Business: Timing is Everything!

August 11, 2011

Business: Timing is Everything!

Times change fast. Especially in business and economics. Perfect conditions for one set of decision making today, cracks in the foundation tomorrow. The balance between moving fast and assessing risk is not easily found. Strong nerves are required. 

So what was different from today's issue of the WSJ and one from a couple of months ago: no acquisition talk. I pulled out the WSJ issue from May 10^th, 2011. LinkedIn was promoting its upcoming IPO and four mergers and acquisitions were discussed:

1) Microsoft looking to acquire Skype for $8.5 billion.

2) Southwest Airlines closing on AirTran acquisition for $3.2 billion.

3) Hertz making a $2.1 billion offer for Dollar.

4) Nvidia Corporation acquiring Icera for $367 million.

A total of $14 billion changing hands [generally speaking]. What has changed? There was already notable discussion of the European debt crisis at the time. Concerns over Italy's economy were front and center. Since then the words debt and crisis have appeared [I venture a guess here] at least 10 times each in each issue on any given day. In variations of course, sometimes pertaining to Spain, to Italy, to Greece, the U.S., and now to France. [For latest news on France's credit rating: go here.] The stock market has been up and down since then. Ideal timing for IPOs seems to have passed. Acquisitions will be considered more carefully now. Timing is everything.

 Image: http://www.stephenies-here.com/tag/time-is-money/

It would be interesting to take a closer look at which industries are expected to continue to grow and which ones will suffer most. And why? You could argue that consumer spending and spending choices have been more conservative since the recession of 2007. Yet smartphones for example have only grown in adoption despite the sometimes hefty price tag. So certain industries seem to be somewhat exempt from and immune to the overriding economic trends and are still able to post promising growth. Is that because of the evolution of consumer needs (no one can live without smartphones) and standards of living? How much has to do with branding i.e., Apple turning the iPhone into somewhat of a cult object? Trends change and whether you are able to predict how significant the impact on your respective business is and when the impact will occur is essential. It is impossible to always predict what is going to happen. It takes good instincts, good business sense, creativity, faith, guts, and $$$ to take advantage of emerging trends. Sad are the stories of those left behind. After reading an article on Eastman Kodak today, I realized that the company's stock is trading at $1.77 per share. WOW. Junk bonds are valued at $0.80 cents per $1.00.

The current economic conditions are rather unsettling. Personal consequences are frightening, but still hard to predict. [See and take the poll!!!]  From a business perspective, it seems that branding remains key to maintaining some kind of profit margin in these down times along with relevant innovation in emerging technologies. Most of all for any kind of bold move, whether an investment or acquisition the morale of the story is: Timing is everything….and guts!

"Apple, but really Nintendo… Let the Games begin!"

August 2, 2011

"Apple, but really Nintendo… Let the Games begin!"

A couple of days ago, an article appeared in the WSJ entitled "Nintendo: Apple's Latest Prey". It talks about how Nintendo has struggled with new product releases and game sales since the release of the Wii in 2006. The problem? Mainly the change in technology and its influence on the gaming industry. Specifically, the article draws reference to the growing popularity of gaming on Apple's iPhone and iPad, and other tablets and technologies. Pricing and accessibility are much more mainstream with the new technology platforms.

Image: Took some liberties here. Not an original. In case you can't tell.

I will openly admit that the tech revolution has passed me by to a great extent. I recall playing computer games on a Commodore 128/Commodore 64… haven't done much since. And the simplistic layout of this blog only gives validity to my point.

So, when Nintendo's stock price crashed after a presentation by Nintendo's president Satoru Iwata on the new Wii U, I can by no means provide an opinion on whether or not this reaction was justified. Since that day in June at the E3 Games Show in Los Angeles, Nintendo's U.S. stock (ADR) price has declined from roughly $28 per share (June 7, 2011) to roughly $19 per share today. The share price seemingly hit a peak on February 25^th with $38.29.

The WSJ reported significant declines in share price on the Osaka Securities Exchange last week following a downward adjustment in Nintendo's profit forecast by 80%. Ouch! Challenges that led to the adjustment:

·         Unit sales of only 710K of its 3DS devices in three months.

·         Drop in Wii sales by nearly 50%.

Nintendo is now looking at the Wii U as the main growth driver to turn around momentum. The product is slated for commercialization in 2012 and is based on a tablet controller. Quite frankly, with the integration of technical applications into mainstream consumer electronic devices, these products will probably remain for "hard core gamers" only. [That seems to be the correct term!] So, if the Wii U is for the hard core gamer, what is the Nintendo response to the mainstream, low cost, mobile consumer device games that are changing the industry? In my limited research, I could not actually find an Annual Report more recent than the 2008 version, which prevents me from commenting on how much Nintendo is investing in R&D and what its pipeline looks like. One article I found commented on investments of $204 million in the construction of a new R&D building in Kyoto, Japan, that is scheduled to begin in 2012. It does not look like the company intends to roll over.

For argument's sake, let's agree that there appears to be a gap in Nintendo's portfolio for the mainstream gamer/consumer as the space converts to mobile, integrated platforms. The threat for Nintendo's console business comes from Microsoft and Sony. So, was the title of today's article in the WSJ an exaggeration or a suggestion of what may come? Would Apple consider making a play for Nintendo? There has been a lot of talk about how much cash Apple has on hand as of late. Rumors about this particular acquisition opportunity seem to date back as far as 2006. If net losses continue and the stock price keeps falling, Apple may be able to purchase Nintendo for a bargain price.

Maybe this story is not about Nintendo after all… Let the games begin!