Update on SWM Following Yesterday's Move

We spoke with our San Francisco presenter about a 30%+ drop yesterday in shares of Schweitzer-Mauduit (NYSE: SWM, $49.09). He believes a "perfect storm" led to the steep sell-off. The main concern is the strength of this cigarette paper manufacturer's patents. The company filed a patent infringement action two days ago against four small manufacturers trying to gain share of the global market for the low ignition propensity cigarette paper. SWM believes its IP position in this area built over 20+ years is very solid. The company also had to clarify its partnership with Philip Morris USA. The statement issued this morning stresses that the terms of the contract make Schweitzer the sole supplier of the low ignition paper technology to PM.

The presenter also believes some investors were dissapointed with the 2010 earnings guidance given by the company on the Q4 call. Even though the EPS forecast was raised to $4.60, the expectation was for a significantly higher number. The presenter didn't decrease or add to his holding following the drop and wants to let the stock settle before he makes his next move.

2010 Consumption: The year of the woman

One of Roulston Research's Consumer expert has a theme for her 2010 outlook:

"This is the year of the woman, I can't think of any store that will do well if they ignore women."

To make her point she gives as examples Lowe's and Home Depot. Two big box home improvement stores that appear to cater to nearly 100% men. But she points out efforts Lowe's has made to grow its appliance business, which is now much larger than Home Depot's appliance business.

She believes Lowe's will see benefits from this strategy that will be missed by Home Depot.

Health Care Roundtable in New York

As Obama reaches out to politicize the Health Care Debate it follows in line of the "hail Mary" approach Mark Lindsey of the Livingston Group discussed this week. This has the potential to backfire in a major way as showing the proceedings on TV allows for a simpler and smaller program to be a much more concise and consistent story. If the dems continue to try to push thru comprehensive reform and the Republicans stick to a few simple and popular reforms the events might be great TV.

Issues with the Cloud

Bart Perkins, Roulston Research's Technology Chair sees problems that may arise as companies consider migrating their IT activity to the Cloud. He identifies:

Internet access. Cloud applications require reliable high-speed Internet access. Although Internet service is increasingly reliable, all carriers experience periodic problems. And when an outage occurs, you'll have to be patient. Your outage is unlikely to be fixed before the problem is solved for everyone.

Support. Cloud customers do not control update schedules or problem-resolution priorities. MySAP, Salesforce.com, Flickr and other cloud providers update software based on unknown internal criteria, with little customer input.

Legal issues. Government regulations determine how people with fiduciary responsibilities can communicate with their clients. If you're a fiduciary trustee, you should think about federal records retention regulations. Virtually all Web 2.0 services lack sufficient user-level backup capabilities. What's more, the physical location of cloud data is unknown. European Union privacy laws prohibit certain data from crossing borders. And conducting a SAS 70 audit is extremely difficult in the cloud.

Data retrieval. Cloud providers make it easy to upload data. Unfortunately, each provider uses proprietary data definitions and data structures. In addition, they offer no simple tools for downloading bulk data. So, what goes up may not come down. Most customers are forced to use an Internet connection, often at unacceptably slow data-transfer rates. At 100Mbit/sec., it takes one to two days to export 5TB. Worse, it can be extremely expensive; Amazon charges 10 cents per gigabyte, or $100,000 per petabyte, to download data from its S3 storage service.

SLAs . Cloud providers have different service-level targets. For example, Amazon, Rackspace and 3Tera define an outage differently. Furthermore, each provider uses a different process to document outages and process any resulting user credits.

Governance. The cloud makes it easy for rogue departments to implement new services without IT's knowledge. If the offending departments are not IT-savvy, new systems may be implemented with insufficient documentation, ineffective security or nonexistent workload management.

Financial complexity. Established companies have enormous investments in infrastructure. To be financially viable, providers must create financial models that offset total migration costs. Do a comprehensive financial analysis before committing.

He summarizes by saying:

Cloud computing is essentially just another type of outsourcing, with similar risks and benefits. Are companies ready to trust the cloud with their most precious resource, their revenue-generating systems? An organization shouldn't leave itself exposed to thunder clouds; lightning may strike at any moment.

New York Health Roundtable

Health Care is dead. Marc Lindsay from the Livingston Group was on the Obama transition team and although a supporter of President Obama feels that Congress and Obama blew it when trying to get Health Care thru Congress. In particular, he feels a strong division between Congress and the White House in clarifying direction for the plan once both houses approved their own versions. He now sees a move towards consumerism and moving the consumer closer to decision making by paying more of the bill and HSA and MSA plans becoming more popular. Unlike Congress, he cited the President as not understanding the electorate and being headstrong. Congress in looking for leadership is increasingly worried re their lack of favor and worried about upcoming elections. Maybe some parts can be added as amendments, but he sees no major overhaul. He does look for increased regulation for Congress and the President to gain favor with electorate.

Prediction for 2010: Big Companies That Lag

A prediction from Bart Perkins, Roulston Research's Technology Chair:

As the recession ends, midsize companies will increase IT spending faster than large companies. In 2009, most companies cut IT spending dramatically. New IT capabilities were deferred in favor of virtualization, ITIL and other internal efficiency efforts. As the economy improves, executives in large companies who have always believed that IT is too expensive will be unwilling to allow spending to increase significantly. Smaller organizations won't have a choice. Many of their cuts harmed service levels or critical business programs.

Consumer roundtable

At the consumer roundtable Laura Petrucci talked of the challenges of taking brands international. Many past successes have come in the past from foreigners love of American Culturalism. Looking at Gap's initial success they generally felt Abercrombie has good opportunities while more subtle American Culute in Urban Outfitters (just to cite an example) might be more challenging.
Separately on the discounter side TJ Maxx continues to run at full throttle while Ross may be becoming a dark horse with real improvements, management changes and growth opportunities. Craig is more bullish in particular right now on home mentioning Bed Bath and others seeing real improvements.
Finally the concept of reinventing to stay fresh for the core customer was a key discussion of winners and losers. The challenges to Talbots, Ann Taylor and Coldwater are cited as the most difficult to overcome while Chico's was cited in the same older crowd as having some success.