More rumblings at Dell, Inc.

dell_logo_lg.jpgFollowing on this previous post from about a month ago, Round Rock-based Dell, Inc. announced late last week that — as Jeff Matthews aptly notes — it had “puked the quarter.”
Dell’s announcement sent its shares sliding almost 10% for the day on Friday to the lowest close in about five years (Dell’s stock was down $2.19 to $19.91 a share, its lowest since October, 2001). This type of announcement is getting a tad monotonous for Dell, which missed forecasts for its fiscal first-quarter revenue and earnings earlier this year, and missed sales projections last year for its fiscal second and third quarters. Dell’s basic problem is that the computer market is shifting away from Dell’s core strength in providing computers to business toward consumer PC’s, which is a smaller part of Dell’s business. To make matters worse, Dell’s cost-structure is such that it doesn’t have any room left to undercut competitors on the cost of PC’s.
Meanwhile, Dell competitor Hewlett-Packard is taking advantage of the situation. HP has restructured its operations to focus on sales growth in consumer PC’s, where its wide footprint in retail stores across the US gives it an advantage over Dell’s focus on web-based and mail order sales. HP’s PC shipments in the U.S. jumped more than 15% in the second quarter.
Finally, Matthews is not convinced that the slide in Dell’s stock price is over, either:

[Dell] has used options extensively as a key component of its employee compensation. . . Dell spent more than $15 billion in the last four fiscal years buying back stockóyet fully diluted shares declined a mere 200 million shares over that time, thanks to the companyís willingness to dilute its shareholder base with large option grants. This is all perfectly legal, of course, but as options lose their place in the hearts and minds of investors, Dell may have to figure out a better way to keep costs down.

Thinking about foreign policy

foreign_affairs.jpgInasmuch as foreign affairs issues are simmering all over the place right now, I pass along the following items that I’ve come across recently:

In this Investorís Business Daily article, Claremont Institute President Brian Kennedy evaluates the US missle defense capabilities and explains why it is wholly indequate. Most interestingly, Kennedy describes an admittedly “fanciful” scenario under which North Korea would hit Seattle with a nuclear missle and an aftermath that is foreboding. The Claremont Institute is also maintaining this site that updates America’s vulnerability to ballistic missile attack as the proliferation of ballistic missile technology increases.
We haven’t checked in with Victor Davis Hanson in awhile, so this National Review op-ed provides a welcome contrary view to the gloom and doom of most media reports regarding the current Israeli-Hezbollah conflict.
For up-to-the-minute updates on the situation in the Middle East, the Truth Laid Bare provides this useful page of bloggers categorized by region and this NY Times article passes along several online diaries from the front of the Israeli-Hezbollah conflict.
Finally, Foreign Affairs magazine is providing this excellent online forum on the question of “What to Do in Iraq.” Take a few minutes to review the give-and-take from the various experts particpating in the forum.

Sending bad messages

prosecutorial misconduct4.JPGIt’s hard to imagine that the federal government could have sent worse signals to foreign investors in US markets and businesses than the ones that it sent over the past week.
First, there was the latest news about the NatWest Three, the three UK bankers who had the misfortune of making an investment in one of Enron’s special purpose entities controlled by former Enron CFO Andrew Fastow and his right-hand man in crime, Michael Kopper. Remarkably, the only reason that the NatWest Three were spared from the Enron Task Force demanding their incarceration in Houston’s downtown Federal Detention Center pending their trial was the intervention of UK Prime Minister Tony Blair, who assured an angered British Parliament a week ago that the bankers would be released on bail.
Nevertheless, even Blair’s intervention didn’t stop the Task Force from demanding that the bankers remain in the US pending their trial (despite the fact that the three offered to waive extradition for trial) and that the three friends live apart and not talk to each other about their case unless their counsel is present. Unbelievably, the federal magistrate who adjudicated the bankers’ bail motion accepted the Task Force’s ludicrous “live seperately” and “no-talk” demands, which means that three UK friends in a foreign land must live alone and cannot talk freely with each other while preparing their joint defense in an extraordinarily unfriendly venue. In the meantime, their only known accusers — admitted felons and liars Fastow and Kopper — have no such restriction in hobnobbing with each other and continue to live comfortably in their expensive Houston homes.

