Tribute to The Passing of an Old Friend

It is with melancholy that I mark the passing of an old friend.  This companion was in my home when my children were born.  The friend clothed my family, delivered Christmas presents and even mowed my lawn.  That's why I despaired when the news broke about the demise of iconic retailer Sears.

Our relationship began when I was a child.  The arrival of the Sears Christmas Catalog in our home was met with shrieks of joy.  My siblings and I pored over the toy section, dreaming of Santa Claus and Christmas morning.  By Christmas day, the catalog was dog-eared and tattered from use.

After Princess Dianna and I were married, one of our initial purchases was a Kenmore washer and dryer.  It survived two babies in the era before disposable diapers, chugging almost nonstop to clean cloth diapers.  Those sturdy machines, like many Sears appliances, lasted 15 years.

I acquired my first lawn mower from Sears after buying my first home.  The first set of tires I purchased came from Sears.  When the battery died in my car, I made a trip to Sears for a DieHard.  The first tool box and tools I owned were Sears' Craftsman.  (I never did learn how to operate them.)

Sears products were the gold standard for reliability.  If an appliance ever stopped working, there was a local store with a repair person to fix it.  Even small towns had a Sears outlet.  At the height of its retailing empire, there were nearly 1,000 Sears stores stretching from coast to coast.

The retail Goliath was born more than a century ago when a former railway station agent (Richard Sears) and a watchmaker (Alvah Roebuck) partnered together to become Sears, Roebuck and Company. They launched a catalog of watches and jewelry in 1888 and incorporated in 1893.

From those humble beginnings, Sears branched out from watches into a full blown retail company, offering clothes, appliances and products for cars.  Its beloved catalog ballooned to 532 pages, serving as a consumer Bible.  Not to mention that it was used as toilet paper in the era of outhouses.

The firm sold stock in 1906 in the first initial public offering for an American retail firm.  The same year it opened a 40-acre logistics center in Chicago, then called the Seventh Wonder of the World by admiring business leaders.  Sears became a symbol of America's burgeoning economic strength.

As consumers tastes changed, Sears altered its business model launching its first retail stores in the 1920's.  By 1931, Sears stores surpassed the cherished catalog in sales and revenue.  Sears introduced its own brands, including Craftsman, DieHard and Kenmore and began selling Allstate insurance.

These were the glory days when Sears topped $1 billion in sales in 1945, which equates to $14 billion in today's dollars.  The company even debuted a mail-order automobile in 1952 manufactured by the Kaiser-Frazer Corporation.  It was named the Allstate.  A year later lagging sales caused its death.

By 1969, Sears claimed the title as the largest retailer in the world.  To crown its achievement, the innovative company began construction on the world's tallest skyscraper, the 110-story Sears Tower, in Chicago.  It was completed four years later, dominating the Windy City's skyline.

Like the soaring corporate building, Sears was rocketing into the retailing stratosphere.  However, its meteoric rise in the world of retail became a giant bullseye for a teeming gaggle of competitors eager to enter the lucrative sector.  Sears' leaders ignored the threat and embarked on a buying binge. 

In the 1980's, Sears expanded into everything from stocks, real estate, credit cards to a pre-Web portal known as Prodigy.  During this stage, the company lost focus on its core retailing business as an upstart competitor Walmart began to syphon customers with lower prices.

The downward spiral was officially recognized in 1991 when Walmart supplanted Sears as the nation's top selling retailer.  The final chapter was written on October 15 when Sears Holdings Corporation filed for bankruptcy.  The firm listed $6.9 billion in assets and $11.3 billion in liabilities.

Sears downfall is a cautionary tale for today's Herculean companies.  No business is too big to fail. Sears reacted too slowly to competition, lost touch with its loyal customer base, expanded into businesses far afield from its core strength and failed to invest in its retail stores and product lines.

I admit, like many former Sears customers, I haven't peeked in one of its retail stores in decades.  However, I still mourn its passing.  Sears was part of my childhood and adulthood.  Now that its gone, all that remains are cherished memories of trusted products that made our family's life better.

Rest in peace old friend.   

Sprint: the ugly duckling seeking a suitor

With the announcement of AT&T's purchase of T-Mobile, the nation's third largest wireless carrier Sprint was left stranded again at the merger altar. Despite frantic proposals, the company has failed to woo a marriage partner.

