Sonoma County: News and Notes

This week has been dominated economically by the news out of China. The kind of volatility that we have seen there has been unprecedented by the impact on markets in the US. There are plenty of other countries that have gone through ups and downs (Argentina for example), but rarely have we seen the impact on the US Stock Markets that we have here. For Sonoma County and the rest of the North Bay, this could have a separate impact. There has been some interest in investing in the Wine Business by interests in China. I would expect to see a pull back in that interest. Not completely, but people are likely to stick to their knitting in this kind of climate. Wineries and Vineyards are probably not going to see as many Asian buyers as they have in the recent past.

So, the only other thing I can say about this is that this is a great chance to ensure that you have diversity in your portfolio. You probably lost some money on the market declines, but this presents an opportunity. Stock prices have corrected and some stocks that you wanted to buy are probably much more reasonably priced than they were two weeks ago. Remember Buy Low and Sell High! If you bought at the recent peaks, you may wish to think about what a real sell price might be on the downside. 25 – 30 percent loss is probably appropriate.

This leads into my review of Keysight’s Q3 earnings from last week. Note they are not using the Calendar Year as their Fiscal Year and that is why they are reporting Q3 now. The quarter itself was solid as Keysight reported revenue of $665M and profit of 41 cents per share (GAAP). These numbers are down year over year around 12% and in itself should be a cause for concern. However, the business is solidly profitable and as long as this is near a bottom of revenue there is no concern on the downside for the near term future. The company also announced that it closed its purchase of Anrite. This will help expand the presence of Keysight in the Wireless Business. There will be an ongoing process of creating “synergies”. This means that duplicated positions will be slowly eliminated. There will be cost savings derived from that and in the end the total company should be able to operate the overall business at less money than as two companies. The caution on this is that sometimes those savings kill the business of the acquired company.

So, we have a stable company that has a relatively flat to slightly down business. And that is the challenge. Keysight states that its Total Available Market (TAM) is growing at about 2% a year. That does not allow for the business to grow rapidly or create a lot of new profit centers. This of Proctor and Gamble and less about Apple – even though Keysight is a technology company. That means that the Price to Earnings (P/E) ratio for Keysight will never hit 30 or 40, but instead it will be in the teens like a more stable company. This will limit the upside of the Stock Price.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Hiring and Maturity

I have spent a couple of sessions working with a client who wants what he calls a “Mature” employee. I want to explore both what he means by this and how we can evaluate maturity before you hire someone.

To set people’s mind at ease, he does not have an age factor when he says Mature. He means a responsible, level headed employee that he can use as a front line supervisor. When he first started describing the employee to others to get referrals, he only talked to them about the technical skills required in the position. He received several referrals, but none of them had the personality that he needed. We began to talk about the job description and I saw the hole that he had left in his description.

So now he has started to get better candidates but not the right person yet. One of the things we talked about is that this person will represent him to other employees and to customers. We talked about decision making (more on this later). He said he wanted them to make the right calls. I said no, what you want is someone that would make the calls the same way that you would. This has two implications. First, he needs to explain to his employees and the candidates something about his philosophy. I have talked about this extensively under Branding as a topic. This is why I believe you need to align employees with your Brand. If you don’t tell them, then they will use their own judgement. The way to achieve Alignment around this is to live your Brand and to ensure that is it well understood. Then you can ask interview questions about this topic. Even better, you can ensure that the candidate is clear on how you want things to work before you talk to him or her. Then you can validate their understanding of how you want them to make their choices.

From an external standpoint, he asked me if the person’s personal life and business life was likely to be similar. Why yes they are! That means if someone neglects their obligations in their personal life then that is a good indication that they will neglect their duties at work. This is not a perfect filter, but is a pretty good starting point. Now clearly there are some things that are out of bounds to ask candidates, but you can do a background check. In California, financial checks are out of bounds – but not in all states. But you may wish to do check 3 references as well as perform a valid background check. Again, this is not perfect but should help you weed out candidates that don’t run their life in a way that you would expect a supervisory employee to do.

So, there it is. Decision making and the soft skills around work behavior can be important to many positions. How do you approach understanding candidates on this scale?

Jim Sackman
FocalPoint Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life

Net Neutrality Friday

This week had a couple pieces of news of interest.

First, AT&T closed its deal with DirectTV. This is of interest from a video standpoint. AT&T bought a significant number of Video Customers outside its core territory. On top of that, DirectTV can be bundled with DSL in rural areas of AT&T to provide triple play services. I think it is also a hedge against a network upgrade to Fiber To The Home (FTTH). In most homes, video and video streaming takes up a huge portion of the bandwidth that a consumer uses. If you can get them moved over to Satellite, then U-verse moves from being a 25 Mb/s shared between video and data to a 25 Mb/s data service. This could be viewed as a network upgrade for consumers as they no longer have to share their bandwidth. This whole activity gives AT&T a huge leg up in the video distribution business. The challenge is that video distribution is a not a high gross margin business. What we have yet to see from AT&T is any move into the content side of the business. Verizon bought AOL for its advertising network, which is at least the way to monetize content. I suspect AT&T is not done buying assets because of that.

