Sunday, October 30, 2011

Apple's Snow "Jobs"

“Write about what disturbs you, particularly if it bothers no one else” – Kathryn Stockett - The Help

Steve Jobs disturbs me. Specifically, it’s Apple, Steve Jobs, and the millions of strangers who didn’t know him but loved him.

Last week, my Facebook News Feed was covered with, “RIP Steve” and “Best CEO Ever” and “I’m actually crying right now” and articles of Steve Job’s success, and graphs of Apple’s stock price. Monotheism teaches of one G-d, but for Steve Jobs, most people made an exception. Jobs made it easier for you to listen to music, communicate with your friends, and be cool b/c you own a consumer product. Though a supposed minimalist Zen Buddhist, his company was the ultimate consumer product cult. Steve Jobs didn’t cure cancer, he didn’t fight poverty or inequality and though he touched many lives, he didn’t necessarily improve them or make America a “better” place. He took existing technology, repackaged it into consumer friendly formats, killed competition, and hoarded boatloads of money. Now that his biography has come out, many not so flattering facts are coming out. Discussing his missteps used to be taboo because he would blackball you and you’d never get an interview again. For example, no one would dare discuss his love child that he denied existed until positive paternity test.

Why Do You Love Him? You Don’t Even Know Him:
Why do all of my “friends” love someone they have never met? Because he has a sad story adoption/cancer? Because he is really good at marketing? Because he’s a hipster that used drugs and found a zen master to teach him Buddhism? Because they used Apple computers in elementary school and have Apple love deep in their brains? I don’t understand. Do these people actually know anything about this man besides the sweaters, speeches, and products? The answer is obviously, NO.

No one knows him, but everyone knows Apple:
Steve Jobs is notoriously secretive about his private life for such a well liked public figure. In reality, we don’t know anything about Steve Jobs the person. However, we do know an awful lot about his company, Apple. Through public filings, conference calls, and news articles, it becomes pretty obvious that Apple has the best PR team ever, and company is pure capitalistic EVIL. (actually, Apple is just like many other consumer products manufacturers, the point is, Apple isn’t G-d).

Apple creates amazing products and keeps its power by bullying competitors, suppliers, customers and somehow doesn’t get called out for it. You can only sync your Ipod/Iphone to Itunes and you can’t play your Itunes purchased music on other MP3 players. They pretty much told artists, if you don’t sell on Itunes for almost nothing, your music will just get pirated anyway. They told app creators, we get 30% of your sales for doing nothing. They have told competitors, you are not allowed on our operating system. Flash is by far the best way to watch video online, but Apple won’t allow anyone to use this competing tech on its device and is trying to drive it out of use globally. In the 90’s, Microsoft added internet explorer to Windows as a default browser for free, but still allowed competitors to run their applications on Windows. Yet MSFT still lost multiple antitrust lawsuits and was told it couldn’t bundle its software with its interface. IMHO Apple's violations go way beyond anything MSFT did.

Profitability & Outsourcing:
Anyone who follows Apple from a distance knows that Apple is extremely profitable. Apple’s equity value makes it the largest in the world and its profits, put it in the top few. In its most recent quarter, it reported $28B in revenue and generated $5.4B in cash. The company’s ability to convert revenue into cash has helped it build a warchest of over $80B.

How does the company make so much money? Overcharging and outsourcing. The company’s brand and monopolistic policies have created/brainwashed customer loyalty which allows Apple to charge $600 for products similar to the $200 products competitors. How much of that money is going into American pockets? Not much. Most of the company’s employees work at its retail stores in relatively low paying lower middle class jobs. All the manufacturing is outsourced.

Chinese Sweat Shops / Child Labor:
Almost all of the manufacturing is done in China, at a massive company called Foxconn. Foxconn employs over 400,000 people on a massive campus that houses those employees as well.

Foxconn forces employees to live in one-room dormitories with other coworkers. These workers work 15 hour days for as little as $50 a month. Employees aren’t allowed to talk to each other while standing for their 12 hour shifts and workers must sign pledges that they are not allowed to commit suicide. WHAT? Yes, suicide rates in Apple factories in China are so high, employees are banned from it. They are publicly humiliated in front of peers for mistakes and work undocumented, unpaid overtime. What did Steve Jobs have to say about this? He says that suicide rates were lower than the rest of China. That makes it ok?

