Chatting With NXPI CEO Rick Clemmer

By Eric Jackson
RealMoney Contributor
5/5/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

I had a chance to chat yesterday with NXP Semiconductor (NXPI - commentary - Trade Now) CEO Rick Clemmer from his Eindhoven, Netherlands office after his company's reported its quarterly earnings on Wednesday. The quarter beat analysts' estimates but the stock price sagged along with the rest of the market.

NXP Semiconductor is a spinoff from Philips(PHG - commentary - Trade Now). It held an IPO last August after some big-name U.S. private equity firms bought it from Philips back in 2006. Clemmer was working with Kohlberg Kravis Roberts (KKR - commentary - Trade Now) - one of NXPI's investors - at the time, and he soon was installed as CEO. He previously worked at Agere when it was spun off from Lucent and at Texas Instruments (TXN - commentary - Trade Now).

The semiconductor company is most famous for its exposure to near-field communications (NFC). NFC is starting to explode this year with mobile handset makers as it allows users to securely make mobile payments with a tap of their phones. It will also allow for an amazing number of new applications that will allow users to get location-specific information (and advertising) on their phones down the road from wherever they are. Although that gets the lion's share of attention from investors, NFC is actually a tiny part of NXPI's overall portfolio of products.

Here are some highlights from our conversation:

• Debt. The company had $3.7 billion in debt at the end of the quarter but management is waiting on government approval to sell their Sound Systems unit. When this happens, they will immediately have another $880 million in cash, which they plan to use to pay down their debts. The focus is on continuing to shrink the amount they owe, but Clemmer says it will be much smaller a year from now.
• Mergers-and-acquisition (M&A) speculation involving NXPI. Clemmer said that he's never surprised when rumors pop up in the space. He sees that as normal. NXPI is focused on continuing to grow itself organically and not be distracted by rumors. He sees his job as continuing to ensure that the company's portfolio keeps growing above market rates. I asked him why we're seeing more semiconductor deals occur. He believes it is because the industry's growth is slowing and that is forcing consolidation. Many semiconductor companies will only see single-digits growth this year. Those are the ones that need to look for faster growing companies to acquire.
• Will there be more secondary offerings? Some of the private equity investors recently sold their shares to the public as the stock has tripled since the IPO last August. Clemmer claims the owners didn't want to sel,l but others were clamoring for a larger public float of NXPI shares to trade.
• How much does NXPI make from NFC? About $2-$3 per handset. This can be more or less but that's a rough estimate.
• Will NFC grow at the rates he's previously suggested? He's sticking with their prior estimates of 70 million NFC handsets shipped this year and 150 million next year. He wants NXPI to have Intel-like (INTC - commentary - Trade Now) market share (i.e., 70%-80%) in NFC.
• Which carriers are leading and lagging in NFC? Clemmer wouldn't call out the laggards. He said every time he talks to Google (GOOG - commentary - Trade Now), they want to double their orders.
• Do you worry about Qualcomm's (QCOM - commentary - Trade Now) progress in NFC?Clemmer said they have to cooperate and compete with Qualcomm. He also mentioned they compete with the privately-held Inside Secure, but that he felt that unlike Inside Secure, NXPI was able to present customers with a single-vendor solution that was appealing.
• Will there be any more sales of products in the NXPI portfolio? Never say never, but Clemmer is happy with the portfolio at the moment.

Clemmer didn't have any speculation about when Apple (AAPL - commentary - Trade Now) would enter the NFC market. That's a question a lot of NXPI investors have. Some are hoping that iPhone 5 will have it. Others have speculated NFC support won't happen until iPhone 6. Clemmer just said that Apple was definitely studying the space closely and wanted to do something special when they decide to incorporate NFC into its products.

Knowing Apple though, I find it hard to believe the company is happy to let Google keep doubling orders for its Android phones while it has NFC all to itself.

[At publication, Jackson was long NXPI and AAPL.]

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Most Competitive Spaces in Chinese Internet

By Eric Jackson05/04/11 - 07:00 AM EDT

NEW YORK (TheStreet) -- China is a hot investment theme -- and, more specifically, China Internet. Stocks like Sina(SINA_), Baidu(BIDU_), Sohu(SOHU_) and Youku(YOKU_)have had great runs this year.

