Harvest Trust Energy (HTE) – Part 3 - Outlook

Harvest’s upstream oil and gas production is weighted approximately 73% in crude oil and liquids and 27% in natural gas, and is complemented by its long-life refining and marketing business. The company’s current focus is on sustainability. Weak natural gas, high cost in western Canada upstream business, royalty framework increases in Alberta, and Canadian dollar rapid strength are the current challenges facing the company. The company’s course is to adapt through a growth strategy using very selective capex investments.

HTE’s sustainable growth strategy in its upstream business is dependent on its access to over 2B BOE of reserve. The recovery is less than 30% and the contention is that 20M will be added to its Proven and Probable (P&P) reserves for every one-percentage increase in recovery using technological advancements. Since that amounts to 10% of the existing P&P reserves the potential is huge. The execution of this strategy requires high oil prices, as its OOIP reserves are either mature properties or oil sands, both of which are capital intensive. The downstream business, is by nature highly cyclical as indicated by the crack spread.

Below is a table that shows the current valuation of their upstream assets using a variety of criteria:
















Measure Valuation
Multiple of Proven & Probable (P&P) Reserves 18.9
Multiple of per flowing barrel oil equivalent* $65545
Multiple of Original Oil In Place (OOIP) 1.8**

  • Assumes downstream asset valuation to be $1.6B, the purchase price at the time of the acquisition.
  • *Projected for 2008
  • **Less than 1 when 1B barrels of oil sands OOIP is included
The company is valued in the high end of CanRoys. This premium valuation is somewhat justified, given its oil weighting and refinery diversification. The dependency of the company’s prospects on the highly cyclical refinery crack spreads and uncertainties surrounding the royalty and tax effects should together keep the shares volatile for the foreseeable future. It should act as a good trading stock in diversified stock portfolios.

Related Posts:
  1. Harvest Trust Energy (HTE) - Part 1 - Introduction.
  2. Harvest Trust Energy (HTE) - Part 2 - Business Issues.
  3. Harvest Trust Energy (HTE) - Part 3 - Outlook.

LDK Solar (LDK) Q4 Call –Incompetence & Animosity All Around!

LDK Solar (LDK) announced Q4 results on February 25th that beat analyst estimates on both revenue and earnings. The forward guidance was a little light compared to analyst projections. The stock price went up during after hours, only to settle after the earnings conference call. This is a repeat scenario of the occurrences after third quarter results were announced too.

Below is a look at some exchanges during the conference call that highlights the incompetence of management and analysts alike.

Exchange 1 – Jesse Pichel, Piper Jaffrey:

Jesse Pichel, Piper Jaffrey: You said Raw Material is at 856 MT. What is that number when adding transit consignment and production. If I divide the inventory figure by $176, I get about 1900 MT.

Jack Lai, CFO: Explained the fact that Raw Material does not equal inventory and the fact that it is a futile exercise to convert back from ingot numbers and come up with an “adjusted” raw material number.

Jesse Pichel, Piper Jaffrey: What was the free cash flow for Q4? Can you update us on capex for ’08? How much for ingot/wafer operation and for the poly plant?

Jack Lai, CFO: We are operating cash flow positive.

Jack then went on to explain certain spending plans expected for the coming year and the company’s funding plans without going into specifics…

Jesse Pichel, Piper Jaffrey: Can you quantify it? – You said the expenditures for the poly plant would be around $400M and $200M for wafer capacity.

Jack replied with more capex details without committing to specifics. Jesse at this point asked whether the original answer was that LDK is cash flow positive or operating cash flow positive. Jack confirmed they were operating cash flow positive. Jesse then asked whether Jack had that number. Jack said we could discuss it after the call. Jesse seemed to push the idea away by murmuring something and then went on to ask about the item on the balance sheet that says “inventories to be processed beyond one year”. Is it included in the inventory number and is it in the Cost Of Goods Sold (COGS) calculation? Jack replied with a random answer about purchasing difficulties. Then went on to present the fact that the silicon powder won’t get used for a year and that is the reason that the company decided to put it under non-current assets and it is not in COGS calculation.

Exchange 2 – Cheryl Tang, Goldman Sachs:

Cheryl Tang, Goldman Sachs: a) Why lower 2008 guidance?, and b) Who takes the risk for breakage rate with thinner wafers?

Nicola Sarno, VP operations: Breakage rates are inline. Some customers cannot do this. The important thing is industry moves in that direction to saves silicon.

Jack chipped in by stating that they are projecting more than 100% growth and are setting the right expectation to meet or exceed guidance.

Cheryl Tang, Goldman Sachs: What is the subsidy per watt?

Nicola Sarno, VP operations: We don’t have that number. 40c/Kilo-watt is the agreement with the government. Everything above that is subsidy. For poly, it will be 75c/Kilo-watt.

Exchange 3 – Satya Kumar, Credit Suisse:

Satya Kumar, Credit Suisse: a) Will it perhaps be more conservative to write down above 1-year inventory instead of capitalizing it? Will you consider taking a write down? Also, has the auditors signed off on this practice?

Jack Lai, CFO: Accounting is normal. Because of tightness in market, when we have an opportunity to purchase, we buy it independent of whether we need it immediately.

Another question about inventory vs raw material reconciliation followed and they agreed to discuss it offline.

