Andy Schroepfer

NaviSite (NAVI - $7.02) announced another acquisition this morning with a $40.5mn purchase of privately held NetASPx (pronounced net-aspects). This is certainly on the large end of the deal size spectrum for the company, yet does have similar traits to the entirety of the past deal history of NaviSite, which was very active in the early part of the decade, fell asleep for a few years and now appears to be back with avenagance. As I will explain, this deal makes great financial sense, makes solid strategic sense, and yet the stock market seems determined to not care about the value of the company.

On the strategic front, I have written previously about how NaviSite runs the largest managed /hosted partner practice of Microsoft's applications (outside of Exchange) due to the acquisition of Surebridge. Similarly, NaviSite has one of the larger application management services practices for the JD Edwards/Peoplesoft applications from Oracle. I mention these because having scale with those applications makes the company important. Now, the acquisition of NetASPx expands this list of supported applications into both Lawson's ERP (where NetASPx is the largest managed services partner of Lawson) and Kronos' workforce management and business intelligence apps. This has helped to more fully round out the key applications on the marketplace as part of the core service offering fabric of NaviSite. It sounds like most of NetASPx's $20mn in annualized revenue comes from Lawson, but there is likely very some very solid upside for cross-selling in the Kronos application to NaviSite's installed base.

On the financial front, Navite is paying a mere 2x sales and a mere 5x EBITDA for NetASPx. For context, Navisite has a market cap of $225mn and an enterprise value of $345mn following these latest three acquisitions. The company also now should be on track for $170-175mn in FY08 (ending July 2008) revenue and $40-45mn in EBITDA. This puts NaviSite at an EV/S multiple of 2x and a EV/EBITDA multiple of 8.1x (using the mid-points). This means NaviSite purchased a business below it's own valuation, which is a key ingredient to a successful valuation outcome for the acquirer.

So, why does a acquisition that makes strategic and financial sense that has some size significance to the acquirer get greeted poorly by the stock market? First, the markets are looking for international growth and since NetASPx increases the revenue mix toward U.S.-based revenue, this deal doesn't feed the markets what it wants to eat right now. Second, with the exception of IBM, the consulting and IT services group (especially the offshore providers) have been in meaningful valuation decline (due to the appreciation of the rupee in India), so as NaviSite grews its application services business it too reflects that declining valuation reality. Third, the deal terms to finance the purchase of NetASPx includes a PIX component. On this last note, we believe this is just a temporary financing means while the credit markets are in turmoil, so look for the company to refinance that $25mn component of the deal before the 18 month term on the convertible preferred debt matures. I could go into how much larger a multiple that all of the other Internet Infrastructure Services firms trade at to explain why NaviSite's stock could double from here just to trade near/at those same multiples. Instead, I will go deeper into the raw value inherent in this latest acquisition and expect that in time the markets will realize NaviSite's now even more sizable stature and value (relative and absolute).

NetASPx is a Virginia-based company, but runs its business from a data center in Minneapolis, MN that is 18,000 net square feet. Why Minnesota? Well, Lawson is based in Minnesota too (nuff said). Until recently, the company has a 30% customer in the Department of Defense, which cancelled due to reasons not related to service quality or pricing. Of note, the $20mn revenue and $8mn EBITDA assumptions for NetASPx fully take this DoD client loss into consideration. As that infrastructure is removed from the data center, this leaves NetASPx with 15% of the 18,000 square feet in operation. This is where the press release's mention of revenue per square foot at NetASPx of $8,000 is derived ($20mn/year divided by 2,700 utilized square feet). Using that same $20mn revenue number divided by the press release's mention of ARPU/mo being $19k, we can assume that NetASPx's client base numbered around 85-90 (even though the bio for Director of Sales Paul Cioni mentions having 140; sales collateral mentions the firm having served over 150 clients).

Clients mentioned in various web site mentions include: Drive Financial, Great Plains Coca Cola, Magellan Health Services, Sovereign Bank, TeamStaff, Binney & Smith, Grocers Supply Co, Feld Entertainment, Wisconsin School District, El Pollo Loco.

From my digging today, I heard the data center in use is under a 3 year lease with no renewal option. While the facility is very under utilized, I believe either this can be sustained and leveraged for new customer adds (especially if rumors prove true that IBM is about to buy Lawson, which I believe will happen). I believe the company could transfer the lease to another party  if they wanted to migrate the customer base, but I dont believe that will be a course of direction taken. The facility uses water-based cooling instead of forced air cooling and is largely a "supercomputer" facility managed by 30-somethings instead of 20-somethings. Suffice to say, the firm is managed by professionals who have been in the business for a decade or more and operate in a facility deemed by many to be fully capable already (note-ably with minimal maintenance capex required for Navisite).

NaviSite should be acquired, but seems more than happy to beef itself up until the stock market at least values the firm more closely to the peer group. The expanding portfolio of applications supported by NaviSite would prove incrementally interesting to an offshore player (a la Wipro buying Infocrossing) or a global IT service provider (like IBM, which noteably was named earlier this summer as the hosting partner for Lawson's direct efforts) or even the major telco's who push IT like Verizon and AT&T. This will work out in the end, especially if Navisite provides solid guidance on 9/25 when it reports 4QF07 results to account for the great stategic moves I believe deals like this one demostrate.

The world is buzzing with the words virtualization. While there continues to be an uptick in both interest and adoption of virtualization in the real world, the buzz about virtualization is moreso being fueled by the reception that VMW shares have received post IPO. For a few hours today, VMware was valued at over $30 billion (ending at $28.7bn). In case you were wondering, EMC is valued at $41 billion. Hmmmmm. If this continues, VMware could buy EMC. Of course that's not true since EMC owns 87% of VMware ($25bn stake for EMC). Since EMC's enterprise value is $39bn, this means that the core of EMC is worth $14bn. If we excluded VMware's revenue or net income contribution on EMC's financials (to make the comparison with the $14bn net enterprise value number), we would find that EMC trades at 1.3x TTM sales, 7x TTM EBITDA, and 14x TTM EPS.

I bring these calculations up because VMW's trading today was almost "too" textbook of a signal to short the stock. We had a strong stock coming into today's trading with yesterday closing near its intraday record high. Today gapped up at the open, traded higher to nearly $83 and then closed down $0.11 on the day at $76.65. All of this happened on nearly 3x average daily volume (today was a mere 100k shares short of its record opening day volume in fact). The only stronger sell signal would be if volume was twice as high as it was today. However, since there are only some 30+mn shares in the float for VMW, the volume today is to be considered heavy by any measure.

By the way, EMC shares only managed a $0.36/share gain today to close at $19.50, which is still shy of its 52-week high of $20.00. If EMC was smart, this would be a good time to start selling off another 10% of the stock. Why? Well, if the stock really is destined to go higher, then there should be plenty of demand to pick up another 40mn shares from EMC (netting them $3bn). With the stock trading so many shares right now, this level of a stock sale shouldnt phase the markets (even though it will).

What happened to deserve this run-up? The answer is reminicent to the hey days of 1999 and 2000. The company is hosting its annual user conference...VMworld.

