures. First off, it is clear that outlets are to the most part open-air properties rather than enclosed malls. Believe it or not, this makes a pretty big difference in terms of performance and future prospects.

In a Washington Post article, Badger notes that for the most part it is enclosed malls that are suffering from the growth of e-commerce. On the other hand, open-air properties are thriving:

“Today, malls that are doing well aren’t simply those that cater to the wealthy; they’re outdoor “town centers” and “lifestyle centers” that much more closely resemble the old urban downtowns – community centers with sidewalks, public spaces, outdoor restaurants – that the original indoor mall decades ago helped kill. The mall that’s dying is, in fact, a specific kind of mall: It’s enclosed, with an anonymous, windowless exterior, wrapped in yards of parking, located off a highway interchange. It’s the kind of place where you easily lose track of time and all connection to the outside world, where you could once go to experience air conditioning if you didn’t have it at home. The mall that’s viable now is different in some notable ways that go beyond the quality of its brands: It’s open-air instead of hermetically sealed, its stores turn outward instead of in…” [emphasis added]

We are far from being so bearish on enclosed indoor properties, but this illustrates well one point: outdoor open-air properties such as Tanger’s outlets are desirable and here to stay.

Tanger properties do not only offer bargains, they offer a unique shopping experience that is very qualitative with a big selection of first-quality, in-season merchandise, for the latest fashion trends from the favorite brand names and designers. Just looking at the above pictures, we can already identify trends, with typical tenants being strong retailers such as Under Armour (NYSE:UAA), Nike (NYSE:NKE), H&M (OTCPK:HNNMY), Calvin Klein (NYSE:PVH), Ralph Lauren (NYSE:RL) and Michael Kors (NYSE:KORS), to name a few.

The point that we are trying to make here is that outlet centers do not lease space to struggling department stores, and rather, are occupied by highly desirable brands. Look at the pictures yourself… you’ll not see any Sears (NASDAQ:SHLD), J.C. Penney (NYSE:JCP) or Macy’s (NYSE:M)…

Outlets are Very Desirable… Strong Evidence in Numbers

The high desirability of outlets is very well reflected in their financial performance. This is the real evidence that the internet is not “killing outlets,” and that people (lots of them) are actively shopping at them.

Tanger has historically achieved strong internal growth, as tenants are literally lined up to lease space at its properties. The results are that first off, the occupancy has never dipped below 95% since 1993:

And that the rental increases have been very significant:

Such numbers are not reflective of a “struggling property owner,” which is the common perception of the market today. Tanger’s share price has massively sold off due to fears over the growth of e-commerce; yet, looking at the fundamental performance, we see a thriving company that is able to consistently increase rents, maintain a sky-high occupancy and grow NOI.

In addition to the attractive internal growth potential, Tanger has also a very favorable track record of external growth by new property development and acquisitions. The REIT completed two new projects last year in Columbus, OH, and Daytona, FL, and very recently opened a new outlet in Fort Worth, TX, and completed a major expansion in Lancaster, PA, this year. It is expected to generate accretive external growth, and management notes that the tenant demand for outlet space remains strong.

Being by far the largest outlet center owner of the US, Tanger benefits from a large competitive advantage, as it can utilize its massive scale to source new properties, attract tenants and access low-cost capital for its investments. This is a great risk-mitigating factor, in our opinion, but also a significant return-enhancing factor at the same time:

This chart is just beautiful. It really speaks for the superior economics and execution of the company. Over the last 20 years, Tanger has been one of the strongest performers of the entire REIT market and massively outperformed the broad REIT indexes (VNQ).

It also speaks for the best-in-class management of Tanger. No REIT can outperform so significantly without a superior team that is highly motivated and well-aligned with shareholders’ interests.

The sharp focus of management on creating shareholder value is also well reflected in the following graph:

Tanger is a constituent of the S&P High-Yield Dividend Aristocrat Index, having increased dividends every year since 1993, and this even includes the Great Financial Crisis. Moreover, the increases have historically been very substantial and even accelerating in recent years, with a CAGR of 12% in the past 3 years.

Market Inefficiency

The difference in share price performance and fundamental performance is very substantial in the case of Tanger. Despite having kept posting solid results, the share price has sold off very significantly.

In fact, the cash flow, dividends and even net asset value have kept increasing during the same time frame. Such clear divergence in pricing and fundamentals is, in our opinion, what makes Tanger so opportunistic today.

The stock did not sell off due to poor results, but rather, on fears that are yet to be realized. The market has grown increasingly worried about the future prospects of retail real estate in a world where everything can be ordered online, and therefore decided to reward retail REIT investors with higher risk premiums.

We, however, consider these fears to be misplaced to a large extent. It is clear that the growth of e-commerce creates some disruption in the retail marketplace, but this is nowhere as significant as the market is implying today.