Google “Apple China Suicides” and “Apple Child Labor” for some fun reading. An American researching how his favorite products were created (who has turned his research into a 1 man show), infiltrated a factory and interviewed “dozens of these workers. He interviewed girls as young as 12 who worked crushing hours; he interviewed a man whose hand had been twisted into a claw from overuse; he interviewed a woman who had been blacklisted merely for requesting overtime pay.”

Apple is Not Even a Good Corporate Citizen:
I thought Apple was a good corporate citizen? How could they let this happen? Apple isn’t a good corporate citizen; Apple is a greedy public corporation that acts entirely to “enhance shareholder value.” Apple cares about $$$$$$$$$$.

While all of the manufacturing is done in China, final assembly is done in Ireland. IRELAND?? Why Ireland? Oh right, because Ireland has low low low corporate taxes. So products sold to Europe and America are actually “manufactured” in Ireland. During the last 12 months, Apple has generated an amazing $34.3B in cash (CFO-Capex). Yet the company paid only $3.3B in taxes. So, to all of you buying Apple products thinking the company is a good American company… your products aren’t made in the USA, and Apple is using offshore corporate entities to avoid paying taxes. I’d argue that companies should have to pay taxes regardless of if those profits are brought back to the US, but that discussion is for another post. In any event, Apple has stated “foreign earnings are intended to be indefinitely reinvested outside the U.S.”

Money, It’s Mine, All Mine!
Apple’s $80B in cash isn’t technically theirs, it’s the stockholders. Most companies, especially ones that have more cash than they could ever use, need to invest that money for a positive return or give it back to shareholders. Yet the company would rather keep and accumulate cash than dividend it to stockholders. It doesn’t repurchase stock, it doesn’t buy other companies and grow inorganically, and it doesn’t spend that money on other growth projects. That cash just sits, doing nothing, while our economy also does nothing. Perhaps this is good tax management, but it’s completely shareholder unfriendly. During the last 12 months, the company (worth $370B) gave employees $1.2B in stock based compensation and issued $800M in shares, returning no proceeds of the profits to actual shareholders. When there aren’t profitable investments, don’t accumulate! Perhaps some of your shareholders have better things to do w/that money!

Maybe Apple/Steve Jobs Give to Charity?
Actually, Apple is so stingy, they don’t even have an employee matching program for donations. Steve Jobs is no different and was not a member of the Giving Pledge (Billionaires who pledge to give away half of their wealth). Instead, he will likely pass down his wealth to his family. When Jobs returned to Apple in 1997, he closed the company’s philanthropic programs and even though the company has $80B, those programs have not been reinstated. There are rumors that he gave money to his hospital anonymously, and gave money to create a liver registry. But those donations seem a bit self interested. It would have been nice if he gave to a charitable cause that didn’t directly keep him alive. If you asked a liberal who the most destructive and evil company in the US, Walmart would be close to the top. However, Walmart has a massive charitable foundation, matches employee donations, making it one of the top corporate charities in the world.

In summary, Apple has violated competitive ethics and perhaps laws, creating monopoly power and enabling them to overcharge customers for the same products. Though the company has absurdly high margins, to maximize profits, Apple manufactures almost exclusively in China, at factories that have extremely high suicide rates and child labor. Obviously, Apple can afford to pay American workers or at least demand better working conditions, but they’d prefer to underpay foreign workers in poor conditions to make more money. Most of Apple’s $80B in cash is offshore and considered a foreign profit, thus Apple can avoid paying taxes. The company does not reinvest that money, give it to its employees, or dividend it to its shareholders all so it can avoid paying taxes, how patriotic. Lastly, the company is one of the least philanthropic companies in the world, not having a CHARITY or even an employee matching program. As far as I'm concerned, Apple's pulled snow "Jobs" on all of you.