Apple (AAPL - $136.76 at close; $136.36 in after hours) held its iPod party today to launch an entire new line-up of the portable device. Anyone wanting the iPhone without the phone, got their wish in the iPod Touch starting at $299. Anyone wanting a lower cost video device got their wish in the very elegantly packaged $149 Video Nano. Mix in some color options and more storage on the Shuffle, and you would have had a perfectly anticipated launch day with what the rumor mill was calling for. He used the "one more thing" phrase to introduce wifi iTunes download capability, which is cool; and also launched ringtones for $0.99. The two additions might help offset the revenue loss from the recent bad decision by NBC to not renew come December, but are really not material drivers for the company. Instead, the big disclosure today was actually on the one product that did not get a refresh...the iPhone. Apple said it has stopped plans for the 4GB version of the iPhone, while also dropping the price on the 8GB version to $399 - a $200/unit reduction. Since the device was estimated to have such a high gross margin (north of 60% by some estimations), this reduction will bring it more in line with the company's guidance. Hence, it wont break the model, but does take away a fairly widely expected area for profit upside as the iPhone sales scale up. This brought on a material sell-off in the shares from what would otherwise have been a nice set-up for new highs. Suffice to say, Apple is in a volatile period where the true believers in their model will be the last one's standing. We remain among that group and reiterate our Buy rating, although with the stock below $137, it could easily see another test of its 50-day moving average where we'd rather buy the stock in the current FOMC-focused marketplace.

• More on the iPhone price drop: The only people buying the iPhone's 4GB option from launch day onward were those looking to save a few bucks and not really understanding how little video content you could store on that option. Hence, it seems a wise move to replace a bad decision to even have a device in the market with so little storage capacity. The decision to lower the iPhone price may be a downer to investors, but should be celebrated by consumers and perhaps be one of the barrier breakers for adoption by some enterprises for the device. Yes, that is lipstick on the pig of margins going down on the device, but given that serious doubts existed in Apple being able to hit the 10mn unit mark in 2008 at the prior price points, this now substantially lowers that bar of concern. It should at least. I look at this largely as a reason for Apple's CFO to consistently talk about margins not having continued upside potential like they have consistently shown. It would be nice if management would just provide a bit of color about its margin outlook beyond the component cost statements, but we get it. That said, we dont believe Apple is Street-ignorant and we can almost hear the company talking on the next call how they were able to lower the prices on the iPhone without hurting margins because the rest of the business performed so well. We will find out, but since Dell reported a component cost environment still being strong (their quarter overlaps into Apple's current one), we believe Apple being a major buyer of memory and other components will still be able to post upside in both this and next quarter (when the price impacts will fully impact a quarter) on the margins.
  
• Will the Video nano help sell the AppleTV?: Parents around the world are likely rejoicing at Apple's decision to launch a tiny (really tiny) device that has video with a price tag starting at $149. Most parents will at least be able to consider this as a gift for their kids wanting on the Apple train this holiday season, or even back to school (belated) as opposed to having to pony up to the more costly options. While the screen size on that device is close to that of the classic Video iPod, I am wondering if Apple believes the size and price of this device will enable more sales of the Apple TV unit to be able to experience the downloaded videos from iTunes-to-Nano on a bigger screen at home. I might be reaching with this later thought, but it is possible as a beneficiary of the new unit. Where I am more confident in there being a holiday hit is the $149 video nano, which will be a popular stocking stuffer for the more well off families and a lower cost option for the rest if they dont want to spring for the $299 Touch or the now $399 iPhone. All told, Apple's iPod ASP should see a nice rise this holiday season based on this set of launched items.
• The content conundrum: It is surprising how well Amazon's shareholders have reacted to NBC's decision to move their content library over to Unbox since NBC is trying to prove Apple a lesson. Apple has been too happy to make a stand with NBC in the hopes of showing that it will walk from a content partner no longer willing to play in the Jobs kingdom, but this is a slippery slope. Apple will survive without NBC no problem. However, Apple cant lose another major or the power will quickly shift out of its hands. Again, we feel there will be little to no profit impact from the loss of a content partner(s), but since the content library is what makes the devices so useful, you can see where this is going. Essentially, less devices would be sold if most of the content iPod owners wanted to watch needed to be uploaded to the device from DVDs and CDs. We are confident that NBC will eventually come back to some kind of happy medium with Apple, but we admit this is a real risk now that needs to be factored into the long-term prospects for Apple growth should this not get remedied by year-end with NBC.
  

Sun Microsystems (SUNW) held their analyst meeting today and largely reiterated the same game plan that has already been outlined for the past year. Importantly, the goal of achieving the 10% operating margin exiting the current fiscal year was affirmed. The CFO spent (too much) time explaining how he wants the process to go more quickly in getting the company on a higher growth path with stronger profits, but said they are being careful to maximize growth prospects once the cost structure is finally right. There were some interesting nuggets thrown out too. First, the company confirmed that it's interested in software acquisitions, which will be smaller and financially disciplined. Second, the company is doing a 4-for-1 reverse stock split, which might help the stock be more attractive to institutions with the lower trading costs. Third, there was lip service paid to the Intel and IBM partnerships likely to soon become more real and beneficial. Finally, and most interestingly, CEO Schwartz took his passion talk about the proliferation of java software to a new level with the mention that he is exploring the possibility of advertising across the millions of java installations worldwide. We believe this was strong affirmation of the reasons to like the stock, but in the weak tape, there was a lack of reaction to the new details. We like the stock at $5.50, but like it even more on dips toward $5 where we would get more aggressive. Our price target remains $7.00/share.

• Acquisition Plans: While it was unlikely one of the key messages Sun was intending to express to the Street, it was mentioned and then affirmed in repeated Q&A, that Sun will augment its intended organic growth efforts with acquisitions. Schwartz was specific to note that acquisitions would be in software, would be smaller-sized, and would be financially disciplined. Essentially, he is not looking to make a big networking gear company purchase, nor is he looking to beef up the headcount side of the business. I believe a small existing partner like AXS-One (AXO) would be along the lines of the size, strategic fit, and existing relationship that would exemplify the type of deal Sun would pursue. Sun's history of small M&A hasn't been even noteworthy to the external world, but everything Sun can add to bolster software sales and related margin should be welcomed as use of the $6bn cash pile.
  
• IBM and Intel Partnerships: Sun makes its own chips, has its own OS, and makes its own servers. They are soup to nuts. As the company pursued rack and stack x86 server proliferation, it was noticed that there was an opportunity for Sun to have its software (Solaris, Java, etc) installed on systems, including those made by what are otherwise exact competitors. There was nothing concrete to support why they expressed reason to think these partnerships will now start to contribute...but the answer is likely just that time has passed and now opportunities are matriculating. As we hear more, we might garner more excitement, but it merely seems that Schwartz software focus is gelling with Intel well, and also in particular (non-software) parts of IBM.
• Ads on the Java: Near the opening of the presentation by CEO Schwartz, he started his now standard verbage about the power of having java deployed everywhere. There was nothing new about his pitch this time other than that the number of deployed java installations is much larger. The interesting part came when he started tying this conversation into the software-as-a-service business model and how having java in front of so many people already presented opportunities for ads to potentially offset subscription costs for SaaS. However, he also even threw out the bone about how Google is paying Sun for every distribution of Star Office and how apps like these and anything with java could be used as a platform for showing ads. Given the developer community following at Sun now, I think he is spot on to think this type of reach and audience profile would be of great interest to brand advertisers. He stopped short of suggesting this was anything imminent, but did mention it in a way that this would be a nice upside top-line growth avenue that could become real as soon as FY09.
  