We think the market is mistaken in the case of Tanger and is creating market inefficiency due to the following 3 reasons:

  1. The market may be overestimating the disruptive power of e-commerce against traditional retailing. We believe retail properties are attractive assets to our society, and that their utility is not in danger. It is clear that e-commerce will keep on growing and certain tenants will suffer. Names including Sears, Macy’s and J.C. Penney may even disappear. That said, retail REITs are not retailers, they are landlords. If tenants vacate, the REITs can replace them with other ones that may be more resilient to e-commerce. Some of the large tenants that we know today will go bankrupt, but others will come replace them. It is just a part of retailing.
  2. The market seems to put Tanger in the same basket as other mall REITs despite not owning malls but outlet centers, which differ in their risk profile. As we noted earlier, we believe outlet centers have high staying power in a digitalized world, perhaps even more so than malls. Outlets are resilient due to their “value orientation” and the “treasure hunting” feeling that they create. It leads to a differentiated and more competitive shopping experience, reducing risks along the way.
  3. The market may also fail to realize that Tanger has no exposure to department stores. Not all retailers are created equal, and while some are greatly affected by the e-commerce, others are doing just fine. Today, for the most part, it is really the department stores that are struggling, but this hides a great majority of retailers which continue to perform well in a digitalized world.

This last point is especially evident in that Tanger has shown strong price correlation with department store retailers such as Sears, Macy’s and J.C. Penney. When such retailers sold off on poor results, so did Tanger, often by up to 5% in a single day. This makes no sense, and yet, it is exactly what has happened.

We conclude that the market is reacting to emotions rather than reasoning based on real facts, creating market inefficiency in the share pricing. The emotions are tied to the fears over certain struggling tenants, but the facts show that the occupancy, sales per sq. ft., NOI, FFO, dividends are all at or close to record high levels. Most importantly, Tanger does not have any exposure to the struggling department stores. These are the facts.

Tax Reform Plan to Benefit Retailers

The Wall Street Journal recently ran an article after the Senate tax bill passed, and in the article was a table comparing the House and Senate bills side by side, and the 20% expected corporate tax rate stood the test of both Houses of Congress.

The drop from an effective corporate tax rate of 30-35% currently to an expected 20% will be a big win for retailers or companies with the majority of revenues in the US and will push 2018 Earnings Per Share estimates up sharply when it happens.

The current negative perception for retail companies and stocks (including Retail and Mall REITs) may not last long and could easily change investors’ perception when these companies start posting better-than-expected earnings reports.

Bargain Valuation Results in Strong Risk/Reward Outcome

For a blue-chip name, Tanger has lots of value to offer to investors today. Despite being one of the highest-quality REITs out there, it trades at a large discount to peers and broad markets.

The company is currently expected to earn $2.54 in FFO per share in 2018. Currently trading at $25, we calculate an FFO multiple of about 9.8 times, which is significantly discounting the intrinsic value of Tanger, in our opinion. REITs trading at such low FFO multiples typically are affected by some sort of issues, such as conflicted management, a low-quality portfolio or excessive leverage. In the case of Tanger, it is quite the opposite. All fundamentals check out, and the REIT did not miss a dividend payment even during the financial crisis.

NAREIT includes Tanger in the Shopping Center peer group, but we believe the best peers are the Class A mall REITs. Simon Property Groups sells for 12.8 times, Taubman Centers at 12.1 times, Macerich at 13.3 times and GGP at 13.3 times expected 2018 FFO. We consider all the mentioned names here to be widely undervalued by the market, and yet, Tanger trades at a large discount even to them.

Compared to the broad REIT market which trades at about 19 times FFO, it appears to be a great bargain as well. Simply put, Tanger is an above-average quality REIT selling at a sizable discount relative to many lower-quality names.

The 3rd Quarter Performance Remains Strong

As long-term oriented investors, we do not put too much emphasis into the appraisal of quarterly results, which may have some earnings fluctuations. We usually prefer to look at yearly results.

Nonetheless, here are what we consider to be the main highlights of the last quarter:

  • Despite being affected by the hurricanes in August and September, with eight centers being closed for a total of 22 days during the quarter, Tanger still managed to beat consensus estimate for this quarter’s AFFO and raised its year-end occupancy guidance to a range of 96.5-97%.
  • Hurricanes cause a significant reduction in traffic during and after the storm, leading us to believe that Tanger would have posted extremely favorable results if there had not been any hurricane.
  • Portfolio NOI, which includes NOI for non-comparable centers, increased 7.9% throughout the consolidated portfolio during the first nine months of 2017 and 3.8% during the quarter. This is very significant when you consider how pessimistic the market is. Again, this is proof to us that the market perception does not coincide with facts.
  • Tanger completed a $300 million, 10-year bond offering with a 3.875% interest rate, which it used to redeem $300 million of 6.125% debt that was due on June 1, 2020. This transaction, in addition to a few others, will increase cash flow by about $6 million annually and AFFO available to common shareholders by about $0.06 per share on an annualized basis.
  • The company repurchased 1.9 million of its shares during the year at a weighted average price of $25.80 per share, for a total consideration of $49.3 million, most of which was funded by asset sales. This leaves $75.7 million remaining under its $125 million of share repurchase program for future periods.

The takeaway for us is that our original thesis remains intact. Nothing dramatic has changed since July that would force us to reconsider our opinion. On the contrary, the news is overwhelmingly positive, and therefore, we remain very confident in our thesis.

12-Month Price Target – $32 / share

We believe SKT should trade at similar valuations to Simon Property Group at 12.8 times FFO, Taubman Centers at 12.1 times FFO and Macerich at 13.3 times FFO. At 12.5 times FFO, SKT would trade at roughly $32/share, or 27% higher from here. A $32 price target within 12 months is not unreasonable, as SKT traded above $42/share in 2016.

