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T-mobile appears to be taking the big bang approach to upgrading their networks (Geographically) as opposed to limited markets (i.e NYC, CA, Las Vegas, FL, etc). However, the upgades themselves are incremental as opposed to transformational (i.e LTE). It will be interesting to see which approach is more effective in capturing the next generation of users/applications and gain market share. This is very similar to what Walmart did with its expansion – focused on under served markets.

I just switched from Sprint CDMA Blackberry to T-Mobile GSM HTC Google Froyo G2 Android (after briefly considering AT&T iPhone4 GSM) due to due T-mobile’s HSPA+. No other carrier has 8mbps+ in my market at this time. I got the G2 as opposed to the MyTouch primarily due to the physical keyboard and I don’t anticipate the need to use video calling (similar to iPhone 4′s facetime) on the myTouch cell phone/smart device.

The acronyms not withstanding, it is all about implementation and systems management. The system is only as good as its bottleneck. Theoretical capability in a lab does not equate to reality. All providers are using whatever they have and can port on it most cost effectively to get the best ROI. With the G2 on HSPA+ it is like upgrading from the horse drawn buggy to an automobile. A much better mobile experience than before due to the phone/device, OS, carrier, HSPA+ and the google ecosystem.

The unlimited data plan from T-mobile was the icing on the cake for me. I don’t anticipate the need for unlimited voice minutes since I can just log into my Google Voice on the device and use the VoIP to make calls (and receive).

So is the death of the cell phone as we know it near as discussed in my blog about the changing mobile landscape?

Update 1 (Nov 6, 2010)
It appears that using Google Voice does use the minutes from the voice plan for now. So what makes sense is to use Google Voice for international calls only (it can be set up as such on the HTC G2). Reason being that the standard US calling plan does not include international calling. Using Google Voice for international calling is much more cost effective than using cellular international plan or Skype. Since Google Voice and possible Wi-Fi calling use the minutes from the voice plan, it would appear that one might opt for the unlimited voice plan as well.

Update 2 (November 10, 2010)
Here are the bandwidth test results based on 34 samples in the HSDPA mode and 13 samples in UTMS mode on my T-Mobile HTC Google Android Froyo G2 HSPA+ (the phone/device switches between HSDPA and UTMS):

http://www.flickr.com/photos/shakercherukuri/5164493726/

The HSDPA version of UTMS is supposed to reduced the latency and can be seen in the data. The data was captured between November 6 and Novermber 10, 2010 on the south side of Indianapolis and the servers used were in Indiana or Ohio.

The data in the columns is independent of the rows. For example, the max values for the download, upload and latency are just that – max values for each from the data sample.

Caterpillar announced an acquisition of Natural Gas engine maker today following GE’s similar acquisition couple of weeks ago. GE’s acquisition of Dresser was a bigger deal ($3B) compared to Caterpillar’s $800MM deal to acquire MWM.

Both these deals are obvious product diversification in the energy space (Dresser is mostly upstream and MWM is further downstream). For both GE and Caterpillar this could be one of the several repositoning efforts to build capability in the transition of US transport economy for dependence on crude oil to shale Natural gas.

US is the Saudi Arabia of Natural Gas reserves. Mr. Boone Pickens has been pounding the table on this for few years now. With the US dollar depreciating, the barrel of crude could soon surpass even the most optimistic predictions (remember the $200 targets when it hit $145 in 2008).

GE appears to be slowly entering into the automotive sector via the infrastructure/service provider strategy. Charging stations for the electric cars and now the Natural Gas IC engines. GE energy makes Natutral Gas Turbines used mostly in the combined cycle plants and peaker natural gas only units (for power generation). That might change soon as the demand keeps exceeding supply in the power generation sector and the long gestation period for Nuclear Plants combined with reluctance to build new coal plants and cheap shale natural gas makes it economical to build base load plants using Natural Gas Turbines.

The passenger car market could certainly benefit from small natural gas engines. Most US homes already have natural gas supply. It should not be that hard to get set up to fill ones automobile with Natural Gas at home. Will have to compress it first to liquify it. Home Depot and GE could collaborate (since Mr. Nardelli is not at HD anymore) and sell that capability to consumers.

Will we have a natural gas turbine or natural gas internal combustion engine powered on highway Heavy Duty trucks, rail and other machinery one day? Looks like it will make sense at $500+ barrel cude oil….

