Like Other Old-Tech Names, Oracle's Value Is Tied To Its Ability To Reignite Growth

Reading the sell-side research on Oracle (ORCL), I’m struck by how frequently the analysts benchmark Oracle’s valuation multiples (whether it’s P/E, EV/FCF, EV/revenue, et al.) against the peer/industry group in an attempt to make the “Oracle is undervalued” case, but neglect to benchmark the company’s revenue growth rate. While margins and free cash flow certainly do matter, revenue growth is a significant near-term driver for valuation multiples, and Oracle’s growth rate is much more in the CA Inc. (CA)/IBM (IBM) neighborhood than the Microsoft (MSFT)/Adobe (ADBE) neighborhood of older tech stocks.

Given the weak growth rate, the recent trends in Oracle’s position in sell-side CIO surveys, and the company’s ongoing challenges with the on-premises-to-cloud transition, I can’t work up much enthusiasm for the stock. While many old-tech companies have faced challenges in their attempts to renew themselves and remain competitive (Microsoft had its issues, IBM is still in the middle of them…), I just don’t see enough of a discount here to take on the incremental execution risk.

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Like Other Old-Tech Names, Oracle's Value Is Tied To Its Ability To Reignite Growth

Restructuring The Business Could Unlock Meaningful Value For Fujitsu

As I wrote about Fujifilm (OTCPK:FUJIY) last week, that company is a relatively rare example of a Japanese conglomerate that has moved reasonably quickly to transform itself in response to changing market realities. If Fujifilm is the "after" picture, Fujitsu (OTCPK:FJTSY) is more like the "before" picture, as weak profitability in its manufactured products continues to weigh down the margin and cash generation potential of its more competitive services operations. Fortunately, management is not blind to these realities and has already initiated a process to transform the business away from its legacy hardware operations.

As of now, the Street isn't buying the notion that Fujitsu will move itself away from low-to-no profit businesses like PCs, phones, servers, and chips and re-base itself around IT services. Even though I believe the business restructuring efforts will likely lead to no net long-term revenue growth (as growth in the IT services business is canceled out by sales and divestments), I think lifting the burden of these lower-margin businesses will allow for FCF margins to improve into the low-to-mid single digits, supporting a fair value more than 25% higher than today's price.

Readers should note that Fujitsu's ADRs are not particularly liquid. With that said, I would suggest investors consider buying the Japanese shares (6702.T); most of the better brokers now support international trading and the hassle/costs are not too onerous.

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Restructuring The Business Could Unlock Meaningful Value For Fujitsu

Seeking Alpha: The Cloud Tail Keeps Wagging Oracle

I look at Oracle (NYSE:ORCL) for largely the same reasons I look at companies like Cisco (NASDAQ:CSCO) - the search for relatively less volatile, undervalued, big-cap tech stories that can offset the risk of owning a collection of more aggressive plays. In the case of Oracle, though, I think I've found more things that concern me than encourage me, but those are short-term issues that I believe the company can address. What's more, the valuation would seem to suggest that a lot of these worries are in the price, and that this one may be worth a closer look.

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The Cloud Tail Keeps Wagging Oracle

Seeking Alpha: Absent Growth, CA Inc. Holds Little Value

I love to find stories that the market has beaten up, left for dead, and ultimately ignored. Plenty of tech stocks have done well for me over the years from that starting point, and there are attributes to CA, Inc (NASDAQ:CA) that remind me of some of those. What CA lacks, and what keeps me from believing that the shares can approach what would otherwise be over $40/share in potential value, is any real growth in the business and reasonable prospects for a significant near-term improvement.

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Absent Growth, CA Inc. Holds Little Value

Seeking Alpha: Lenovo Doing Fine On Its Own

The acquisitions of IBM's (NYSE:IBM) x86 server business and Google's (NASDAQ:GOOGL) Motorola Mobility business are certainly important parts of Lenovo's (OTCPK:LNVGY) investment outlook today, but fiscal first quarter results are a good reminder that there's a strong business here all on its own. Management continues to drive shares gains in PCs and smartphones throughout the world while simultaneously keeping firm control on operating expenses. While there are still risks attached to closing and integrating the IBM and Motorola deals, there are also opportunities for Lenovo to do even better than expected. I look at those factors as pretty balanced today and would suggest waiting for a pullback before starting a sizable position here.