Second, there are upcoming changes to the Re-transmission Rules. These rules are around the rights and rules for carrying local broadcast stations on Cable Systems and other Multi-Channel Video Programming Distributors (MVPDs). As you recall, these are the rules that got Aereo put out of business earlier this year. Many governments require that local MPVDs carry local television broadcasts. There is a need to negotiate a price that the MPVD pays for this privilege. Essentially the local TV station gets paid for the delivery of the content that it provides for free Over The Air (OTA). If you go back 30 years, there were TV antennas everywhere on rooftops. Now they are extremely rare to see. That is because most people get their local TV broadcasts from their MVPD. This has been an awesome deal for local TV stations as they got a bunch of money for not doing anything new. Expect a lot of back and forth through the law and regulatory process. The FCC is starting an Notice of Proposed Rule Making (NPRM) on this topic. If you remember it was an NPRM that caused the whole “Fast Lane” controversy. Stay tuned for lawyers to make a lot of money!

Finally, there was an announcement around Software Defined Networks (SDN) by AT&T. AT&T announced that its “Network On-Demand” Carrier Ethernet Service has cut provisioning times by 95%. This is an interesting case study on how automation around SDN might save a lot of time for specific services. In the old days, Flow Through Provisioning (see OSMINE) was a traditional way of issuing work orders. The more standard implementations that can be done with services the better that this will be. One thing that I want to note here is that this was implemented on a specific service. This makes sense as it will be too complicated to implement a multi-service SDN at this time. It makes sense to pick a simple single service with few changes possible (in this case bandwidth) and learn about how the automation works. I am not sure how much money this saves AT&T. Probably not much. But it is a live technology trial at a Tier 1 carrier that is making money on a service that customers want.

Have a great weekend.
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Net Neutrality Friday

This week there were several chunky pieces of news. Most of relates to the conversion to the All IP network. That title itself is a bit of a misnomer because one of the topics covered were copper facilities. There has been significant work on IP Voice Network Interconnection. That looks to be moving forward in a straightforward manner. There is not really a policy issue here as it is more of a technical issue than a business issue. Carriers will want to connect their VoIP networks and there is likely not a big advantage to any specific vendor. Because of that the topic does not have a lot of contention.

Much more of a contentious topic is the notice required for the retiring of copper networks. Consumers will get 3 month notice. Competitive Carriers will get 6 months and equivalent services must be offered on the fiber networks. I think this actually presents a bigger challenge as the wholesaling of bandwidth has really only been defined under the old Project Pronto. If a competitive carrier leases facilities (aka UNE-L), there is often no direct equivalent in Fiber networks. Many such networks use Passive Optical Network technologies. These networks have a shared physical infrastructure between many end customers. Copper networks provided dedicated facilities. There is no rational way to lease a fiber unless a point to point fiber construction plant has been created. All of this will create challenges until things are understood clearly from cost, price and service standpoints. This could slow fiber deployments theoretically, but I suspect that it will not do so much. I think we will see a lot of whaling and gnashing of teeth on this one, but nothing really important will happen.

Another topic this week was a way to look into cost modeling rural broadband applications. The challenge here is that the model has been being made for the Rate Cap (read Larger) carriers and applied to the Rate Base (read Smaller) carriers. Rate Base carriers follow the older model of how carriers get paid. In the olden days, telephone companies got paid a fixed rate of return based upon how much money they spent on equipment. This became known as the rate base. Because of this, telephone companies were a very stable investment for shareholders. Most carriers converted to Rate Cap carriers later to be able to get a better stock price and remove some other regulations lessened. In this case, the charges of the carriers are capped and they can spend whatever they want to make that revenue. Very small carriers are sometimes still Rate Base carriers and are subsidized by the US Government to make their revenue. They don’t charge up to their Rate Base (in other words their customers don’t cover the telephone company’s costs). Instead, the gap between what they can charge (same as the Rate Cap carriers) and what they spend is covered by the US Government. The problem is that these new cost models are for the larger carriers and won’t work for the smaller ones.

My opinion is that these very small carriers probably don’t make sense in today’s environment anymore. We need to be looking to the States to help them combine so that they can have enough bulk to become Rate Cap carriers. This can be done with other small carriers or potentially rural spin-offs of larger carriers. However, there will be resistance to eliminating these historical part of the landscape.
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Sonoma County: News and Notes

The deal between Cyan and Ciena is now closed and so I will no longer be reporting on their earnings. I have decide to replace Cyan with Autodesk. They are headquartered in Marin County and I think they will be great to review. I wish my friends at Cyan good luck! I know that I have been sharply critical of management there as it comes out through earnings. They finally did what I suggested a long time ago and sold the company. I will have more to say about this and why I said it when I get a break from earnings. For former Cyan employees, I posted a bit of a survival guide to being acquired and you can find it HERE. If there are other public North Bay companies that you want me to review, just let me know.

