Shane: Since you once again have gone off on tangents, here is a brief summary of our debate:
|My initial post of Shane criticized him for the following:
1. Using $2.1 Billion in revenue for ‘99 as an average year for LSI. Shane further felt that he didn't think LSI would make this number. I felt that this was reckless and irresponsible, since this number came from his using one half of one quarter's revenues (3Q) that reflected the combined Symbios LSI merger. I felt that the only fair comparison would be 4Q '98 and 1Q'99, which were both full quarters that reflected the combined Symbios and LSI and further reflected what actually was occurring with the two combined entities as LSI was moving forward. I felt that if one used LSI 4Q as a base, then it would take a 35% increase in revenues (4 Q ‘99 over 4Q ‘98) to get LSI to the Shane's “average” of $2.1 billion. Since 1Q '99 had already shown a 2.5% increase, this would require 3 quarters of 9% gains in revenue to achieve Shane's so-called average. I felt that this was far above any average, but would be in fact an outstanding achievement. Thus, I criticized Shane for using his average figure since I felt that it was grossly misleading, and that his average was wildly optimistic. I cited projected revenue figures of his from late '97 that demonstrated his revenue projections for DVD, DCAM and Playstation all proved wildly optimistic as they pertained to '99 revenues. I felt that because Shane has a following, and that his numbers were doing a disservice, that it was time someone challenged his figures as being far less than expert calculations that they purported to be. (By about 40 to 50 % per item). This was never a dispute as to how well LSI would actually do.
Using the names of semiconductor and components as two different divisions which were in fact one and the same. As such I strongly criticized him for making projections about LSI's future when he didn't even know the names of the divisions to the extent that he was talking about one division when he claimed he was talking about two.
I further criticized him for his assertion that the time to sell was when LSI made an equity offering since I maintained that LSI just had made a equity offering in the form of convertible stock that was used to finance the Symbios purchase.
Shane ultimately responded that:
The convertibles go on the debt side of the balance sheet, and that they are quasi equity.
That he was also citing pro forma figures, which were identical to his base figure of $1.85 billion, and that he derived his average increase of 15% from various semiconductor industry sources. Thus, his mantra became 1.85 (the pro forma figures for LSI) x 1.15 (the industry average projected growth rate for ‘99= $2.1 (his calculation for what would be an average year in revenue for LSI)
That it didn't matter what name he gave to the different divisions, that it was the non-semiconductor area of the storage business that was growing by 30%, and that this is why he assigned a 30% growth rate to a portion of his numbers. He never even acknowledged the correct name of LSI Storage Systems. He also said that at the most recent CC, Corrigan said that Storage Systems had such a strong lead-time that it was all the way into 3Q.
He also spent extensive time elaborating on his methods for his calculations. He also spent significant amounts of his time attacking me in particular and lawyers in general.
The truth is of course that the convertibles do go to the debt side of the balance sheet (for the time being), but that given the terms of the offering and LSI great future prospects, they will ultimately become equity, thus diluting the earnings per share at some point in time. On this one, Shane gets technical and style points but loses on substance, since his point was that when LSI went to market to acquire capital (rather than financing purchases through internal growth), then that was a good indication that LSI was at its peak. Clearly, it is not.
The correct name is of course LSI Storage Systems, and I cited almost up to date figures showing that it was the components division that was exploding. I also went back to my report of the CC, and I could find nothing to indicate that Storage Systems was growing by 30% and that lead times were stretched into 3Q. The only thing I found was a note that Storage Systems had record revenues. Thus, on this issue, Jock scores a clear victory. Shane produced no credible information indicating that Storage Systems was growing at a 30% rate other than analogizing the division to storage powerhouse EMC, which is growing at such a rate
I responded with a few personal attacks of my own and did not dispute his various methods for calculating his figures. Rather, I simply said that the problem with his figures was his core assumption of $1.85 billion. Also to be fair, I spent much less time attacking him personally, and where he made a valid point, I either corrected myself and/or apologized. On this score, Shane wins some points since it was Jock who initiated the charge of irresponsible. But Shane also looses more points by his repeated attacks on Jock; his smarmy know it all superior attitude, his complete lack of apology, the larger number of personal attacks, and the inferior writing style. Similarly, Jock gets points for apologizing to the thread, and also complimenting Shane for his contribution to the thread.
On what certainly is the most important issue, Jock comes out the clear victor. Jock pointed out that using Pro forma figures as a basis of projections is also a terrible way to predict a company's future performance--that the best way is to use the actual quarterly figures that resulted after the merger of the two companies. When Jock asked Shane what was the better way, Shane (in a backhanded fashion) conceded that the better way was to use the actual figures rather than the pro forma figures.
And I have no doubt that neither The Street or LSI will ever refer to the Pro Forma figures, that Shane ultimately used to defend himself. And quite properly, because they simply don't reflect the reality of the merged companies. Now in his latest post, Shane claims that the reason LSI will never refer to the Pro Forma figures is because they use Purchase Accounting rather than Pooling Accounting. (The reality is that new rules now require more companies to use the Purchase Accounting Method for purchases such as LSI made with Symbios rather than the previously favored Pooling Accounting Methods) But once again, Shane is missing the big picture. It's about figures that reflect reality not about accounting methods.
Obviously I have had serious disputes with other members of this thread. For example Dipy and I have had a running battle over the issue of long-term investments and how much to apportion to technology. We always regarded our contretemps as good clean hard fought battles. Dipy is clearly a big picture person. And when I posted my initial message, I thought that the result would be an exchange similar to what Dipy and I have had. But sadly what I found was not a big picture guy, but a little man wrapped up in his own minutiae and self importance, who simply had no adult abilities to concede the error of his ways and move forward. I just wasn't prepared for Shane's childish and viscous response. As such, I lost a lot of respect that I had for him. I expected Dipy, and I got K.
And speaking of K, Shane has now invoked K's name stating that I don't know English and that I don't know numbers. Well, I have one number for K, who stated just 10 months ago that I would have to wait a very long time for the next supercycle in semis. 44-that's today's stock price.
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