RH: How much does the company actually import?

On LinkedIn, a Restoration Hardware employee states that their department (ocean freight operations) has a consistent annual growth of 12%.  This is much lower than the company’s reported revenue growth (20%+).  I would note that RH has been increasingly sourcing more and more of its product from overseas:

  • The FY2013 10-K states: Based on total dollar volume of purchases for fiscal 2013, approximately 69% of our products were sourced in Asia, the majority of which originated from China, 26% from the United States and the remainder from other regions.
  • The FY2014 10-K states: Based on total dollar volume of purchases for fiscal 2014, approximately 84% of our products were sourced in Asia, the majority of which originated from China, 10% from the United States and the remainder from other regions.

Adjusting for the lower domestic sourcing would suggest that RH’s total overall buying may have grown at less than 12% annualized.

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RH sales returns

Restoration Hardware’s financial statements paint a picture of very high growth.  In the past, the financials were more or less internally consistent.  Numbers with a relationship to revenues (taxes paid, contingent rent, actual sales returns, employee count) largely tracked the growth in revenue growth.  What’s curious in the latest 10-K is that actual sales returns no longer track reported revenues due to an error identified for FY2013 and FY2012.

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CNIT resolves multiple personality disorder

From the press release filed on EDGAR [emphasis mine]:

SHENZHEN, China, March 24, 2015 /PRNewswire/ — China Information Technology, Inc. (the “Company” or “CNIT”) (Nasdaq GS: CNIT), a leading provider of integrated cloud-based platform, exchange, and big data solutions to the Chinese new media industry, today announced that the Company has completed its acquisition of Shenzhen Biznest Internet Software Co. Ltd. (“Biznest”), a leading cloud computing hardware and software company in China. As previously announced, the total consideration of the transaction is approximately $15 million, consisting of approximately $7.5 million to be paid in cash and 1,543,455 ordinary shares to be issued by the Company. The transaction consideration has been fully paid by March 18, 2015 and the modification registration of Biznest with the competent administration for industry and commerce has also been completed.

Now I think that CNIT has figured out its identity as a hot cloud technology company.  And now there is no reason for me to be confused about why Biznest’s domain name registration listed a chinacnit.com email address.  (See my previous post on CNIT’s multiple personality disorder.)

*Disclosure:  No position.  I swing trade in and out of stocks.  This may be a mistake on my part… who knows.
EDIT (3/27/2015):  As of 3/27/2015.  I am short CNIT.  I may cover my position without updating my blog.

Avid’s deferred revenue accounting

Avid sells its software through different pricing structures.  For some products, Avid offers support contracts.  Deferring revenue makes sense for those contracts.  However, Avid also sells software for one-time payments.  In my opinion, deferring some of the revenue from such sales creates a major accounting distortion.  Avid already has the customer’s money so it does not make much sense to defer the revenues and profits on such sales.

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Enterprise storage will become more commoditized (EMC, NTAP, VMEM)

History has a pattern of mass-market products eventually decimating low-volume high-end products.  The cost savings from economies of scale overpower the benefits of specialized solutions.  This has happened to word processing (e.g. Wang Labs), mainframes, high-end CPUs (SGI versus Intel), post production systems (ADSK, ADBE, AVID, etc.), film/video cameras, and many other industries.

Back in Dec 2012, I wrote a post on enterprise storage.  Now, I’m starting to be more confident that enterprise storage will indeed become increasingly commoditized.

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Data centers – Part 4 – The future of infrastructure?

I think that proprietary ecosystems like Amazon Web Services will continue to grow.  These ecosystems will be popular with small software developers because it saves a lot of time.  Larger developers will see less benefit from proprietary software because their problems tend to be more specialized and difficult.

The main benefit of pooled infrastructure for larger developers is higher server utilization.  Many of their workloads see fluctuating demand depending on the time of day, depending on the season, or depending on one-time events (e.g. ticketing companies will see a heavy server load when tickets for their most popular events first become available).  They should see their costs drop by taking advantage of the elasticity made possible by pooled infrastructure.

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