Last week FOX Business Network’s (FBN) Liz Claman spoke with tech sector CEOs in Silicon Valley for the fourth annual “Three Days in the Valley” summit. The exclusive interviews gave some insights into the high-tech industry trends as well as the companies themselves, that are invaluable for investors.
Of special note were comments from the CEO of Intel Corporation [INTC], Paul Otellini, who discussed the growth trend in the computing industry. Contrary to popular belief, the desktop & notebook are not being replaced by the tablet computer. In advanced economies, the tablet is the latest personal computing product. But because many people see them being purchased and talked about by their friends, it seems like it is quickly replacing all desktop & notebooks.
Otellini, explains that the tablet in advanced economies is not the biggest growth market in PC’s. “The biggest growth we have seen in PC’s is notebooks in emerging markets. In emerging markets when it comes down to the first choice of computing it is likely going to be a Smartphone, followed by a PC at some point because the utility model around sharing it with your family, which is how computers are sold, is far more prevalent.” He further explains that although, many people now have tablets, they still have and own a desktop and/or notebook PC.
I personally own a desktop, notebook, and a tablet. However, I use the tablet mainly for reading and the internet, whereas the desktop and notebook are also used for everything else (especially work related).
Liz Claman’s interview with Jeff Katzenberg, the CEO of DreamWorks Animation SKG Inc. [DWA] also revealed interesting insights, particularly his view of Netflix Inc. [NFLX] CEO Reed Hastings, and the 3D trend. Netflix, which has recently been shunned by investors, has seen its stock price decline over 70% from around $300 in July to $80 per share. The company recently reported lower Q3 2011 earnings as lost a much larger number of U.S. subscribers than it had previously forecasted. Netflix has been attempting to handle significant customer fallout from a price increase and other unpopular initiatives (such as the scrapped Qwikster idea). However, Katzenberg stated that “Reed Hastings is a visionary. He looks over horizons and around corners and understands the transition from hard goods to digital is his future and that is what he was focusing on. He may have taken that step a bit too soon and got a little ahead of where the consumer was ready to be, but the sign of a great executive is to be able to see when a strategic decision like this is not working, make the correction, accept the responsibility for it and move on”.
In regards to the 3D trend, he sees the real hurdle that that has kept adoption slow, has to do with having adequate programming. Although it is starting to increase, primarily from sports and video games, “people are embracing it and loving it”.
For investors interested in DreamWorks, Katzenberg mentioned a key philosophy in his business, that although DreamWorks is currently the “largest animation company in the world, it’s not about volume, it’s all about quality,” “making them great rather than making more of them.”
One of the hottest and fastest growing areas of the tech sector has been with video games. John Riccitiello, CEO of Electronic Arts Inc. [ERTS] shared insights on major shifts in the industry as well as at EA, especially with respect to social & mobile gaming. Social & mobile gaming has made a huge impact in recent years and has grown considerably both in terms of global sales and volume. According to research firm Gartner, the mobile games industry is expected to grow to $11.4 billion by 2014. This has caused larger companies such as Walt Disney Co [DIS] and Electronic Arts to take notice. Disney had acquired social gaming network Club Penguin in 2007 and social gaming developer Playdom for $763 million in 2010. As of October 2011, Disney’s social game “Where’s My Water?” featuring the character “Swampy”, ranked as the top paid app for iPhones and iPads, outpacing the former leader, “Angry Birds” developed by Rovio.
Electronic Arts has also made moves into the industry with its acquisition of game developer Playfish in 2009, mobile game publisher Chillingo in 2010, and its acquisition of PopCap Games in July 2011. The PopCap deal was worth up to $1.3 bln ($650 million in cash and $100 million in common stock upfront, as well as up to an additional $550 million on performance targets). Electronic Arts now has a solid stable of social games including “The Sims”, “Bejeweled”, and “Plants vs Zombies”. It also publishes Rovio’s widly popular game, “Angry Birds”.