I often see investors talking about relative valuation of Chinese Internet stocks on Twitter: "I think Dangdang(DANG_) is poised to pop here to close the gap with Youku."

However, not all Chinese Internet stocks are created equal. Two sectors within the Chinese Internet space are particularly competitive: group buying and online video. I'm bearish on both sectors for the next year.

What's not to like?

The group buying space in China has existed for years.Groupon is certainly in the space. It recently bought a Chinese company called Groupon.cn that set up shop the moment it became clear that Groupon in Chicago was on to something. More interestingly, Groupon.cn was much more popular in China than Groupon had been.

It looks like Groupon made the acquisition to strengthen its position in China and look more put together for its likely end of year Nasdaq IPO. Groupon might end up being successful in China, with a lot of help from its partner there, Tencent. However, I wouldn't bet on it.

There are literally dozens of group-buying clones in China. Some more popular than Groupon, some less. The big daddy of them all is Taobao (ju.taobao.com) with more than 75 million unique visitors in January. Taobao is the mega-ecommerce site owned by Alibaba Groupprivately (which is 40% owned in turn by Yahoo! (YHOO_)). Taobao has never been shy to compete on price. Ask eBay(EBAY_) about their experience competing against Taobao -- they were driven out of the market.

Lashou.com is the next most popular company with 45 million unique visitors in January. Groupon.cn had 19 million visitors (which presumably Groupon Chicago will take over). Groupon itself (with its Gaopeng.com site which it had been using in China) didn't make the top 10 list of group buying sites in January in China.

There is money pouring into the sector. Lashou just received a Series C round of $110 million. This brings its total capital raised to date to $166 million.

.......

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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The RenRen Question

By Eric Jackson
RealMoney Contributor
5/2/2011 1:00 PM EDT
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"Do You Like RenRen?"

I was asked that question more times last week than any other. It's actually surprising to me how many casual China investors are curious about this initial public offering, which is set to debut on U.S. exchanges Wednesday under the ticker "RENN."

The short answer is I don't really like the company, viewed by many as the "Facebook of China." But investors would be wise to get their hands on as many shares at the offer price as possible, because the stock will be hot out of the gate.

A couple of weeks ago, I gave my summary of the company's F-1 filing with the Securities and Exchange Commission. I said that the number of active users seemed to be far lower than what the company had suggested when it was still private and didn't have to worry about running afoul of pesky securities laws.

At the end of 2010, the company had only 24 million unique log-ons for the month of December, almost flat compared with December 2009. Revenues in the last three quarters have also been flat: $20 million, $22 million and $21 million, respectively. That's not a hockey stick.

I continue to hold rival Sina (SINA - commentary - Trade Now) long because I believe the growth of itsWeibo microblogging service continues at a pace we don't yet fully appreciate. Various reports I have heard from China suggest that many young users are dropping RenRen in favor of Weibo.

That said, the IPO process for RenRen has gone very well. Even before RenRen's U.S. road show, Asian demand had caused the IPO's bankers to raise the target offer price by $3 to a range of $12 to $14 per share. The company is now seeking to raise $743 million from the offering instead of about $500 million.

Maybe it's a Facebook thing. That company appears to be on track to do $2 billion in revenues this year and $4 billion next year. Facebook just released a report indicating their growth is faster than previously expected and on track for a successful IPO later this year. Of course, Facebook recently indicated that it is looking at entering the Chinese market through a joint venture with Chinese Internet search giant Baidu(BIDU - commentary - Trade Now).

Or maybe it's a China Internet thing. Youku (YOKU - commentary - Trade Now) is an online video site that did $58 million for the full-year of 2010, with a net loss of $31 million. Yet, the company has a $6.2 billion market capitalization.

...

[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Baidu Keeps Rolling

By Eric Jackson
RealMoney Contributor
4/28/2011 12:15 PM EDT
Click here for more stories by Eric Jackson

Last night's report from Baidu (BIDU - commentary - Trade Now) didn't disappoint the bulls. The company beat earnings expectations by $0.03 a share and beat top-line revenue estimates.

More important, Baidu raised its guidance for the second quarter above $500 million, on the high end of the range. This was beyond any prior high-end estimates for the second quarter. Quite simply, Baidu is continuing to perform with continued staggering growth.

