Perhaps our main goal here at Fool HQ -- with the exception, perhaps, of eating burritos and hazing new writers -- is to convince you, our readers, how little it pays to obsess over short-term market behavior. So what have we been up to all week? That's right, noodling the muted response to this weekend's blockbuster news in Iraq.
We have many theories and few answers, but it's been fun playing. Our esteemed leader, Bob Bobala, thinks that by ignoring the noise, the market got it right for once. After all, stocks ultimately trade on corporate earnings, right? Might the incorrigible stock market be growing up? Riiiiiight.
In today's Motley Fool Take:
- EMC's Holy Grail
- Quote of Note
- Cleaning Circuit City's Face
- Shameless Plug: Motley Fool Income Investor
- Motorola Spins, Focuses
- Discussion Board of the Day: Lord of the Rings
- More Fool News
- And Finally...
EMC's Holy Grail
During the past year, EMC
This week, EMC struck again and purchased VMware Inc. for $635 million in cash. Founded in 1998, VMware is a leader in server virtualization. This is software that turns one server into essentially different machines, with each able to run is own operating system (such as Windows, Unix, or Linux). In other words, companies can maximize their existing IT resources.
It appears that VMware has a significant technology lead in this emerging market. In fact, the company has been cash-flow positive for two years and is expected to ramp revenues from $100 million in 2003 to $200 million next year.
Interestingly enough, VMware goes beyond storage, which opens up heavy competition from IBM
On the face of it, VMware's technology is not really new. Virtualization has been a part of the mainframe world since the 1960s. But VMware has figured out how to make it work on Intel-based servers, which continues to be a strong market.
With the VMware acquisition, EMC will derive about half its revenues from software. It's not often a company of this size can make such a radical change in its business. Perhaps that is why CEO Joe Tucci calls his new vision the "Holy Grail" for IT.
Quote of Note
"Remember, you can always find East by staring directly at the sun. " -- Bart Simpson
Cleaning Circuit City's Face
It sure is nice of consumer electronics (and other goodies) retailers Circuit City
Both companies did pretty much as expected. Quarterly same-store sales fell about 1% at Circuit City, though the company was optimistic about November figures. Comps improved 8.6% at Best Buy even with reduced promotional expense.
Clearly, Best Buy is the better company. Many factors make Best Buy the leader, but one of the biggest comes down to a better shopping experience. Which is why I was surprised to read that only 20% of Circuit City's superstores had been upgraded -- for company purposes, this could mean built, remodeled, or relocated -- to its updated format since the company began the program in fiscal 2001. Having grown up with the company's "traditional" stores and their often un-compelling layout and product presentation, I can understand why so many folks were drawn to Best Buy's bright, lively spaces.
Circuit City knows its changes are working. The 21 stores it's relocated that have been open more than six months are performing significantly better than the rest of its stores. The company remains committed to improving its locations and its stores -- but there are drawbacks. Put simply, the changes take time, cost money, and disrupt sales.
The costs of these changes aren't discussed in company press releases, but they're broken out in SEC filings as a component of SG&A expense. (In Q1, for example, the company spent $16.5 million, or about 1% of SG&A, to update nine superstores, fully remodel one, and relocate three.)
Circuit City gets credit for working to improve its stores by updating the shopping environment (moving salespeople off commission) and getting out of appliances and the no-go Divx. Still, with Best Buy still performing at a much higher level by comparison, one wonders whether Circuit City has done enough in the battle for market share.
With a strong balance sheet and new funds following the sale of its credit card portfolio, perhaps the company should consider picking up the pace. Admittedly, an uneven history of free cash flow complicates the picture, and Circuit City seems wary of overspending. If the store reworkings really do deliver, though, investors would likely accept near-term profit pain.
Shameless Plug: Motley Fool Income Investor
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Motorola Spins, Focuses
A day after appointing Edward Zander as its new CEO, Motorola
In early October, Motorola announced that it would spin off the unit, just weeks after CEO Christopher Galvin declared his resignation. Galvin, whose grandfather founded Motorola 75 years ago, was at odds with the company's board of directors over the future of the company. Galvin was seen as indecisive and resistant to change. His ouster helped facilitate the long-anticipated spin off of SPS.
By cutting SPS loose, Motorola can better focus on its struggling communications business, where it has fallen behind Nokia
No shock or surprise here -- just anticipation. With a fresh face at the helm and a greater focus on its strength, Motorola is taking the necessary steps to get back on track.
Discussion Board of the Day: Lord of the Rings
Did you already seeThe Return of the King? Did the trilogy close with a bang or a whimper? How true was it to the book? Where can the franchise go from here? All this and more -- in the Lord of the Rings discussion board. Only on Fool.com.
More Fool News
- FedEx's Shaky Ground
- CalPERS Sues the NYSE
- New York, New Nokia
- No Buns for You!
- Whirlpool Spins Ahead
- Cheers for Sears
- Hoard of the Rings
For a list of all our stories from today, see Today's Headlines.
Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Jeff Hwang, Tom Jacobs, LouAnn Lofton, Alyce Lomax, Bill Mann, Selena Maranjian, Dave Marino-Nachison, Rex Moore, Rick Munarriz, Reggie Santiago, Tom Taulli, Dayana Yochim