This link to News.com is but one of several media outlets writing about the rumor that Microsoft will make an acquisition offer to Research In Motion. My punch line...never gonna happen.

Microsoft has an OS for the mobile phone market. While the uptake is not that deep, they have a wide number of partners. Hence, if Microsoft were to buy RIMM and truly take advantage of their technology platform, Microsoft would need to lessen the opportunity for its own mobile platform. This indirectly would inflate the cost of acquiring RIMM, which already would be around 20% of Microsoft's value. The above doesnt even take into consideration the fact that everytime Microsoft makes another move to directly control a new element, it alienates some more partners.

Now, some consider the iPhone from Apple to be a cause for Microsoft to have real interest in RIMM. Well, I view RIMM as having had as much success as ever since Apple launched it's phone. It is not until 2008 that Apple plans to sell 10mn units. Hence, Microsoft would be acting early enough if the rumor of a RIMM buy were true (to fend off Apple at least), but we dont think Microsoft is entirely concerned with Apple's iPhone just yet relative to the power and reach of its Windows Mobile platform.

As for the rumors of Google launching a phone (which I still dont believe will be true - as I instead believe whatever Google is creating will still be a platform for other handset makers to consider as opposed to Google making hardware - heck, I could even see Google's goods be implanted on a new version of the iPhone in 2008)...I just dont think Microsoft would be changing the competitive landscape with a RIMM buy. That is unless I am wrong and Google does launch a phone of its own.

It is fair to say that Windows hasnt been a hit in the mobile phone market. However, I do believe Windows has a strong chance of doing well in the UMPC market, which is where a lot of action will be in 2008. I just bought the Samsung Ultra UMPC (a 7" touchscreen with Vista in it) and absolutely love it. If I were Microsoft, I would just focus on my partners for the mobile market and try to dominate in the UMPC world.

AXS-One (AXO - $0.45) continues to be an entire failure for me as an investment. The company just filed its 10Q last night and we learned something interesting. The co-founder and board member Elias Typaldos was fired. It doesn't say fired, but he is being paid severance equal to 2 years salary plus benefits and then a modest $150k to boot. This is an amazingly expensive a move for the company. Fortunately, the monies to be paid to him are due only during normal course payroll over the next two years (with some exceptions for the $150k). However, this leaves the company without a CTO and it remains unconfirmed whether Elias will remain on the BoD. It is also unconfirmed whether he will be allowed to sell shares he holds (he is one of the largest shareholders and has been taking a bath with the rest of us). From speaking with people familiar with AXS-One, this departure of Elias should have happened 3 years ago. We can interpret this two ways: 1) the injection of new life-line capital from blueline and Jurika is finally driving the company to make some must-do changes, or 2) there is some kind of riff between management and this co-founder. I believe the former. Seriously, this co-founder wasn't even willing to lower his salary commensurate with the CEO and CFO in order to save the company cash while trying to give it time for the market to come around when the reductions were made earlier this year. That should have been a bigger tell to me and others when it happened, but so be it, it is now done. It's costly, but it's done.

As for who will be the replacement CTO, my sources suggest there is very capable person on the team that can easily fill those shoes and do so at a much lower compensation hit to the company. Perhaps the best way to look at it is that those in the Elias-team will be able to be let go as well in the near future and hence make the payment of Elias' salary even once he is no longer working there...less of a bag to carry for this now cash-strapped company.

I would like to believe that this termination was a prelude to the company being sold, but I just dont sense that. Especially with the stock continuing to trade down on the news, I presume this is in response instead to the fear that Elias will be selling shares of the company. If he does this he should be burned. Seriously, the stock can barely handle the normal daily selling pressure let alone any selling pressure that he might add to the stock. He either needs to ride this to zero with the rest of us or help by not selling and finally letting the stock hit a bottom (above $0.00).

In retrospect, looking at the BlueLine and Jurika investment in convertible debt for $5mn proceeds to the company...they positioned this as having a $0.91/share average price per share in the deal if all converted, but I am now thinking that the second half of the $5mn in debt at a conversion price of $2.50 was just to help make that $0.91/share average show through. Having spoken with one of these investors in the past, I know they believe in this story, so I dont provide this sentiment to suggest they did any kind of posturing whatsoever, but if one assumes they merely hope to be repaid principal on the $2.5mn of convertibles that convert at $2.50, then the average price on the deal was right at market price (factoring in the free 2mn shares of warrants). There, I have said my peace. I am just upset for not getting offered the same terms as they got offered since I participated in the PIPE from 2 years ago at a $1.50/share price. Although I will admit I should have sold more when the stock was reacting favorably to the performance in early 2006. Whatever, my mistake, and now I am trying to look at things from an appropriate lens.

What I see is a company with 37mn shares (assuming the 2mn free warrants to the debt buyers) and a stock at $0.45/share. This is a market cap of $17mn. With cash barely above the debt level, I will refer to this $17mn as enterprise value as well. This is ridiculous. Even on the paltry $10-15mn revenue run-rate (depending on how you care to view the 2Q07 results with the now disclosed $900k deal that is to be recognized ratably). Yes, they do need to get to cash flow breakeven which wont happen until 2008 to deserve the 1x revenue multiple, but seriously, this will happen.

LucidEra, a SaaS provider of business intelligence apps, closed a $15.6mn Series B round led by Crosslink Capital with prior investors Benchmark and Matrix also contributing. This is growth capital to expand sales and marketing. The release focuses on bringing capabilities previously only available to big firms to the high-growth mid-size business base to cover the gamut from leads to contracts. Crosslink is investing a lot in SaaS and via their recent investment in OpSource, we expect LucidEra to see a quick and big uptick in its pipeline from being able to meet the OpSource customer base among other portfolio companies.

KickApps, one of the now dozens of privately held firms trying to enable the world to launch social networks with a web-based platform, closed an $11mn Series B round led by SoftBank Capital along with prior investors Spark and Prism. Prior round was $7mn. Capital will be used for technology expansion and for marketing. The release notes that success in 2007 has included the hire of Alex Blum as CEO along with some other top execs; forming a strategic relationship with Akamai, partnerships with a number of interactive agencies, client wins at BET, Scripps, HBO-Cinemax, VIBE, Autobytel, and RCA, and hen included metrics on usage with videos up 11,850% YTD, photos up by 1580%, and Audio files up 1473%. This underscores the growth experienced by YouTube for the video metric (which is off the charts) and the funding was likely aided by the much larger round raised by Ning earlier this summer.

Citrix (CTXS - $32.76) was likely too busy to watch the highly successful stock debut of VMware yesterday since it announced this morning the purchase of XenSource, which I would go so far as to say is the closest competitor to VMware (VMW - $51.00). With VMware getting a $16bn valuation on its IPO, Citrix is paying a mere $500mn (including assumption of $107mn in unvested stock options) of cash and stock, which is below the ~$650mn EMC (EMC - $18.34) paid for VMware back in 2003. Together, the firms are creating a new Virtualization & Management division to be led by XenSource's CEO Peter Levine.

Key point #1: Citrix had been making comments about how they would be "complimentary" to VMware, while admitting there would be some overlap and perhaps a hard time actually making the complimentary parts work together. Hence, this move shows that Citrix isn't afraid to "keep it's friends close and it's enemies closer!" Expect Citrix to have nothing to do with VMware from this day forward; and vice-versa.

