Sony is officially the winner for HD DVD format

My last blog entry stated that Sony had won, but I really wasn’t expecting Toshiba would surrender so soon.
Toshiba to announce HD-DVD pull-out

Sony stock has now risen ~2-3% in Japan after the news, but there are still plenty of skeptics abound on PS3.

Sony’s PS3 Outsells Microsoft’s Xbox 360–But Will That Last?

Most of the skeptics focused on a few things:

• PS3 are bought mostly for playing Blu-ray disc
• PS3 does not have any hit title

However, as I mentioned, there are tons of obstacles for new HD content storage media to emerge, but there are practically no obvious barrier of entry for PS3 to have a hit title.

In addition, now that all media companies will promote Blu-ray along with any newly released DVD, Sony does not have to be the only company to promote Blu-ray, and can divert more marketing dollars towards PS3 gaming promotion.

Blood on the street – EDA Sector

Every few years we get presented with the opportunity from various EDA companies as their stock prices got cut in half.  This is particularly prominent for Cadence, as every CEO since Joe Costello have seen their stock price drop in half in a matter of a few months.  The difference, of course, was that Joe Costello then went out and bought millions worth of Cadence stock with his personal account, a phenomenon that I have not seen since.  To me, that’s leadership.

However, usually these stocks drop in half due to individual company’s problem.  What’s different this time is that a few of them got cut in half in the approximate time frame of each other, as in the case of Cadence, Mentor Graphics, and PDF Solutions.

We never know how these companies will do in the future, and I do not know why people bought at twice their prices of today, maybe from recommendation of some analysts who put out ‘buy’ or ‘overweight’ at the time and now downgraded them to ‘hold’ or ‘underweight’.

I do not know if people will ever push them back to their prices where they once were, or if people are going to dump more of the stock.  However, from the trading pattern of PDFS on Feb 13, someone was trying to liquidate their position early in the morning, and sent the stock down promptly from 5.4 to 4.6.  However, after that selling, the stock quickly recovered to 5.2 and above.  It seems to me that some weak hands are now shaken out of PDFS at least for the time being.

I am now long on most of these ‘cut-in-half’ stocks, or have written puts with the intention to buy the stocks if it hits that price.  Why I do this?  That would be another blog entry.

PS3 gaining ground

After my last blog entry, I’m now long SNE. In the mean time, there are more positive news on Blu-ray and PS3.

PlayStation 3 vaults to second place

Netflix Follows Blockbuster’s Blu-ray Lead

Best Buy Recommends Blu-Ray Over HD DVD

Sony is the winner

The underlying reason why I think Sony has won the console war is simple – Blu-ray.

It is of no secret that high definition TV has and will continue to proliferate. While I myself has not yet converted, I have every intention to replace my bulky TV to an LCD TV soon. I will also likely buy an additional one in my relatively smaller bedroom.

With HD TV comes HD content. DVD quality on a large screen HD TV just does not give the clarity one yearns for after watching true HD content. And in the case for high definition storage media, Blu-ray has won. You can watch the following over-the-top, very funny video to get the point.

http://www.youtube.com/watch?v=frZTf3mX97c

Other than online or cable/satellite distribution of HD content, Blu-ray will probably be the only main stream format in the next 5 years. I think one can safely assume that it will also be the main stream format within the next 10 years. Any other challenging format such as Flash or Hard Disk based media will have to overcome the hurdle of getting Studios to support, an extremely difficult task. For online distribution to post serious challenge, Fiber-to-the-premise has to proliferate first, as cable and DSL won’t cut it. I do not know how long FTOP build-out will take, but it’s probably quite a long process to get to mass adoption, at least in the US.

Blu-ray won the HD storage media war only recently, after the defect of Time Warner to its camp, and is still at the very beginning stage of ramping up. Newly released DVD is just starting to promote both the DVD format and Blu-ray format. However, I believe this will accelerate much faster than what people expect as movie studios will try to lure buyers into paying for higher priced HD content so they can soup up their income statements for any recessions.

By packaging Blu-ray in PS3, Sony is poised to take a fair share of the Blu-ray player market when HD TV owners upgrade their DVD players. Through neither a scientific nor statistically significant survey, most people I talked to prefer to buy a PS3 over a plain Blu-ray player when times come for their choice to play Blu-ray content.

Current negative arguments on PS3 mainly focus on its lack of title hits, and its shadowing by Wii on market share and gameplay. While there are numerous challenges for other media to replace Blu-ray, there’re no obvious hurdles for PS3 to gain a hit-title which will ignite the popularity of the machine. Also, consider that DVD players are so much more popular that game consoles, and if PS3 is able to co-exist with Wii in a home environment because of Blu-ray, the future for PS3 will be very bright.

Sony (SNE) current price is approximately where it was at Jan 06, mainly due to fear of recessions. Nonetheless, it’s only clear that Sony had won the HD content war very recently, and that any royalty from Blu-ray will be new revenue for Sony (certainly much much more than royalty from Betamax), and that PS3 can likely ride the wave of Blu-ray, I believe Sony has now real intrinsic value not fully valued by the market.

The current technical picture for Sony stock is quite bad, and it can certainly go lower, or even much lower. However, at some point, Sony stock will (or already have) provide a very favorable risk/reward ratio to investors. What that point is, it will be another blog entry.

Game Console Wars

Of the three companies, Nintendo, Microsoft, and Sony, which one do you think have won the game console wars? Most people will say it’s Nintendo, with its innovation and great market share. Some will say it’s Microsoft, with the smash hit Halo 3, and good momentum in online games, and excellent graphics (although not the best). Some will say Sony has lost it, with too narrow a focus on graphics but not gameplay.

To me, Sony has absolutely won the war. To find out why I think that way, check out this blog again after Chinese New Year.

Wish you a happy and prosperous Year of the Mouse!

My first blog

This is my first blog, and thanks for visiting.  I hope you enjoy what I write.

People who know me know that I am not a great believer in the long term prospect of the US economy, and the latest proposed stimulus package only further degrades my belief.  In very simplified terms, the president, the presidential candidates, and many members of congress are all favored of a >100 billion tax relief stimulus package, in the form of tax rebates and tax cuts to savor the economic crisis exposed by subprime mortgage issues.  I am aghast by such blatant waste of the federal funds.

The current crisis stems mostly from rapidly degrading balance sheets in the banking systems and the monline insurers.  The emergency rate cuts might accelerate inflation, but it’d be necessary in order to save many banks from failing.  If a few prominent large banks fail, it probably won’t do any good to the US either in the short term, or in the long term.  To stop the bleeding of the banks, rate cuts are necessary, and other uncomfortable side effects will just have to be dealt with later.  However, the tax relief is unlikely to help anyone to solve their mortageg problems, as the amount for each household might only help them out for 2-3 mortgage payments (if at all), and are more likley to be spent on food and other dispensing items, and will only prolong the crisis.

Some current estimates are that there could be additional $250 billion for banks to write down.  Wouldn’t it be more productive for the government to put the funds to act as insurers of some of the toxic mortgages so a floor price on them can be established, and investors can then come in and help to create a market for them?  Or how about using the funds to insure potential failure in money market funds much like what FDIC do for savings accounts?  But no, it has to go to TV purchases and clothing stores for many people who do not really need them.

For a government with huge budget deficit to act in such manner, no wonder so many countries do not share the optimism that Americans have.  Given that USD has depreciated so much in the last few years, and yet there are relatively few takeover of US businesses, it should be a wake up call for many.