JimPinto.com - Connections for Growth & Success
No. 80 : March 27, 2002
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
- Silicon Valley Reboots
- Pervasive artificial intelligence
- Globalization stage 3 - use offshore design talent
- GE's Jack Welch makes a costly divestiture
- Invensys sells Flow Controls & Energy Storage
- George Carlin stinks
- Layoffs are destructive - fire the "senior execs"!
- Foveon digital camera chip - better than film?
Silicon Valley reboots
Silicon Valley, that symbol of technology drive, is entering a new cycle of innovation and
technology-fueled economic growth. Entrepreneurs like Steve Wozniak of Apple Computer are
regrouping to form new ventures, and investors are comparing the current pause to the early '90s before
the Internet boom. Funding is still scarce for anyone but the known stars, but that caution is a positive - it
forces entrepreneurs to go beyond the unreasonable hockey-stick growth dreams.
Read this Newsweek (March 25, 2002) cover-story article to review some of the hottest emerging
sectors, such as Wi-Fi, bio-informatics, nanotech and distributed file-sharing. There's an interesting
article on Carver Mead and his new company Foveon, with a review of the new digital-camera chip we
discussed (JimPinto.com eNews Mar. 18, 02). Plus a great picture of Steve Wozniak, Apple founder,
who incubated for a while teaching kids about computers and is now launching his exciting new
company, Wheels of Zeuss (WoZ).
Silicon Valley Reboots
Intel : Upholding Moore's Law
Google - Faster than the rest
Foveon - It's the technology
Pervasive Artificial Intelligence - Rodney Brooks Q&A
Rodney Brooks has a vision of a post-PC future in which sensors and microprocessors are wired into
cars, offices and homes - and carried in shirt pockets to retrieve information, communicate and do
various tasks through speech and gesture interfaces. The director of MIT's Artificial Intelligence Lab
says the age of smart, mobile machines is already beginning. You just have to know where to find them
- in oil wells, medical labs, financial services and construction companies.
Is AI simply entertaining science fiction? To help make pervasive computing a reality, Brooks' MIT Lab
is working on Project Oxygen - the embeddable and wearable devices, interfaces and communications
protocols; and better vision systems that interpret lip movements to increase the accuracy of speech
The MIT A.I. Lab is filled with robotic machines, from mechanical legs to humanoids that use human-like
expressions and gestures as intuitive human-robot interfaces - something Brooks believes will be
critical to people accepting robots in their lives. The first generation of relatively mundane versions of
these machines is already marching out of the lab. The robotics company Brooks co founded -
Massachusetts-based iRobot - is one of many companies planning to launch new robot products this
year, like autonomous floor cleaners and industrial tools built to do boring, dirty and dangerous work
like inspecting oil wells.
Of course, autonomous oil well inspectors aren't as thrilling as the robotic servants earlier visionaries
predicted. But robotics and artificial intelligence are working their way into everyday life, albeit in less
Read this fascinating conversation with Rodney Brooks about what we can expect from robotics, A.I.
and pervasive computing.
Q&A with Rodney Brooks of MIT AI Lab
Project Oxygen - Persuasive, Pervasive Computing
MIT TechReview - AI Reboots
Rodney Brooks Book: Flesh & Machines - how robots will change us
Globalization Stage 3 - use offshore design talent
This item came from the Morley e-bush-telegraph - it seems this audio clip of GE Chairman Jack Welch
is making the rounds at Boeing (summarized here):
Says Jack Welch:
"When we started our globalization efforts, it was all about selling products offshore. That's Stage 1 of
any globalization in my view. Stage 2 is making it and selling it there; Stage 3 is sourcing products and
An interesting follow-on comment came from a Boeing engineer, passed along to the press person
reporting the story:
"Stage 3 is the one we're in now in a big way. It is by far the most difficult - it's globalizing intellect. That
really gets close to home. I saw a chart this morning in our lighting business: the average cost of an
engineer is $150,000 in Cleveland, Ohio. The average price in our R&D Center outside Shanghai,
China: $17,000. Average price in India: $12,000 for PhDs. Hungary: $24,000.