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Stros 2006 Review, Part Six

Berkman15.jpgAfter the Stros were blown out by the Mets on Friday night and fell to a season-worst 46-51 record, it’s looking clearer by the day that the magic of the Stros’ past two second-half playoff runs has worn off completely.
Now through 60% of the season (7-9 in the last 10% of the season; prior periodic reviews here), the Stros have not won more games than they have lost in any of the five 10% segments of the season after the first one. The club’s hitting overall remains almost precisely National League average (team RCAA is -2 — 10th among the 16 NL teams) and the pitching staff continues to toil at well below National League-average level (RSAA of -20 — 13th in the NL). As noted in previous posts, the Stros’ trend of average or below National League-average hitting over the past half-dozen seasons means that the Stros need extraordinary pitching to contend for a playoff spot, and the club received just that in the past two seasons. Unfortunately, this season, the Stros pitching staff is a bit below National League average and, thus, the Stros are currently just that — a slightly-below National League-average club.

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Good swing thoughts

Nike Golf.jpgAs I write this, Tiger Woods is leading by 3 strokes in the second round of the the Open Championship.
For one of the main reasons why Woods is the favorite to win the Open at the relatively defenseless Royal Liverpool Golf Club, check this out.
Sweet!

Do we really need this?

online gambling3.jpgThis NY Times article reports on the latest international reaction to the US Justice Department’s over-the-top crackdown on internet gambling:

The World Trade Organization set up a panel on Wednesday to investigate whether United States restrictions on Internet gambling comply with international trade rules.
The Caribbean country of Antigua and Barbuda asked the W.T.O. to set up the panel after consultations with the United States failed to yield a solution to a dispute over whether Washington should drop prohibitions on Americans placing bets in online casinos.
A previous W.T.O. ruling said that some United States laws were in line with international commerce rules, but others were not. ìThe United States has been busy passing legislation that is directly and unequivocally contrary to the ruling,î Antigua told a meeting of the W.T.O.ís dispute settlement body.
The nation contends that the United States has taken no measures to comply with the recommendations and rulings of the dispute settlement body, Antigua said.

Let me get this straight. A supposedly free-trade and business-friendly GOP administration is risking World Trade Organization sanctions over criminalization — as opposed to regulation — of internet gambling?

What’s that criminal charge again?

kpmg logo51.jpgOne big problem with the federal government’s criminal case against the defendants in the KPMG tax shelter case is that neither the defendants nor any of their clients engaged in any affirmative act of evasion, such as keeping false accounting books or literally hiding income so that the IRS could not find it. Rather, each taxpayer claimed losses on the taxpayer’s return in accordance with a literal application of the tax law and then, as often happens, the IRS challenged the claims. KPMG’s clients needed KPMG’s opinion regarding the validity of the tax shelters to protect themselves against civil penalties the IRS might try to impose as a result of a challenge to the tax returns, but they did not need the KPMG opinions to file the tax returns claiming the losses. Thus, the KPMG opinion had not bearing on the propriety of filing a tax return and is irrelevant to the crime of tax evasion.
To get around that problem, federal prosecutors came up with the second crime of so-called tax perjury, which involves a demonstrable lie asserted in a tax return or some other document that is submitted to the IRS under penalty of perjury. However, the tax perjury case against the accountants is flimsy at best. During the audit of the KPMG clients’ returns, the KPMG clients contended that they had a business purpose sufficient to meet the IRS standard for avoiding civil penalties and then produced KPMG opinion, which is not submitted under penalty of perjury. Thus, best case for the prosecution is that the taxpayers and KPMG may have been disingenous, but that hardly renders perjurious the submission of a tax return that was factually correct.
Now, it appears that at least some of those tax returns were not even misleading. According to this NY Times article, US District Judge T. John Ward of the Eastern District of Texas ruled earlier this week in a civil case that one of the KPMG tax shelters that is at the center of the KPMG tax shelter case is essentially legitimate.
What is the Justice Department’s justification for criminalizing such conduct? According to the article, “prosecutors in the KPMG case have indicated that they will argue that the shelter itself was technically valid, but that the way the defendants carried it out was not.”
As this Wall Street Journal ($) editorial opines today, there is a serious shortage of adult supervision in the US Department of Justice these days.