The company's trailing 12 months of revenue prior to last night was $1 billion. Last night's quarter annualized is up to over $1.3 billion in revenue. Next quarter's guidance puts it up to $2 billion annualized. Its last quarter-on-quarter earnings growth compared with the prior year is 171%. That compares to the "mature" growth of Apple (AAPL - commentary - Trade Now) at 95% and Google (GOOG - commentary -Trade Now) of 20%.

But Baidu is still relatively small compared with Google. We're talking $1 billion or so in revenue a year vs. $30 billion. Can Baidu continue to justify a high multiple in the coming years? It now has almost one-third the market capitalization of Google.

To hear Robin Li, the founder and CEO of Baidu, talking about it on last night's call, Baidu still has a lot of growth areas ahead of it, including:

• Further penetration within China, where only 30% of its population is connected to the Internet today.
• Further increase in wealth and ad rates within China as the standard of living increases.
• Growth in mobile use. Last night, Baidu management confirmed that 80% of the Android handsets shipping in China have Baidu as the default search engine. Ironically, Google's open platform has allowed handset manufacturers to insist that Baidu be the default search engine, as it is preferred in China.
• Social. Robin Li made the point last night that Baidu has been competing against social platforms in China for many years, via Tencent's QQ service. Therefore, it has responded by trying to integrate social search into its search for a while. No one confuses Baidu with a social platform yet, although it has had its own version of Yahoo! (YHOO - commentary - Trade Now) Answers for years, and it has become very popular. Baidu can do a lot more to monetize search. And although the company didn't mention it all last night, there is the possibility of partnering with Facebook to bring the universal social service to China in the future.
• Local. Today, this remains very under-monetized, according to Li's comments last night. In an increasingly mobile connected world, this search ability will become more important. A couple of days ago, the CEO of Sina (SINA - commentary - Trade Now), Charles Chao, said that over half of the users of his popular Weibo service connect via a mobile device.
• Video. Baidu has 150 users for its Qiyi video service in less than a year. Youku (YOKU) has 230 million users. Baidu is rumored to be looking to spin-off Qiyi in 2012.
  
• Robin Li discussed last night how apps are becoming more popular. Today, there are tens of thousands of apps, and the Chinese are showing a lot of interest in downloading them and experimenting with them. In a few years, however, he said, there will be hundreds of thousands and then millions of apps. At some point, users get overwhelmed with the choices. When that happens, they need to fall back to their familiar choices. Search, and Baidu, will be a key necessity for them. (Other big Chinese Internet companies such as Tencent, Taobao and Sina should also benefit from this trend.)

This morning, there are some increased price targets out from analysts. The stock is up.

Baidu is a solid Chinese company. It might not grow 143% in the next 12 months as it has in the last 12 months, but it will do very well.

At the time of publication, Jackson had long positions in BIDU, SINA, YHOO and AAPL.and short YOKU

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Dear Larry: A Letter From Wall Street

By Eric Jackson, Senior Contributor04/27/11 - 08:00 AM EDT

NEW YORK (TheStreet) --

Dear Larry:

What happened?

There was a time -- just before you IPO'ed in 2004 -- when we really thought Google(GOOG_) was a kooky company. You put that strange letter to shareholders in your S-1. You said you wouldn't pay attention to the short-term demands of Wall Street. You set up a dual-class share structure so that none of our activist hedge fund brothers could throw you out if you did a terrible job. You said you were going to be a different kind of company.

We don't like different. It's hard to figure out. It's random. Worst of all, it suggests your margins are going to suck.

Google CEO Larry Page

Luckily, Eric Schmidt won us over. He was very articulate, if not a little professorial. He seemed to listen to our concerns and communicate back to us in a way that conveyed understanding and serious intent. In short, we liked him and our confidence was bolstered by your results since IPO.

However, since you pushed Eric out so that you could retake the CEO title, we're a little freaked out.

All those early fears of ours about a bunch of kids running this company in some haphazard way came back to us. The day you made the announcement that you were taking over for Eric, you released a picture of you, Sergey and Eric sticking your heads out of a Prius that drives itself around the Google parking lot. Driverless cars? That's in the Google R&D budget?