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Lenovo Doing Fine On Its Own

Seeking Alpha: Can Grantley Open The Gates For Mellanox's Growth?

It has been a pretty frustrating case of "hurry up and wait" at Mellanox (MLNX). While there is little doubt that Mellanox is the technology and market share leader in InfiniBand, the value of that leadership has come into question. Mellanox has seen growth improving in its storage and Web 2.0 markets, the high-performance computing market has been sitting on its hands ahead of a major new product cycle from Intel (INTC). If the Grantley cycle can do for Mellanox what the earlier Romley cycle did, Mellanox could finally live up to some of that growth potential, but a series of disappointments and more muted expectations for Grantley have made this more of a "show me" story.

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Can Grantley Open The Gates For Mellanox's Growth?

Seeking Alpha: NetScout's Performance Management Managing Good Performance

Competing with a varied mix of hardware, software, and integrated rivals like Danaher (DHR), IBM (IBM), and CA (CA) is no picnic, but NetScout Systems (NTCT) believes it has found a winning combination with a mixed hardware and software approach to network and application performance management. The company still generates the bulk of its revenue from three verticals (finance, telecom services, government), but the relatively new nGeniusONE platform should meaningfully expand its addressable market and could fuel strong growth for multiple years. While backward-looking valuation metrics may not scream "bargain" on these shares, high single-digit free cash flow would support a fair value in the mid-$40s.

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NetScout's Performance Management Managing Good Performance

Seeking Alpha: The Storage Shakeout Is Tossing Brocade Around Too

Brocade's (BRCD) strong recovery rally ended on April Fool's Day, in large part due to growing pessimism about enterprise storage demand and the resulting demand for Brocade's fibre channel storage area network (or SAN) switches. Add to that some ongoing pessimism regarding the company's ability to compete in IP networking and whether there's much incremental leverage to squeeze from the business and Brocade is back to a "show me" story.

I continue to believe that Brocade shares are undervalued, but the market is notoriously unkind to low-growth free cash flow rich tech stories and the storage market is going to need a few more quarters to sort itself out. At a minimum, I think that means that readers considering Brocade for its potential value will need to be patient as it works through these challenges.

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The Storage Shakeout Is Tossing Brocade Around Too

Seeking Alpha: NetApp Grinding Out Cash-Rich, Growth-Poor Quarters

Conditions in the storage market are pretty lousy. Smaller, newer companies like Nimble Storage (NMBL), Pure Storage, and Tintri are doing alright, but the legacy players like EMC (EMC), IBM (IBM), and NetApp (NTAP) are having a rough go of it as enterprise customers run older systems for longer and continue to approach storage spending cautiously as they evaluate cloud and flash alternatives.

I don't believe that NetApp is never going to grow again, but I do think the company is paying a price for years of prioritizing margins and cash flow and being reticent to spend its cash on M&A to support its growth prospects. I believe EMC (which I own) has done a better job of diversifying its business and positioning itself for the changes underway in the storage market, but NetApp shares look over-punished and undervalued provided that emerging threats like cloud and software-defined storage do not completely gut the market.

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NetApp Grinding Out Cash-Rich, Growth-Poor Quarters

Seeking Alpha: Lenovo Making The Right Strategic Moves To Build Value

Lenovo (OTCPK:LNVGY) has come along nicely since I wrote about the company as a Top Idea in late July of 2013. Up more than 30%, Lenovo has done well on continued PC, handset, and tablet growth. The shares were rocked when Lenovo followed up the long-expected acquisition of IBM's (IBM) x86 server business with the not-nearly-so-expected acquisition of Motorola from Google (GOOG). Integrating one damaged business was doing to be hard enough, but now Lenovo is paying more than $5 billion for two sizable businesses that need a lot of TLC to turn around.

I continue to be bullish on Lenovo (and a shareholder), as I believe the company does have relevant experience in integrating large acquisitions. What's more, I think the IBM and Google deals address a lot of the remaining deficits in Lenovo's portfolio from a strategic perspective, while Lenovo's demonstrated capabilities in sourcing, manufacturing, and distribution efficiency can fix a lot of what ails these businesses. With a fair value in the high $20s on an elevated discount rate, I continue to believe Lenovo can be a good stock from here.