Key point #2: Citrix has been a long-time big-time partner of Microsoft (MSFT - $28.27). There is a statement in the press release for this acquisition that this purchase will "strengthen each company's strong partnership with Microsoft and commitment to the Windows platform." Even without that statement, it was to be expected that Citrix is interested in keeping itself as a company completely interesting to Microsoft. While the $500mn acquisition price tag would fit squarely into Microsoft's wheelhouse, and while Microsoft's first forays into the open source world (read Novell) would have made a XenSource acquisition somewhat palatable to its constituencies, Citrix is wise to step up to this plate and be even more interesting to Microsoft as a long-standing acquisition candidate.

Key point #3: XenSource just released (literally) the latest version of their XenEnterprise commercial product. Please refer to the excellent review of this release from The451Group on Tuesday evening. Technical details aside, XenSource says its installed base has doubled in the past 90 days to over 650 customers.

Financial Impacts: Expected to close near the end of Citrix's FY07 during which a modest $1mn in revenue and $3mn of expenses are estimated as the financial impact. For the full FY08, Citrix sees XenSource adding $50mn in revenue and $60-70mn in expense. In 2H07, Citrix will be taking a $8-10mn charge for writing off in-process R&D. Obviously XenSource is substantially smaller than VMware today (by a factor of 20-25x) and XenSource remains unprofitable, but the ramp appears to be heading in the same direction as VMware has and is enjoying. Hence, the purchase price seems to be along the same valuation criteria (adjusted for the increased attention on virtualization now) that VMware received back in 2003.

If this market weren't so terrible right now, this would send CTXS shares skyrocketing. CTXS shares have a very solid base at $30 to backstop against and perhaps this deal helps keep Citrix shares above it's 200 day moving average at $31.94. The stock looks like $33.50-34.00 will be a volume resistance point in the short term. The stock was overbought on its late July highs near $40, but is now approaching an oversold level like it experienced in mid-May when trading near $30. All of that said, I believe this is a smart bet for Citrix and hence is a reason to continue adding to positions in Citrix and/or starting new ones slowly until the stock gets back above $34 on a close.

Will Adobe (ADBE - $40.41) get into the online producitivity apps business? CNET suggests it to be possible based on a non-confirming statement from an Adobe exec, but read it for yourself...I think it's real. My key question comes down to what the level of relationship is with Apple since I continue to wonder whether Apple will be partnering with Google's apps product set. Apple did just release a "pretty boy" version of an excel counterpart, so who knows. Apple should still buy Adobe, but perhaps it will be Google looking to Adobe...we will back off that one at this time.

Google (GOOG - $508.60) is getting closer to launching it's health portal/site/platform/entree/etc. This article on GoogleBlogscoped shows screen shots of the new site. It is pretty simple, but perhaps that's not the right focuis for analyzing an entree here since the whole point is merely to turn the tide on who controls each person's medical information ...and give it back to the user.

Need great presentation tips? read this. I will be adopting the note cards to accompanhy my slides recommendation.

Yeah, the Facebook bruhaha has died down a bit, except for the leaked source code of their site...ouch! We mention this because our guess is that the company is going it alone...which was our guess when they made the brilliant and surprising acquisition of Parakey. Well, the company is proving worthy of its growing ecosystem by focusing on building a specialized version of its app for the iPhone. Read this summary on Mashable for the great work performed again by Facebook.

Microsoft (MSFT - $28.27) just did a reorg following the close of its $6bn buy of aQuantive. The org changes are a throwback to the way Terry Semel had run Yahoo before his turning over the keys to Jerry Yang. I am not here to pick on the strategy, but just noting in this preamble that Microsoft now separates "getting users" and "advertising to them." Well, it wouldn't be the Internet without someone trying to throw salt in their game. One blogger tried to start a flurry of concern over his fear that adcenter was down for four days. His post (here) made the front page of Digg and then got a response from Microsoft, which coupled with other commenters on the site seems to confirm that this was in fact an isolated incident that adcenter was down. My take-away is not that this is an attempt to bring down Mr. Softy, but instead a sad reality of how few people use adcenter still that this couldn't have been debunked earlier. Call me a Google-fan all you want, but Microsoft does have some serious work ahead of them to get some more meaningful market share.

Cell phones have gotten bigger in size, while laptops continue getting smaller. The end game is the UMPC (ultra mobile personal computer). There are many great ones out there and I am only stalling in buying one because I believe we have only scratched the surface on these and the prices will drop once these become more mainstream and then I can buy a few of them., I used to like most the newest Samsung Ultra, but this HTC Shift device profiled on Engadget is my new favorite. I could buy two of the Samsung's for the price of the $1500 HTC Shift, but that's a different story. My point is that these firms (HTC, etc) are doing exactly what we need to see HP (HPQ - $47.28), Dell (DELL - $26.46), Lenovo, etc start offering. Surely they are in development I would assume, but HTC seems to stand out as an acquisition candidate for one of them since HTC seems to have mastered what Apple (AAPL - $124.03) has proven is the key thing to get right with computer products...design. We only suggest this because Dell already bought Alienware and perhaps there are other examples, but getting the mindshare is worth a lot of whatever the acquisition price would be for HTC.

• Juniper Networks (JNPR - $31.61) named its new CFO after the close of market. They picked Robyn Denholm, which was SVP of Corporate Strategic Planning at Sun Micro (SUNW - $) most recently. She joined Sun in 19996 and earlier worked in finance at Toyota Motor and earlier at Arthur Andersen.The stock is coming down from it's new highs as bigger peer Cisco also shows weakness. JNPR should find a bottom near $29 if not sooner.
  
• AMD (AMD - $12.54) nearly put in a new 52-week low in today's market downturn, but still managed to close its $1.5bn convertible debt deal. The cost wasn't cheap, but the alternatives were bleak at best. They finalized on a 5.75% interest rate for the 2012 maturity date. Net proceeds will be $1.48bn and will be swapped for the term loan provided by Morgan Stanley from October 2006. This stock is at a bottom and this newly secured debt/cash will help them stay in the game for when the game gets more favorable. If you buy the stock here, have a sell stop at $12.20. I'd rather wait to buy until a close above $13.50.
  
• Citrix (CTXS - $32.76) said it got the expected NASDAQ letter that it is not in compliance for filing its reports with SEC. The company has until 8/30/07 to get current on its filings of the two recent Qs. The stock had held up very well until mid last week, but it appears a further slide down to $31 is in the cards from here. The bears will say Citrix is screwed because of VMware's newfound IPO success, which is in part true, but Citrix does have a large business doing fairly well and a role to play in the virtualization world to combat VMware.
  
• VeriSign (VRSN - $28.64) said last night that they'd offer $1.1bn of junior sub-debt due in 2037 plus a green shoe for another $200mn. The proceeds are listed as targeting an accelerated stock buyback. This is a big move for the still new CEO and while this was initially greeted with open arms, the stock sold off. The uptrend that started in late August 2006 is essentially still in tact here, but really needs to keep from breaking down to its 50 day moving average in the high $25s, which I see as being very possible.
  