It seems to me that the death of the regular cell phone is just around the corner. With FCC just voting to allow unregulated white space access in the TV broadcast spectrum, Google, Cisco, Microsoft, Apple, Nokia, Intel, Dell, HP, Oracle, IBM, Amazon could all blanket the country with their own so called Super Wi-Fi (as an integral part of the Cloud computing strategy) and give away a handheld device at a subsidized cost to access that Wi-Fi for a nominal monthly charge. Consumers could choose to allow targeted location based ads in exchange for a subsidized device and lower access charges. Businessses could opt for a ad free envirnonment and just pay for the device and access charges. This would be a game changer.

Google’s stake in Clearwire and the recent departure of Sprint executives from Clearwire board would seem to indicate that Google might be planning a super Wi-Fi using the clearwire network (setting it all up from scratch might take too long and be very capital intensive). Google already has the massive distributed data centers that would be an enabler for this super Wi-Fi (in addition to the white spaces in TV spectrum).

Others mentioned above and some of the existing Telcos could certainly do the same (using GSM and/or CDMA in combination with white spaces in TV spectrum). They do have the capability and more importantly, the capital.

The Good Product and the stroke of Genius Capital Raise at $16+…..

The Bad overall go to market strategy. Apple has iTunes eco-system, Google has the Google eco-system, Nokia has the scale and trying to take the eco-system to the next level by creating the content for aggregation/distribution (not just the channel like iTunes), Motorola, well, it is a glorified contract manufacturer like Flextronics.

(Comcast’s acquisition of NBC is a move to own the content for the channel. Following AOL’s footsteps of Time Warner “acquisition” in 2000. Maybe Apple will follow Comcast and “buy” Disney!!)

What was Palm’s differentiator? Multitasking? WebOs? So why do we need a brand new cell phone?

The Ugly relationship management with the Carriers. An exclusive arrangement with Sprint was botched with the early overreaching to Verizon and AT&T. iPhone is still not available at any other Carrier. Sprint spent a lot early on promoting Palm Pre due to the exclusive arrangement and then they (Palm) come out with Palm pre Plus for Verizon. The marketing material I have been getting from Sprint lately does not mention Palm Pre at all (I am a premium Sprint Customer having been with sprint for over 10 years).

Apple took the time to build on its relationship with AT&T (to preserve the channel) and introduced the enhanced iPhone also only on AT&T. Palm showed absolute lack of tact and jeopardized its relationship with Sprint by overreaching.

What’s next? Take under, over? What the heck is “take under” anyway? Licensing WebOs? Game Over? 300 million debt and 300 million preferred stock = zero value for common stock in a year when cash = zero (just over 500 million in cash in 2010 Q1)? Or will Web Os be the Windows/DoS of mobile and Android be the IBM PS2? Or will it be the other way round?

What about Nokia’s Symbian? Will Apple/iTunes go the way of AOL due to the closed system?

Dell is a great example of good Working Capital Management. They usually have a negative WC. For details on this click here (2MB PDF file) ->

http://process-improvement-solutions.com/Working_Capital_Gap.pdf

Dell seems to be transforming itself by acquiring the skill sets needed to provide complete solutions to customers instead of just a system thereby repositioning itself during a trough in the economy. Some of the skill sets are being acquired by hiring talent from competitors and some via acquisitions like the Perot Systems deal with the objective being to transform itself from being a vendor of just products to provider of services..

Dell had already reorganized into corporate (Small/Medium and Large), Consumer and Public Sector divisions which is a technique borrowed from GE that enables the corporation to better service its market segments by allowing all internal processes to be reorganized in terms of value provided to the customer. With today’s completion of tender offer for Perot Systems, Dell created a new business unit for Global Services similar to IBM’s Global Services division.

With $12 Billion dollars in cash on the balance sheet ($9 billion net of debt), Dell stock is trading at just under 5 times it’s trailing EBITDA (net of cash). Earlier this year when it was under $8 dollars, Dell was trading at just little above the cash on its balance sheet. Interestingly enough, this was the exact same situation Apple was in 2001/2002 when it bottomed out at just around $8 (at just under $8 billion market cap) with about that much in cash at that time.

Going forward, this repositioning strategy should enable Dell to expand its Operating Margin for itself and provide better value to its customers – consumers, government and business. In fact Dell is now the Amazon.com for corporations looking to one stop shop for their Information Technology needs including perhaps business process consulting and re-engineering eventually.