Satya Kumar, Credit Suisse: In the second line item on the asset side of the balance sheet, “pledged bank deposits”, is it available for Capex?

It depends on maturity. It is spread out as 3-month, 6-month, 9-month, and 1-year maturity levels and as they mature the cash becomes available for immediate use.

Comments:

LDK projected EOY 2008 polysilicon capacity at 7000 MT and EOY 2009 capacity at 16000 MT. Given that LDK’s expenses are very high for polysilicon procurement, it is high time analysts modeled scenarios that attempt to predict profit margin going forward based on the fact that polysilicon will be sourced internally. Interestingly enough, none of the analysts showed any interest in getting details on polysilicon production costs. The call got bogged down on trivial matters and questions that pointed to backward-looking analysis. Granted that, coming up with forward-looking scenarios accurately is not very easy to do but not even attempting to discuss such issues is incompetence.

Jack Lai, the CFO demonstrated a tendency to give unrelated answers. When responding to certain questions he came back to the point later in the reply but on other occasions, analysts ended up having to prod him. Jesse Pichel, the Piper Jaffrey analyst couldn’t hide his animosity as evidenced in the latter part of the exchange (Exchange 1). Further, the questions he posed about inventory vs raw material and whether LDK was cash-flow positive were both irrelevant: The former was an attempt to spawn doubts about inventory accounting and the latter a veiled attempt at suggesting LDK will be faced with a cash crunch later this year. He should know that cash won’t be an issue given LDK’s cash-on-hand, profitability, and pledged bank deposits. Cheryl Tang, the Goldman Sachs analyst was especially clueless with her questions about who is responsible for the risks associated with increased breakage rates with thinner wafers. Nicola Sarna, the VP of operations ended up having to give a lecture on industry direction and the need for thinner wafers. Satya Kumar, while sounding innocuous was ruthless suggesting the company should consider writing off the inventory slated in the ‘more than one year’ category.

The inventory issue, which first surfaced after the whistle blowing by Charley Situ, was brought up indirectly by a number of analysts. Also, Jesse Pichel put out an analyst note suggesting, "This classification would appear to validate some earlier investor fears that the company holds unusable inventory". This suggestion only confirms Jesse’s preconceived bearishness, given the company elaborated the process by which inventory is categorized.

To summarize, LDK Solar needs to clean up its act when conducting these calls. Also, given the open animosity certain analysts are demonstrating, LDK Solar might be better off giving less verbose answers rather than trying to elaborate. Further, it might be a worthwhile exercise for the company to look at who represents them in these calls and making sure it is conducted in a professional manner.

An analysis of LDK Solar based on the public information available will follow.


Related Posts:

1. Trina Solar (TSL) - Stock Analysis - 08/08.
2. LDK Solar (LDK) - Stock Analysis - 03/08.
3. Solar Manufacturer Comparison (STP, TSL, YGE, CSIQ) - 11/07.
4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.

Harvest Trust Energy (HTE) – Part 2 – Business Issues

Harvest Trust Energy classifies itself as an integrated energy company reflecting their presence in both the upstream and downstream businesses. This is a moot point though, as logistical issues prevent them from using the oil produced in their refinery. The refinery feedstock requirements range around 110,0000 bbls per day while production is only about half of that. Further, the feedstock requirement is medium sour crude oil while the production is spread-out over light, medium, heavy oil, and natural gases.

HTE acquired North Atlantic refinery for C$1.6B. Considering the refinery output to be around 115,000 bbls per day, the purchase price can be broken down to be around 14000 per flowing barrel. This price was on the high end for refineries at the time. The rest of the business is valued at about $3.6B.

Harvest has an extensive hedging strategy. It is structured such that there is only minimal or no cost in a low price environment, when Harvest would otherwise be less able to afford the cost of such an ‘insurance’. The following are the three types of hedging used:
  • Crude Oil Hedges for Upstream,
  • Refined Product Hedges for Downstream, and
  • Currency Exchange Rate Hedges.
Currency hedging is essential to mitigate the operational risk of costs associated with the local currency (Canadian dollars) while the revenue is in US dollars. The complex nature of the remaining hedging types indicates more of a throwback to hedging strategies employed by the acquired companies rather than an optimized strategy allowing for the business risks. Specifically, a much simpler strategy should be worked out, which takes into account the fact that roughly half of the feedstock requirements for the refinery need not be hedged since production is in that range.

Harvest along with other Canadian royalty trusts is negatively affected by a Canadian tax law change that comes into effect in the 2011 timeframe for existing trusts. When the tax-exempt status on distributions expires, the trusts will pay taxes like other regular corporations. The probable scenario is for Harvest to act like a regular corporation where the lion share of its cash flow for capital expenditures will be used to fund future growth as opposed to distributions. The shareholder base will also undergo a similar shift from income-oriented investors to growth-oriented investors before that timeframe.

Provincial royalties also has an impact on Harvest. Specifically, Alberta recently unveiled plans for increased royalties in the 2010 timeframe and Harvest has a major portion of its upstream business in the area. The counter measure from the company was to reduce capital expenditures in the area. While this can help send a message to regulators, the company needs to prepare itself better for a high-tax scenario.

Related Posts:
  1. Harvest Trust Energy (HTE) - Part 1 - Introduction.
  2. Harvest Trust Energy (HTE) - Part 2 - Business Issues.
  3. Harvest Trust Energy (HTE) - Part 3 - Outlook.