Readers should note that the entire Retail/Mall sector has taken a hit recently, including SPG, TCO, MAC and SKT, due to general negative feeling about the sector. We believe the sell-off is overdone, and that the average valuations for all the sectors are likely to move higher in 2018 to levels above 15 times FFO. At 15 times FFO, SKT would trade at $38 (or 50% higher from here). This is our longer-term target for SKT, which could be achieved in 2019.

Final Thoughts

What is the right recipe for achieving good investment success? Some would say a solid track record, others good growth prospects or simply an extraordinarily low share price combined with share buy backs and/or a high yield.

With Tanger, you pretty much get it all in one stock. It is a high-quality firm, as measured by its superior assets, best-in-class management, solid track record and adequate balance sheet. Moreover, it is a Dividend Aristocrat that has increased its dividend each year since its IPO and is expected to continue doing so. Finally, it is being offered at a deeply discounted valuation despite strong fundamental performance, and company management is aggressively buying back its own stock.

What else could one really ask for?

This is why we consider Tanger to be one of the best high dividend opportunities in the market today.

If you enjoyed this article and wish to receive updates on our latest research, click “Follow” next to my name at the top of this article.

About “High Dividend Opportunities”

High Dividend Opportunities is a leading and comprehensive dividend service ranked #1 in dividends on Seeking Alpha and is dedicated to high yield securities trading at attractive valuations. It includes a managed portfolio targeting 7-9% overall yield and a selection of the best high-yield Master Limited Partnerships, BDCs, U.S. Property REITs, Preferred Shares and Closed-End Funds. We just launched our new “Portfolio Tracker,” which is a best-in-class tool for income investors to track their dividend investments. For those interested, we have launched a video, which features the functionalities of our Portfolio Tracker. To watch the video, click HERE.

The Portfolio Tracker is free for all subscribers. We invite readers for a two-week free trial currently offered by Seeking Alpha to have a closer look at our investment strategy.” For more info, please click HERE.

Note: All images/tables above were extracted from the Company’s website, unless otherwise stated.

Disclosure: I am/we are long SKT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Related Posts:

  • No Related Posts

Alibaba redraws retail fault lines with bricks-and-mortar push

HANGZHOU, China (Reuters) – In a small village shop near the eastern Chinese city of Hangzhou, store owner Lu Qiwei uses his smartphone to place orders to refill stocks of instant noodles, rice and drinks.

FILE PHOTO: A sign of Alibaba Group is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017. REUTERS/Aly Song/File Photo

Lu, 61, says he didn’t own a phone two years ago, but he’s now one of 600,000 people using a supply chain app made by e-commerce giant Alibaba Group Holding Ltd (BABA.N), aimed at drawing millions of Chinese mom-and-pop stores into its orbit.

The app is one part of a multi-billion dollar drive by Alibaba to extend its dominance of online shopping into physical stores, and build a data fingerprint for every consumer in China, where 85 percent of retail sales are still made offline.

“We’re working to make the net in the sky and the net on the ground,” CEO Daniel Zhang said last month after Alibaba took a $2.9 billion stake in top grocery chain Sun Art Retail Group Ltd (6808.HK). “We will cover all consumers seamlessly.”

Alibaba’s strategy echoes Amazon Inc’s (AMZN.O) $13.7 billion deal this year for organic offline grocer Whole Foods Market Inc – but with a twist.

China’s fragmented market means Alibaba is spreading itself wider and thinner, hooking an array of mall operators and stores to its mobile payment, logistics and inventory management tools.

Alibaba said it had no immediate comment on how the two companies’ strategies compare.

Over the past two years, Alibaba has acquired major stakes in big box retailer Suning Commerce Group Co Ltd (002024.SZ), Lianhua Supermarket Holdings Co Ltd (0980.HK) and Intime Retail Group Co Ltd (INTIF.PK).

It all adds up to a vital – but expensive – gamble as Alibaba looks to maintain rapid growth and meet huge investor expectations even as the broader online retail market slows. Alibaba shares have more than doubled this year.

“It definitely needs to be a priority for Alibaba,” said Jason Ding, partner at Bain & Company’s Beijing office, adding it would help the firm tap an older demographic that prefers to shop offline, and cut reliance on internet sales.

FOOT SOLDIERS

Alibaba’s offline push gives it reach and influence over China’s broader retail market. Its Tmall and Taobao stores have upended e-commerce in the market, and ties to many of the top bricks-and-mortar chains extend that influence offline.

The push would add at least thousands of supermarkets and malls, and potentially millions of small local stores. Amazon’s Whole Foods Market has about 500 outlets in the United States and UK.

Despite overseeing a mass of offline sale points, analysts say Alibaba still has to piece them together – integrating data, managing personnel and protecting consumers’ privacy.

“These are areas Alibaba doesn’t necessarily have amazing expertise in, they just happen to have really good access to data and really good connections with brands,” said Ben Cavender, Shanghai-based principal at China Market Research.

Getting shop owners on board takes resources and time.

Behind Alibaba’s Ling Shou Tong supply chain app is an army of some 2,000 foot soldiers, who work purely on commission to convince store owners to use the app, the firm says.

The workers, called ‘chengshi paidang’ – or city partners – train at Alibaba and pay a 3,000 yuan ($454.47) deposit and a 3,000 yuan annual platform fee to act as salespeople in small cities, earning a commission on products sold via Alibaba apps.

