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View Full Version : Profits at HARMAN Technology / Ilford are on the rise



benrains
31-Oct-2012, 07:03
Some good news in the traditional photographic materials industry for a change!


HARMAN technology Limited, manufacturer of the world famous ILFORD brand of black and white photographic products, has reported a significant growth in revenue and profits.

Sales increased to 23.6m from 22.6m in the year to 31 December 2011, with operating profits up to 2.2m from 1.9m the previous year. [...]

Full article here: http://www.harmantechnology.com/Blog/tabid/60/Default.aspx?tabid=60&EntryID=71

SAShruby
31-Oct-2012, 07:32
Good news indeed. We live another day. :cool:

Sal Santamaura
31-Oct-2012, 07:40
A perfect demonstration of why privately held corporations are vastly preferable to those that are publicly traded. "Wall Street" would have denigrated those results as "not enough growth" and punished HARMAN's stock price. Fortunately, it has no purview! :D

AuditorOne
31-Oct-2012, 09:25
A perfect demonstration of why privately held corporations are vastly preferable to those that are publicly traded. "Wall Street" would have denigrated those results as "not enough growth" and punished HARMAN's stock price. Fortunately, it has no purview! :D

In Ilford's case it is working out well and at this point in the product curve for film, private ownership may indeed be the best way to go. Film use is still shrinking and the market may no longer support large, publicly owned, film manufacturers. Of course, as you pointed out, investors would like to make money. Shame on them! To make money requires growth, the more the merrier. And we all know the film is not exactly a growth industry anymore. And even though Ilford is a privately owned company I will bet that they are thrilled with this growth in sales and profit.

But there are huge disadvantages to private ownership as well. For one, we would not have had any of the magnificent products that Kodak provided (film, developers, etc.) if they had been a privately owned company. To grow as large as Kodak, as well as Fuji, takes investment, lots of investment. You can only get that with public ownership. And don't forget, even in a shrinking market, Kodak is still making profit with their film.

The point is, there is nothing at all wrong with Wall Street. Capitalism around the world has provided 95% of the products that we use and depend on every day. But, since the film market continues to shrink, there may not be a lot of investment companies that want to continue to invest in film.

Darin Boville
31-Oct-2012, 10:09
They also make the very popular Gold Silk inkjet paper, among several others. They raised the price (by not offering larger quantity boxes) by 40% recently so I'm looking for alternatives (e.g. Canson), but I wouldn't be surprised if it is the top paper for serious photography.

--Darin

Pawlowski6132
31-Oct-2012, 10:33
I was a little surprised to see how small they are:

Approximately 38M $USD/year revenue, 220 employees, 3.5M $USD DOP.

Cute.

Sal Santamaura
31-Oct-2012, 11:05
...To make money requires growth, the more the merrier...More Wall Street BS. Making money does not require growth. Making more money requires growth. Being content with a stable level of corporate income is anathema to Wall Street, but can be just fine for a private entity.


...there are huge disadvantages to private ownership as well. For one, we would not have had any of the magnificent products that Kodak provided (film, developers, etc.) if they had been a privately owned company. To grow as large as Kodak, as well as Fuji, takes investment, lots of investment...HARMAN provides all the top-tier products I need. I hope it never grows as large as Kodak or Fuji. As you say, that would require going public, something I don't wish on anyone.


...Kodak is still making profit with their film...The inability to clearly tie Kodak's lines of business to its legacy liabilities makes me doubt that anyone can definitively say film is profitable for that company.


...there is nothing at all wrong with Wall Street...There are plenty of things wrong with Wall Street. Its "next quarter" mentality is foremost among them. Does your "user name" reveal some connection to Wall Street that makes you particularly sensitive to criticism of it?


...Capitalism around the world has provided 95% of the products that we use and depend on every day...Privately held companies are practicing capitalism just as much as publicly traded ones are; conflating "capitalism" with "public" is erroneous and misleading.

dave_whatever
31-Oct-2012, 11:19
They also make the very popular Gold Silk inkjet paper, among several others. They raised the price (by not offering larger quantity boxes) by 40% recently so I'm looking for alternatives (e.g. Canson), but I wouldn't be surprised if it is the top paper for serious photography.