Amex Costco True Earnings, Chase Amazon Visa, and Costco Executive Membership – A Great Reward Combination!

We were not credit card savvy when we started out and our saga of mistakes (blunders) started with a GM Master Card in the late 1990s followed by a Discover Card in the early 2000s. The GM Master Card earned us 5% cash reward that could be applied towards the purchase of a new GM car. The closest we ever came to buying a GM car was a Saturn in the 2000 timeframe, when it was marketed as a new benefit. Ultimately, we never got around to buying a GM car and so all the accumulated rewards were for naught. The tiered rewards and the fact that not all places accepted the Discover Card sealed its fate.

Replacing the GM Master Card, was the Chase-Amazon Visa card that offered 3% rewards for Amazon purchases and 1% for everything else. The reward is immediate and since we frequent Amazon.com, the switch panned out.

We are regulars at Costco and used their basic card with American Express called the Cash Rebate Card. That card offers a tiered cash reward program that can be used towards Costco purchases. The tiered program is just 0.25% for the first $2000, 0.5% for the next $3000, and 1.5% for the amount over $5000 in purchases. Our rewards for 2007 added up to about 0.85% and our average purchases were about $500/month. What we failed to recognize until later was the fact that switching to Amex-Costco True Earnings card would have realized us far better cash back: 3% in restaurants and gas, 2% in travel, and 1% on everything else. Further, given our level of spending at Costco, an executive membership made better financial sense even after accounting for the increased (around double the basic) annual membership fee. Purchases at Costco are eligible for a 2% reward redeemable with future Costco purchases: Executive Membership wins hands down if your annual purchases at Costco add up to $2500 or more. The 2% is in addition to the tiered Amex card rewards. Here again, although we lost out in rewards for a couple of years, the switch was finally made in 2008 and that has worked out really well.

Summary:

During the 2006-2007 timeframe, our plan was to use Amex-Costco cash rebate card for Costco purchases and to use the Amazon-Chase Visa card for all other purchases. This combination realized us a reward level of slightly less than 1% on Costco purchases, 3% on Amazon purchases, and 1% on all other purchases. Below is a table that summarizes our altered plan for 2008 onward. This has helped us maximize credit card rewards:


PurchasesStoreCardRewards
GasCostco Gas StationAmex-Costco True Earnings3%
Eat-OutRestaurantsAmex-Costco True Earnings*3%
TravelTravel AgentAmex-Costco True Earnings2%
CostcoCostco & Costco.comAmex-Costco True Earnings1%
AmazonAmazon.comChase-Amazon Visa3%
All othersN/AChase-Amazon Visa1%

· *Visa will be used at restaurants that do not accept Amex to obtain the standard 1%.




Our choice of credit cards along with switching to Costco Executive membership has enabled us to take in significant rewards over the last several years. It is amazing how much one can save with a little planning on how to use credit cards in an optimized fashion.







Related Posts:

1. Amazon.com Customer Service – Jeff Bezos backtracks on 30-day price guarantee policy!.

Last Updated: 01/2015.

IRBT – ConnectR Delays Highlight Growing Pains At iRobot

iRobot initiated sign-up for ConnectR Pilot Program immediately after the September 2007 press release at DigitalLife. The product is pricey at $199 even through the pilot program, and only time will tell how keen consumers will be to actually purchase it. The starting price when the product is released is expected to be $500, a price point that will make it hard for iRobot to penetrate the home market.

The press release had indicated that ConnectR would be made available to customers in the pilot program towards EOY 2007. By December, iRobot announced that they are delaying the program to early 2008 largely due to the overwhelming response from prospective customers. Last week, they sent an email thanking those who had signed up for their support. Below is an excerpt from that email:

Your response to our upcoming ConnectR Pilot Program has been overwhelming and we couldn’t be more excited. All of us on the ConnectR team are hard at work with the goal of putting ConnectR Virtual Visiting Robots in the first consumers’ homes as soon as we can in 2008. We will be selecting people over the next few months and will let you know as soon as possible whether you have been chosen to participate. So again, thank you for your interest and support.

From the above statements, it is only logical to conclude that iRobot was premature in announcing the product in September 2007 and this report indicates a scramble to get the product out. As indicated in our previous article on iRobot, on time delivery is a business skill that management needs to cultivate. Here is another excerpt from the same email:

Eventually in our homes, we will have teams of single-purpose robots working together to accomplish a variety of jobs. For example, a Roomba could be vacuuming your living and dining rooms, a window washing robot could be hard at work in the family room, and a dog-walking robot could be out walking Fido. And ConnectR could be working with you to call the shots. "I think there will be one robot that talks to humans and directs the little bots," says Angle. ConnectR could conceivably evolve into this robot-in-chief role since it is specifically designed to interact with humans.

The statements further validate the concern that the company has struggled to define the value proposition for the ConnectR product. For an investor, this spells a situation where the product is much ahead of itself, as the company is still not done defining the product.

Investing in the right areas to realize growth is another sore spot for iRobot. Though Roomba is a great product that could potentially complement or replace home vacuums, penetration has been low. Concentrating on a variety of low volume products instead of focusing on making the Roomba their flagship product is a mistake management is making as we speak.

To summarize, investors will have to take it slow, while management learns to set expectations that are achievable and grow profits in its home robots business. However, the defense side of their business should provide some stability and consistent growth.