John Daly storms the Beatles hometown

daly at british open.jpgThe 135th edition of the British Open begins today, and the venerable tournament has returned to Liverpool — the gritty hometown of the Beatles — for the first time in 40 years. As you might expect, 1995 British Open champ John Daly is having quite a time (see also here) this week. The overweight, chain-smoking, beer-guzzling and problem-laden Daly turned philosophical while visiting the Cavern Club, the Liverpool pub in which the Beatles legend began:

ìMusic is my therapy,î Daly said. ìI think for all of us it is therapy, whatever style of music you are into. If I am driving my bus, I canít do it with no sound. The world canít exist without music.î

The Scotsman’s Alan Patullo has more here. Meanwhile, wouldn’t you like to be the caddy for a day for one of the members of this twosome?
By the way, in the morning rounds, 4-under par is leading the tournament and Houstonian Steve Elkington — who had an easier time getting into the British Open than the US Open — had an opening round 71 (one under part). K.J. Choi of The Woodlands had an opening round 72 and Jeff Maggert — who also lives in The Woodlands — has not yet teed off in the first round.

Say what?

texans_215.gifChronicle reporter Megan Manfull opens her article on the latest development in Texanville with the following paragraph:

Spencer, an offensive tackle out of Pittsburgh, will receive a $610,000 signing bonus on a four-year contract that voids to three years. He is slated to make $275,000 this season, $360,000 in 2007 and $440,000 in 2008. The deal is expected to be finalized today.

I have my limitations as a lawyer, so can someone explain to me what “a four-year contract that voids to three years” means? By the way, my understanding is that Spencer has not yet dispensed formally with his first name, which is Charles.
Manfull also reports that the Texans — who begin their pre-season camp next week — have signed all of their draft choices except University of Miami offensive tackle Eric Winston (3rd round, 66th player chosen in 2006 NFL draft). Winston’s agent is Drew Rosenhaus, which may explain why the once highly-touted Winston was still available for the Texans to pick up in the 3rd round of the draft.
Update: Ted Frank, who knows a bad regulation when he sees it, writes to explain the “four voiding to three” jibberish: “A four-year contract that voids to three years is a four-year contract where the fourth year can (and almost certainly will) be unilaterally voided by the player. The effect is to fool the salary cap by allowing the team to divvy the signing bonus over four years, rather than the three years that is the economic reality of the contract.”

The Abbeville Institute’s tribute to Dr. Ross M. Lence

Ross LenceThe late Dr. Ross M. Lence of the University of Houston was a founding member of board of directors of the Abbeville Institute in Atlanta, which is an association of scholars devoted to the critical study of philosophical nature of the Southern tradition in the United States. Upon his death last week, the Abbeville Institute issued the following endearing tribute to Dr. Lence, which — as is always the case in discussing the indomitable Good Doctor — provides several amusing anecdotes, including this classic:

Once at a seminar with other academics, Ross was challenged by an especially obnoxious participant who, rather than confront his arguments, hoped to end the argument by saying that Ross had not read Locke carefully. Ross calmly replied (he was always calm) with that wry smile of his that if the gentlemen would tell us the paragraph number of the Second Treatise that interested him, he would quote it from memory and then attend to what the gentleman thought he had failed to understand in it.