Tuesday, June 28, 2011

Gay Marriage

Last week, NY passed a bill that legalizes gay marriage. Since then, we've seen commentary on the topic from everywhere and everyone. It turns out that now a majority of Americans support it, however, most states have either outlawed it already or even have state constitutional amendments blocking it. Additionally, the Defense of Marriage Act (DOMA) exempts states from having to recognize and provide services to those who have had gay marriages in other states. This means that while NYers now have equal rights, they must live in NY to utilize those rights. Though the Defense of Marriage Act is still being fought in courts, and the current administration

Some 30 states have enacted constitutional gay marriage bans, most by voter referendum. As we learned from those referendums, they become rallying cries for conservative voter turn out, and thus have historically been used to defeat the liberal legislators who may have acted on the issue.

Also, Considering the current conservative make up of the Supreme Court, you are unlikely to get a ruling explicitly supporting and legalizing gay marriage.

However, Considering that the Supreme Court LOVES the 1st amendment, and continues to rule in favor of freedom, why doesn't the gay community use that to their advantage.

To be more specific and get to my point finally: Why doesn't the gay community create a religion that specifically allows for homosexual activity and gay marriage?

Liberals are using equality and fairness arguments when trying to Overturn the Defense of Marriage Act, all these state constitutional amendments and laws. Sometimes they win, sometimes they lose. I believe that putting the DOMA and all these state constitutional amendments up against the First Amendment of the United States will be a powerful weapon. Of course, the govt can regulate some religious aspects as long as they aren't aimed specifically at one religeon. For example, we are not allowed to kill our wives or kids, though strict religious interpretation permits it, and things like polygamy are specifically outlawed (though rarely prosecuted). However, gay marriage is not outlawed.

Thus my idea. Move to Nevada, start a church, start marrying gay people.

I have a feeling this has been tried and has failed, (3rd comment from bottom is interesting) but the LGBT should keep trying. Eventually, they may run into a Supreme Court that will give them the rights they desire (overturning weaker laws in favor of Law #1).

My belief, since I've saved it until now, is that once every state in our nation finally does allow for gay marriage, we'll stop talking about it. We hardly talk about mixed marriages anymore, and the fabric of the American family has not been ruined over the last 40 years by interracial marriage. I hope/believe that gay marriage will be viewed similarly in the future.

Monday, June 20, 2011

Camping Vs Homeless

Last night, my DJ asked me if I wanted to go camping sometime. My response, obnoxious as usual, was that going camping is just like being homeless. Now why would I want to do that?

After thinking about it a bit more, I congratulated myself on a lovely analogy. Here is a list of things you do when you're homeless...that you also do when you're camping.

Sleep: Outside
Eat: Beer for dinner
Rain: You get wet
Bathroom: Wherever you want
Heat: Make a fire
Shower?: No
Bugs?: Yes
Dirt?: Yes
Possessions: Protect them while you sleep or they may be gone when you wake!

Feel free to add your own analogies!

Wednesday, March 09, 2011

Shorting Netflix

As a customer, I love Netflix. I love its services, its branding, its ease, its quality, and its pricing.

As an investor, I've shorted the hell out of it. A year ago, I loved the bonds and thought the company was fairly priced. Now, I think the company is way over priced and I'm even worried about the bonds, which don't mature for more than 5 years. . .

Here's why I'm short:

The company is trading at 66x earnings, and was as high as 80x, up 300% in the last year. This is 3x higher than AAPL, which trades at 20x and is a stock investors supposedly love. While earnings are expected to double next year, bringing that number down to 33x, it's still way to high. Want to know why? Business Model Risk and Competitive Risk.

Business Model Risk:
While the company absolutely dominates the market right now, there is no reason that can't change. There is no reason that can't change QUICKLY. There is no reason why NFLX has to be the winner or even exist in 10 years. They don't own content, they don't own distribution, they don't really own anything...except contracts/customers/technology, none of which are exclusive and all of which can be easily and cheaply duplicated.

Competitive Risk:
From a finance 101 perspective, the company will face significant competition from 4 or 5 of Porter's 5 forces of competition:

Competition from Peers: Amazon/Apple/Google... much larger, stronger companies.