01/2009 Update:

iRobot notified ConnectR pilot program sign-up participants this month that they have decided to cancel the program. Below is an excerpt from the email to the participants:

Why didn't ConnectR make it through the pilot test?

While ConnectR users enjoyed having the robot and experienced the many advantages of virtual visiting, it was found that the robot was not yet practical enough to meet their expectations. One of our main goals at iRobot is to provide our customers with practical, easy-to-use robots.

Is the ConnectR program discontinued?

No. While the ConnectR that we have come to know will not be sold commercially, iRobot will continue its work on developing practical virtual visiting robots for your home.

When will a new virtual visiting robot be released?

iRobot has no timetable as to when a virtual visiting robot will be available for purchase. We are currently looking at the ConnectR pilot program and are working to address the issues found there. iRobot will not put a virtual visiting robot up for sale until it is practical, easy to use and includes the necessary features that customers want.

As we noted in our original post, iRobot is struggling to define the product. Specifically, they are having a hard-time showing its use in the real world. While ConnectR was portrayed as the eventual robot-in-chief in thier previous notification early last year, that idea was conspicuously missing from the latest update. That might indicate a complete change of direction in the focus of this product group.

To our mind, iRobot is making a big mistake by not focusing on the Roomba and helping it be a household name. Market penetration and awareness are still very low inspite of it being a useful product with a price range that fits most family budgets - in our two years of ownership we have come to hear from our guests the following misconceptions about Roomba repeatedly:
  1. The product is priced out of their range - as in 1000s. In reality, Roomba is priced between $100 and $700 depending on the model in features.
  2. It doesn't really work very well. In reality, we have used the Roomba exclusively as our home vacuum cleaner for the last two years.
A heavy-weight marketing partnership could alleviate the situation but management has so far been very hesitant...

Related Posts:

1. Roomba 900, 800, 700, 600 & 500 Series Comparison/Review (980, 880, 870, 790, 780, 770, 760, 650, 630, 620, 610, 595, 585, 580, 572, 570, 564, 562, 560, 555, 550/551, 535/540, 532, 530).
2. iRobot (IRBT) Analysis.
3. ConnectR delays highlight growing pains at iRobot (IRBT).
4. Infinuvo CleanMate QQ-1, QQ-2 – An Alternative To The iRobot Roomba Robotic Vacuums – Comparison and Review!.
5. iRobot Roomba 5-series Robotic Vacuum Part/Accessory Replacement (Side Brushes) – Customer Support/Warranty Coverage Experience.
6. Best Value Robotic Vacuums - A Comparative Review.

Stock Based Compensation Tax Optimization Strategies

Employee Stock Purchase Plans (ESPP), Stock Options, and Restricted Stock Allocations are three of the major forms of stock based compensation. These offers are not yet an established benefit, although many companies do offer at least one of these. Of these only the ESPP plan is generally available to all the employees within an organization.
  • ESPP allows for the purchase of company stock at a discount at set time periods in a calendar year (usually July 1 and January 1). The amount of stock that can be purchased is restricted to $25,000 per annum, a federal limit.
  • Stock Options give the employee the right to purchase shares at a pre-determined price. This right usually expires after ten years.
  • With a Restricted Stock Allocation, the company allocates a certain amount of money over a period of time (usually three years) for the purchase of company stock for employees at set time periods (generally the yearly anniversary after the allocation date).
Taxes can take a large bite of the compensation/benefit associated with these plans. There are some tax optimization opportunities that allows minimizing the tax impact while keeping the overall exposure to the company stock at a reasonable level. The idea is to aim for company stock sales to realize long-term capital gains perpetually.

Check out the related posts below for a look at how to make use of stock based compensation in a tax-optimized fashion.

Related Posts:
  1. Writing Covered Calls against Employer Stock Plan Shares (ESPP, Restricted Stock, and Stock Options) – A Primer.
  2. Employee Stock Purchase Plan (ESPP) - Immediate Selling Strategy.
  3. Realizing Long-Term Capital Gains With Stock Based Compensation.
  4. Stock Based Compensation Tax Optimization Strategies.

Last Updated: 01/2015. 

Harvest Trust Energy (HTE) – Part 1 - Introduction

Harvest Trust Energy (HTE), a Canadian Oil and Natural Gas royalty trust formed in 2002, had its initial public offering (IPO) on December 5, 2002. It raised then $34.5M at $8 per share and a secondary offering in February 2003 raised another $15M at $10 per share. The trust also initiated its monthly dividend distribution immediately after the IPO. The first distribution was for 20c per share. The distribution progressively went up to 38c per share and remained at that level for a couple of years before the recent slash to 30c per share.

The business plans at IPO was based on acquiring mature properties and then eke out additional value by using production enhancement and optimization efforts. The initial acquisitions were mature oil producing properties in Eastern Alberta. Since then, the company diversified into natural gas properties although production is weighted 70% in favor to oil. In October 2006, they acquired North Atlantic refinery for C$1.6B.

Harvest is structured as a Canadian Royalty Trust (CanRoy) and has a monthly dividend distribution policy. CanRoys have certain tax advantages both for the company (set to expire 2011) and for the investor. Harvest announced a 20% dividend cut in mid-November which prompted an immediate sell off. The yield is now close to 16%.