VMware (VMW - $52.75) debuted this morning on the NYSE with an opening tick at $52.00, which was quickly faded and then gathered some support after bottoming at $48. A month ago, when I wrote about the valuation when the price range was $24-25, I said this has to be priced close to $30 since the financials suggest the company can get to $1/share in EPS by 2009 if not sooner and hence a 30x multiple would seem a certainty for the growth in this company. Well, the part noted by me (and most others) was that the scarcity value of the shares would surely propel the stock to a much higher valuation. This is playing out in spades as I type.

Our model suggests the company can post license revenue of $792mn in 2007 along with $435mn in services revenue for a total of $1.23bn in 2007. With an EBITDA margin estimate of 38% and a tax rate of 23%, we show the company posting EPS of $0.49/share in 2007. Regardless of what one thinks about the "commoditization" of virtual machines and virtualization overall, pricing will be stable in 2007 to fulfill these estimates, but the questions come into play for 2008 and beyond. Three major items are at play. First, VMware has amassed a $1bn revenue stream largerly from desktop and non-production use of their technology in the enterprise. It is all but a certainty that the technology will permeate the enterprise in production applications at some point and this is possible in 2008. Second, however, is whether this will happen only as, or simultaneous to, a meaningful downward change in pricing. Setting that topic aside for the moment, the other major aspect to consider here for future profitability potential of VMware, is what they choose to acquire and create in the future. The company will spend roughly $250mn on R&D in 2007 up from $150mn in 2006. This is not chump change and on their own accord, VMware should be able to continue developing solutions that can drive future revenues and profits. However, the company now has a basket of cash and a very nice valuation with which to acquire other firms and propel itself away from the "commoditization" concern.

With that backdrop, I note that the 2008 estimates for revenue of $2.02bn (up 65% Y/Y), EBITDA margin of 37.4%, tax rate of 25%, would yield EPS of $0.79/share. These estimates essentially count on VMware only offering its current portfolio of products backed by strong demand that can sustain only a 150bp drop in gross margins to 81.4% in 2008. This might sound wrong, but we believe it would be equally wrong to predict what the company will acquire/develop and then model based on those assumptions. Instead, we EXPECT the company to have a much broader portfolio at this point next year and hence view the upside from those "products" offsetting the declines that ARE likely to come in pricing for their core technology as it potentially enters mass market status in 2008, but at least by 2009.

With those assumptions for a trade-off of upside potential masking the downside risk in pricing for 2008, if we stick to the same logic for 2009, but lower our revenue growth forecast to 40% with margins dropping to 80% in terms of gross margins and 35% on the EBITDA line, and a 30% tax rate, we can see EPS in 2009 being $1.16/share, which would reflect an increase in EPS of 47% in 2009 over 2008 following a 60% Y/Y increase in 2008 based on our estimates.

As for what this means to the valuation, excluding the fact that the shares held in the public markets are essentially just a teaser portion, right now the Street would be looking at 2008 estimates. Giving the company an EPS multiple equal to its 2008 over 2007 EPS growth forecast of 60%, this would yield a target price of $47. A year from now when the Street is looking at 2009 EPS growth rates where we forecast 47% increase on our $1.16 estimate, using the same logic would imply a target price 24 months from now of $55.

Since growth stocks can fetch up to 2x their growth rate as a multiple, one can see how the $47 and $55 target prices mentioned could (to the most bullish of the bulls) see $94 or $110/share. That would of course require absolutely flawless above anyone's estimated results every quarter. Reality is that the company already will fight the vagaries of the marketplace headline risk and hence we have no interest in going there to justify the current valuation of the stock. Instead, we view it more simply as being due to the imbalance of supply and demand in the VMware entity. We agree with the majority of commentators about VMware that since EMC holds 87% of the company that the value awarded to VMware should benefit EMC shares first and foremost because if our estimates are correct, EMC would be idiotic not to sell off more of its stake to the eager public. As the supply of VMW shares are made available, the scarcity value will decline. Hence, it is fundamental for VMware to capitalize on its valuation by acquiring firms with its new found currency in order to grow the fundamental possibilities of revenue and profit potential.

We believe the stock should find a backstop no lower than $40/share since even at those levels, we believe constructive returns could be achieved even should VMware stumble so long as the stock would be held into 2009. As for the upside, that is a question only answerable by the marketplace on a day-to-day basis. It is a fools exercise to try to pick where the top will be and what the top will be in the time being. This is a stock that is a buy until it's a sell. This might sound ridiculous, but we just cant justify the current prices of the shares without going out on a limb of assumptions that could so easily break down.

NaviSite (NAVI - $8.33) shares were under pressure on big volume last Thursday only to completely reverse and then some in the final hours of trading on Friday. Presumably, the recent seller of size is out of the way. I left a message for NaviSite's CEO when Wipro bought Infocrossing to elicit any thoughts he could share about other India-based IT service providers being interested in hosting firms. His voicemail back was that he was returning from India, but he was not selling the company. When we finally caught up, his comment was that partnerships with these offshore IT service providers were unlikely but that he agreed that over time, they will all want to own a U.S. hosting operation of some size. He couldn't comment on business since they are in the quiet period, but generally sounded optimistic as he always does about the tone of business.

This morning, we find the company buying two small hosting companies: Alabanza and Jupiter Hosting. The price for the two is $15mn in cash, which continues the company's history (although absent in recent years) in buying firms that others might view as unattractive, yet yielding great profits from them. Jupiter Hosting looks a lot more like NaviSite's business with a focus on high traffic or complex hosting clients. We expect the real allure of Jupiter to be the possibility of selling NaviSite's CDN services to the larger among Jupiter's 10k Web sites hosted. As for Alabanza, this one is a bit more surprising since they are known for being a wholesale provider for other shared hosting providers. While the concepts in shared hosting have a lot of merit again in the world of utility computing, I will need to hear more about the Alabanza platform to be convinced that this would be a wise move for NaviSite to build upon. However, the colocation business of Alabanza subsidiary in Baltimore could be the driving force in this deal. The oddity is that my former research firm Tier1 Research pegged Alabanza's revenues above $20mn annualized, so perhaps this is just a financial transaction that doesnt matter what they provided if NaviSite can reap some results from it as suggested in the press release as being immediately accretive.

Since NaviSite has a history of small M&A and all has turned out well (although also on a small scale), my confidence is in NaviSite having similar success here. More to come as I learn more.

• Peak10 acquired a 33k SqFt data center in Atlanta, GA and will open in September after some upgrades. The company remains focused on the southeast, but is obviously interested in continuing to extend the scope of land their footprint covers in this region, which now spans 8 states with 11 facilities. This makes Atlanta a little more crowded, but doesn't change the dynamics there, except Savvis which is about to open its first facility there, but will now be beat to the punch with some space of size.
  
• Best Buy promoted David Hemler to head up the Best Buy for Business division. He reports to the CFO. He joined Best Buy only last year as VP of Sales following his 11 years at Microsoft and a few earlier years with the consulting firm now known as Accenture. This is both good news for Microsoft as it is for Best Buy, but a negative for other mid-market VARs to the SME marketplace.
• 3TERA turned a customer into a partner announcing a collaboration with developing IT service consulting firm ENKI. Basically, customers who desire consulting help will no longer need to rely on the limited, but growing, resources of 3TERA to get their platform up and running. While ENKI is small (although some might read the quote of ENKI's CEO who was previously CIO of NetSuite as being larger) is a step in the right direction and should make getting larger partners a bit easier. Of note, the first joint customer Mixsic.com was quoted in the release.
• BusinessWeek.com said it had 1mn podcasts downloaded in the month of June. The top podcasts were The WelchWay and The Cover Story. No real significance to this other than a validation of the demand coming from all corner of traditional and new media for digital delivery services.
  