And there are logistical hurdles, said Yu Wenze, 21, who worked as a city partner in a rural area of Shandong province.

“First, awareness of the technology is too low and the replacement cycle for goods is too long. Also, the logistics aren’t good enough yet. We have to commit to next-day delivery if the shop ordered before 4.00 p.m., but in most cases we can’t do it.”

Alibaba’s efforts are further complicated by questions over ownership of individuals’ data, as it extends its offline network into highly varied offline environments.

“They need that personal information in order to create more targeted offline stores, and all of that will require additional data to be shared across different locations,” said Bain’s Ding.

“There are a lot of new rules that need to be defined if they want to strike the right balance.”

MIXED IMPACT

Store owners were mixed about the impact on their business.

“They give us storefront decorations and come out to give in-store training and other help,” said one store owner in eastern Hangzhou, who converted his shop to an official “Tmall Store”. He didn’t want his name used as he’s not authorized by Alibaba to speak to the media.

The store is part of a drive launched in August to transform 10,000 convenience stores outside China’s major cities into Tmall-branded stores within four months.

Near the shop’s till, goods have digital price tags that change to match online prices. Outside, Alibaba’s Tmall mascot – a black cat – looms over the shop front.

On the top floor of an Intime department store in downtown Hangzhou, Alibaba’s IKEA-like “Tmall Home Selection” uses electronic tags that allow shoppers to browse sofa cushions and vases before paying online and getting goods delivered.

On a recent Friday afternoon, the store was quiet.

“People still buy in the store… but the concept is still very new,” said a saleswoman who declined to be named. “It’s empty because people are working right now, but they can always buy online.”

Back in his store, Lu is quietly happy with his new system, which he says has cut his costs by knocking local re-sellers out of his supply chain. Customers can now also pay more easily on their smartphones with Alibaba-linked Alipay.

“Now we all work for Alibaba,” he said.

Reporting by Cate Cadell in BEIJING, with additional reporting by Sijia Jiang in HONG KONG; Editing by Adam Jourdan and Ian Geoghegan

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Alleged Cyber Crime Kingpin Arrested in Belarus

One of Eastern Europe’s most prolific cyber criminals has been arrested in a joint operation involving Belarus, Germany and the United States that aimed to dismantle a vast computer network used to carry out financial scams, officials said on Tuesday.

National police in Belarus, working with the U.S. Federal Bureau of Investigation, said they had arrested a citizen of Belarus on suspicion of selling malicious software who they described as administrator of the Andromeda network.

Andromeda is made up of a collection of “botnets”, or groups of computers that have been infected with viruses to allow hackers to control them remotely without the knowledge of their owners, These networks were in turn leased to other criminals to mount malware or phishing attacks and other online scams.

Swedish-American cyber security firm Recorded Future said they have “a high degree of certainty” that the arrested Belarussian is “Ar3s”, a prominent hacker in the Russian speaking cybercrime underground since 2004, who the firm has identified as the creator of the Andromeda botnet, among other hacking tools.

“Andromeda was one of the oldest malwares on the market,” said Jan Op Gen Oorths a spokesman for Europol, the European Union’s law enforcement agency. It estimated the malicious software infected more than 1 million computers worldwide every month, on average, dating back to at least 2011.

Although authorities in Belarus declined to name the suspected hacker and Europol and the FBI declined to comment, the firm Recorded Future identified Ar3s as Sergei Yarets, a 33-year-old man living in Rechitsa, near Gomel, the second largest city in Belarus.

Reuters could not reach Yarets via phone or social media.

Yarets is identified on LinkedIn as technical director of OJSC “Televid”, a television broadcaster in southeastern Belarus.

A colleague at the company contacted by Reuters said Yarets had been arrested but declined to comment further.

A source at a government agency involved in the investigation said that the arrested hacker behind Andromeda was Yarets.

The Belarus Ministry of Internal Affairs in Minsk said officers had seized equipment from the hacker’s offices and he was cooperating with the investigation.

Information about the operation has been gradually released by Europol, the FBI and Belarus’s Investigative Committee over the past two days. No further arrests have been reported.

Cyber crime wholesaler

The shutdown of the Andromeda botnet, announced on Monday, was engineered by a taskforce coordinated by Europol which included several European law enforcement agencies, the FBI, the German Federal Office for Information Security and agencies from Australia, Belarus, Canada, Montenegro, Singapore and Taiwan.

The police operation, which involved help from Microsoft and ESET, a Slovakian cyber security firm, was significant both for the number of computers infected worldwidew and because Andromeda had been used over a number of years to distribute scores of new viruses.

Belarus authorities said the man they arrested charged other criminals $500 for each copy of Andromeda he sold to mount online attacks, and $10 for subsequent software updates.

Microsoft said Andromeda charged $150 for a keylogger to copy keystrokes to steal user names and passwords. And for $250, it offered modules to steal data from forms submitted by web browsers, or the capacity to spy on victims using remote control software from German firm Teamviewer.

German authorities, working with Microsoft, had taken control of the bulk of the network, so that information sent from infected computers was rerouted to safe police servers instead, a process known as “sinkholing.”

Information was sent to the sinkhole from more than 2 million unique internet addresses in the first 48 hours after the operation began on Nov. 29, Europol said.