Below is the properties map and a summary of their upstream business activity:


































AssetLocationFocusComments
WainwrightEastern AlbertaEnhanced Oil Recovery (EOR)100% working interest Sparky medium gravity oil pool - 133mmboe net Harvest Original Oil In Place (OOIP). Indications are for pool-wide recovery factors to exceed 50%, compared to current recovery factors of approximately 35%.
Bellshill LakeEastern AlbertaEnhanced Oil Recovery (EOR)99% working interest - 216 mmboe net Harvest OOIP with a recovery factor of 49%. Potential to add up to 16mmboe which will increase P&P reserves by 125%.
HayterEastern AlbertaEnhanced Oil Recovery (EOR)138mmboe net Harvest OOIP - Dina heavy oil resource with ~20% recovery factor. Pilots to determine the most effective enhanced recovery technique in progress.
KindersleySouthwest SaskatchewanEnhanced Oil Recovery (EOR)79% working interest – 80mmboe of OOIP (Light Oil) with ~28% recovery factor. Working with a 3rd party to determine the most effective enhanced recovery technique.
Hay RiverBritish ColombiaEnhanced Oil Recovery (EOR)200 mmboe of OOIP (medium gravity) with 8% recovery to date. Working on enhancing the longer-term recovery potential.
Oil Sands AlbertaEnhanced Oil Recovery (EOR)47,000 net acres of oil sands leases. Test evaluation wells to confirm the estimated 1 billion bbl of OOIP in progress.
MarkervilleAlbertaExploration Activities 100% Harvest working interest. Pilot indicated about 500 boepd including liquids. 3-5 additional locations to be drilled as part of the 2008 program.
Central AlbertaAlbertaExploration Activities 100% Harvest working interest. Pilots indicate 800 boepd including liquids. At least one follow-up location for 2008 to downspace further to maximize recovery.
LloydminsterAlbertaExploration ActivitiesCurrent production of 1500 boepd heavy oil. Further exploration activity in progress.



Below is a summary of their downstream businesses:
















BusinessProduct DetailsComments
Medium sour crude oil refining115000 bbl/day. Output sold 10% locally and the rest internationally (Boston, New York, Europe, etc.). Crude oil feedstock from Middle East, Russia, South America, and AfricaThe refinery takes in medium sour crude oil and vacuum gas oil at a rough ratio of 11:1 and produces distillate products, gasoline, and heavy fuel oil in the ratio 41:32:27.
Marine Terminal and Related AssetsYear-round deep water ice free jetty with two births (90-326K dwt), averages 325 ships, and has a tank farm capacity of 7.5M barrels of crudeManages and escorts fuel traffic from and to the refinery. Owns two tugs and has arrangement with adjacent facility to meet demand surges.
MarketingFive Segments: Retail, Wholesale, Home heat, Commercial, and Bunkers (fuel for ships)64 retail locations and six home heat stores. 14.6% overall NL market share.


Related Posts:

  1. Harvest Trust Energy (HTE) - Part 1 - Introduction.
  2. Harvest Trust Energy (HTE) - Part 2 - Business Issues.
  3. Harvest Trust Energy (HTE) - Part 3 - Outlook.

Gateway MT6728, Toshiba A215-S5818, Sony VAIO VGN-NR220E/S, Dell Vostro 1400, Compaq Presario C581WM, C700T Laptops Comparison/Review

We did a similar review about a month back but some of those machines are no longer available and so we decided to revisit the post. A few key criteria should be evaluated when shopping for a laptop. Below is a summary of the five branded machines we selected for the comparison:

























ProductBest PriceStoreProcessorMemoryHard Disk (HD)Other Feature Summary
Compaq Presario C700T$299.99OfficeDepot.comIntel® Pentium® Dual-Core mobile processor T2330; 533MHz frontside bus, 1MB L2 cache and 1.6GHz processor speed1GB PC2-5300 DDR2 memory for multitasking power;80GBDL DVD±RW/CD-RW drive; 15.4" widescreen; Windows Vista Home Basic
Gateway MT6728$499.99BestBuy.com
Intel® Pentium® Dual-Core mobile processor T2330; 533MHz frontside bus, 1MB L2 cache and 1.6GHz processor speed 2GB PC2-5300 DDR2 memory for multitasking power; 160GBDL DVD±RW/CD-RW drive; Label flash support; 15.4" widescreen; Windows Vista Home Premium; Intel® Graphics Media Accelerator X3100.
Compaq Presario C581$548Walmart.comIntel Celeron Processor 530; 533MHz FSB bus speed;1MB L2 Cache 1024MB DDR2 System Memory120GB (5400RPM) SATA hard drive15.4" widescreen; Windows Vista Home Premium; Intel Graphics Media Accelerator 950 (shared) – 224MB total available shared graphics memory; Super Multi 8X DVD R/RW drive; S-video out.
Dell Vostro 1400$579.99 Dell.com Intel® Core2 Duo T5270 1.4GHz, 800Mhz, 2M L2 Cache2GB, DDR2, 667MHz 2 DIMM 160GB14.1” widescreen; Intel Integrated Graphics Media Accelerator X3100; 85 WHr 9-cell Lithium Ion Primary Battery. S-Video Out.
Sony VAIO VGN-NR220E/S$699.99BestBuy.comIntel® Pentium® Dual-Core mobile processor T2330; 533MHz frontside bus, 1MB L2 cache and 1.6GHz processor speed 1GB PC2-4200 DDR2 memory for multitasking power, expandable to 2GB 160GB Serial ATA hard drive (5400 rpm) DL DVD±RW/CD-RW drive; 15.4" widescreen; Windows Vista Home Premium; Intel® Graphics Media Accelerator X3100.
Toshiba A215-S5818 Onyx Blue$599.99BestBuy.comAMD Turion™ 64 X2 mobile technology TL-60; HyperTransport™ and AMD PowerNow!™ technologies and improved security with Enhanced Virus Protection 2GB DDR2 SDRAM for multitasking power, expandable to 4GB 160GB Serial ATA hard drive (5400 rpm) DL DVD±RW/CD-RW drive; 15.4" widescreen; Windows Vista Home Premium; ATI RADEON X1200 graphics with 128MB-319MB dynamically allocated shared graphics memory; S-video out.