Sprint CEO Dan Hesse took out his frustrations on AT&T, claiming the consolidation would give the merged firms too much economic power in the mobile market. "I have concerns it would stifle innovation," Hesse whined in a speech.

Most observers think Hesse doth protest too much. Sprint would like nothing better than to arrange for a corporate marriage that would increase its market share. In fact, the word on the street is that Sprint did more than just flirt with T-Mobile, hoping to land a deal of its own.

When Sprint's overtures were rejected, Hesse began acting like the jilted lover, stamping his feet in disapproval of the AT&T and T-Mobile marriage. Apparently, his failure to negotiate a deal for Sprint precludes other wireless firms from acting in their self-interests.

Perhaps, Hesse should spend less time appearing in Sprint's snooze-inducing television commercials and more attention fixing his firm's performance. The Overland Park, Kansas, based wireless company carded a stunning $595 million operating loss last year as it struggled to increase its market share.

Most of the company's growth in 2010 was prepay customers, less lucrative than post-paid subscribers on monthly rate plans. At the end of the year, Sprint had 49.9 million wireless subscribers, of which 12.3 million were pre-pay customers, according to the company. That means these bottom feeders represent nearly one-quarter of the company's subscriber base.

Unfortunately, Sprint's cost structure is hamstrung because it operates two incompatible wireless networks. This is a legacy of its ill advised 2005 purchase of Nextel, which operated a walkie-talkie mobile network. To call the $6.5 billion merger a failure would be too kind. It was an unmitigated disaster.

Sprint overpaid for a technology that was being fast becoming obsolete by the emergence of feature rich phones. At the time of the merger, Nextel was the third largest wireless company and Sprint was a solid fourth. Six years after the merger, Sprint is mired in third place, stuck between giants AT&T and Verizon and a host of bit players at the low end.

Unfortunately, Sprint has learned nothing from its past corporate pratfalls. The company is pursuing WiMax as its technology choice on its speedier 4G network in an uneasy partnership with Clearwire. Meanwhile, most of the wireless world has adopted a competing technology standard, Long Term Evolution (LTE). This will make any combination with another wireless player more difficult because the network synergies will be missing.

Another head-scratcher has been Sprint's all-you-can-eat data plan, which allows customers to gobble as much bandwidth as they like for one monthly rate. Meanwhile, AT&T offers tiered-pricing plans for data and Verizon is expected to soon follow suit. With bandwidth such a precious commodity in wireless, it makes no economic sense to essentially give it way.

For all the reasons cited above, Dan Hesse's urgent pleas for undoing the AT&T-T-Mobile deal should fall on deaf ears. Hesse and his predecessors at Sprint are to blame for the company's precipitous decline. Worrying about a deal that has not even been finalized would seem to be a waste of time, given all Sprint's issues that require management's immediate attention.

Hesse would be advised to quit playing the role of the rejected bride. Instead, he should figure out how to put some lipstick on his mistake-prone pig of a company in hopes of attracting a wireless marriage proposal.

Microsoft: From leader to laggard

That once great American monolith, Microsoft, is looking more each year like a corporation living off its former reputation for innovation and growth. The Redmond, Washington, software icon keeps stumbling while its competitors lap the slow-footed corporate Gulliver.

This is a business colossus that regularly racked up average revenue growth of 36 percent through the 1990's as it dominated the manufacturing and licensing of computing software. Those days have faded along with the its market share. In its latest fiscal year, Microsoft struggled to increase revenues by a single digit, delivering only eight percent growth.

While Microsoft rebounded last year with Windows 7, not much else has gone right for the firm. It has found it nearly impossible to stretch beyond its legacy business to take advantage of the growth in the Internet and related web services.

As just one example, the firm's search engine Bing has chalked up $560 million in losses, despite its marketing agreement with Yahoo. Their deal was supposed to boost both firm's fortunes in the battle with Goggle. However, the 10-year agreement seems to be sapping the company's energy and its cash horde.

In its latest quarterly earnings report, Microsoft highlighted its sole product winner outside its software: Xbox games and subscriptions. That division posted a 55 percent revenue gain.