Riccitiello describes the video gaming industry as undergoing a major transition. He elaborates that what has been“seen in the last couple of years is a dramatic rise in social games, mobile games, digital games, or games transmitted digitally through to the console through to the PC”. Although mobile & social gaming as “smaller experiences” has gained huge popularity, it has not eliminated the other segments. “It’s like the big screen in hollywood versus the television show versus something you might see on YouTube. There’s a market for each of these things.” “The best gaming experience is on high definition console, There’s always going to be room for big blockbuster games that requires a powerful CPU, or powerful computer or console to play”. We can “expect big, medium, [and] small” screen experiences for the foreseeable future.
For investor interested in Electronic Arts, Riccitiello’s comments show that initiatives by Electronic Arts in the transition have been paying off. They are now “number 2 on social behind Zinga, number 1 on iOS, and the driving force in the new digital arena”.
FOX Business Network Interview Highlights With Paul Otellini (Intel)
CREDIT: FOX Business Network
Intel CEO Paul Otellini tells FOX Business he was “stunned” Hewlett-Packard would consider spinning off their PC business and plans to tell CEO Meg Whitman to “stay the course”:
Intel CEO Paul Otellini spoke exclusively with FOX Business Network’s (FBN) Liz Claman live from the Intel Headquarters in Santa Clara, CA as a part of a technology special on FBN titled “Three Days in the Valley.” Otellini said he was “stunned” by Hewlett-Packard’s announcement that the company was considering spinning off their laptop and computer business and will urge new CEO Meg Whitman to “stay the course.” When asked about whether companies like General Electric and specifically CEO Jeff Immelt should be criticized for having trade relations with China, Otellini said “heck no” and what Immelt and others on President Obama’s Jobs Council are doing is “volunteer work, real work, for no money, to try and help the country and to get picked on for that is problematic.”
Excerpts from the interview:
On Hewlett-Packard’s announcement they may spin off their laptop and computer business:
“I was stunned. I thought ‘what is he thinking?’ I don’t know what decision Meg and the board will make now; I hope they decide to stay in the business. Print and ink is such an important part of HP. Over time, all of us are printing less stuff, more and more we are living with digital images. To leave consumer digital electronics to me would be a very strange decision to make when your whole business model is tied up in imaging.”
On whether he has spoken to HP CEO Meg Whitman about this decision:
“On the phone I have. I wills see her for the first time Friday.”
On what his advice to Whitman will be when he speaks to her:
“Stay the course.”
On whether companies should be beaten up for having ventures with China:
“Heck no. If I were a shareholder at GE and Jeff was not focused on China I would say what is your China strategy? One of the major discussions in the Intel board room is what is your China strategy? How can you become more relevant in China. It is the largest market for almost everything in the world. We have been in China for almost 30 years now. Our brand relevance and recognition in China is stronger than it is here. Our mix in China is stronger than it is in the United States. Our share is higher in China than here. It is a great place to do business if you have a product that is protectable and we do. It is pretty hard to counterfeit a microprocessor.”
On GE CEO Jeff Immelt and others on President Obama’s Jobs Council being criticized for their relations with China:
“These are people doing volunteer work, real work, for no money, to try and help the country and to get picked on for that is problematic.”
On the cannibalization of PC by tablet devices:
“You see everybody is using it in your small circle of friends. It is not everybody in the world. I have a pad on my kitchen table. I haven’t given up my notebook. The biggest growth we have seen in PC’s is notebooks in emerging markets. In emerging markets when it comes down to the first choice of computing it is likely going to be a Smartphone, followed by a PC at some point because the utility model around sharing it with your family, which is how computers are sold, is far more prevalent. It feels like Mark Twain in terms of the rumors of your death being greatly exaggerated. PC business continues to grow; it’s a million units a day, 400 million units this year. Our notebook business is booming. That’s pretty good.”
On the growth in Brazil and whether they will be “the next big customer” for the Ultrabook:
“They will be.”
On how the European economy is impacting business:
“Europe consumer has been weak. The European enterprise business is quite good.”
On the Ultrabook:
“It’s under 1,000. We have 11 companies shipping different models this Christmas. Lenovo, Asus, Acer, Sony, Toshiba, and a few others. All the major brands. In the early part of next year you will see new designs from people like Dell and HP. And when we introduce Ivy Bridge, our next generation microprocessor, there are 60 more designs coming out. Our view is this will get more pervasive. They are going to come down to main stream price points. These are going to be as attractive as a notebook is today; the same price point with much more features.”