The common features applicable to all of the models described above are:
  • Windows Vista or Windows XP Home OS.
  • Graphics Media Accelerator Chipset.
  • Lithium Ion 6 or 9-cell battery.
  • Wireless 802.11b/g card.
  • 10Base-T/100Base-TX Fast Ethernet LAN with RJ-45 connector
  • High-Speed Modem.
  • Two or more USB 2.0 ports.
The vital part of any computer is its Central Processing Unit (CPU) and should be considered in detail to effectively compare them. The Intel® Celeron processor is a basic low-end mobile chip and this is employed by Compaq. Pentium® Dual-Core is a higher-end chip that has hardware support for multi-threaded applications and is the one that Gateway and the Sony are shipped with. The AMD Turion 64 X2 TL-58 is the primary competition for Intel’s high-end mobile chips processor that Toshiba is based on. The Dell is fired by the Intel® Core 2 Duo chip, which is one of its high-end processors. The following CPU features affect system performance -
  • L1 Cache - faster than system memory and the L2 Cache usually located inside the CPU chip.
  • L2 Cache – faster than system memory usually separate from the CPU chip.
  • Clock Speed – Faster clock speed executes instructions more quickly. Benefits most applications - Media titles, games, and everyday productivity.
  • System Bus – Key component for overall system performance. Improvements in Performance and Responsiveness. Transfers data faster between processor, system memory, and graphics.
  • Hyper-threading technology – two software threads at the same time. Uses previously unused resources. Benefits multi-threaded applications and other applications such as virus protection that usually runs parallel with user applications.
  • Dual-Core – True parallel processing. Two threads to be processed using single execution core (single-core) – partially parallel. Dual core has two execution cores thereby enabling true parallel processing.
  • Virus Deterrent Technology – Added security for PCs. Avoids the classic buffer overflow viruses. Classify areas in memory by where application code can execute and where it cannot. When a malicious worm attempts to insert code in the buffer, the processor disables code execution, preventing damage and worm propagation.
  • Power Management – Allows using less power when computing doesn’t need to use power for all resources.
The table below summarizes the core differences in the CPUs used by these laptops:



















MachineProcessorL1 CacheL2 CacheClock SpeedSystem BusOthers

Compaq Presario C700T, Gateway MT6728 and Sony VAIO VGN-NR220E/S
Intel® Pentium® Dual-Core mobile processor T2330128 KB1MB 1.6 GHz533 MHzDual Core true parallel processing enabled. Execute Disable Bit Virus Deterrent Technology and Intel Speedstep Power Management Technology Built In.
Toshiba A215-S5818AMD Turion™ 64 X2 mobile technology TL-60256 KB*1MB*2.0 GHz1600MHz*AMD PowerNow Power Management Technology and AMD Enhanced Virus Protection capabilities.
Dell Vostro 1400Intel® Core2 Duo T5270128 KB2 MB1.4 GHz800 MHzDual Core true parallel processing enabled. Execute Disable Bit Virus Deterrent Technology and Intel Speedstep Power Management Technology Built In.
Compaq Presario C581Intel Celeron Processor 530128 KB1 MB1.73 GHz533 MHzExecute Disable Bit Virus Deterrent Technology.

  • The AMD processor uses dedicated L1 and L2 caches per core along with a full-duplex system bus. The Intel processors on the other hand use shared L1 and L2 caches along with a half-duplex front side bus.

Recommendation:

Compaq Presario C700T deal at Office Depot is an outstanding deal for a basic entry level laptop. Gateway MT6728 & Dell Vostro 1400 have better features but are priced higher. Gateway has almost the same features as the Dell, but has a wider screen, lower price, but a slightly less powerful CPU. The Dell fares better against Compaq C581 with more memory and better CPU. It also fares better against the Sony with better CPU and lower price. The Toshiba A215-S5818, on the other hand provides an interesting comparison. It has the AMD chip and that compares very well with Intel’s latest offerings but is pricey.

One other factor to consider is that the Dell comes preinstalled with Windows XP while the others come with Windows Vista. Windows XP sp2 is older but more stable operating system compared to Vista. Also, all the models except the Dell come with a number of trial versions of software installed. Needless to say, most will end up uninstalled.

For a basic family laptop, our recommendation would be the Compaq Presario T2330. The pricing on it is hard to beat. For a more enhanced user experience, the Gateway MT6728 with double the memory, and HD space, and the Premium version of the Windows Vista Operating System is a good value.