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Lenovo Making The Right Strategic Moves To Build Value

Seeking Alpha: Growth Is The Question, Answer, Problem, And Solution For CA, Inc

The story remains frustratingly consistent at CA, Inc. (CA). In a software investing world, where share price performance is often correlated pretty closely with revenue growth and margins, CA scores strongly on the second metric, but consistently poorly on the first. The basic investment thesis at CA hasn't really changed much in several years now - the mainframe business is an excellent source of high-margin revenue and cash flow, but the company just cannot seem to generate enough growth in the Enterprise business. Talking about improved go-to-market strategies and more consistent sales execution hits the right buzzwords for the sell-side community, but it's hard to say that the implication in CA's price of little-to-no growth unfairly maligns the company.

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Growth Is The Question, Answer, Problem, And Solution For CA, Inc

Seeking Alpha: TIBCO Beats, But There's A Lot Left To Prove

Investors waiting for the "all clear" on TIBCO (TIBX) continue to get mixed messages. The company certainly had one of the strongest quarters for infrastructure and billings in many quarters, but the easy year-ago comp mutes some of the enthusiasm, particularly when it is clear that the key analytics business Spotfire continues to decelerate. A recent change in executive incentives could mark a shift toward a more margin-centric approach, but it remains to be seen whether growth in areas like analytics, ESB, and cloud can offset what looks like a slowing core business.

Talking about value is tricky in tech, as investors so often reward growth irrespective of value. Provided that TIBCO can improve margins, a high single-digit FCF growth rate seems plausible and both a DCF and EV/rev approach suggest these shares remain undervalued.

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TIBCO Beats, But There's A Lot Left To Prove

The Motley Fool: Lenovo Group Ltd: Taking Short-Term Pain For Long-Term Gain

Chinese PC, smartphone, and tablet manufacturer Lenovo (NASDAQOTH: LNVGY  ) has a knack for surprising analysts and investors that goes back a while. Lenovo defied skeptics who thought its acquisition of the IBM (NYSE: IBM  ) PC business was a losing move, leveraging that deal to build the world's largest PC business and continuing to grow its PC business at a time when the market is shrinking.

Now Lenovo is doubling down in a big way. The company's acquisition of IBM's server business was well-telegraphed and well-liked, but then the company shocked the market with the nearly $3 billion acquisition of Motorola Mobility from Google (NASDAQ: GOOG  ) . The latter has proven quite controversial, with some sell-side analysts speculating that Lenovo will never turn Motorola around and the shares down around a quarter since the announcement.

I believe that the near-term skepticism ignores the substantial long-term opportunities at Lenovo and some significant undervaluation in these shares.

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Lenovo Group Ltd: Taking Short-Term Pain For Long-Term Gain

The Motley Fool: Are Lenovo And IBM Finally Close To Another Deal?

It has taken a long time, but Lenovo (NASDAQOTH: LNVGY  ) and IBM (NYSE: IBM  ) may be about to finally strike a bargain for IBM's x86 server business. Lenovo has openly acknowledged its interest in this business, but the companies have been at odds on deal terms. With ongoing share loss in the server business and a desire to reallocate capital to higher-returning businesses like software and services, IBM would do well to close this deal.

The good news for Lenovo is that it can do well with or without IBM's server business. The company has built the No. 1 PC business in the world and has already grown its tablet and smartphone business to be No. 4 in terms of market share, without aggressively targeting the U.S. Lenovo looks meaningfully undervalued, and sealing a deal with IBM would only help matters.

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Seeking Alpha: TIBCO's Return To License Growth Frustratingly Inconsistent

Wanting to like a stock can be dangerous, as TIBCO (TIBX) is showing once again. TIBCO is a solid player in business optimization and process management, offering companies platforms to integrate and analyze operational data, but the company has been having a difficult time with sales execution and the willingness of larger rivals to compete on price. While the company had done a good job of rallying the troops and getting investors and analysts to buy into a growth recovery story, the company's fourth quarter results and first quarter guidance are a setback.

