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January 2016

Look at the Amazon earnings and earnings expectations (click the attachment):

You see that fromt Q4 2015 onwards, there is a marked acceleration expected. This is, of course, largely based on the profitability of AWS, Amazon Web Services.

But before we'll buy, we like to have some confirmation that this is indeed happening to the extent expected. Q4 results (tomorrow after close) really are the deviding line..



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We bought a small position (1000 shares) in InvenSense (INVN) at $9.40 on the assumption that the multiple-year support of $9 would hold although we sort of knew that business would be relatively soft due to the smartphone market maturing.

The support didn't hold, pointing out the importance of stop loss, and they've just come out with earnings which were in line with EPS expectations ($0.16) but a slight beat on revenue.

Nevertheless, the stock is down further after hours (-6% at $7.35). The company is between a rock and a hard place. Smartphones are maturing, and other markets are still not significant enough to replace that. It's actually an object lesson in how hard tech markets can be as InvenSense really is a market leader, having both Apple and Samsung as it's customers.

On a virtual portfolio of $1M our 1000 shares isn't very significant, but nevertheless this is a bit disappointing as we can't see an immedate turnaround of any substance either.

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More about InvenSense (INVN):

Shares of sensor maker InvenSense (INVN) are down $57 cents, or 7%, at $7.25, after the company this afternoon reported fiscal Q3 revenue that topped analysts’ expectations, but forecast this quarter’s revenue and profit substantially below consensus, citing share loss at one of its large customers, like Samsung Electronics (005930KS).

Revenue in the three months ended in December rose 4%, year over year, and 7% from Q2’s level, to $120 million, yielding EPS of 18 cents a share, excluding some costs.

Analysts had been modeling $117 million and 18 cents a share.

InvenSense’s gross profit margin was 44%, on a non-GAAP basis, it said, the same as the prior quarter.

CEO Behrooz Abdi called it a “solid” quarter amidst a backdrop of a “tumultuous business and financial environment.”

On a conference call, the company forecast revenue this quarter in a range of$77 million to $83 million, and earnings per share of 9 cents to 11 cents. That compares to the average estimate on the Street of $103.5 million and earnings in a range from “breakeven” to 2 cents per share.

CFO Mark Dentinger was asked about “share loss” in Korea with respect to business with a customer there.

Dentinger remarked that the percentage of revenue it gets from “our second-largest customer” is going to “slip to single digits” during the current quarter, something that was “incorporated into our thought process.”

Analysts have expected that the company was losing some business with Samsung, according to reports from the Street this week.

Perhaps the selling is somewhat overdone considering the enormous slide in the shares and the fact that Q4 profits are guided well above expectations..

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Here is the problem (see attachment)

INVN has almost fourfolded revenues since 2011, but they got their margins squeezed by Samsung and especially Apple.



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Despite quadrupling revenues since the IPO in 2011, the shares have gone nowhere:

INVN InvenSense, Inc. monthly Stock Chart

It's a tough market for them.. But you can see why we were firm believers $9 would hold. The funny thing is, the big runup in 2013-4 occurred on rumors Apple would source them. They finally did, but this has been a mixed blessing, to put it mildly, as Apple has led to a rather substantial margin squeeze.

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Just a quick comment on the eurozone dysfunctions:

German consumer prices fell at the fastest monthly pace in a year in January as plummeting oil prices and weakness in emerging-market economies postpone a long hoped-for pickup in inflation. Prices declined 0.9 percent from December, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the largest decline since January 2015. Even so, the annual inflation rate rose to 0.4 percent from 0.2 percent the prior month, in line with the median estimate in a Bloomberg survey.

German Prices Drop Most in a Year, Highlighting ECB Challenge - Bloomberg Business

So how are Spain, Greece, Portugal, Italy, etc. supposed to win back the 20-30% loss of competitiveness against Germany from the first decade of the euro because they had large capital inflows (largely as a result of the euro itself, as this removed the devaluation risk in those countries) and German wage moderation?

You guessed it, they have to run prices even lower than Germany, for a substantial amount of time running deep deflation.

What would that do to their economies?

What does that do to their debt-dynamics, when they have stagnant or even shrinking nominal GDP, the debt/GDP ratio keeps ratcheting up..

A veritable distruction machine, the euro. Even Finland, a model economy, is now a victim as it can't devalue to deal with the shock to the Finish economy (Russia imploding, Nokia, decline of paper exports)..

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Already halved from the peak last year,here is the last five years of Shanghai (click thumbnail attachment). It look like a bottom might be close.

Looked like a good idea at the time, to boost the stock exchange, enabling companies to swap debt for equity..



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We've bought 1000 Micron at $9.90

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Micron is experiencing difficulties now, that can endure for some time (hence the modest initial position), but:

Additionally, demand for PCs has been softer than expected, leading to a massively out of balance supply/demand curve and a resultant price crash of DRAM by ~40%. The PC market has historically represented 30% of demand for MU, but luckily most of the future growth is in cloud computing, Internet of Things, and mobile. Gartner predicts the Internet of Things will support significant growth in hardware spending over the next several years, driving +20% YoY growth from 2015-2016 and accelerating growth thereafter. We are rapidly heading toward a future where every device purchased has a chip, and in this future the chipmaker is king.

Micron Valuation: An In-Depth Analysis - Micron Technology Inc. (NASDAQ:MU) | Seeking Alpha

Something similar can be said for InvenSense, which is why we are holding on to these (actually, we should have added in the selloff this morning)..

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MU at $9.84 (charts are self-updating..) is at the bottom of the declining trend channel and the shares are significantly oversold, it should bounce at least a bit as long as the market doesn't break down..

MU Micron Technology, Inc. daily Stock Chart

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