Other departments in the company did not fare as well, including the golden goose, Windows operating systems. Revenues were down 30 percent. That should sound alarm bells for shareholders, although the company tried to tamp down disappointment by pawning off the poor results on an adjustment for Windows 7 upgrade coupons. Whatever.

Microsoft missed the music boom with Zune, which was trounced by Apple's Ipod. While Apple boldly pushed into mobile phones and operating systems, Microsoft couldn't make up its mind how to enter the market. In today's sizzling tablet computer segment, Microsoft has no entry and no prospects. What makes this so damning is the company was first to market a tablet PC in 2001, yet bungled the features, design and marketing.

In the Internet browser wars, Microsoft is the current market leader with its Explorer, but its share has been slowly eroded over the years. Mozilla's Firefox is in second place and gaining ground. Goggle's Chrome and Apple's Safari are threatening to become bigger players. Microsoft's lead is in jeopardy.

Of course, Microsoft's mother of all failures was its much ballyhooed Vista product. Hailed as a breakthrough operating system, Vista bombed in the market. The poorly conceived system was a glitch nightmare that was delivered three years late. After a lukewarm market reception, Vista morphed into Windows 7.

Failure hasn't stopped Microsoft from chasing markets in hopes of catching up with the competition. With much fanfare, Microsoft recently signaled that it has set its sights on becoming the premier developer of apps for smartphones. The giggles on Wall Street surely could be heard all the way in Redmond.

Apple currently has a stranglehold on the app market with a 82.7 percent global share. Research In Motion (RIM) is a distant second with 7.7 percent share. Microsoft's market share doesn't even rise to a single percentage point.

With CEO Steve Ballmer steering the Microsoft ship, this has become an all too familiar theme. The bigger the promise the larger the disappointment. Under Ballmer, uneven execution, marketing malaise and lack of innovation have tarnished its reputation.

Microsoft is a once great company that has mortgaged its future with one costly blunder after another. Perhaps, as Apple did, it is time for Microsoft to recall its founder to restore its lustre. Now that he is no longer the world's richest man, Bill Gates might find drawing a chief executive's paycheck will help both he and Microsoft regain their No. 1 status.

Verizon (Yawn) Gets the (Ho Hum) iPhone

After titillating the media for months, Verizon finally delivered on its highly-publicized, three-year quest to secure the iPhone for its network. The communications firm's stock soared on the news, hailed by financial and business analysts' as a sure-fire boon to its wireless segment.

However, upon closer examination, the move looks more like a dud. Verizon gets a phone that doesn't work on its new, faster 4G network. The CDMA model is not as full featured as AT&T's GSM version and it likely will be outdated by summer. So what's the big deal?

To understand the significance of this move, you have to remove Verizon from the equation. They are a bit player. This is all about Apple, a company which has built its economic prowess by demanding absolute control of its products. That's the reason Verizon lost out on the launch of the iPhone in 2007. It wasn't willing to give up control to Apple, while AT&T put its ego in cold storage and was handed an exclusive deal.

Looking at the Verizon agreement from Apple's perspective, it is another clever maneuver designed to expand its market. In its launch on June 29, 2007, the iPhone was engineered to only work on wireless networks that use GSM technology. The reason for this decision was simple: 219 countries in the world have GSM networks. It is a virtual global standard. There are currently 3 billion people served by GSM technology.

By comparison, the CDMA technology preferred by Verizon is not as widespread. It serves about 550 million customers worldwide. However, there are wireless carriers in Asia and China that use the standard. By making a CDMA phone for Verizon, Apple now has a device it can market to the rest of the world where GSM networks do not exist or provide inferior coverage. That helps explain Apple's motivation. They received free engineering help from Verizon to manufacture a smartphone for use on CDMA networks worldwide. Brilliant!

While peddling the iPhone will increase sales for Verizon, it is unlikely to produce the kind of eye-popping numbers the AT&T launch did four years ago. Undoubtedly, some AT&T customers, convinced the Verizon network will be better, will switch. But the media has overestimated the impact. The guess here is there will be no mass exodus of AT&T subscribers because the CDMA version of the iPhone has some distinct disadvantages.