• eBay's Skype released v3.5. While great that they have 200mn registered users now and neat that they partnered with Dailymotion.com and metacafe.com, but the focus of the v3.5 on being able to include videos from those sharing sites on one's Skype profile is more cute than valuable. Rather we like that the company is adding the ability to be able to take still shots on video calls from Skype as more user meaningful right now. Regardless, Skype is making some good moves and this is all coming together for the better user experience that eBay has been talking about bringing to bear.
  
• Verticals onDemand is not only launching Salesforce.com's CRM app on a tailored basis to different verticals markets, but they are also partnering with IT consulting firms that specialize in those verticals. The latest is a partnership with HighPoint Solutions in the pharma/biotech sector (which has 50 pharma clients and 7 of top 10 firms). Every expansion from Verticals onDemand is a win for Salesforce.com, but should soon start to bring about competitors on the resale-level for Salesforce.com. We also expect this rising reseller base to be the driver to get Microsoft finally on board with launching LiveCRM.
  
• uWink (UWKI) is on its roadshow right now, yet continues to build it's business for the future. The latest is a planned 8,000 sqft restaurant in Dallas, TX at the Galleria to open in mid-2008. This is described as another premier shopping location in the U.S., which means rents will be higher, but should the results from its first carry over, this will be another big win. The company just needs to get the financing priced and over with. It seems this will price below $4 now since it can be expected there will be a discount to the deal to get this done.
  
• Wipro announced the acquisition of Infocrossing. The deal is as much about Infocrossing's large clients and their claims processing BPO operation as it about thier many large clients and seven data centers in the U.S. Infocrossing had not taken advantage of a support/service expansion team in an offshore location and hence Wipro can help bring margin to Infocrossing. Infocrossing gives Wipro a much bigger presence in the U.S. from which to expand. I believe this puts NaviSite into great interest of the offshore IT service providers, should any of them float a valuation over $500mn.
  
• There is buzz in the data center real estate market. Digital Realty Trust reported last week and showed that it's own business is still moving onward and upward instead of where it's stock direction was previously pointing. Since then, DuPont Fabros (the other primary owner of Savvis' data centers gained from Exodus) has filed for a $700mn IPO; and Carlyle Group sold the ever famous telecom hotel in LA at One Wilshire to Hines REIT. Carlyle Group's data center entity CRG West will remain a client in 170k sqft of the building as the largest tenant.
  
• EdgeCast Networks is a new entrant into the CDN market looking to get bandwidth to customers at cost and institute a "fee" on top of this for the CDN service. The focus is on rich media. They've been in stealth mode for a year. They describe their network as a multi-million dollar network spanning four continents (known POPs today are San Jose, LA, Ashburn, Chicago, Dallas, Atlanta, Seattle, London, Frankfurt, HK, Tokyo, Sydney). The highly topical statement they make considering the margin crunch on Akamai and Limelight is that their network will allow them to outperform rivals by significant "margins." Each customer of EdgeCast gets its own dedicated edge space on the deployed servers. IMAX is named as one of the first customers to launch its own multi-media section of imax.com.
  

Google is buying Double Click. Microsoft is buying aQuantive. Things change.

Microsoft cried foul when Google made it's acquisition, yet they made their own acquisition. Within aQuantive is a new platform for ad serving called Atlas. According to this story on ClickZ, InteractiveCorp (IACI) was already in the process of swithing away from DoubleClick for its myriad of properties over to Atlas before Microsoft purchased aQuantive. There is no mention of where Microsoft was in the bidding process for whatever it was offering internally, but this statement seems to make clear why Microsoft finally just agreed it needed to pay up to get into this game when such an important grouping of properties came up for bid like IAC did. Was this known to Google in April when buying DoubleClick? Most likely and hence might explain why Google only paid (and we use "only" lightly) $3.1bn versus Microsoft's paying $6.0bn for aQuantive.

On the other side of the ledger, DoubleClick did announce an extension of its deal with NBC for another 3 years. Not too shabby.

• Clearwire (CLWR - $31.08) disclosed the retirement of its CTO and promoted the VP of Engineering to fill his post. The departing CTO (Nick Kauser) will remain on the board. Given the recent relationship with Sprint, I dont think this is a sign of a sale of Clearwire, but I can see that concept getting some thoughts around the Street, which I would expect to come and fade away.
• Foldera (FDRA - $0.11) is a Web2.0 collaboration services firm that is strangely publicly held. They have lost essentially all market value and now announced they are cutting the workforce in half and "looking to hire a bank to explore strategic alternatives." This looks like a waste of time for the now 23 employee (down from 47) firm whose monthly burn is still going to be $225k with their restructuring.
  
• While there are tons of apps that launch on Facebook these days, the latest launched is Jobster, which says it spent six months trying to craft something unique in the online job world that takes advantage of the Facebook platform (aka privacy). The solution is a talent network that lets users see jobs on their facebook page that meet their criteria each day as well as allowing the user's profile on facebook to be turned into a resume to submit to would be employers of interest to the user. This is at least unique, but might be a bit early, yet still work out over time.

The gainers
Baidu (BIDU - $211.95) up 15.7%
Apple (AAPL  - $145.70) up 6.2%
Equinix (EQIX - $93.90) up 6.0%
F5 Networks (FFIV - $87.31) up 2.9%
Netflix (NFLX - $17.15) up 2.7%
Symantec (SYMC - $20.10) up 0.6%

The losers
Akamai (AKAM - $36.30) down 23.1%
RightNow (RNOW - $12.55) down 21.8%
Level 3 (LVLT - $4.88) down 14.7%
Charter Communications (CHTR - $3.85) down 11.3%
Keynote Systems (KEYN - $14.87) down 7.8%
Limelight Networks (LLNW - $16.42) down 6.9%
Comcast (CMCSA - $26.66) down 6.6%
Patni (PTI - $23.75) down 6.1%
Corel Software (CREL - $12.78) down 5.3%
Gemstar-TV Guide (GMST - $5.96) down 5.3%
AMD (AMD - $14.77) down 5.1%
Savvis (SVVS - $38.05) down 5.0%

This market is in flux and trading down on what is essentially well known information already (housing sucks). When a stock like Home Depot (HD - $37.61) with one of the largest buybacks on the planet in effect is down 1.1% versua 2% down NASDAQ, you know this tape is just getting hit randomly and everywhere now.

What strikes my fancy here? Akamai is far too oversold, but I'd only own this for a trade-up unless Paul Sagan is going to get the boot. On the same token, I think Limelight is wrongly being slapped with Akamai when reality should be that with Akamai going after larger deal, there should be more for Limelight to go after and go after more easily. WSPI/WWWW are both weak on little volume and this is a great time to be adding to positions. IMMR looks great here. Google is still a favorite above $500. I like EMC in the mid $18s. Intel in the $23s looks great. Oracle below $20 looks great. Tivo at $5.70 looks interesting again given the near-term growth catalysts with the Comcast rollout. Syamntec had a great quarter an dyet is down on the day in the high $19s, which I'd buy (although after MFE).

