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Tech stocks - Thursday, August 7, 2008

Adaptec: The Little Company That Continues To Impress Us

AIG (AIG:NYSE) today delivered a bombshell instead of the profits analysts predicted. Are we at tech:stocker surprised? Hardly. We've bashed AIG and it's absence of leadership from CEO Robert Willumstad in previous posts. More recently on August 1 we stated our disbelief that Fidelity Investment's Magellan Fund increased its investment in the company to $865.1 million. While we questioned fund manager Harry Lange's confidence in a company that needs leadership along the lines of General Patton versus a CEO who resembles French Major-General Gustave-Marcellan Armingeat, we thought he might have seen something in AIG that we didn't. This obviously is not the case. So what can we take away from this debacle? Just because you manage $37.6 billion in assets or have the title "analyst" on your business card doesn't mean you aren't going to make big mistakes. It will be interesting to see how everyone recovers from this debacle especially now that Mr. Willumstad is going to deliver his plan for the company later than he originally hinted. Mr. Willumstad is either hoping an improved economy will do the job for him or is trying to figure out how to expand the company's profitable aircraft leasing division. Whoever is heading the aircraft leasing division should be next in line for the CEO gig. At least they might be able to guide AIG through the impending Securities and Exchange Commission and Department of Justice investigations.

With Cisco's (CSCO:NASDAQ) rock solid CEO John Chambers touting better than expected earnings for the quarter, tech stocks enjoyed the "halo" effect today as most were up by the end of the day including one of our favorites for several reasons, Adaptec (ADPT:NASDAQ).

Why do we like Adpatec? Any company in the storage sector of the tech industry is worth looking at. Storage requirements for corporations continue to grow so the demand will always be there for products of companies like Adaptec. From the people we talk to in the tech industry, their products are quality and are reasonably priced within the marketplace.

Second, the company is controlling their costs in these difficult economic times. Just because Mr. Chambers makes it look easy when beating analyst's expectations, it doesn't mean that other companies in the tech industry have it as good. Adaptec's net revenues actually dropped $4 million from their previous quarter and yet gross profit only dropped $2 million from the previous quarter. Fiscal responsibility always gets our attention in a positive way.

Finally, instead of rewarding its executives or hiring Van Halen to play at its annual company party, Adaptec is using its extra cash to buy back $40 million worth of its stock to increase the value to its shareholders. While the announcement was completely underwhelming (unless CEO S. "Sundi" Sundaresh truly is a man of few words), we completely respect the idea, especially when many companies might be tempted to spend the money on unwarranted marketing campaigns or on already bloated research and development departments.

So as we wonder whether or not investors will reward AIG and its failures in the near future as they have Merrill Lynch (MER:NYSE) and its snake charmer CEO John Thain, we take comfort in the fact that there are companies like Adaptec who are doing the right things and will eventually be rewarded for their efforts.