Owners of infected computers are unlikely to even know or take action. More than 55 percent of computers found to be infected in a previous operation a year ago are still infected, Europol said.

Related Posts:

  • No Related Posts

Why China’s ‘Copycat’ Image Is Beginning to Fade

Neil Shen knows a thing or two about what makes a successful entrepreneur.

Shen, who started his career as an investment banker, co-founded Chinese travel services provider Ctrip.com and went on to become the founding partner of Sequoia Capital China. He was also an early investor in one of the hottest companies in China at the moment called Meituan, a local services platform often referred to as the Groupon of China.

“When Meituan first launched, they did try to learn from the Groupon model in the U.S,” he said at Fortune’s Brainstorm Tech International conference in Guangzhou, China on Wednesday. “In the last few years, Meituan’s business model shifted in a way that makes it unique. It doesn’t have a U.S. comparable.”

Many U.S. companies tend to focus on the home market because it’s “a big, rich market,” so why look elsewhere? “The historical experience is that if you conquer America, you can conquer the world,” he said. “But that’s starting to change.”

Over the years, Chinese entrepreneurs have gained a reputation of simply being copycats of American technology. That image is beginning to fade. In fact, Shen says the opposite is happening.

“Yes, a lot of U.S. companies still think China is about copycats, which is a totally, totally wrong perception,” he said. “I would suggest that U.S. companies should actually try to learn from China.”

Shen used Meituan as an example. Although it was inspired by Groupon, it evolved beyond Groupon’s ambitions. Meituan started out as a group-buying site, but it has quickly become the world’s largest online and on-demand delivery platform. It recently announced that it would launch a ride-hailing service of its own in China to compete against local giant Didi Chuxing.

“In the last few years. the mobile Internet has given the Chinese entrepreneur the chance to prove they are the original creator of those models,” Shen said.

Related Posts:

  • No Related Posts

Finally, Cisco Gets What It Deserves

Tech heavyweight Cisco Systems (CSCO) has recently beat expectations with its Fiscal Year Q1/2018 earnings and rallied ever since. Investors have finally discovered Cisco’s deep value and cheered enthusiastically about Cisco guiding to return to revenue growth in Q2/2018.

Following such an upbeat market opinion on Cisco it is time to review Cisco’s financial results and whether the stock still offers an attractive buying opportunity for dividend investors.

Source: Cisco Systems – all courtesy remains

What is going on at Cisco?

Cisco has a history of beating market expectations by a fraction and continued that streak with its fiscal Q1 report. It reported EPS beat of $0.01 and -4% revenue contraction.

More importantly than these figures is that the company reported a 3% rise in net income and saw its recurring revenue base grew to 32%. Even more impressive was the 10% growth in deferred revenue hitting $18.6B driven by subscription-based and software offers. That strong performance really shows that Cisco’s subscription story is fully intact and gaining momentum on the top-line as well.

The big news for the markets was Cisco’s guidance. For the first time since Q1/2016 Cisco is guiding towards (marginal 1-3%) revenue growth for fiscal Q2. That is a big event for company as big as Cisco sporting a market cap of over $185B currently.

As a result of such promising guidance the market sent Cisco stock almost 10% higher over the following days as its PE expanded from sub-18 to almost 20 times earnings.

Chart

CSCO data by YCharts

Capping a streak of several quarters of revenue contraction Cisco’s business transformation from traditional product offerings to subscription-based offerings is finally starting to show itself on the top-line. Interestingly, it is a well-known fact that such a business transformation initially leads to declining revenue as a large part is accrued for future periods.

Still, the market has been largely oblivious to that fact and basically ignored Cisco’s strong growth in deferred revenues and is now quickly reversing its opinion on Cisco, thus sending the stock higher, quickly and ferociously.

Let us highlight the importance of deferred revenue figures for Cisco further in order to demonstrate the sheer magnitude and importance they already have for the company.

The whole idea of that business transformation is to drive offers that were consumed perpetually to subscription, or to put differently, move existing offers to subscriptions. Thereby Cisco will be able to build a stable, reliable and recurring revenue base for its future which should be less susceptible to seasonality and other external factors. Executing such a strategy means that in the early years a lot of revenue which would have already been recognized under the old model is shifted into future periods. Unfortunately, it is not possible to accurately decipher how much revenue would have been recorded in each fiscal quarter by the old model but the things we do know sufficiently underline the success of that business transformation:

  1. Over the last four full financial years Cisco has recognized $2.3B of deferred revenues of which $1 billion alone originates from FY2017. This represents around 1.5% of total revenue and Cisco is expecting this impact to accelerate to 2-3% points on total revenue as we move from FY2017 to FY2020.
  2. Recurring offers now command a 32% share in total revenue up over 3 points Y/Y
  3. Deferred revenue increased to $18.6B and up 10% Y/Y with deferred product revenue rising 16%.
  4. Software subscriptions soared 37% Y/Y.

All this clearly shows strong growth and it is only a matter of time until we will see these figures recognized on the income statement as well. That steady and strong growth in deferred revenues has not suddenly emerged out of the blue as in fact the positive indicators have been existing for some time. Take for instance Cisco’s Security segment. Revenue increased by 8% but deferred revenue soared by 42% as the company saw continued momentum.