Competition from New Entrants: Duplication is easy, they have no exclusivity with their content (who thought Facebook would become a competitor before yesterday?)

Pressure from Suppliers: Netflix got some sweetheart deals when they first talked about streaming video years ago. Those deals are up soon, and Netflix will have to pay up.

Actual Content: Don't forget, they pretty much only sell "re-runs." No new shows, no new movies.

Competition from Distribution: Cable companies, with whom Netflix relies on for distribution (Internet connections), but also takes $ from, can/will start making netflix or their customers pay for the bandwidth. Why can't Comcast create its own VOD/TV monthly subscription service? There is no reason at all. . .

Customer Loyalty: Currently this is high, but no annual contracts, and so if a better/cheaper product comes around Netflix will lose all pricing power. Price hikes are over.

Without content exclusivity (like DirecTv and its NFL contract), Netflix has enjoyed low cost programming.

Netflix may have a few more great quarters, or even another 2 years...but I can't view a world where Netflix maintains its dominant market share.

Here's a good article supporting

Tuesday, March 01, 2011

Q&A with Fire Island Hater

What's the etiquette for dating at work? Does it matter if they work in your dept or not? Does it matter if they are senior to you or of equal stature?

It's about time I "banged" out another set of "rules." Unfortunately, as I wrote them I realized they're more like guidelines than rules, as all can and most will be broken. May as well start from the top.

1) Don't date a coworker at a small company. Under 20 employees... get a new job first. I know a bunch of guys who quit their jobs in order to date someone at their old firm.

2) Don't date someone that works in your department or on your floor. The best work relationships that actually can last involve people that don't directly work with each other/on top of each other. This rule keeps breakups much cleaner, less awkward.

3) The age of the two employees does not matter, but the SENIORITY does. Do not hook up with one of your subordinates. Likewise, I always tell people that if possible, they SHOULD sleep with their boss. Why? Because you become your boss. You'll move up faster, get paid more, and work less. Your boss has a new project for you? "No thanks." You won't get stiffed on a bonus or passed up on a promotion when he/she has sexually harassed you. In essence, you become the boss.

4) Summer interns: It needs to be near the end of the summer, and you need to make sure they are going to get the offer (even if you're not involved in the hiring process). Obviously, this isn't a long term thing.

5) If he's cheating on his wife, it's not going to work out. Even if he breaks up with her and marries you. He'll move on again.

6) Actually like the person. Don't do it just for fun... there are other, less complicated, options for that.

7) If you ignore rule 6, (and you will) set ground rules. If you hooked up out of passion, you need to have the talk. It can still happen again, it can happen all the time, but you need to tell them rule 8 (especially if they aren't attractive or highly regarded in the office).

8) Lastly, and most importantly, keep it a secret until it's serious...perhaps even until you're engaged!

9) If you do decide to follow rule 8, DON'T SCREW UP RULE 8. Keep your secret a secret. In other words, don't get drunk and make out at the xmas party and have the entire company think you are both sloppy when you've really been dating for 2 years.

What advice is someone like me (29 year old) supposed to give a friend who is contemplating whether or not they should get a divorce? (no kids, married 2 years).

If kids are involved, I say stay together forever. You don't deserve a life of happiness if that means you are going to screw up your kids. If you are single, you can still get out.

Advice isn't really your job. You're supposed to help them find the right answer. Perhaps, if you're close enough to them, the best thing to do is ask them these questions.

Do you still love him/her?
Do you still envision/dream/see yourself in 20-30 years living with this person and growing old with this person?
Do you legitimately want to make it work and are you willing to try harder than you've ever tried to make it work?

If your friend answers yes to these 3 questions, then he/she should obviously not get a divorce. If the love is gone, but the last 2 answers are still yes, then it is not going to be easy, but a divorce can be avoided. Unfortunately, this will take brutal internal honesty on your friends part. If his eyes and heart are straying, it won't be easy to bring them back. Of course, if the answer to the last 2 questions is "no," then a divorce may be unavoidable and the questions will steer your friend in that direction.

While your friend is asking for divorce advice and looking to be convinced one way or the other. Your job is to make sure that friend is making the ultimate decision.