Not that running an analysis of a balance sheet is rocket science, but the red flags for Lucent have been waving for far too long over the past two years. Here's a great article at the Fool which compares Lucent's rising flow ratio to Cisco's improving flow ratio over the past 11 quarters. Study the improving fundamentals of our gorilla Cisco over the last 11 quarters and marvel at yesterday's amazing numbers that the new 'gorilla of gorillas' put up yesterday.
Foolish Flow ratio is one of the metrics run on a Rule Maker every quarter to help determine the fundamental analysis of a company. Here is the calculation and the link to a must read article on the use and discussion of that metric between Cisco and Lucent:
Flow Ratio =
Current Assets - Cash
_________________________
Current Liabilities - Short-term Debt
fool.com
While you are there at the Fool, today's article hits to the crux of Intel and the demand they have been unable to meet and how this created the opportunity for AMD. However, read and digest the long term implications of Intel, margins and the corporate business accounts where the real money in their business is made.
fool.com
As to recent discussion about royalty plays, keep in mind that at no time in the history of Dell Computer were fundamental numbers put up by the company in the ball park of a JDS Uniphase or an EMC. When discussing the sentence that appears in the 'manual' of holding royalty lightly, we need to really take a studied look at the types of FA numbers and metrics of the business models in a historic perspective so that we don't jump to an unstudied comparison and say 'all royalty' should be held lightly.
I will take some time to post the JDS Uniphase metrics as well as the improving EMC FA metrics alongside the PC OEM's historic metrics (Dell and Compaq) to show that at no point in time do we have a similar comparison in the business models or metrics. I feel this type of data would be useful for all of us in the future as we judge the business models of royalty and gorillas for our investment purposes. JDSU is a little more difficult to extract the numbers than other stocks due to the ongoing acquisition strategy, but it can be done. Obviously, that's not to say that a lot of money was made by Dell and investors in Dell. However, it does go a long way to show the strength and dominant position of an EMC, a JDS Uniphase and other companies that we are all studying. I, too, was quick to judge Dell (not as quick as others as it took a year of study for me to arrive at my own conclusion) as a 'hold lighter than other investments' stock. The numbers are good, but not in the same league as many other investment opportunities. As other Rule Maker seminar participants witnessed, even a Godzilla/Internutz/.com or whatever you want to call it like Yahoo! has a business model to drool over. The quarterly FA numbers they are able to put up go a long way to use as investment study when one is making decisions on choices for portfolio inclusion.
This is not intended to kindle any ire, but simply to support the notion that investors who might lack a 'gut' like Lindy's can indeed learn the quantitative tools required to draw the similar conclusion with no need of gut involved. I've been doing my best over the past 24 months to learn them and use them as I've got plenty of years ahead of me to apply them. That way, when I look at a JDS Uniphase, an EMC, a Cisco, an Intel, an Oracle, a Siebel, an i2, a Brocade or any of the up and coming IP/Broadband candidates - I can use the tools of quantitative analysis to couple with the 'gut'. I promised Don Mosher that I would get some JDS Uniphase numbers up here to support the notion that indeed all royalty are not considered equal and the data to support that is required when making a case. I'll try to get to that in the next few hours or day if my vacation schedule allows. Maybe new seminar graduate Tekboy would like to take a stab at running the JDSU numbers... to show you all what he has learned.
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