Google vs Microsoft - The Ad Wars – A Contrarian Viewpoint On The Yahoo Offer


Microsoft (MSFT) has announced their decision to pay a hefty premium of $44B for Yahoo (YHOO). In perspective, that amounts to 60 times Yahoo’s projected 2009 earnings. The irony is that Microsoft had issued to its shareholders a special dividend not too long ago with the surplus cash that was available at that time. Had there been enough foresight Yahoo could have been purchased earlier for far less than the current premium without having to borrow money to fund the acquisition.

Microsoft and Google are valued at 14 and 25 times respectively of their forward earnings. Their size dictates that it will be tough for them to grow earnings at a healthy rate going forward resulting in mediocre returns for investors as explained in our article on Google valuation last year. Apart from the modest arbitration opportunity available to purchasers of Yahoo shares and short-term trading opportunities due to the volatility in Google shares, returns are limited for long-term growth investors in shares of either of these companies.

Meanwhile the smaller companies in the Internet advertising space, Valueclick (VCLK), Local.com (LOCM), Baidu (BIDU), and Rediff (REDF) should notice a relative short-term appreciation in their valuation as investors adjust the premium expectation in an acquisition. In the long run, it is unclear how well these niche players hold up.

Both Google and Microsoft are trying to monopolize the Internet Display Ad pie which will initially be in their favor. Infrastructure is in place for both these giants, whereby an undisclosed percentage of advertiser money generated from ads in publisher content is siphoned off through their advertising platforms. The publishers stand to lose in this situation. This has resulted in venerable media companies like the New York Times (NYT) and the Gannett Company (GCI) being valued at a significant discount. The situation is analogous to toll operators getting valued at a large premium compared to owners of private roads. The justification being toll operators can decide to collect any amount they like and can control how much they provide to the owners of the private roads for which they collect the toll. Needless to say, such a situation is unfair to the owners of the private roads who will end up considering other options to collect toll. Longer term, Internet publishers will decide to move away from Google’s and Microsoft’s advertising platforms and instead weigh alternatives that allow a very minimal overhead cost and the majority of the revenue stays with the publisher. That will be the beginning of the end for Google’s and Microsoft’s lucrative display ad businesses.

Google is an outright winner in the horizontal search area and should continue to dominate for the foreseeable future. The real threat for Google is that area slowing down due to limitations of text-based Ads that show up as part of search results. The AdSense product has been categorized as good at monetizing crap. This is even truer for Google’s horizontal search area. The weakest link here is Google being dependent on users structuring their search queries so as to accurately depict their objective as otherwise the in-context Ads will be as useless to the user as the search results. Such a requirement is taxing for the user and better alternatives will be introduced into that market space over time.

To recap, Microsoft appears to be making wrong moves in its effort to displace Google. Acquiring media assets while they are cheap and using the Ad platforms to accelerate monetizing the assets may be a better overall plan. Further, Display-Ad verticals are an area that will catch up to fetch a growing portion of the total Internet Ad revenue. As that happens, a lot of the advantage that Google and Microsoft enjoy will whittle down unless they make a concerted effort in growing on to those areas.

401K/IRA Retirement Account Asset Allocations for 2008 – Part 2 – Rollover IRA Accounts

About 17.5% of our retirement accounts are in a Vanguard rollover-IRA plan. The existing allocation is as follows:



















SectorFundsCurrent % Allocation
DomesticVFINX 39.4%
InternationalVPACX-15.27, VGTSX-15.831.07
BondsVIPSX-14.74, VBTLX-14.59 29.33
OthersVTTHX0.18


To achieve the 40-40-20 for this account across domestic, international, and bond funds, we shifted funds out of the 3 domestic funds into the international fund and the bond fund. Also, for the international area, we shifted out of VGTSX, a diversified international fund into VPACX, a fund focused on stocks in countries in the Pacific – since our 401K has just 1 international choice which is a large cap fund loaded with stocks from developed countries in Europe and North America, selecting VPACX provides a little global diversification overall. Here is our new allocation:
















SectorFundsNew % Allocation
DomesticVFINX 40%
InternationalVPACX40
BondsVIPSX-10, VBTLX-10 20


The rest (about 22.5%) of our retirement accounts are in a Fidelity plan sponsored by one of our old employers. The existing allocation is as follows:
















SectorFundsCurrent % Allocation
DomesticPRGFX-35.77, FSPTX-9.5, FSPHX-10.5 55.77
InternationalPRITX31.23
Bonds/AlternativeCash Balance Pension Plan 13


This account was rolled over to a Fidelity IRA account and that should allow for lesser fees along with flexibility on the options available. For the domestic area, we added FCPGX, a fidelity small-cap growth fund in place of PRGFX. For the international area, we chose VWO, an MSCI emerging market index ETF instead of PRITX. This provides diversification as our international fund selections in our other IRA account and the 401K accounts provided us with no emerging market exposure. For the bonds/alternative area, we chose FIREX, an international real-estate fund. The new allocation in the rolled over Fidelity IRA account are as follows:
















SectorFundsNew % Allocation
DomesticFCPGX-20, FSPTX-9.5, FSPHX-10.5 40
InternationalVWO40
Bonds/AlternativeCash Balance Pension Plan – 13, FIREX-720




Related Posts:

1. 401K/IRA Account 2007 Performance Summary.
2. 401K/IRA Account – Asset Allocation for 2008 – Part 1.
3. 401K/IRA Account – Asset Allocation for 2008 – Part 2.
4. Retirement Portfolio – Mid Year Update.
5. Asset Allocation Adjustments to Retirement Portfolio in the face of market correction.
6. 401K/IRA/Retirement Account 2008 Performance Summary.
7. 401K/IRA/Retirement Account 2009 Reallocations.
8. 401K & Retirement Accounts Performance - Mid Year 2009 Update.