This week we have a good news story at Enphase. They reported yesterday with revenue of $102M and a GAAP net loss of $603K or about $0.01 per share. Excluding one time items this became a profit of $0.06 per share. Revenue was up both sequentially (Q2 was up over Q1) and year over year (Q2 of 2015 was up over Q2 of 2015). Gross Margins were stable year over year and that is good news in their market. As I have said before, it is apparent from the outside that they are adjusting expenses to match revenues. They are in what is called a “land grab” time in their market. The goal is for the company to rapidly expand without losing too much money or in this case essentially break even. The stock is trading up today and the overall story is very good. I want to explore the upside and then talk about potential future challenges.

The upside in Enphase comes in 3 buckets: International, Commercial, and Storage. Each of these is independent but can be linked in the longer term. The core of the Enphase market is the US Residential Solar Industry. By expanding into International, Enphase has been able to grow its Total Available Market (TAM). On top of that revenue from International continues to expand as Enphase enters new markets (compare this to my commentary last week on Calix). Commercial is a different sale and selling proposition than Residential. Here too Enphase is expanding its TAM an revenues. In both cases, the company is growing rapidly so that these new opportunities are not much greater than in the past as a percentage. But Enphase expanded about 25% over last year, so all segments are exhibiting growth. Then we come to Storage. This is a completely new market for Enphase and I would say that things look promising but this ship has not landed yet. One interesting note from the call is that the Enphase Storage solution can be added to 3rd party Solar Systems. This means that it has a much larger potential market than if it was proprietary to Enphase. This would be particularly true outside the US and we should keep an eye on this in the future.

One of the great chunks of news out of all of this is diversity. Enphase lost a major portion of the revenue it was getting from Vivent. Vivent had been Enphase’s largest customer and shipments are expected to be down 75% Year over Year. In the face of this decline, Enphase continues to grow. Compare this to what happened to Cyan when Windstream slowed down its purchases. This shows that the Enphase solution is winning in the market at an excellent rate overall. Vivent decided to multi-source their business and that makes a lot of sense from their standpoint. But the ability to keep winning in a very competitive space, shows that the company has staying power. However, we should keep an eye on troubles with major partners. This could show a weakness in Major Account Management if it happens again.

Finally, the long term challenge here is gross margin. There are tax credits expiring in the US next year and I would think this would depress demand in the US. You have probably all seen the decline in Oil Prices. In general, Energy is getting cheaper and there are many other clean technologies like Solar that will come in the future (bio generated fuels, cleaner fossil fuel plants, etc.). The downward pressure on energy pricing means that Enphase needs to keep innovating to stay in front of the curve. It has done so in the past. But if I were an investor in the company (and I own no shares directly in any of these companies – I have no idea if my mutual funds do), I would watch the Gross Margin line all the time. A decline in Gross Margin could represent a problem in the business.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Diversity and Hiring

Last week I talked about some tools that can help you define the candidates that you want to hire. This week I want to talk to you about something you should think about when you are down to a few candidates and that is Diversity. I don’t particularly mean cultural diversity or any of the politically sensitive ones. I am talking about hiring candidates that are different than you are and the rest of your team is. One of my learnings over my career is that people that challenge my preconceived notions are invaluable. Think about having the viewpoint of your customer or your competitor. You can have employees that give you that perspective without going outside your company.

One of the best places to start is with a behavioral style assessment as part of the final candidate selection. At Focalpoint, we use DISC assessments as the tools to use and we have one purpose built for this work. Once you are down to your last two to three candidates, give them an assessment. You will be able to uncover whether they have all the tools it will take to make this hire work. This can help a business owner or hiring manager make the best possible choice in hiring from several similar candidates. Hiring people that are different from the manager helps create a balance within the organization. Not everyone has to be different, but some people should be.

But don’t focus strictly on communication styles. Every person has a unique set of skills. If you duplicate the skills of the leader in place, the best reason to do so is succession planning. Every leader should identify the person who would replace them if they become unavailable (like promoted or retiring!). Many others should have complementary abilities. This allows for a range of skills to be brought to bear on the problems that arise in the normal course of business. People may be able to find a different path through.

For solo entrepreneurs, it is even more imperative that they don’t just duplicate themselves. All of us have parts of the business that we are better and worse at. The first thing you should hire for is to cover up your weaknesses. If you are a great salesman, consider someone who handles operations. If you are great at marketing, hire someone excellent at customer service. The two will be much stronger than a duplicate of the one and make the firm stronger.

Let me use an example from my past life. I had just joined AFC and one of our engineers had found a bug with one of our core custom chips. If we had to replace them, the cost to do so would be astronomical. I did not see a good path forward and brought the problem to my group at a lunch meeting. A very quiet gentleman suggested that we might be able to proactively prevent the problem from happening. The problem came from a specific set of circumstances and he proposed we add a circuit to one element that could prevent the circumstances from happening. That type of thinking had not occurred to me. It turned out to be a great solution and we incorporate it. Humorously, Tellabs ran into the same problem years later when they went off to build their own hardware for Cablespan. They thought they had broken chips, but we gave them the “fix” and all was settled.

So, diversity in skills and styles are important to build a well rounded organization. Think about it when you are hiring!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!