Apple rocks. Period!

I will be on CNBC this morning at 7am EST to talk about the following. I believe the company can post $4.70/share in GAAP EPS in CY08 still with the chance to post better gross margins than 32.6% in my model. This net income level would be up 29% from CY07 levels and hence applying a 40x EV/E multiple to this EPS estimate would yield a $200 stock price. While it might not get there right away as critics try to pile up again, and noting that risk remains higher than ever on missing on any mark in future quarters, we believe the stock is headed higher.

#1) The headline of my report is "The CFO who cried gross margin pressure" (a la the "boy who cried wolf")
- Every quarter, the CFO guides to what looks like an extremely conservative gross margin outlook and yet they blow away the gross margin expectation only to reset the bar low for the subsequent quarter each time. This happened again with 4QF07 guidance. It's fine to be conservative, but this has gotten away from the company now as guidance for margins and EPS is essentially pointless and hence we have to fear for a quarter when Apple does have gross margin pressure yet speaks about it as being a good quarter with in-line margins. That is one of the key reasons Yahoo! got smacked down on 1Q07 results when Semel had gotten the Street all excited about Panama ramping nicely only to talk down that "hype" when reporting 1Q07 by saying they were pleased to be in-line with guidance. Baloney! This is a risk for Apple for some quarter in the future, but certainly not yet in 4QF07, so the stock can run up freely in spite of this growing concern I have for a "miss."

#2) Dr Jekyl and Mr Hyde regarding iPhone enthusiasm versus overall financial guidance
- The above paragraph shows how conservative the CFO cares to be. With that conservatism in mind, the confidence expressed toward hitting the 10mn unit number in CY08 for iPhone sales should truly be underscored...assuming that the CFO is using the same "conservatism" when affirming that goal for CY08 as he does with his short-term gross margin guidance. There were attempts on the earnings call asking if the iPhone portfolio would go down market similar to the iPod (which has a sub-$100 option) and while we got confirmation that there will be multiple types (by the CFOs mention that they are approaching this..."model by model") we got nothing in terms of how soon a second iteration or second model type would be released. My gut says this will happen for the holiday season, but nothing from the release or earnings call will substantiate this. It seems likely given the secretive nature of details on even the European launch, that the timing of all such future iPhone product in the U.S. might even be dictated by which partner(s) is selected in Europe, whether that will have 3G support, and whether the same terms as achieved with AT&T can be found with the selected partner. Ditto for Asia Pacific. Regardless, we are very confident that Apple is not planning on hitting the 10mn unit number in CY08 by selling $100 versions of the iPhone.

#3) Record quarter in the "core" business shouldn't be overlooked
- Apple rightly put the record quarter for Mac unit shipments and revenues in the forefront of the results presentation, but it barely got much airplay from the analysts in the Q&A session. Why? Well, it is rather boring to hear again and again how Apple is growing 4x the U.S. market growth rate (per IDC data) for PCs when the units are still rather tiny in the grand scheme of things. That aside, it's hard to argue with the company's results and how it continues to leave a lot of possibilities for "core" business growth at Apple in future years (not only quarters). When might Apple go after bigger market share gains? My gut says 4QF07 is going to be the start of something big for the first time on that front. Why? This might relate to the gross margin guidance (gulp), but it was referenced several times that the discounting for back-to-school on macs will be "expensive" to Apple and will be with them all quarter long. Couple this with the rollout of Mac sales in 4x more Best Buy stores by the end of 2008 (and by 2.5x more by the end of 2007)...not to mention that Apple's own store footprint is expanding and continuing to blow the doors off with their results...it seems Apple is aligned to steal much bigger time market share in the next 18 months than we have witnessed; and we are referring to more than just the fact that the absolute numbers are now bigger (we are talking accelerating points of market share take in these next 18 months).

#4) More analysts need to appreciate the "secret revenue" as it might be a "model buster"
- One caller asked if payments were to be received from partners other than AT&T for mention/visibility as an icon on the main screen of the iPhone. Of course this question relates to Google (YouTube and Maps), and of course the response was "no comment." However, we point this out not only because this analyst might be onto some hidden real dollars from Google, but because of what could be an easy software change to have The Weather Channel be the logo'd sponsor of the Weather icon (whose data is currently fed through Yahoo but the source is Weather Channel); or by Yahoo Finance being identified as the one powering the stocks icon; or from any new icons that get added as new apps are made for the next batch of iPhones. The revenues from any one of these might be too small to matter ever, but perhaps in the aggregate, this might be a very nice side revenue stream that adds to the boost in margin rich revenue streams. Chief among the "secret" revenue streams are the payments from AT&T for each iPhone sold or each AT&T activation, or both! Apple confirmed a few times that no revenue was included in 3QF07 numbers on the iPhone except for the device price itself, but that the payments from AT&T would happen starting in 4QF07. The darn CFO wouldn't even answer if those "payment" revenues would be included in deferred revenue or as period revenue, yet he pledged to clarify this next quarter. Since he is being coy on this, we expect this will in fact be significant and now it is just a matter of guessing whether Piper's Gene Munster has the estimates right of a few bucks per month per existing AT&T customer and ~$10/month per new AT&T subscriber. Since I bet Gene is in the ballpark, this will in fact be a big deal when we are talking about 10mn units in CY08 and I dont think the Street has even come close to understanding how big this all could be as a boost to the profits of Apple. As one investor stated to me tonight, that could be the "model buster" for the Street. I agree and this is why I agree with Gene Munster that Apple's shares will reach $200...and perhaps sooner than anyone thinks.

#5) Let your imaginations run wild on what the next iPhones will incorporate - Most things in electronics are starting to shift toward a focus on the design range needed to appeal to consumer tastes as devices become as much a fashion statement as they are functional items. Apple of course gets this and its competitors are taking note. At the same time as design innovations are on the uptick across the electronics spectrum, so too are the functionalities possible on computing/mobile devices. We expect Apple to remain a pioneer on the design side, but also on the feature launching side. To do so, there are two key relevant things the company could launch. First, the executive who led Apple's iPod division from launch and four years afterwards (Jon Rubinstein) became chairman of Immersion (IMMR) before leaving Apple and has since also been named the incoming executive chairman of Palm. Immersion makes haptics, which cause rumble in game consoles like XBox and PS3, but also has several other hundred patents on touch-screen technologies that give "force-feedback" which is best understood as a vibration where one touches a screen that acknowledges a touch. This would of course be a great addition to Apple's multi-touch innovation and since Nokia has licensed this Immersion technology and presumably Palm will too, Apple shouldn't shun this former key executive's firm from adopting this as well, which should be rather easy to implement into the iPhone. Second, Motorola just licensed a technology from Microvision (MVIS) for a rather tiny image projection feature to be embedded into computing devices. When I say tiny, you should think of something the little bigger than the camera lens on a mobile phone. The use here would be for showing a powerpoint stored on one's phone up onto a wall directly from the device. I believe all handset makers will adopt this and since this also makes sense in laptops, which was 65% of mac units for Apple in 3QF07, I think Apple would be remiss not to also include this into at least some model types of the iPhone and Macbooks. Punch line, IMMR and MVIS could be nice ancillary plays, albeit small cap, alongside Apple's success.

