Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Tuesday, October 31, 2006

October 31, Best Of 24/7 AM Edition

Counterfeit Microsoft: What's It Worth?

Microsoft (MSFT) launched 55 legal actions around the world in an attempt to get software dealers to stop selling counterfeit versions of their software.The world's largest software company says that it wants the behavior ended, but it does not say what it is costing the company now.

A recent study by the European Union says that up to 7% of worldwide commerce is based on pirated goods. That would be $300 million in lost revenue in total.According to the latest Microsoft 10-Q, the companies two big software divisions, client and server brought in $5.8 billion in the quarter, so an annual run rate of over $23 billion. If the piracy rate of those software products is 7%, Microsoft loses over $1.6 billion a year.

That's real money.

Trans-Fat Range Wars: McDonald’s And Starbucks

Stocks: (MCD)(SBUX)(YUM)

New York City is thinking of setting a ban for restaurants that sell foods with trans-fats and Kentucky Fried Chicken is not going to sell food containing the stuff.

That opens the door to the question about what the really big food and beverage chains will do about the “bad health” issue of trans-fats and what it will cost them to fix Trans-fats are unsaturated fats that can clog your arteries, and perhaps are killing consumers left and right.McDonald’s and Starbucks, with their donuts, cookies, and hamburgers are apparently stuffed with trans-fats.

It poses two problems for the huge chains. First, there is a cost to replacing menu items with new foods. Trans-fat foods have a longer shelf life. They are cheaper than products made with content like butter. They also require less refrigeration. If you have a business with thousands of outlets, changing a lot of the “eats” over to a healthier fare could be damned expensive.

The other problem is the tobacco company/car company issue. Smokers sue cigarette companies for giving them cancer and heart disease. And, of course, the State of California is suing the auto manufactures for polluting the air.

People may now think that Starbucks and McDonald’s have poisoned them with trans-fats, knowingly cutting short the customer’s lives by filling their bodies with sludge. It has premature heart attacks and strokes written all over it.

KFC does not have much to lose. They are fairly small and comparatively poor next to Starbucks and McDonald’s.It has to end up in court. Everything else does.

As The US Goverment Give Up On Royalties, Big Oil Needs Some Chaos

Stocks: (XOM)(CVX)(COP)The US Government surrendered without lifting a finger. Its case that Chevron underpaid for use of federal land to pump gas in the Gulf of Mexico was dropped.

Oil and gas companies are mandated to pay part of their sales for product brought out of land owned by the government. But, the calculations are fuzzy.

Big oil stands to add to its profits if the feds don't push for a higher rate of royalty. What's it worth? Perhaps several hundred million dollars.

But, it is a small gift. With falling oil prices, it will not make up from the likely drop in profits at Big Oil. Inventories are still rising. The fears that Saudi production could be hurt by terrorists is receding. And, OPEC's plan to cut production seems to have no teeth.

Ah, for a little, tiny war. Not one in which anyone gets hurt, mind you. Or, a little coup d'etat. Just something to grab the headlines for a day or two.

Of course, higher oil prices are not the only reason that Big Oil has had larger profits, but, there must be some reason that the stock prices of these companies are up an average of 40% over the last two years. But, that number was closer to 70% for Exxon just a few months ago. Before oil prices came down from over $70 to under $60.

Oil prices are now hostage to whether there is any chaos in the world events that would change oil prices. Threats of attacks on oil facilities in Saudi Arabia recently pushed prices up. But, it did not last. Oil companies need an event that no sane person would wish for. Mayhem.

Hard to say if it will come.

There is no evidence that oil executives are warmongers or anarchists. But, that does not mean that a touch of chaos isn’t helpful to raising the price of oil.

Powered by Blogger