Update 1 (Nov 6, 2009)
So Dell’s approach to repositioning is different from Apple’s in 2002 (consumer products was Apple’s focus). It is a combination of Apple, IBM and Amazon strategy in the sense that Dell seems to be more interested in premium products for the consumers, services for corporations and public sector and one stop solutions provider for commercial and public sector. In essence, Dell is thinking a lot bigger than trying to do a Steve Job’s act.

Intel Rebates Issue
Rebates from suppliers to their biggest and best customers is a fairly common practice in all industries. For example, engine manufacturers routinely provide rebates to their truck customers. Most industrial’s do this. The reason this specific case is being singled out is because of Intel’s dominance in the processor space. Intel made a strategic decision to focus on Micro Processors over DRAMs under Andy Grove and since then has been able to constantly innovate and keep all competition at bay. Innovation and then fabrication in this space is very capital intensive. It is very hard for competitors like AMD to catch up once Intel has had such a huge lead. That by very definition is the true nature of free market system – the winners usually take all with distant 2nd and some times 3rd players (Duopoly) when the leader has a significant competitive advantage – it is happening in the financial sector right now after all the turmoil. Apple was able to establish huge dominant position with IPOD by locking up the supply chain for couple of years (in addition to creating the iTunes eco-system). This should be a non issue for Dell. As they said, they are free to choose their suppliers and in fact seemed to have managed to introduce AMD chips as well.

Update 2 (November 14, 2009)

Intel Rebates issues as I said above, is a non issue. Intel appears to have made a truce with AMD and the antitrust lawsuit should eventually loose its teeth in Europe and US. For Dell, over those five years it’s revenue was over $250 Billion. The $5 Billion seems to have been accounted for via either COGS reduction (challenging endeavor to match it with revenue since the rebates might be asynchronous) or put in a other bucket in the income statement and balance sheet (I looked at the statements for the years in question). The other bucket is quite small (few million).

Dell’s Smart (Phone) China Move

This is a smart (phone) move by Dell – Open source as opposed to proprietary software and entry via geographic location where the opportunity is vast and competitors are limited (as of now). The US dominance in smart phone segment by Apple and RIM is unlikely to continue.

In international markets like China, the smart usage is much different than in the US or Europe. Most consumers in countries like China, Brazil and India (BRIC countries) don’t even have landlines or access to internet at home or work (the problem in India though is that there are very strong local telecom competitors and regulation). Russia is still the wild west and very risky. Most of the consumers there depend on these phones for all their communication and online needs. They need real utility features and not millions of non value added apps that serve no real purpose except for bragging rights in commercials.

An excellent example is Vodafone’s Japanese foray. Vodafone entered Japan with same strategy that proved to be successful in Europe and failed miserably. The reason being that the Japanese consumers’ smart phone usage is quite different from the Europeans.

With focus and entry via China, Dell’s probability of success is greater in this space compared to foray via the US market by taking on RIM and Apple head on. Making it open source using Google’s Android makes lot of sense since in essence this allows the local market to develop the product and its applications. Dell can then learn from that and adopt the successful aspects for other markets.

The likelihood of a corporation being able to replicate iPod/iPhone/iTunes or Blackberry like success is very small – showing the consumers the hidden need and getting them to adopt it (with help from an excellent supply chain/content strategy by Apple and a great e-mail application by RIM). Nokia seems to be trying to replicate Apple by focusing on creating a content eco-system. Dell’s strategy (based on information available so far) appears to be to allow the marketplace and consumers evolve the eco-system – especially in a market the needs of which are unknown and the infrastructure limited.

Update 3 (November 21, 2009)

I am disappointed with Dell’s inability to manage the short term while executing the long term turnaround strategy. Having said that, by the nature of its current business model, Dell might be limited in what it can do to manage the short term results. I am still holding on to my Dell. Down side is limited. It is again trading it less than 5 times trailing EBITDA net of cash ($14 Billion Cash, $3Billion Debt, $11Billion net cash on Balance Sheet, $28Billion Market Cap, market value after cash is $17Billion, Trailing EBITDA is $3.73, 17/3.73 = 4.55). Even if the market were to correct, I don’t believe Dell will go down much from here.

The turnaround strategy is being executed, hence those restructuring charges. The gross margin was inline with historical average for this decade. This miss on the revenue was quite small (12.9B vs $13.2: 2.2%) and was higher than some analysts estimates. The real metric to watch is Operating Margin – that is what will create value for the shareholders as this turnaround strategy starts bearing fruit next year.

