Microsoft's Homeland Security

By Alyce Lomax

Viruses. Worms. Creepy, crawly things nobody likes to worry about, and certainly not in the virtual world. Nevertheless, Microsoft(Nasdaq: MSFT) at a security conference yesterday addressed those concerns by discussing a string of "active protection" initiatives to make its products safer. It makes sense that all eyes would be on the technology giant's security plans, considering its recent rep as needing a security boost.

Bill Gates exhibited an upcoming Windows XP Service Pack (due out later this year) that includes security-friendly features where users can check their antivirus software and whether they have applied all critical patches. In addition, firewalls will be part of default installation.

Microsoft's deal with RSA Security(Nasdaq: RSAS) will enhance security past the usual username and password system, stepping it up to include a keychain-like device, requiring authorized personnel to enter a code that changes on a minute-by-minute basis. Also, there's a proposed "caller ID for email" to combat spam. Such a function is something many of us non-techie folks can relate to. I use caller ID to screen out anything that looks like a telemarketer, and I'm addicted to knowing who's on the phone before I answer. It addresses spam as one of the highest-profile issues around, but it's probably still a ways off.

When I asked Fool chief security goon Joshua Brown for his opinion on these initiatives, he called them an improvement and steps in the right direction. However, while Gates said things are improving judging by "only" nine critical vulnerabilities in the first 300 days of Windows Server 2003, Brown pointed out that maybe we should see those as nine too many, arguing that too many problems still make it into production. (And judging by the last few years, many Windows users who downloaded what may have felt like endless patches know that there were a heck of a lot of vulnerabilities associated with XP.)

Microsoft has begun addressing steps to bolster security -- and ease the minds of its customers. That's good, since it needs to defend its majority market share, which most statistics put at 92%, with Linux and Apple(Nasdaq: AAPL) nibbling at the rest. Keeping itself in good graces is crucial right now to avoid any migration to other operating systems and keep customers open to the next generation of Windows, Longhorn, which launches in 2006.

Alyce Lomax does not own shares of any companies mentioned.

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Ti ffany Rocks

By Bill Mann (TMF Otter)

Tiffany & Co. (NYSE: TIF) , or Tiffany's as it's known worldwide, turned in dazzling sales and earnings numbers for its all-important fourth quarter of 2003. It earned $110 million, or $0.74 per share, up from $89 million, or $0.60 per share, in the same quarter a year ago. For those of you playing the home game, that's a gain of 18%.

Tiffany, perhaps the most valuable luxury brand in the world, offers proof positive that the American consumer's confidence surged through last year as people began factoring in continued strength in asset prices and a recovering economy. American retail sales, which account for approximately 47% of Tiffany's total revenues, increased 20%, while international retail, 39% of the total, rose 18%. If you factor out the rapid decrease in the dollar value to many global currencies, international sales gained 7%. More illustrative is what happened in the company's largest international market, Japan, where comparable retail sales dropped 7% in the quarter before factoring in the decline of the dollar against the yen.

When all is said and done, Tiffany's quarter may have been somewhat better than what will be widely reported. While it shouldn't count on continued dollar depreciation, its decision to increase internal manufacturing and diamond sourcing should help it control raw material costs, very little of which comes from American sources. Tiffany has a 14% ownership of Aber Diamond(Nasdaq: ABER), which operates the Diavik mine in Northwest Territories, Canada, in conjunction with Rio Tinto(NYSE: RTP). In 2003, Tiffany opened a diamond-cutting facility in nearby Yellowknife ("nearby" being a relative term in northern Canada). This will decrease costs over the longer term and will give it a highly desirable ability to self-source one of its most precious raw materials: diamonds.

In this past year, Tiffany's policy of using last-in, first-out (LIFO) inventory valuation at its branches meant that the spectacular rise in gold prices and other raw material caused the company to accept a $2 million reserving charge for the quarter, $10 million for the year. Though it's a non-cash charge, it affects reported earnings and margins. For the year, gross margins sit just below 60%, but were slightly lower this year due to a larger component of Tiffany's sales coming from higher-ticket ($50,000-plus) items, which have lower margins.

Tiffany did not repurchase any shares in the fourth quarter under its previously announced buyback program. Annual repurchases were $4 million at the average cost per share of $23.05. This should tell you something very specific about management's determination of the current $38 per-share stock price: It's no bargain.

On the one hand, that's troubling. On the other, it reaffirms my admiration for Tiffany management. For a luxury company that's a brand of choice for people who want to spend enormous amounts of money, it's pretty good at pinching shareholders' pennies.

This was a great quarter to cap off a big year for Tiffany.

Bill Mann owns no shares of companies mentioned in this article.

Qu ote of Note

"Hi. I have more than a million dollars in my bank account and I'm single." -- Sandra Bullock

Wi n Mark Cuban's Money

By Rick Aristotle Munarriz (TMF Edible)

If Donald Trump, Ozzy Osbourne, and Anna Nicole Smith can do it -- why not Mark Cuban? Why not, indeed. Throwing his billionaire hat into the reality television ring, Cuban will team up with Disney's(NYSE: DIS) ABC to air The Benefactor later this year.

We've seen folks survive 39 days on a remote island, tap lifelines in air-conditioned comfort, and down pig uterus smoothies to win big money and great shame on primetime television. Why not grovel with Cuban for a shot at a cool $1 million?