Although Cisco’s stock has anything but fared badly in 2017 (its performance only marginally trailed the SPY prior to fiscal Q1 earnings release), the stock has not benefited from the very strong tech rally in 2017. As a result it was only trading at a fairly cheap 18 times earnings valuation prior to earnings.

Now that the cat is out of the bag the markets are finally giving Cisco what it deserves, namely a higher multiple as top-line revenue growth is returning driven by strong growth in subscription-based offerings. As a result Cisco is outperforming the broad market and catching up on the tech rally.

Chart

CSCO data by YCharts

It should also be noted that Cisco’s 1%-3% revenue growth guidance is not entirely driven by the subscription model taking traction but also by a renewed strength in orders similar to Q1 where total product orders grew 1% driven by a 12% growth in the commercial customer segment. Still, as CFO Kelly A. Kramer remarks, the impact of deferred revenue growth is certainly more substantial despite remaining a headwind to higher revenue growth:

We’re still, I’d say, growing the base of the offers faster and putting it on the balance sheet than it’s coming off. But, again, both the year-over-year increase of the balance, the $5.2 billion was up 37% and my income statement was up 37% as well. But I’m still putting more and more offers and as we get scale through the core networking, not just on switching but the whole DNA Center, I think that’ll continue to add. So it’s still going be a headwind. And as I said before, this 1.5 to 2 points will move to more like a 2 to 3 points in the upcoming years as we get more scale there

Source: Cisco Earnings Call FY2018/Q1

As a dividend investor, by the virtue of its nature, I am very focused on the company’s dividend and dividend safety.

How about Cisco’s dividend?

Driven by a strong post-earnings rally Cisco’s yield is now hovering just above 3% and still offering tremendous value. Also, Cisco is due to declare a dividend raise in February.

The company has grown its dividend by a staggering 333% since its first ever dividend in 2011. The year-over-year increases have excited investors:

  • 2012: +33%
  • Late 2012: +75%
  • 2013: +21%
  • 2014: +12%
  • 2015: +11%
  • 2016: +24%
  • 2017: +11.5%

Such impressive dividend growth amidst declining sales has certainly increased the payout ratio. Right now, both the company’s cash dividend payout ratio and EPS payout ratio remain +/- 7.5 pp above/below 50%. In terms of free cash flow, the ratio stands at 70%, which is certainly not low but still comfortable for a stock yielding above 3% and with 7 years of consecutive double-digit dividend growth rates.

On top of that, Cisco is one of the richest companies in terms of cash reserves. Cisco currently sits on $71.6 billion in liquidity, which is up around $1 billion sequentially and Y/Y. The majority of that cash pile is held overseas with only $2.5 billion in cash and cash equivalents being available in the United States. Thus, the cash pile increased by around 7% despite the fact that the company raised its dividend by 11.5% in February 2017 and by a whopping 24% in February 2016.

As such dividend investors should not really worry about the rising payout ratios, as the dividend is rock solid and likely to be raised again in February. Cisco remains a cash flow machine and is very dedicated to its dividend while also eager to maintain enough fire power to strike another acquisition if deemed valuable.

Cisco’s next dividend has not yet been declared, but the stock is expected to go ex-dividend in early January.

To keep track of dividend payment and ex-dividend dates, I use the Dividend Calendar and Dashboard Tool, which shows my expected dividend payments, in this case for October 2017. Here we can see that I was expecting a sizable payment on October 24 from Cisco with the stock predicted to go ex-dividend around October 3.

Investor takeaway

In a previous article I wrote that

…the market is not really liking Cisco due to revenue declines and tepid growth outlooks

while also stating that

… once the company’s business transformation is complete and the market starts to fully appreciate Cisco’s enormous growth in deferred revenues, latest by then, Cisco’s stock will start trading at higher multiples.

Now that the market is finally appreciating Cisco’s subscription business model in combination with strong orders and multiple future-oriented acquisitions the stock has been shooting higher ever since. This new business model will help Cisco benefit from higher stability and less fluctuation in its sales and investors will be rewarded with a solidly growing business with a very strong base of recurring revenue.

Despite a strong almost 10% post-earnings rally and the stock’s multiple expansion from 18 to 20 times earnings I remain very bullish on the stock as Cisco continues to offer a stable, growing and very solid dividend for long-term oriented dividend investors while at the same time transforming its business and building a very strong base for future growth. Cisco is finally getting what it deserves and patient investors can handsomely benefit from it while also collecting a very attractive dividend, a simple WIN-WIN package.

What’s your opinion on Cisco? Are you buying into the post-earnings rally or waiting for a dip first?

If you like this content and want to read more about this and other dividend-related topics, please hit the “Follow” button on top of the screen and you will be notified of new releases. If you do not like it, I’d be happy to find out more as I am here for learning as well.

Disclosure: I am/we are long CSCO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.

Related Posts:

  • No Related Posts

Micron Technology: 'This Is Not The End'

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
Read more at: Winston Churchill Quotes

Churchill was rallying flagging spirits during the battle of El Alamein in 1942. Micron Technology’s (MU) prospects are far better than the allies at that dark moment during WWII. Hopefully this article will help provide some facts on the current situation that may even lead some to think that it’s not even “…the end of the beginning.”