Turbo Tax Online Price Increases in the decade through 2012 – A Comparison

Filing taxes using the Premium product of Intuit’s Turbo Tax Online in the 2012 tax year required paying $37.45 for the federal and $27.70 for the state filings. This pricing was after the click through discounts from Fidelity. Turbo Tax increased prices at a very fast pace during the period between 2003 and 2010. Below is a summary of Turbo Tax’s price increases for the decade through 2012.



YearFederalStateTotalYOY % Price Increase
2003$24.42Free$24.42NA
2004$29.95Free$29.9522.65
2005$24.95$9.95$34.90**16.53
2006$27.95$17.45$45.40**30.09
2007$37.45$22.45$59.90**31.94
2008$37.45$26.21$63.66**6.30
2009$37.45$27.70$65.15**2.34
2010$37.45$27.70$65.15**0.00
2011$37.45$27.70$65.15**0.00
2012$37.45$27.70$65.15**0.00

**The prices above are after click through discounts from Fidelity when filing before March 22nd. The discount was worth around $20 and prices went up by 50% when filing after March 22nd. For example, the premium product without the discount was $74.99 when filing after March 22nd and filing state was an additional $39.99 for a total of a whopping $115. There was no price increase in the three years through 2012 tax year. 

As far as alternatives, we tried TaxACT and H&R Block At Home (TaxCut) previously but ultimately stayed with Turbo Tax through 2012 tax year - we used the Deluxe product instead of the Premium product to reduce the price and also used the Fidelity click-through discount - even after all that, the final pricing was still a $30 premium over the comparable TaxACT product (Ultimate Bundle). For the 2013 tax year, we finally made the switch to TaxACT and that was overall very worthwhile .

Related Note: H&R Block tried to acquire (10/2010) TaxACT despite having a competitive product in H&R Block At Home (formerly TaxCut) but the deal did not go through due to anti-trust opposition. That essentially means the landscape will remain fairly competitive with these three main players.


There are a few other options to keep your tax filing costs down:
  1. Turbo Tax SnapTax for iPhone and Android can keep your cost to just $24.99 (increased from $19.99 last year). The pricing is about half when compared to the online product. 
  2. Opt for Turbo Tax Desktop Edition. Going this route saves you around 35% compared to the discounted pricing for the Online Edition. You can choose between a DVD and Download. Download is slightly cheaper and you get it almost instantly (~5 minutes if you have broadband internet connection).
  3. Get Turbo Tax Deluxe online edition for free by establishing a banking relationship with State Farm. 
  4. Intuit substantially increases the pricing of the software every year on March 22nd. So, you can save a bunch by filing before that date. 


Note: consider also what is available at the Amazon.com Tax Preparation Software area. The options there are suitable in case you prefer client software as opposed to online interface.


    401K/IRA Retirement Account Asset Allocations for 2008 – Part 1 – Current Employer Accounts

    Close to 60% of our 401K and Rollover IRA accounts are in a Fidelity plan sponsored by one of our existing employers. The allocation was as follows:
















    SectorFundsCurrent % Allocation
    DomesticDODGX-30.64, HWMIX-19.98, AVPAX-22.3572.97
    InternationalFDIVX27.03
    Bonds/AlternativeNone0


    This plan offers several domestic stock fund choices but only one international & one bond mutual fund. To achieve the 40-40-20 split for this account across domestic, international, and bond/alternative funds, we shifted funds out of the 3 domestic funds into the international fund and the bond fund. Also, the domestic funds under performed significantly and so we diversified out of these funds to other choices in the same sub-sectors. Here is our new allocation:
















    SectorFundsNew % Allocation
    DomesticDODGX-10, FUSEX-5, HWMIX-5, ARTMX-5, AVPAX-8, FSLCX-740
    InternationalFDIVX40
    Bonds/AlternativeFTHRX20


    Just about 1% of our 401K and Rollover IRA accounts are in a Schwab plan sponsored by our other employer. The existing allocation is as follows:













    SectorFundsCurrent % Allocation
    DomesticCVGRX-35, SWPIX-3065
    InternationalWBIGX35


    We kept the allocation as is for this account – it forms only a very small portion of our overall portfolio and so it has very little impact on the targeted overall split up.


    Related Posts:

    1. 401K/IRA Account 2007 Performance Summary.
    2. 401K/IRA Account – Asset Allocation for 2008 – Part 1.
    3. 401K/IRA Account – Asset Allocation for 2008 – Part 2.
    4. Retirement Portfolio – Mid Year Update.
    5. Asset Allocation Adjustments to Retirement Portfolio in the face of market correction.
    6. 401K/IRA/Retirement Account 2008 Performance Summary.
    7. 401K/IRA/Retirement Account 2009 Reallocations.
    8. 401K & Retirement Accounts Performance - Mid Year 2009 Update.

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