I also belive now that Dell is a possible take over candidate because of its valuation. The margin extraction from that $60 Billion in revenue would be easy with vertical integration play.

February 22, 2010 Update

The Perot acquisition is starting to payoff at the top line (30% Sequential growth in services). However, the cost of services revenue went up by 38%. There is room for improvement in services cost of revenue.

On the Operating Margin front, there was a $202 million charge related to restructuring and acquisition in addition to amortization charge of $86 million (about half of which looks like was because of Perot). So approximately $250 million hit to operating margin was due to restructuring and Perot Acquisition which translates to about 12cents/share.

Again, Gross Margin was within the normal range for the past decade. As stated above, the real metric to watch is Operating Margin which can be managed in spite of Gross Margin Contraction as demonstrated by numerous well run companies operating in highly completive environments.

Going forward, as the top line improves and acquisition/restructuring charges disappear, the Operating Margins should improve exponentially.

September 27, 2011

HPs missteps should also benefit Dell. PC market share, mobile, Enterprise, Services etc.

There is a lot of debate going on about our Energy Problem and how the current stimulus is trying to tackle our Energy crisis. Yesterday, President Obama unvelied a $2.4 Billion grant to the private sector with the primary objective being to boost innovation in battery technology.

Solar firms in California have been significant receipts of grants in the energy renewables sector. This specific grant targeted towards battery technology in the automotive space was targeted towards firms in the midwest especially in Indiana and Michigan such as EnerDel (automotive lithium-ion batteries will receive $118.5 million in a matching grant), Delphi Automotive Systems LLC ($89.3 million), Allison Transmission ($62.8 million), Remy Inc. ($60.2 million) and Purdue University ($6.1 million).

Just as the Strategic Defense Initiative (SDI) program (aka Star Wars) funded research (mostly in the defense industry) in the 80s spawned numerous innovations even though the SDI as envisioned did not pan out, this (the current fiscal stimulus) too is likely to sow the seeds for innovative solutions for our gargantuan “Energy” problem.

The entire eco-system needs evaluation and new solutions – transportation and its power source (i.e engine/motor), fuel, fuel source, power generation, distribution, consumption. The current stimulus actually hits all of these aspects of the energy eco-system and is using the private sector and consumer incentives to change the behavior and investment/development focus.

Obviously not everything will bear fruit, even if 20 to 30% of all these efforts succeed, we would be well on our way to becoming an energy efficient society.

Shaker Cherukuri
Managing Principal
Process Improvement Solutions, Inc.

Starbucks has a dilemma – How to grow the top line? Lean is an effort to do that. How is it so? Isn’t lean supposed to reduce costs? Yes. However, in this case it is more about the top line. Piqued? Read on….

Since his return, Mr. Shultz, the founder, has focused on making Starbucks well more focused – return to the core competencies in consulting speak. He reduce products offered (like sanwitches etc) and now lean (8/4 WSJ Article) to speed up the cycle times and reduce throughput aimed at adding capacity to handle the peak demand without adding resources (labor or capital).

At a fundamental product strategy level, if the objective is to offer the consumer quick turn around, then the neighbourhood gas outlet or McDonald strategy would be more appropriate. If the objective is to offer the coffee experience and high quality coffee, then the Starbucks model would be great.

It now appears, that Starbucks is trying to be more like McDonald by being faster and leaner with less products and McDonald is trying to be Starbucks by offering premium coffee!!

In the fast food world, handling peak demand is what differentiates the best of the breed and McDonald is the leader in this aspect discussed in one of my earlier blogs – MickeyDs Got It Right!

McDonald is able to pull this off because of stadardization of all processes including store layouts etc. Pulling this off in the fresh premium coffee house that focuses on the consumer experience and store ambience would be very challenging and most likely not as effective. Leaving it to the individual stores to come up with their own unique process is almost certain to ensure that the effort will cause more damage to the brand (the consumer experience) than any gains from efficiencies (ask Home Depot). There is probably a happy medium here some where and perhaps that is what Starbucks is trying to achieve.

McDonald will most likely abandon premium coffee and Starbucks will have a short term bounce from reduced costs (already has). Over the long term, the premium consumer that desires the coffee experience might be lured away by a yet another niche player unless Starbucks figures out what it wants to be.