On Monday November 27, Micron suffered when Morgan Stanley issued a 28 page research report warning of a downturn in NAND pricing. Noting that this is only 1/3 of Micron’s business MS actually upgraded Micron and raised their price target from $39 to $55.

We would be buying Micron, particularly if NAND weakness creates any weakness in the stock. NAND is less than one third of the business

Then came the Wednesday tech wreck and Thursday’s follow through. Commenters on other SA threads have supposed that ETF’s containing semis sold Micron along with other memory names in their baskets.

DRAM and NAND supply and demand. There was a flood of sell side research on November 30. I am plowing through over 100 pages of reports from Bernstein, Citi, Goldman Sachs, UBS and Deutsche Bank. Two charts from the UBS gloomy report, entitled “Is the Supernova starting to fade?”, caught my eye. Here are their helpful estimates, in bits and bytes, of the supply and demand for the two main memory types:

Extracted from Figure 14, DRAM Millions of 1Gb:

2015 2016 2017 2018 2019
Supply 59,387 76,815 93,861 113,924 142,023
Demand 57,839 75,700 95,643 114,477 137,068
Sufficiency 2.2% 0.1% -2.7% 0.0% 3.1%

Source: UBS, 11/30/2017

Extracted from Figure 17, NAND Millions of 1 GB:

2015 2016 2017 2018 2019
Supply 96,176 144,963 184,967 280,216 408,339
Demand 93,654 136,977 191,358 271,071 392,616
Sufficiency 2.7% 2.5% -1.1% 2.9% 3.4%

Source: UBS, 11/30/2017

A couple of observations on these tables:

  • Neither of these markets look like they are falling apart in 2018.
  • I like markets where demand is almost tripling (DRAM) and more than quadrupling (NAND) in five years.
  • The balanced DRAM market in 2018 should mean that pricing remains relatively level on this 2/3 portion of Micron’s business.
  • With a level DRAM price and Micron’s acceleration into the 1 x, y, and z nodes profitability of this segment should increase. 2019 could see an ASP slip.
  • The 2018 & 2019 small over supply in NAND will mean continuing soft pricing in that 1/3 of Micron’s business. But the company’s leadership in 3DNAND and apparent great yields should mean stable to increasing profitability in that segment as well.

And for those who don’t like tabular data (or UBS?), here are two charts on supply and demand from Citibank, 11/30/2017. Note that these are slightly different projections, different units in the case of NAND, quarterly vs. annual data, and a bit more bullish on the “sufficiency” I think:

What about those chip price charts? I thought you’d never ask! The supply and demand charts above are a bit longer term and I like to look at the more granular spot vs. contract price in the shorter and medium term and compare them to the Micron stock price.

First, here are Bernstein’s spot vs. contract price charts for DRAM and NAND with the latest November number from their 11/30/2017 report:

Wow! Contract pricing on NAND is flat even despite a soggy spot price over the same period. But the DRAM contract price is up another 2.5% on top of October’s 7-8% gain. And this is PC DRAM, probably the worst performing category of Micron’s now well diversified sales portfolio. And for those new to this: Micron sells the vast majority of their production on contract pricing, and contracts are rumored to have lengthened out a bit in these times of scarcity.

For what it’s worth, Citi projects in their 11/30/2017 report that PC-DRAM pricing will rise an additional 10.1% in 2018!

Here is my nightly compilation of the average DRAM chip spot price reported on DRAMeXchange vs. the Micron stock price:

And here is the average NAND chip spot price vs. the Micron stock price:

And finally, here is the mysterious (see previous articles) DRAMeXchange DXI index vs. the Micron stock price:

OK, what about earnings? Here is a table of 1Q and FY2018 earnings estimates from a few of the better sell side analysts:

1Q November FY2018
Deutsche Bank $2.20 $8.08
Bernstein $2.37 $8.13
Goldman Sachs $2.22 $8.45
Morgan Stanley $8.72

Readers of my past earnings estimates will remember that I nailed the second and third quarter numbers. And they will remind me that my crystal ball shattered for the 4th quarter. Maybe some charitable historians will remember the never-explained 4Q NAND hiccup and cut me some slack. I will spare readers the whole recap of my model, as in past articles, but will share the inputs that I’ve used along with those of two sell side firms:

Bernstein

Deutsche

Bank

Electric

Phred

DRAM:
bits 5% 0% 4%
ASP 5.5% 5% 6%
Cost -5% -0.45% -5%
NAND:
bits 5% 4% 5%
ASP 3% 0% 0%
cost 1.2% -1.64% -4%

And some observations:

  • I don’t think my modifications are heroic departures from these two sell side firms.
  • I can’t explain why Bernstein thinks NAND costs are going up in the quarter. Maybe I missed it in their report. I think the huge pain of 64 layer is behind us, and more and more capacity is going to 3D with its attendant lower cost structure than the worst of breed planar costs.
  • I have the advantage of seeing that November’s DRAM PC-DRAM contract price is up an additional 2.5%, which the week or so old models from Bernstein and Deutsche Bank couldn’t incorporate.

So I run these 3 key variables through my model and out drops $2.50 per share. I’m less sure of this single point estimate than past outings on this race track. But it looks like the three of us are well up from the $2.19 consensus estimate.

Conclusions: I had about 20% of my position called last weekend due to my covered call writing. Despite my resolve to leave that sum in cash until closer to earnings, the siren song of the Wednesday swoon sung to me and summoned 2/3 of that hard earned cash back into bullish call spreads for January. Judging from the continued fun action on Thursday I was once again too early.