For better or worse, what the stock needs is consistent license revenue growth in the high single digits or low double digits (growth above the underlying market); margins and cash flow may matter more in the long run, but software stocks trade on revenue growth in the short term. I am optimistic about the company's ability to improve sales execution and shift customer perceptions toward a view that it is a strategic infrastructure, optimization, and management technology company, but the path has been frustratingly inconsistent. I believe these shares are undervalued to a meaningful extent, but I won't pretend that valuation is more important than growth in 2014.

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TIBCO's Return To License Growth Frustratingly Inconsistent

Seeking Alpha: How Long Will Investors Have To Wait For NVE?

While a good idea can be the starting point for a good investment candidate, investors who lose sight of the importance of execution and market development can set themselves up for a nasty shock down the line. NVE (NVEC) would seem to be on to something potentially big with its spintronics technology, but the company's product sales have gone nowhere fast for the last five years and the stock has been largely stuck between $40 and $60 since May of 2009.

There are certainly intriguing applications and potential markets for spintronics - electronic devices are getting ever-smaller and that process requires more and more advanced technologies (and/or materials). NVE's technology could certainly find key positions in markets like factory automation, healthcare, automobiles, and telecom, but the markets have been frustratingly slow to develop. NVE doesn't look notably cheap today unless you are willing to make some bullish estimates that the spintronics market will accelerate notably (and relatively quickly), but NVE is a cash-rich, high-margin company with almost a decade of free cash flow generation behind it. NVE may end up as a company with a great future in its past, but today's shareholders aren't exactly suffering while the company tries to develop a commercial market for this technology.

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How Long Will Investors Have To Wait For NVE?

Investopedia: Salesforce.com Shows Some Reacceleration

I seriously doubt anything will ever quell the heated arguments over Salesfore.com (NYSE:CRM), it's future prospects, and its valuation, but the company's fiscal second quarter earnings are likely to give the bulls a little extra ammo for the time being. Salesforce.com remains an expensive stock with questionable operating leverage, but it also remains a share gainer in a large market. Moreover, while stocks like Salesforce.com and Workday (Nasdaq: WDAY) aren't my cup of tea at all as an investor, I know better than to play chicken with a freight train.

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Investopedia: Is Improving IT Demand Enough To Maintain Teradata's Rebound?

The rise and fall of Teradata (NYSE:TDC) over the past two years is a good lesson in the pitfalls of theme investing in tech. Teradata enjoyed a great run on the back of “Big Data” hype and shares of this data analytics company definitely overshot fair value. Once IT budgets came under pressure, though, Teradata's reported results showed just how sensitive the company remains to on-the-ground IT demand. While the shares have bounced off their 52-week lows and the company is a credible player in an important market (the collection and analysis of enterprise data), it's hard to call this stock a bargain today.

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Investopedia: Microsoft Critics Get Their Way, As Ballmer Announces Impending Retirement

In all the time I've written on Microsoft (Nasdaq:MSFT) it seems like readers/investors always came together on at least one topic – they really didn't like CEO Steve Ballmer. While I think Ballmer has often gotten a bad rap and that Microsoft is better-positioned in enterprise software and services than commonly believed, trying to make that case is tantamount to spitting into the wind.

Under Ballmer's leadership, Microsoft has lost close to half of its value. Again, I think you could argue that almost anybody taking the job was going to preside over a significant erosion in market cap, as Ballmer took the CEO position of Microsoft just three months before the tech bubble peaked. In any case, I will side with the critics who feel that, whatever the quality of Ballmer's vision for Microsoft, he did a poor job of selling the Street on it.

Now they won't have Ballmer to kick around much longer. On Friday morning, Ballmer announced his intention to retire from the job within 12 months, with the exact timing tied to the search committee finding a new CEO for the company.

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Investopedia: HP Still Looks Cheap, But Execution Issues Are Part Of The Reason Why

There's a big difference between “cheap” and “cheap for a good reason”, and it's not always easy to tell the two apart. While Hewlett-Packard (NYSE:HPQ) shares still appear to be undervalued on the expectation of any growth at all, the ongoing execution issues do mean that a return to growth shouldn't be taken for granted. At a minimum, there's still quite a lot of work for management to do make this turnaround a success, and I do have my concerns about the the effect of competition on those plans. On the other hand, today's valuation doesn't exactly presume that those efforts will end in major success.

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