Tuesday, May 28, 2013

Blue Coat Systems - Having the Blues over Syria Again

Just when you thought, it was over. More Blue Coat Systems proxy servers appear to be in Syria. Not a good may for Blue Coat COO and president David Murphy.  This technology is forbidden to be sold into the country.  This was conveniently ignored by a rogue reseller in 2011.    

In a statement made in December 2011 by Blue Coat  after a number of Blue Coat servers were discovered to being used by the Syrian government  – “We don’t want our products to be used by the government of Syria or any other country embargoed by the United States.  If our review of the facts about this diversion presents solutions that enable us to better protect against future illegal and unwanted diversion of our products, we intend to take steps to implement them.”

Fast forward to March, 2013.  Advocacy group Reporters Without Borders named Blue Coat Systems (now a private company held by Thoma Bravo) as among the "corporate enemies of the internet".  They stated that Blue Coat was among five companies whose equipment has been used for surveillance and censorship by "authoritarian regimes."

On March 23, a group of computer hackers known as Telecomix released data it says show that 34 devices manufactured by California-based Blue Coat Systems Inc. were being employed by Syrian telecom operators.

In April, Blue Coat issued a statement  acknowledging that Dubai-based Computerlinks ZFCO has been penalized for the “unlawful diversion of Blue Coat ProxySG appliances to Syria” in 2011. Blue Coat also said that  have  taken additional steps to guard against future diversions of its products by third parties and that they have built up their compliance program.  All good, then, until April.

On May 23, group computer hackers known as Telecomix released a report stating  that 34 Blue Coat System devices were being used by the Syrian government, despite the US embargo.

Steps against “unwanted diversion” may need to be strengthened.  Enforcement is difficult for Blue Coat and other security vendors.It isn't a necessary evil. It's necessary.   They rely on a network of resellers to sell their products, and unfortunately, some of them do go rogue.  Fortunately, Blue Coat and others can and do try to prevent these systems from being upgraded and receiving any update files. 

Monday, May 27, 2013

Good Apple? Bad Apple? Very Profitable Apple! And Great at Minimizing Taxes.

Apple CEO Tim  Cook has been in the press a lot lately about the organization’s aggressive stance on taxes.  In front of a somewhat hostile Senate panel in Washington, he said, “We pay all the taxes we owe, every single dollar,” Cook told the Senate Permanent Subcommittee on Investigations, noting that Apple may now be the largest U.S. corporate taxpayer.  “We not only comply with the laws, but we comply with the spirit of the laws.  We don’t depend on tax gimmicks.  We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes.  We don’t stash money on some Caribbean island.  We don’t move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.”  In all discussions, you have to enjoy how Apple has focused on taxes paid while the other side has focused on potential other taxes owed.

One claim made in numerous papers is that Apple negotiated a special 2% tax rate from Ireland.  Both Apple and Ireland dispute these claims.

With respect to the above, the operative part of  Tim Cook’s quote is, “We pay all the taxes, and we owe, every single dollar.”  His general tenet is that Apple isn’t breaking any tax laws.  They are being aggressive in minimizing, legally, the amount of taxes they pay.

In a May Mercury News  editorial,   “Apple showing a blatant lack of respect for the law”, Santa Clara University professor of law had a   different interpretation.  In the article he states, “While the tax law permits businesses and individuals to arrange their actual affairs to minimize tax, it does not respect agreements that have no independent economic significance apart from purported tax reduction.The article states that in 2011 Apple did pay $10 million total tax on $22 billion of income of one of its subsidiaries.  This equates to a tax rate of .05%.  Not 5%.  .05%.

The above about Apple minimizing US taxes  is not news!  The New York Times wrote an article “Double Irish with a Dutch Sandwich” about tax avoidance strategies and Apple (other companies as well) in April 2012.

Domestically, Apple manages much of its investments to minimize state taxes by doing these  through its Apple's Braeburn Capital subsidiary  in Reno, Nevada. This way, they  avoid California 9% state income tax.

Apple’s   2012 “Project Jonathan”,  will enable Apple to save millions in Nevada taxes.  They are  building a data center outside of Reno and putting in almost $1 billion in servers.  The state will waive all but 2 percent of the sales tax rate for the server equipment Apple purchases for the data center.  “But by opening a second location in a special tourism improvement district in downtown Reno — an office meant simply to receive shipment of those servers — Apple is eligible to be reimbursed 75 percent of the 2 percent sales tax it still owes.”  This means that the overall sales tax Apple pays will be 0.5% rather than 7.5%.  Quite impressive and good negotiating on Apple’s part.  That part about the second office that will do little more than receive the servers?  A bit dicey.

Once again, minimizing taxes isn’t illegal.   

Perhaps there should be an  INC test (a new acronym!) that the IRS looks at for companies.  Dealings with Ireland, the Netherlands, and the Cayman Islands.