For example, customers who travel to Europe and many other countries, will not be able to roam with their iPhones because of the ubiquity of GSM networks. In addition, the CDMA version will not allow users to talk and surf the Web at the same time. It means customers cannot download any Web-connected mobile application during a phone call. That is a major drawback. Add to that the expense of AT&T contract buyouts and you have significant barriers to consumer switching.

But the biggest disadvantage is the non-exclusive contract Verizon has with Apple. If it chooses, Apple can now shop its iPhone to Sprint and other CDMA carriers in the U.S. If that happens, any perceived Verizon advantage shrinks substantially.

That leaves one burning question that has not been addressed. What happens when Apple releases a revamped iPhone, as it surely will by summer? Will that model be GSM only? Will it be offered exclusively on AT&T's network? The answers to those questions will go a long way toward determining just how much Verizon will benefit from offering a CDMA version of the iPhone.

Until those questions are resolved, Verizon stockholders and potential investors would best be advised to ignore the current media hype.

HP Acquisition: Palms Down

With the full blessing of Wall Street's geniuses, Hewlett-Packard has trumpeted its $1.2 billion acquisition last week of Palm, the wireless handset maker. However, if you sift through the corporate chest thumping, this deal makes no economic or strategic logic. The prediction here is that the maneuver will flop like a beached whale.

The deal underscores what happens when a firm with a large cash horde panics. As the money pile climbed to nearly $14 billion, questions must have arisen about what to do with the stash. The M&A folks were dispatched. The result was a mad grab for an asset that appears cheap only because it has lost so much value. However, even a cursory examination of Palm and the smart phone market should have set off alarm bells.

For instance, Palm has a tiny almost insignificant slice of the booming smart phone market. Palm, which recently introduced its slick Palm Pixi Plus, has a 4 percent smart phone market share, ranked by operating system. Even worse, it is losing share to the Goliaths, Apple and Google, who are relatively newcomers to wireless. Apple's share is 24 percent, while Google's Android comes in at 19 percent. Research in Motion (RIMM), with its Blackberry, occupies first place with a 44 percent market share. As the dwarf of the smart phone litter, how can Palm even hope to compete without massive research and development spending? Did HP sign up for that?

As distressing as those numbers are for Palm, there are even more depressing figures if you own HP stock. By one estimate, Apple's installed base is about 85 million, compared to Palm's puny 2.5 million. While the numbers of smart phone users are growing double digits, Palm is falling further behind. During the most recent quarter, Palm's shipments rose, but its sell-through dipped 29 percent from the previous quarter. Does Palm sound like the right platform to capture this growth market? It makes you wonder if the M&A Department at HP is staffed by Dumb and Dumber.

One reason for the dismal numbers is that Palm was late to the smart phone party, a sad commentary when you consider the revolutionary Pilot and Treo products of years past. Although Palm is trying hard to catch up, the firm is chasing deep-pocketed tech giants, like Apple, RIM, Nokia and Goggle. It is a race they are destined to lose. While every smart phone maker can boast some gee whizz features, the future is all about the applications that run on the unit. Here is where Palm has ceded too much ground, having only opened its app catalog in June of last year. If you are an app developer, does Palm even show up on your radar screen?

But that's not even the worst news. Palm's financials are bleeding red ink, burning through cash as losses mount. In its latest report, Palm posted an operating income loss of $117 million, compared to $102 million for the same period a year ago. Even Palm's CEO and chairman was moved to publicly admit, "Recent performances have been very disappointing, but the potential for Palm remains." Whenever a company uses the "P" word, beware because it usually comes with crappy results.

HP has tried to put a brave face on its decision. Their bigwigs have talked about leveraging their corporate relationships to sell Palm units. That would be great if the decision makers for purchasing wireless units were the same people who bought printers and computers. Unfortunately, they often are not. And even if they were, how will HP dislodge the big wireless carriers who already have extensive inroads and sales into large corporate clients? That begs another question: are Curly, Larry and Moe running the sales and marketing departments at HP?

HP has enjoyed a somewhat checkered past when it comes to acquisitions. Think EDS and Compaq. Past stumbles even led to the sacking of its CEO, Carly Fiorina, in 2005. Before the ink dries on the Palm acquisition, the current CEO might be well advised to start digging into what kind of a severance package HP offers.