The problem is that to grow (the top line), it (Starbucks) needs to go after those lost sales during peak demand at the expense of consumer experience which is its core.

Therein lies the dilemma…..

Shaker Cherukuri
Managing Principal
Process Improvement Solutions

My response to WSJ article on Caterpillar dated 7/22/09 (also posted on WSJ online comments section). Caterpillar got burned due to huge capacity expansion in 2007/2008 because they thought they knew what was coming. So I believe, they are holding the cards close to their vest and focusing on the bottom line now (at least you know what you are getting when you focus on the supply side).

Also I think they are benefiting from the huge LIFO reserve created during the pre 2008 inflationary world. This reserve is being depleted since the existing inventory is being used instead of new inventory.

What do you do with all that inventory of tires that were stockpiled when Oil was at $100+ and capacity constraint at the tire manufacturer’s caused the tire prices to go through the roof ? It seemed prudent to stockpile those tires then, not so now.

Perhaps it is time to switch to FIFO accounting for the inventory in case of deflation?

Update (October 26, 2009)
For Q3, 2009, Caterpillar reported $7.29 billion in revenues (down 44% from 2008 Q3) and $404 Million of earnings (down 54% from 2008 Q3) of which $120 million was attributed to LIFO reserve liquidation (29.7%) and $129 million to tax benefits (31.9%).

Shaker Cherukuri
Managing Principal
Process Improvement Solutions, Inc.

The new strategy at P&G appears to be reverse of what GE adopted recently under Mr. Immelt. GE went from too focused on operations and efficiency improvement under Mr. Welch to emphasis on slick marketing and creating an ecosystem for growth as a process (building on the Six Sigma heritage). This transformation accelerated in 2005 when I was at GE with the creation of infrastructure BUs.

In P&G’s case, it appears that the new strategy is to grow the margins by focusing on operations and efficiency improvement instead of single minded focus on growing the top line via new premium products and acquisitions. P&G is starting the process of repositioning for the new environment as discussed in my blogs.

Madison Avenue will need to reposition due to the dynamics of the new environment and work with their clients to help them figure out how to target the right segments once the right segments are established and product positioning strategy is laid out. Will require longer partnerships rather than the traditional model of bringing on the ad agency towards the tail end as showcased in the Emmy winning series Mad Men. The show is set in the 50s/60s so obviously is not ment to be a case study on marketing and advertisement strategy for the 21st century. I mentioned it here since it does depict the typical working relationship between product manufacturers and advertisement firms and not much seems to have changed based on the WSJ article yesterday on P&G..

P&G appears to be taking the bull by the horns and changing the way consumer products are brought to the market and using this opportunity to optimize their own operations and business processes which should help increase the Gross Margins.

Shaker Cherukuri
Managing Principal
Process Improvement Solutions Inc
317 258 3552

My reponse to 3/18 WSJ article on How to Innovate in a downturn: For an existing business, the key to survival and capitalize on a downturn is repositioning. It requires ingenuity, creativity, vision and most of all guts to take the plunge. Unmet needs can not be quantified in a spreadsheet and a business plan. An IPOD, a PC or a cell phone could never have been justified in a business plan. But of’ course for every success like the IPOD or a cell phone, there are numerous failures – the path to success is littered with creative destruction. An eco-system that fosters this creative destruction is what fosters growth in a innovative economy like the US.

IPOD was a major reposition for Apple, the cell phone was a major reposition for Nokia. Dell filled the unmet need in PC space and Intel’s repositioning to focus on the micro processors instead of the DRAMs was a stroke of genius. As Mr. Grove put it – only the Paranoid Survive.

Moving forward, the macro economic landscape has changed. The de-leveraging will cause the US consumer to retrench and will no longer be the driver of world economy (about $10 Trillion of the $40 Trillion world GDP was the US consumer I think – 75% of the $14Trillion US GDP).

How can the US consumer learn to live within means, save and not leverage excessively and still maintain a good standard of living? I believe this is where the unmet needs are in the coming decade. Perhaps a reverse process where the savings glut in the US is invested in the consumers of Chindia? Just a thought.

$3 billion people (close to 50% of world population) entering middle class with huge savings, should at some point cause tectonic shifts in the world dynamics (it has been happening, but I suspect this de-leveraging process will speed up the process).

Shaker Cherukuri
Principal
Process Improvement Solutions Inc
317 258 3552