Saturday, May 18, 2013

Hewlett Packard and Autonomy – The Soap Opera Goes On, Plus a Lawsuit

One of these days, the stories will come together about Hewlett Packard and Autonomy.  In the mean time -  They paid too much.  They took an $8 billion write down on the acquisition.  They accused the Autonomy  of poor bookkeeping.  Hewlett Packard’s financial advisors on the acquisition  stated  that they did not need to do a total deep dive before putting their blessing on the acquisition.  The prior CEO of Autonomy, Leo Apotheker, states that the books were correct at the time of the acquisition and that revenue was accrued for properly. 

Now Hewlett Packard and CEO Meg Whitman are denying that the company has tried to sell Autonomy and SAP is saying that they were approached.  In addition, for Hewlett Packard, April showers brought…  May lawsuits, as they are now facing a $1 billion shareholder lawsuit over the acquisition.  The California suite filed at California's San Francisco district court, which accuses those who oversaw the deal of conducting "cursory due diligence on a polluted and vastly overvalued asset".  $1 billion buys a whole lot of HP tablets.  http://www.guardian.co.uk/business/2013/may/07/shareholders-sue-hp-autonomy-deal
The stock has been recovering somewhat in price from its 52 week low of just under $11.35 to a 52 week high of $24 in late March.  When Meg Whitman took over the reins of Hewlett  Packard as CEO, the stock was trading at around $23.  For their first fiscal quarter of this year, net revenue was down  $28 B, lower than in fiscal Q1  2012.  Earnings were positive at $1.2 B, versus a loss of just under $7 B the previous quarter.  The stock is essentially unchanged, though, from a year ago while the Dow and NASDAQ are up about 25%.  Hewlett Packard has outperformed beleaguered Dell (another interesting story) but not by much. 


Whitman may make it through the end of 2013.  If so, Oracle’s Hurd, formerly of Hewlett Packard, will have to find a different partner for “Dancing with the Stars”.  The earnings conference call for the latest quarter is scheduled for May 22 after the markets close.    

Saturday, April 13, 2013

Hewlett Packard - The Adventure Continues for HP and CEO Meg Whitman

For Hewlett Packard and CEO Meg Whitman, there is never a dull moment.    Board Chairman Ray Lane was essentially given a vote of no confidence by shareholders and has relinquished his chair position.  . John Hammergren, who has been on the board since 2005, and former Wachovia CEO G. Kennedy Thompson, a director since 2006, will resign, as well.  The three could perhaps offer themselves as a package deal for Dancing with the Stars.

All three have   been on the board for much of Hewlett Packard’s precipitous decline in stock price.  There for Autonomy.  There for the  tablet debacle.  You really can’t  really  blame the board for these, in some respects.  External smartest guys in the room and others in the Hewlett Packard organization did make the recommendations. 

After hitting a 52-week low of $11.25, that stock has gone up to $20.66.  This is still substantially below the just under $45 they were trading at a couple of years ago.  On a percentage basis, the Dow has increased about 20% and Dell has decreased about 10% over the same period.

So, what is HP going to do?  Meg Whitman is still saying recovery will be a four-year process.  Hewlett Packard has been investing in security as part of their strategy.  Tablets were revived from coaster status to being part of the strategic mix. Smart phones may be part of the mix in 2014.   Last week, as part of project Moonshot, Hewlett Packard introduced a line-up of super servers.  These are designed to appeal to the biggest social-media, cloud-computing, and e-commerce sites.

Autonomy is going to continue to be part of HP.  Even after the massive writedown.  "We remain committed to Autonomy; we remain committed to the brand, to Cambridge, to the U.K.," she said at a  recent news conference.   "It is an almost magical technology. ... It plays into a big shift in the market, the area of Big Data, which HP should be in."  Bets are being taken as to who will ultimately be thrown under the bus for the analysis of this deal and from which side of the pond.   http://www.denverpost.com/business/ci_22999671/hewlett-packard-ceo-meg-whitman-remains-committed-autonomy
The laptop/PC business won’t drive a recovery.  Printer sales and ink revenue won’t increase if laptop/PC sales tank.  According to IDC, laptop/PC sales dropped over 11% in Q1 versus the same period in 2012. For HP, the drop was 24%.  Windows 8 sales have not been astronomical, as well. 

The takeoff in tablets has sucked the growth out of PC and laptop sales.  Tablets will   out-ship desktop PCs this year, according to IDC.  They are also forecasting that by the end of 2013, desktop PC shipments will dip 4.3 percent.  Tablet shipments will rise to 190 million units, an annual growth rate of 48.7 percent, according to the firm.

Whitman was named CEO in September 2011, replacing Leo Apotheker.  “The pressure is on Meg,” stated Toni Sacconaghi, an analyst with Bernstein Research.  A housecleaning of the board “bought her a year.” according to an April article in the New York Times.  More bold moves are needed by Hewlett Packard and Whitman.  Going private (unlike what Dell is trying to do) isn’t an option.

Whitman and Hewlett Packard need to make even more aggressive  moves.   


“Hewlett Packard and Meg Whitman – The First Year.  Turbulence and Turmoil in the Valley” at