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4 Companies Pursuing the Right Course of Action

Saturday - 4/27/2013, 4:22pm  ET

Transitions are scary because there is no right thing to do. The company has to take a chance and see where it leads. That is even harder when a new path will take years to fully evaluate. Nothing will be gained if nothing is ventured. Making a judgment long before a plan fully plays itself out is how legends are made.

1. If you cannot compete, avoid the gladiator pit

I really like the path that Advanced Micro Devices is on. I am not 100% certain that it will work out, but I feel that its path gives it the best chance. The push into servers and the SeaMicro microservers is a good move. Servers are big business and microservers could become a welcome niche with that market.

If AMD can establish itself as a major supplier, then it could grab the lion's share of microserver revenue. Microservers could make up 10% of the global server market by shipments. AMD has about $5 billion in revenue, and the global server market in 4Q2012 was $14.6 billion, so there is a lot of potential

AMD processing chips and GPUs are going into the two major home consoles of the next generation. AMD is already in the Wii U. The next generation will be a bit more crowded with the Steam Box and Ouya, but the Playstation 4 and the Xbox 720 are the forefront of consoles for now.

PCs and notebooks are shrinking rapidly, and Intel is already the leader there. Margins are probably low for the consoles, but AMD is not in a position to care about how little profit it makes as long as it can make a profit. Consoles sell in the millions so the volume is there. AMD is not in a position to follow Intel into mobile, but the win with consoles as well as its expense-cutting might increase profits and drive the stock up from these depressed levels.

2. Become a god of the arena

AMD would have no hope competing against the current companies in the mobile space. Intel stands a chance because it is Intel. Despite entrenched and strong competition like Qualcomm, Intel really stands with little choice but to try for mobile. This is its move.

Intel seems to be seeing some success in mobile, but I would like to see them win a place in some major designs. Perhaps it will strike a deal with Apple, which would be a great start. Intel needs mobile revenue to exceed the decline in PCs and notebooks so that it can return to top line growth.

I cannot emphasize enough that this is what Intel has to do. It has a good chance of success, but how much success is very much up in the air. News regarding a win from Apple might send the stock higher, but it will take time to evaluate the effect on fundamentals and whether it is enough to sustain growth.

3. The hub not the end of the spokes

I think hybrid drives are a great move for Seagate . Mobile and notebook hard drives will not be as important as cloud storage. Also, solid-state drives have their drawbacks. They are expensive and have a lot less capacity for now. Hybrid drives boost access speeds but allow for more storage. Considering the cost and capacity limitations, I think that Seagate is making the smarter choice for now. The cloud is where it is at.

As for the consumer division, everyone loves solid-state drives for their quick loading on boot, but the drives cost a lot for any real capacity. Notebooks suffer enough compared to tablets, and if they get more expensive, then what would be the point. Cost and capacity might explain why the Playstation 4 will not have a solid-state drive.

Spending on cloud infrastructure is going to grow in order to handle all the devices and services that are coming. Take the example of the next console generation that has a lot of online functionality for both delivery of games and playing online. I think hybrid drives split the difference on speed while offering better prices and more storage. Not everything needs fast access for top dollar.

4. Plant money trees

Adobe Systems is switching to a subscription-based model, and this is something else that I see little choice in. Adobe needs to move to a subscription model of the kind most other companies use. The company is aiming for 1.25 million subscribers by the end of 2013. I saw mention that they crossed the half a million mark, and have two million free trial users. The company is going to start reporting a lot of deferred revenue, which might actually lower total revenue for a few quarters.

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