The entire Abbeville Institute tribute is below.

Dear Colleagues, Students, and Friends,

It is with sadness that I inform you that Professor Ross M. Lence died on July 11th, 2006. Ross was a founder of the Abbeville Institute and a member of its Board of Directors. Much of what we stand for was exemplified by his teaching and character.

Ross studied at the University of Chicago, Georgetown University, and the British Museum before completing his Ph.D. at Indiana University under Professor Charles Hyneman. He greatly admired Hyneman who became his mentor and friend. Ross often quoted him and had a portrait of him prominently displayed in his office at the University of Houston over a table set with bottles of whiskey and sherry for the refreshment of his visitors.

Ross tells the story of how, as a raw graduate student, he first met Hyneman. Ross appeared in his office, confronting the abrupt question, what do you want? Ross replied, to study American political science. Hyneman asked, have you seen it? Ross answered, seen what? America, Hyneman replied. If you want to see it, meet me tomorrow morning. They spent the next few summers traveling around America observing its life in small and large towns, villages, and out of the way farming communities.

This story expresses a truth Ross learned from Hyneman and which he embodied in his own work; that theorizing about political things must be rooted in a connoisseur’s understanding of practice. Unhappily this essentially Aristotelian wisdom is missing from much of American political science which has not freed itself from an ideological style of theorizing.

Ross also thought one had to have a detailed knowledge of classical political texts. He could quote Locke’s Second Treatise and The Federalist from memory. Once at a seminar with other academics, Ross was challenged by an especially obnoxious participant who, rather than confront his arguments, hoped to end the argument by saying that Ross had not read Locke carefully. Ross calmly replied (he was always calm) with that wry smile of his that if the gentlemen would tell us the paragraph number of the Second Treatise that interested him, he would quote it from memory and then attend to what the gentleman thought he had failed to understand in it.

His knowledge of political theory and of political things was broad and deep. But he wore his learning lightly. It never intruded pedantically in conversation. It was there as a cultural inheritance which he had worked hard to make his own and from which flowed his disarming Socratic questions; his refusal to accept facile answers even when they favored his own position; his insistence on clarity; and all of this carried on with a wit that was both piercing and lovable.

These qualities made him a great teacher. It is no exaggeration to say that he must be included in a handful of the greatest teachers in the America of our time. He joined the Department of Political Science at the University of Houston in 1971. Over the years he won many teaching awards within and outside the University.

In the late 1990’s hundreds of students established an endowment for a chair in his honor. In 2001 Ross was appointed to the Ross M. Lence Distinguished University Teaching Chair. For over twenty years he regularly taught at the Women’s Institute of Houston. Ross was one of the earliest, and a frequent participant in Liberty Fund Colloquia, a private foundation devoted to exploring the ideal of a society of free and responsible individuals.

He was devoted to “Liberty,” the ideal of an older federative America which today has largely been replaced with talk of “democracy,” and “freedom” both of which typically reduce to “equality.” By liberty he meant the right of individuals and communities of human scale to govern themselves. He lectured at the first Abbeville Institute summer school, 2003, which was recorded on video. So we are fortunate to have a film of his lectures.

Ross was a leading scholar on the philosophy of John C. Calhoun whom he saw as embodying much of what he loved in the ideal of liberty. He edited the Liberty Fund collection of Calhoun’s writings Union and Liberty in 1992. He never published much. Learning for him was inseparable from character, and was a way of life best communicated through face to face knowledge. He not only gave of his time freely to students, he in time acquired an informal reputation at Houston as one to whom students could turn for counsel.

His last year was an ordeal of serious illness and suffering, made more bearable by the great numbers of current and former students and friends who gave their love, respect, and gratitude, and assistance. Few people will leave the world more loved than Ross. And so the Abbeville Institute salutes for the last time our never to be forgotten friend, mentor, and colleague with the words he always used in parting:

Gaudeamus!