Related plays
- Apple's comments about the importance of and expected use of flash memory bodes very well for Sandisk (SNDK)
- Apple remains very quiet about its software applications, which I still believe is because they will partner up with Google's online apps and hence there is still a ton of good to come for Google (GOOG) from Apple's plans. Google has already said that the use of Google Maps on iPhone is the biggest mobile application success for them with any partner. I have to agree that the search feature on maps is awesome and so easily gets you all contact information for destinations found through Maps search on the iPhone, not to mention the nicety of clicking on a contact's address to bring up a mapped location of that address.

• Todou.com raised $19mn in a Series A round led by Capital Today and General Catalyst along with a handful of other funds. While they dont describe it as such, this is a YouTube of China. I didn't say "the" because I am not sure they deserve that recognition, but they are serving videos to 40mn users watching 1.2bn videos each month (also noted is average visitor duration is 40 minutes). Also, they have some strong advertisers already including the mentioned Adidas, Ford, KFC, Lenovo, Motorola, Nike, Pepsi, Samsung, and Sony. Hmmmm, yup this is interesting. Will this be Baidu's (BIDU - $183.10) YouTube? Perhaps.
• MyShape is an interesting firm I wrote about once a few months ago. They just closed a undisclosed Series B financing led by Draper Fisher Jurvetson. The target here is online apparel shopping for women where they get a personal "fit" established and then shop just for clothes in stock that fit and flatter their size. The claim is that orders are larger (no pun intended, yet fitting!) and there are less returns. In fact, the company claims 50% larger order sizes and 50% less returns than other online apparel retailers. I think this will work out in a big way (again no pun intended).
• Ketera is an SaaS provider of spend management services and akin to Ariba. Ketera said it closed 2Q07 with great success and momentum, yet they give no specifics to support it. Statements like "success in untapped industries," and "deepened customer relationships". They mind as well say yada, yada, yada. Well, they did say they has 100% renewal rates and got a bid deal with Chevron.
  

• XM Satellite (XMSR - $12.05) and Sirius Satellite (SIRI - $3.10) continue on the path of trying to come together. While Sirius' CEO Mel Karmazin was already planned to be the CEO of a combined firm, that decision just got easier with XM's Hugh Panero resigning in August. As this Motley Fool article points out, he has been absent from company limelight since the deal was announced. Hence, this is perhaps a sign the deal will happen, but it is just as likely that the companies are hoping this will help sway anti-trust opinion to just let the damn deal go through before both flounder. While SIRI should still work for shareholders who enter at $3, the chart suggests there is still plenty of time to play elsewhere first.
  
• Vodafone (VOD - $32.23) shareholders voted against the activist shareholer who wanted to spin-off the Wireless division. Read it at WSJ. Accordingly, Vodafone has a few more months to decide whether to take their put option and sell of their stake to Verizon (VZ - $42.94) or to do the rumor and buy all of Verizon. Vodafone should sell their stake and buy Clearwire! or if they must...Sprint.
  
• Yahoo (YHOO - $24.67) is still trying to find a bottom and it will soon even if it needs to go all the way to the October 2006 lows of $23. Until then, we are left with capital flying to Amazon or those wanting to buy Google on this sell-off. As for why is this happening? It's because Yahoo's growth remains paltry. In addition to the results posted by Yahoo in the U.S., Yahoo Japan posted results this week with revenue rising a mere 15% Y/Y even though operating profits rose a stronger 24% Y/Y. It is seeming more likely that Yahoo gets no credit for its minority stake here anyway, so they should really consider jetting this off to Softbank and at least reap some cash and give Yahoo more flexibility to execute whatever its plan might be here at home.
  

• National Lampons (NLN - $2.34) is partnering up with Joost and making a channel of its content available on Joost. This will make some money for National Lampoons considering that Joost is now up to 1mn members (see apcmag.com), but is likely better understood as a first step in management's strategy to recast a distribution platform for their content, which is being bolstered by some new movie titles that have been announced recently. This is still risky sleeper pick of mine, but this shows the willingness to go where the puck is for the first time in a while, which I believe is the only way to change this from being a royalty play on Animal House and Caddyshack forever.
• Microsoft (MSFT - $30.40) is getting more vocal about its software "plus" services strategy since hosting its partner conference a few weeks back. The Financial Times quotes a Microsoft exec that plans for the productivity apps (Office) to start seeing some of the service side release in the next 12 months. While this isnt surprising at all, since it is an eventual reality they need to address, it seems the ball is finally rolling. This should result in Google (GOOG - $509.21) making a more aggressive push with its apps strategy before the end of 2007 (or even at CES in January), but this is no longer market impacting news/rumor for either Google or Microsoft. In fact, this actually means more for Zoho than anything as this makes them an interesting asset that should be acquired sooner than later...and it seems Facebook might be the acquirer.
• Clearwire (CLWR - $31.79) has settled back to the $30 level (and has since bounced back up) that we want to be buyers at. It seems the benefits to Clearwire will not only be on the top-line, but on the cost side being lower as well (due to the level of collaboration with Sprint (S - $21.70). We continue to resist chasing CLWR, but things continue to look better for the company.
  
• AT&T (T - $40.28) reported a good quarter with several real things going in the right direction including enterprise spending, wireless ARPU, and above all...data service revenue. The media focused on the number of iPhone activations at 146k as being low, which I agree with Business2.0 is ridiculous.  I also very much like the reality shared in Scoble's latest post about how common folk only hate the price. Well, Synchross (SNCR - $32.19) has been bantied around as a savior or the doomsayer since it is the activation engine for the iPhone. We like SNCR because as we have tracked the iPhone availability, we know that the sell-out happened a few days into July and hence the number of activations by Saturday night on release weekend is not the number to care about. Not to mention that AT&T is not even meaningfully influenced by the number of iPhones. So be it. I like AT&T for a move to $45, I like SNCR in the low $30s, and I still like Apple (AAPL - $136.64) heading into earnings. I also like the rubber wrapper from TuffWrap for the iPhone for $20, but note that it wont fit into the cradle with this wrapper on. Remember RIMM (RIMM - $225.43), well they still rock too and here's a nice post comparing the iPhone and the Blackberry 8800.
  
• Google (GOOG - $508.30) got a lot of press for its marker bid of $4.6bn in the spectrum auction, but what few wrote about was the related investment Google made in a company called Ubiquisys. See this Venturebeat report for a good perspective. Essentially, Ubiquisys' technology (femtocell) is the heart of a device that plugs into one's home broadband router port and gives 3G coverage in the home. The device is roughly $150 (when released) and allows up to four users to access it's connectivity.If Google convinces the FCC to adopt openness with the spectrum, then there could be even more play with the use of this technology as an offramp from wireless networks for calling from your handset. If you wonder what Apple (a Google partner) might be coming out with as its next iPhone...you could assume that it might have 3G for another reason now. A separate topic would be how this is another device that could certainly be combined with a router or other home computing centric devices of the future. Either way, we think Google gets some good access to the telecom market from this investment and enables it to succeed even greater if the open spectrum happens, but still benefit if the spectrum goes to the incumbents. We also find it funny/interesting that the Bell loving Scott Cleland is now opposing the Google Doubleclick merger and will likely come out against Google's spectrum bid as well.
• Google is also interesting for its StreetView service where this post on Gizmodo shows how many cars they have ready to continue to add to the "views" available. This is just the warm up period if the picture is truly worth a thousand words.