On when consumers can expect a touch screen integrated into a PC:
“Next year. There is no operating system to take advantage of it. When Windows 8 comes out you will see hybrid models that integrate the functionality of a tablet and notebook in to a single device.”
FOX Business Network Interview Highlights With Jeff Katzenberg (DreamWorks)
CREDIT: FOX Business Network
Dreamworks CEO Jeff Katzenberg tells FOX Business Netflix CEO Reed Hastings may have taken a step “too soon”:
DreamWorks Animation CEO Jeffrey Katzenberg spoke with FOX Business Network’s (FBN) Liz Claman about the deal DreamWorks recently struck with Netflix Inc., and whether this announcement was overshadowed by the news that Netflix would raise its prices by 60 percent. Katzenberg said the announcement and the news about Netflix “are unrelated,” but that Netflix CEO Reed Hastings “may have taken that step a bit too soon and got a little ahead of where the consumer was ready to be.” Katzenberg also spoke about the future of 3D television, saying, “It’s going to be a slightly slower rate of adoption than people thought out of the box.”
Excerpts from the interview:
On if he was disappointed that the announcement to partner with Netflix was overshadowed by the news that Netflix would raise its prices by 60 percent:
“They are unrelated. Netflix is a relatively new business model in which they are really trying to find the best long-term path and future for themselves. Reed Hastings is a visionary. He looks over horizons and around corners and understands the transition from hard goods to digital is his future and that is what he was focusing on. He may have taken that step a bit too soon and got a little ahead of where the consumer was ready to be, but the sign of a great executive is to be able to see when a strategic decision like this is not working, make the correction, accept the responsibility for it and move on. Was it a stumble? Yes. Is it critical to their long-term future? I don’t think so.”
On if he still supports 3D television:
“I am because I see the quality of what’s coming down the line. The real gaining issue is to get enough programming and until there is enough of it, it’s going to be a slightly slower rate of adoption than people thought out of the box. It will come primarily from sports and video gaming, but we’re starting to see more programming available in 3D and people are embracing it and loving it.”
On whether the release of the movie “Puss in Boots” next week will be a success:
“We’re in the hands of the movie gods at this point, but it’s a great movie.”
Official FOX Business Network Interview With John Riccitiello (Electronic Arts)
CREDIT: FOX Business Network
Electronic Arts CEO John Riccitiello tells FOX Business Network Battlefield 3 will enable the company to target Activision Blizzard’s Call of Duty market “straight up with a better product”
Electronic Arts (EA) CEO John Riccitiello spoke with FOX Business Network’s (FBN) Liz Claman live from the EA Headquarters in Redwood, CA as a part of a technology special on FBN titled “3 Days in the Valley.” Riccitiello said that with the release of Battlefield 3 in eight days, EA will be going after rival Activision Blizzard “straight up with a better product.” When asked if EA is hiring, Riccitiello said “of course we are. In the United States. Right now we have more engineering and technology jobs open than any time I can recall. Approximately 1,400. That’s where the action is.”
Excerpts from the interview:
On the rivalry between Activision Blizzard and their game Call of Duty and EA and Battlefield 3:
“The Call of Duty franchise has been a great business for Activision. We are going at them straight up with a better product. Frankly this is the entertainment business; no one lives or dies on the outcome of a video game but bringing this much attention to one head to head battle is fun for everybody.”
On whether Electronic Arts is hiring:
“Of course we are. In the United States. Right now we have more engineering and technology jobs open than any time I can recall. Approximately 1,400. That’s where the action is.”
On his favorite games:
“I have been and am addicted to Angry Birds. But right now my household is more or less owned by Battlefield 3, FIFA, Mass effect; it’s exciting times, a lot of good stuff for the holidays.”
DISCLOSURE: I do not own shares of Intel, HP, GE, DreamWorks, Netflix, Electronic Arts, or Activision Blizzard. I am long Disney. I do not plan on acquiring or selling shares of any of the above mentioned companies within the next 3 trading days.
Thank you to FOX Business Network for sharing the highlights and excerpts with The Investment Blog!
Thanks & Happy Investing!