"The people at GE Lighting have a chart that shows that design engineering is done 60% outside the
US now, 40% in the US; and they were planning on going to 35% US-based engineering in 2002. I
asked why we aren't targeting for 10% in 2002? Why are we hanging around Cleveland (laughter in the
background) with a bunch of high-paid engineers? We don't need it! It's wrong, it makes no sense!
You've got to globalize the intellect if you're going to compete in a global world."
"When will we get to Stage 4 of globalization? A good Indian or Chinese CEO for $100,000 or less!"
Boeing Country: Welch talk gets attention of engineers
Jack Welch makes a costly divestiture
JimPinto.com eNews does not normally discuss the personal lives of individuals. However, we can't
pass up this latest surprise that brings one of our biggest business heroes down to the level of a
Hollywood gossip column.
Following the sqwelching of his Honeywell acquisition and retirement shortly after, GE Chairman Jack
Welch (67) has now welched on his wife Jane (49) after a second marriage of 12 years, for a dalliance
with Suzy Wetlaufer (42) an editor who recently interviewed him for the Harvard Business Review.
Jack Welch has always admitted that his guilty pleasure is reading the gossip pages. Now his own
exploits are giving tabloids unusually juicy fodder. Last week, a New York headline trumpeted:
JACKPOT! GE TYCOONíS SCORNED WIFE SEEKS HALF HIS FORTUNE!
The Wall Street Journal tucked news of the affair into a broader story about the turmoil it caused at
Harvard. This gave a new excuse for high-minded publications to air this laundry. If you choose to read
this Newsweek article, itís because youíre interested in the business angle, not the gossip, right?
Newsweek (25 March 02) Welch - A costly divestiture
Invensys sells Flow Controls & Energy Storage
Last week (22 Mar. 02) Invensys agreed to sell its Flow Controls business to Flowserve (NYSE:FLS,
FRNK:FWV) for $535m in cash.
For the year ending Mar. 31, 02, Flow Controls is expected to generate revenues of $520m, with
earnings of $65m (12.5%). The net assets sold are about $330m, with goodwill (write-offs) of about
$130m. The transaction, which is subject to approval by Flowserve banks, (by no means a shoo-in) is
expected to close by May 02.
Flowserve expects to fund this acquisition through a combination of debt and equity (details still being
worked out). Flowserve had 2001 sales of $1.91 billion, with operating income of $142 million and a net
loss of $1.5 million. Their market cap is $1.34 billion (at a recent price of $30).
This week (26 Mar. 02) the sale of Energy Storage to Enersys (US-based, HQ in Reading, PA) was
announced. Energy Storage revenue is expected to be $555m ($600m previously projected) with profit
of $45m ($60m projected earlier). The purchase price was adjusted from $505m to $425m to
compensate for lower than expected revenue and profits.
Payment to be made as $325m in cash and a $100m note issued by Enersys (controlled by Morgan
Stanley Capital) plus warrants which could be exercised by Invensys for a stake in Enersys. Invensys
had to call in Goldman Sachs to arbitrate on the revised figures and negotiations.
Financial analysts were positive after reassurances that Invensys would exceed its banking covenants;
shares remained volatile, and were at 122p on Mar. 27 02.
Look for the key numbers - how does the assets of the sold business sit on the balance sheet when
compared to the net sale-price. If the price is higher than net-book-value, and the sale is for cash, the
bankers will approve because it improves the ratios. If the sale price is promissory notes, with strings
attached, bankers will discount the value and it may get sticky.
Invensys Sells Flow Control Business to Flowserve
The two sales will bring about $900m in cash and the banks are demanding divestiture of $2.2b to slash
debt load of $4.7b. So, sales of another $ 1.3b remain. Which companies will be next?
The ESG sale to Enersys was first announced in Jan. 2002. The renegotiated price reflects strict rules
being followed in the post-Enron business environment. Invensys is in a tough spot, and Flowserve may
also try to re-negotiate the price and terms, before the close.