More recently, we've read that you're investing in wind farms in Oregon. Hundreds of millions of dollars in wind farms. Your recent quarter's results showed operating expenses up 40% because you gave everybody one-time 10% pay hikes across the board.

In short, we're seeing lots of spending and it's not at all clear how this is going to benefit us -- the shareholders.

We know you call us Wall Street people and you look down on us. You think because we're not engineers or Rhodes Scholars that we're not as smart as you. You think we're slick guys in flashy suits who don't deserve what we're paid. You put us down in private -- until you need our money.

.......

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Yahoo! Wears a Target Once Again

By Eric Jackson
RealMoney Contributor
4/25/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

Kara Swisher's Good Friday post in The Wall Street Journal about several potential acquirers taking another look at Yahoo! (YHOO - commentary - Trade Now) was very interesting in a number of respects, and it should reignite the shares, which have languished since last fall, which was when Yahoo! was most recently the subject of buyout chatter.

• The story suggests that there is renewed interest among potential buyers of the core Yahoo! business.
• It suggests that the board of Yahoo! has changed its tune in terms of doing a deal for the company.
• It sounds to me that there is increased seriousness on all sides about doing a deal now.

Swisher is not someone who publishes for the sake of link-baiting. She takes her craft of journalism very seriously, and that is why she's the best at her beat.

According to Swisher, the current potential suitors for Yahoo! are the same as the old ones: News Corp.(NWS - commentary - Trade Now), Microsoft (MSFT - commentary - Trade Now), AOL (AOL - commentary- Trade Now), Disney (DIS - commentary - Trade Now), Providence Equity Partners and even Morgan Stanley (MS - commentary - Trade Now). And another player, former News Corp. president Peter Chernin, is also reported to be interested in doing a deal. What a deal might look like and what roles these various partners might play are topics that are still being bandied about privately.

The biggest open question from all the new information discussed in the post is, what will happen to Yahoo!'s stake in Alibaba Group? For example, if Providence and News Corp. and Microsoft all joined forces and bought Yahoo!'s core business, doesn't Alibaba (and Softbank for that matter) have a veto on this deal? This question came up at the time of the Microsoft bid, but to my knowledge it has never been answered.

Presumably, Alibaba would love to buy back Yahoo!'s 40% stake in Alibaba at a cheap valuation. If Alibaba did offer to do so at a low-ball valuation -- and if Yahoo!'s board accepted -- it would be offensive to Yahoo! shareholders.

As a Yahoo! shareholder, I have a hard time seeing how I'm better off with these assets under the care of News Corp., or Microsoft or Providence Equity or Peter Chernin. Are any of them going to pay me $60 for my shares? That's going to be a tough number to sell to any board. But Yahoo!'s shares are going to be worth that by 2015 -- by my estimates -- even if Yahoo! CEO Carol Bartz utterly fails to turn around the core business. That's simply from the expected growth of the private assets of Alibaba.

...

[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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By Eric Jackson
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4/21/2011 11:30 AM EDT
Click here for more stories by Eric Jackson

It was another strong quarter from Apple (AAPL - commentary - Trade Now), which reported its results yesterday after the close.

The company beat on most of its numbers (as it usually does) and missed on some others. However, people seemed to pay little attention to the misses and gravitated toward the strengths of the quarter. This morning, there are already four upgrades out on the stock, which are helping to move the stock.

Taking a step back, here's what I thought were the most important details from the earnings release and conference call:

• People liked the comments from Chief Operating Officer Tim Cook. He and CFO Peter Oppenheimer turned in another solid performance. They emphasized the wins, explained how they were dealing with some of the difficulties, and generally reassured everyone that the future remains very bright for Apple. The contrast between Cook's performance and Larry Page's from Google (GOOG -commentary - Trade Now) last week could not have been more striking. Expect investors to continue to notice and to comment on this difference in the months and quarters to come.
• Japan doesn't appear to be a big deal on the demand or supply side. Before the call, there was intense speculation that Apple would be hamstrung in meeting intense demand for the iPad 2 because of the earthquake's effect on its suppliers. Cook denied this, citing "hundreds of suppliers" from many geographies. From a demand perspective, Cook said that the company had taken down its revenue estimates for the current quarter by $200 million in anticipation of disruption to Japanese consumers. After that, it doesn't appear there will be anything else.

...

[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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