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August 3, 2005

Soft Software - Borland Misses

Borland reported earnings a little less than anticipated and also lowered guidance for the rest of 2005. Traders punished the stock today for about 4.5%. Having just opened my first long ever on the stock, I was a bit disappointed by the news, especially since the disappointment was precipitated by an unexpected decline in revenue from one of Borland's key products, JBuilder. Robert Coates, an ex-director of the company who remains a large shareholder, wrote a scathing response to Borland's earnings release. He placed the blame squarely on the shoulder's of Borland's COO, Scott Arnold, accusing Arnold of dropping the ball by not devising and executing a solid plan for operations. Coates plans to write his own plan and submit it to Borland's board of directors.

This announcement was a surprise to many, including a former insider. Clearly Borland still has work to do before it shines as a turnaround stock. Despite its recent missteps, I think it has great potential, and I look forward to learning about Coates' plan whenever it gets shared with the public. Nevertheless, as a disciplined trader, the most prudent action for me today was to close the Borland position, accept the small loss, and wait for clearer signs that the stock may finally start moving.

In other action, precious metals stocks sailed higher today with the likes of Newmont Mining and Pan American Silver both up over 5%. The underlying metals didn't enjoy such a ride today, closing with miniscule gains. It is impossible to say if the move in equities portends a coming move in metals. After all, if the traders of the stock were clever enough to know that the metals were about to move, they would be buying the metals just as aggressively.

One of the gratifying aspects of trading is sitting back on a day where the market is flat to slightly positive and watching a couple of your shorts tank. F5 Networks shed over 5% today while Research in Motion lost almost 2%, giving back most of what it gained during the frenzied rally yesterday. I think these stock are doomed. They have enjoyed market niches for quite some time but both will be facing stiff competition from much larger competitors in the near future. F5's niche will soon be infracted by Cisco, and RIMM will be beaten and bruised by the likes of Microsoft and others. All the competition translates into a combination of lower sales and lower marginsÂ… not good for stocks selling at stratospheric ratios.

The home builders are in a stealth decline. After their early July run-up, no one is paying much attention to the recent slip. I really believe the current decline has the potential to surprise everyone and turn into a landslide. As I stated yesterday, the landslide will be triggered only by a sharp increase in 10-year Treasury rates. Keep your eyes peeled, folks. It only gets more interesting.

Disclosure: Short FFIV, RIMM


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