In the meantime, many of the supposedly "core" business are simply the ones that are currently
"unsellable". So, while the good companies are being hawked, the Invensys "core" is still struggling to
improve its posture.
In the meantime, an old prediction I made (that Yurko-backed Project Unity would fizzle) has been
proved wrong. The news came in an Invensys Newsflash this week (26 Mar. 02): The agreement was
signed with IBM to manage Invensys operational IT services and staff. Ouch *#*! Bad move!
Enersys agreement to acquire Invensys Energy Storage Products
Financial Times - Invensys reassures analysts
Matthew Dentino [firstname.lastname@example.org] read the soft message from George Carlin, but
was disgusted with his Las Vegas act:
"My wife and I just returned from Las Vegas; George Carlin was at the MGM Grand doing his stand up
act. I was a fan as a kid and I dropped $260.00 for 4 of us to see the show. It was so filled with bile and
disgust that after just 20 minutes we all walked out. He spent time talking about how funny it was to kill
ones self! What rape would be like! And those were the only parts I can mention here, for the sake of
decency. What is even sadder than that is that the theater was filled with people that were laughing their
heads off at all this garbage! As far as I could tell, of the 600 to 700 people that were there, we were the
only ones that walked out.
Cynthia Willard [email@example.com] an independent consultant, was sad about the Honeywell
"I felt like Carlin had picked the most disgusting and horrific subject matter he could possibly come up
with just to see how long people would stay. I was amazed at what I was hearing - but more so that my
wife and I seemed to be the only one's disgusted by it.
"While I think the message from him that you published is great, I wonder how the man that wrote that
message could possibly do the stand up "comedy" that I saw last weekend. He's either laughing all the
way to the bank because he knows that depravity sells - or he's deeply disturbed. I wonder which."
"I know that my view is simplistic. I do not have an arms length of college degrees (which in today's job
market may be a blessing). But I was always under the impression that stockholders should be in the
market for the "long haul". Yes, it's nice when our investments post dividends, even nicer if my 401k
would discontinue it's decline in value. But when shareholders demand that companies "do whatever it
takes" to make the company profitable, I doubt that they are suggesting bloodletting of it's employees. I
think someone is going to have to tell stockholders to buck up and demand that their companies get
back to the business of doing business, and quit making excuses. Take down some of those "senior
executives" who are making money no matter what.
Earl Cunningham [firstname.lastname@example.org] wrote about Carver Mead's new digital camera chip:
"The last six months of reactionary layoffs is a reminder of the layoffs in the 80s. Aircraft manufacturers
hired companies to study profit centers, and laid off the shipping staff. Products could not be shipped
because those left didn't know what to do.
"I have a few friends who are still unemployed. They range from Technical Writers to Directors of
Marketing; individuals with anywhere from 15 to 40 years+ work experience. The ones that are able to
secure interviews are participating in interrogations. Companies are desperate to find out new ideas for
how they can increase their sales. 2nd and 3rd interviews, 2 and 3 hours long, result in no job offers, just
"What would you do" scenarios. Another individual gets to the interview, has to fill out lengthy
application forms that REQUIRE her to state her income for the last 3 years, with a statement that all
information will be investigated by an outside agency, and any "misinformation" will be grounds for
termination. When she does state her past income, they terminate the interview process because she
"costs too much". The statement "overqualified" is back in vogue with employers yet again."
"I don't expect you to have an answer Jim, but I do appreciate your presenting the other side!"
"The fact that Foveon is able to get three colors per pixel is a big plus, but no mention is made of the
resolution (megapixels) of the final color image. It takes pixels to get resolution and about the best
available in digital cameras is 16 Mp, with claims up to 30-inch enlargement capability. However,
35-mm slide film offers over 40 Mp resolution and even bigger enlargements! So, before you sell the
ranch to invest in Foveon, get a reading on actual Mp resolution."
The first Foveon chip is just the start of the demise of film. Read this article on Carver Mead and Foveon
in Newsweek (March 25, 2002).
Foveon - It's the technology
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