How the contestants will go about winning Cuban's money remains to be seen. We do know that applicants will be narrowed to 30 finalists and then the game will be afoot. But, why Cuban?

His claim to billions was launching Broadcast.com, or more precisely, selling out (then cashing out) to Yahoo!(Nasdaq: YHOO) for billions just before the dot-com bubble burst. He's bought himself some fancy toys along the way, like, say, the NBA's Dallas Mavericks.

Cuban is charismatic, colorful, and temperamental -- a potent elixir when stirred in front of home viewers. Through it all, he has demonstrated an uncanny knack for landing on his feet. Two years ago, upset at how a Mavericks game was refereed, he publicly informed the league's head of officiating that he wouldn't hire him to manage a Dairy Queen.

The remarks created a Blizzard of publicity for Cuban when Berkshire Hathaway's(NYSE: BRK.A) Dairy Queen blasted him for the remark. Both sides settled in a win-win, publicity-pimping stunt that had Cuban working one day at the local DQ.

The bigger question may be whether Cuban can trump Trump? The Donald's The Apprentice is a brilliant show in just about every way, but it's funny to see him flaunting opulence and edgy buzzwords when his Trump Hotels and Casinos(NYSE: DJT) trades for $2.50 a share. Teaming up with Credit Suisse(NYSE: CSR) to recapitalize the company is a good start, but a better move might be a field trip to our Living Below Your Means discussion board.

Or, better yet, have Trump Hotels and Casinos apply to be a contestant on The Benefactor. You couldn't buy that kind of publicity -- or beg for it either.

Longtime Fool contributor Rick Munarriz will admit that he's hooked on reality TV -- only in moderation and knowing full well that much of it is staged. He does own shares in Disney.

Di scussion Board of the Day: Reality Television

Has reality television gone too far? Where do you draw the line? If everyone has their 15 minutes of fame, will we have enough to go around? Or will it be time to bring in the egg-timers? All this and more in the -- in the Reality Television discussion board. Only on Fool.com.

Nike's LeBron: Pure Gold?

By Rich Duprey

When Nike(NYSE: NKE) announced last May that it signed high school basketball star LeBron James to a seven-year, $90 million endorsement contract, more than one commentator wondered if the Air Jordan maker had lost its collective mind. Only a half season later, it seems Nike's decision may be a potential gold mine.

LeBron's Air Zoom Generations are flying off the shelves as the basketball star has turned in an impressive start to his rookie season. Playgrounds and basketball courts are sporting the mix of white-and-black sneakers that launched with an initial production run of 140,000 pairs. According to SportsScanINFO, a sports retail market tracking firm, Nike has sold 93,000 pairs of James' shoes already, and many Niketown stores are out of stock. Non-Nike affiliated stores are said to have already sold a third of their initial order.

It's been Nike's most successful product launch in two years and the company's excited about the prospects, but the question remains: Is Nike getting its money's worth?

At a cost of $110 for adults, the Generations ain't cheap, though kids can get a set of kicks for around $60. Industry analysts estimate large shoe retailers like Nike realize about $7 to $10 on each pair of shoes sold wholesale to stores at roughly half-price. That means the Swoosh hasn't even earned $1 million yet on the "Chosen One." For him to be worth $10 million to $15 million a year, he needs to sell $200 million worth of shoes, which doesn't include advertising and promotional costs.

Two commercials featuring "King James" have already premiered, and a third is slated to launch later this year. Start-up costs can exceed $40 million, though they'll be much smaller once the brand is established.

Still, it's the first quarter of a four-quarter game. James has been having an awesome year, by all accounts, averaging 21 points a game, 5.8 assists, and 5.7 rebounds. That's virtually unheard of. Only two other players in league history have averaged 20 points, 5 assists and 5 rebounds per game in their rookie season: Oscar Robertson and Michael Jordan.

James' appeal is primarily with eight to 18-year-old males in both urban and suburban markets, a lucrative demographic for Nike. His sneaker sales are dwarfing the 2003-2004 models of those at rival manufacturers. James' sales are almost double the 49,000 pairs of Adidas' T-Mac III's worn by Orlando Magic's forward Tracy McGrady, and more than double the 41,000 pairs of Reebok's(NYSE: RBK) Answer 7's worn by Philadelphia 76ers guard Allen Iverson.

As long as he's able to exceed the hype that surrounded his signing, the kids will continue to emulate him and wear what he's wearing. With other James-branded lifestyle products --jerseys, watches, sunglasses and boots-- in the offering or planned, Nike is hitting nothing but net.

Motley Fool contributor Rich Duprey has proven many times he can't jump and does not own stock in any of the companies mentioned.

Mo re on Fool.com Today

One year ago, the Fool dedicated a whole newsletter issue to short ideas. How'd that work out? Bill Mann's got the scoop in The Long and Short of It.... Speaking of shorts, Matt Mahorney's got a few terse words for investors: Don't Shortchange the Dollar. It's what you need to know about the dollar and investing in foreign companies.... Last but not least, David and Tom Gardner interview 7-Eleven's CEO on The Motley Fool Radio Show. Check out the the third installment: 7-Eleven: No Competition.

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