The story looks very much intact. I’d like Ernie to resume his pre-announcement of earnings which would help build his credibility and transparency with institutions and sell side analysts. More on this in a next article I’m contemplating on “Naughty and Nice” for a Christmas edition. Feel free to send me your nominations of naughty and nice Micron personnel and events in 2017. Santa will feel better if that list is at least partly crowd sourced.

Right now it looks like Micron was thrown out with the bathwater, with the Morgan Stanley report, the tech wreck, and the feeling that all memory stocks are ‘over’. But I continue to think that it’s not yet even “…the end of the beginning.” Good luck to all.

Disclosure: I am/we are long MU.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Related Posts:

  • No Related Posts

Does Europe have what it takes to create the next Google?

LONDON (Reuters) – Europe is making major strides to eliminate barriers that have held back the region from developing tech firms that can compete on the scale of global giants Alphabet Inc’s Google, Amazon.com Inc or Tencent Holdings Inc, a report published on Thursday shows.

An attendee interacts with an illuminated panel at Google stand during the Mobile World Congress in Barcelona, Spain, March 1, 2017. REUTERS/Paul Hanna

The region has thriving tech hubs in major cities, with record new funding, experienced entrepreneurs, a growing base of technical talent and an improving regulatory climate, according to a study by European venture firm Atomico.

While even the largest European tech ventures remain a fraction of the size of the biggest U.S. and Asian rivals, global music streaming leader Spotify of Sweden marks the rising ambition of European entrepreneurs. Spotify is gearing up for a stock market flotation next year that could value it at upward of $20 billion. (reut.rs/2wYORnI)

“The probability that the next industry-defining company could come from Europe – and become one of the world’s most valuable companies – has never been higher,” said Tom Wehmeier, Atomico’s head of research, who authored the report.

Top venture capitalists and entrepreneurs in the region told Reuters they are increasingly confident that the next world-class companies could emerge from Europe in fields including artificial intelligence, video gaming, music and messaging.

“What we still need to develop is entrepreneurs who have the drive to take it all the way – I think we are starting to see that now,” said Bernard Liautaud, managing partner at venture fund Balderton Capital, who sold his software company Business Objects to SAP for $6.8 billion a decade ago.

The Atomico report is being published in conjunction with the annual Nordic technology start-up festival taking place in Helsinki this week and set to draw some 20,000 participants.

STRONGER FUNDAMENTALS

Capital invested in European tech companies is on track to reach a record this year, with $19.1 billion in funding projected through the end of 2017 – up 33 percent over 2016, according to investment tracking firm Dealroom.co.

The median size of European venture funds nearly tripled to around 58 million euros ($68.7 million) in 2017 compared with five years ago, according to Invest Europe’s European Data Cooperative on fundraising investment activity.

Beyond the availability of funding, Europe has a range of technical talent available to work more cheaply than in Silicon Valley, enabling start-ups to get going with far less funding.

With a pool of professional developers now numbering 5.5 million, European tech employment outpaces the comparable 4.4 million employed in the United States, according to data from Stack Overflow, a site popular with programmers.

London remains the top European city in terms of numbers of professional developers, but Germany, as a country, overtook Britain in the past year with 837,398 developers compared with 813,500, the report states, using Stack Overflow statistics.

While median salaries for software engineers are rising in top European cities Berlin, London, Paris and Barcelona, they are one-third to one-half the average cost of salaries in the San Francisco Bay Area, which is more than $129,000, based on Glassdoor recruiting data.

PUSHING UP AGAINST LIMITS

Big hurdles remain. A survey of 1,000 founders by authors of the report found European entrepreneurs were worried by Brexit, with concerns, especially in Britain, over hiring, investment and heightened uncertainty in the business climate.

Although Europe has deep engineering talent, many big startups focus on business model innovation in areas such as media, retail and gaming rather than on breakthrough technology developments that can usher in new industries, critics say.

Regulatory frameworks in Europe put the brakes on development on promising technologies such as cryptocurrencies, “flying taxis” and gene editing, while autonomous vehicles and drones face fewer obstacles, the report says.

A separate study by Index Ventures, also to be published on Thursday, found that employees at fast-growing tech start-ups in Europe tend to receive only half the stock option stakes that are a primary route to riches for their U.S. rivals. Yet their options are taxed twice as much.

The Index report said employees in successful, later-stage European tech start-ups receive around 10 percent of capital, compared with 20 percent ownership in Silicon Valley firms.

“There is quite a gap today between stock option practices in Europe and those in Silicon Valley,” Index Ventures partner Martin Mignot said in an interview. “There are other issues where Europe is behind, but we think stock options should be at the top of the agenda.”

Another factor holding back Europe is that regional stock markets encourage firms to go public prematurely, Liataud said.

“Europe has markets for average companies. In the U.S., going public is hard. You have to be really, really good. You have to be $100 million, minimum, in revenue,” the French entrepreneur-turned-investor said. “Nasdaq and the New York Stock Exchange have not lowered their standards.”

($1 = 0.8442 euros)

Reporting by Eric Auchard in London; Additional reporting by Jussi Rosendahl and Tuomas Forsell in Helsink; Editing by Leslie Adler

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts