As The Switch Peaks, Nintendo Needs To Build The Next Growth Engine

Deciding who has the best software platform in gaming is no easy feat, but there’s no denying that Nintendo (OTCPK:NTDOY) (7974.T) has generated some long-lived favorites that continue to generate substantial interest and revenue for the company. What makes Nintendo’s business more challenging, though, is the inescapable cyclicality of the business as new platforms rise, peak, and fall, and with this business having so much operating leverage, profits and free cash flows can swing wildly.

The Switch platform is nearing its peak, but management has thrown cold water on the idea that a new hardware platform is just around the corner. I appreciate the desire to maximize the value of the platform, but the reality is that Nintendo is setting up for earnings and cash flow erosion starting next year, and without a new platform to drive investor sentiment, I believe the stock may struggle to make much headway.

 

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As The Switch Peaks, Nintendo Needs To Build The Next Growth Engine

Investopedia: Take-Two Still Offering Twists And Turns

Volatility can be both boon and bane to investors. Traders certainly love it, and savvy value investors learn to appreciate it for the discounts it can create. On the other hand, volatility based on inconstant underlying financial performance makes valuation more difficult and does no favors to the mental health of those who would prefer to be long-term shareholders.

For better or worse, Take-Two Interactive (Nasdaq:TTWO) continues to be a volatile company. While the company has certainly made progress towards more consistent financial performance, progress towards a goal is not the same as achieving that goal. Take-Two may still offer investors the potential for above-average capital gains, but prospective buyers have to ask themselves if they can handle the uncertainty that will go with the possible profits.

A Sweet and Sour End to the Fiscal Year
Take-Two recently decided to change its fiscal year, and the March quarter now represents the end of the company's fiscal year. For the quarter, Take-Two announced that revenue fell 22% to $182 million. Though that certainly does not sound all that impressive, that $182 million is considerably more than analysts expected, as the averaged estimate called for $148 million and the high-end estimate was $170 million. Sales were not driven by any major releases; rather, the company's revenue came from its catalog. To that end, this is an encouraging sign - if the legacy business can produce better revenue, that's a big step towards a more consistent financial performance. (For more, see Power Up Your Portfolio With Video Game Stocks.)

Continue to the full piece at Investopedia:
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Has Take-Two Found A New Path?

For quite some time it has been easy to figure out how Take-Two Interactive Software (Nasdaq:TTWO) would do in a given year. All an investor had to do was check and see if there would be a release in the Grand Theft Auto franchise; if so, assume profits, and if not, assume losses. That sort of reliance on a single brand is seldom good news for a company, and it has been no exception for Take-Two. The question raised by this fiscal year, though, is whether the old truths about Take-Two may need some reexamination and reconsideration. 

A Surprisingly Good Quarter
Take-Two closed out its fiscal year with something of a bang. Revenue rose 32% to $374 million - handily beating both the average estimate of $325 million and the high-water mark for the quarter of $362 million. Growth was actually pretty well balanced this quarter, as Red Dead Redemption and NBA 2K11 made up for the absence of a new GTA release, and the company's catalog delivered solid performance.

Profitability was also much better this time around. Operating profits exceeded $59 million this quarter, which is a far better result than last year's $3 million. Not surprisingly, the company handily beat analyst earnings expectations. Interestingly, this was not only the first year in more than a decade where the company was profitable without a new GTA title, this period also marked profitability for the 2K Sports franchise. 


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Everything Has Caught Up To Analog Devices

It was not all that long ago when Analog Devices (NYSE:ADI) looked like a relatively undervalued play in the chip sector and good candidate for more conservative investors wanting tech exposure. When I last wrote on Analog in mid-August, I was positive on the stock and shares have jumped about five points (nearly 20%) since then. While a lot of the easy short-term money may already be in the bank, there are still solid reasons for investors to keep a careful eye on this name. 

As Expected, A Solid Quarter
Analog delivered yet another solid quarter to close out its fiscal year. Revenue jumped 35% from the year-ago level, and rose 7% on a sequential basis. Growth was led once again by strong results in communications, where revenue rose 19% sequentially on the back of demand in applications like base stations (likely good news as well for Powerwave (Nasdaq:PWAV)). Auto sales were also strong, with a 12% sequential improvement, while industrial and consumer were up 3% and 2% respectively.

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http://stocks.investopedia.com/stock-analysis/2010/Everything-Has-Caught-Up-To-Analog-Devices-ADI-TXN-LLTC-PWAV-CSCO-EMR-FFIV1124.aspx

Atheros and Texas Instruments - Chips Ahoy

Atheros (Nasdaq:ATHR) and Texas Instruments (NYSE:TXN) are indeed very different kinds of chip companies, but there are basically in the same boat today. The big rebound in chip demand is over, demand and supply are basically back in alignment and investors are probably looking at a couple quarters of uninspiring performance before growth returns. 

The Quarters That Were
Atheros reported 4% sequential sales growth, as an exceptionally strong result in the consumer business offset weakness in PCs and networking. Inventories rose by 10% on a sequential basis, and the company trimmed fourth quarter guidance by about 10% relative to prior expectations. While the company has quality customers like Hewlett Packard (NYSE:HPQ) and Amazon (Nasdaq:AMZN), consumer products cannot fully compensate for the weaker PC and networking environment. Atheros is still small enough that individual product delays like the pushout of Nintendo's 3DS still matter.

For the far larger Texas Instruments, sales were up a similar amount - 7% on a sequential basis. TI did see an improvement in gross margins, though. Performance was strongest in high-performance analog, but a 0.92 book-to-bill is not encouraging, and it looks like TI is in for a couple of quarters of sequential revenue declines. That is broadly consistent with what Linear Technology (Nasdaq:LLTC), another major analog player, has been saying and TI management does not seem to see anything unusual in this mid-cycle slowdown. (For more, see Is Linear A Canary Or A Duck?)

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http://stocks.investopedia.com/stock-analysis/2010/Atheros-And-Texas-Instruments--Chips-Ahoy-ATHR-TXN-INTC-BRCM-LLTC-AMZN1027.aspx

Analog Devices - Will Chips Get Clipped?

Will the real semiconductor market please stand up? 

On one side of the hall, analysts are lining up to predict a slowdown (if not decline) for chip companies in the second half of this year. On the other side, companies ranging from Linear Technology (Nasdaq:LLTC) to Texas Instruments (NYSE:TXN) to ON Semiconductor (Nasdaq:ONNN) have reported solid earnings and basically positive guidance.  

Given that Analog Devices (NYSE:ADI) is both large and a bit off the regular reporting cycle, perhaps this company's outlook will add a bit of clarity to the situation.  

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http://stocks.investopedia.com/stock-analysis/2010/Analog-Devices-Will-Chips-Get-Clipped-ADI-LLTC-TXN-ONNN-ABB0819.aspx

Can Apple Stay Fresh?

Me writing a positive story on Apple ... Folks, check your local farms to see whether there are any reports of flying pigs today. 

I've recently read that Katy Huberty, an analyst at Morgan Stanley, has put a price target on shares of Apple (Nasdaq:AAPL) of between $310 and $400. For those of us who remember the tech bubble, there may be a shiver of remembrance at the $1,000 price target put on Qualcomm (Nasdaq:QCOM) by a PaineWebber analyst in late 1999. That pretty much marked the beginning of the end to that run. The question is, does this signal a similar high-water mark for Apple? 

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