--Darin

I thougt the inkjet papers are made by the "other" Ilford, the other (Swiss?) company who also have rights on the name, the same ones who produced the ilfochrome materials nteil recently, i.e. not Harman.

Darin Boville
31-Oct-2012, 11:22
I thougt the inkjet papers are made by the "other" Ilford, the other (Swiss?) company who also have rights on the name, the same ones who produced the ilfochrome materials nteil recently, i.e. not Harman.

You may be right--you probably are. Although the press release cites Harman as being the manufacturer of a line of high end inkjet papers. I don't really follow the industry.

--Darin

Drew Wiley
31-Oct-2012, 11:59
Sal is correct. I am personally a professional buyer, currently dealing mostly in contractor
machinery and equip from all over the world. Some privately-held companies are enormous
as well as international in both mfg and distribution, and in every case I can think of they're doing far better than their publicly-traded competition. The reason is, they have to make money. On Wall Street, your primary product is BS - real goods and long-term growth are down the priority ladder by several rungs.

EdWorkman
31-Oct-2012, 12:19
Hey Sal
Are you an entrepreneur?
If so , and this is your experience?
"Being content with a stable level of corporate income"
cool
But otherwise it doesn't make a lot of business sense.
EVERYTHING changes, and if one does not say, invest, to keep up, one doesn't survive, in most places.
Somebody will grow right into the place you "used to be"
There are alternatives to Wall Street, Cuba being one

Darin Boville
31-Oct-2012, 12:42
I'm confused. Are we debating the virtues of some form of "capitalism" or those of Wall Street, which I take to be a proxy for our banking and financial investment sector?

--Darin

Drew Wiley
31-Oct-2012, 12:47
Yeah, I'm real ignorant. That's why over a forty-year career I've had close to a 100% batting average predicting mfg corporations, and have built up my side of this particular
privately-held corp from zero to one of the most sucessful in the country. Part of my philosophy is, whenever possible, avoid publicly-traded companies - they seldom control their own destinies. And I've seen more than my fair share of established US corps tank
fast once they did go public. Growing a stable oak tree takes time and patience; growing
mushrooms is fast. And there are privately held companies out there way bigger than Kodak ever was, who are doing quite well at the moment. Not every company is run by
bobble-headed MBA's who are too young to shave yet.

Sal Santamaura
31-Oct-2012, 12:54
...Are you an entrepreneur?..No, I'm a retired engineer.


...is your experience?..."Being content with a stable level of corporate income"...cool...As one of the labor "units" that corporate entities hired, my career provided, in inflation-adjusted terms, a relatively stable level of personal income. I was content with it. My needs have always been met and all but my wildest desires could be indulged from time to time too. I'm not greedy.


...But otherwise it doesn't make a lot of business sense...Let's look at an entrepreneurial example relevant to this forum. My most satisfying large format purchases were the four cameras bought from Dick Phillips. Dick restricted the growth of his business (and income) by establishing annual production limits. There were waiting lists. Those who got the cameras paid a fair price and received top quality products. Dick earned a decent living and, apparently, great satisfaction from his work. I think that model makes more business sense than anything Wall Street ever heard of, much less practices.


...EVERYTHING changes, and if one does not say, invest, to keep up, one doesn't survive, in most places. Somebody will grow right into the place you "used to be"...Who says HARMAN doesn't invest? Just ensuring its current product line can continue to be produced takes R&D, which HARMAN does perform.


...There are alternatives to Wall Street, Cuba being oneNon sequitur. Private corporations (and sole proprietorships) are capitalistic enterprises. They have nothing to do with socialism/communism. They simply lack Wall Street's obsession with "more" as a mandatory factor.

bob carnie
31-Oct-2012, 13:00
one of the most decent lines of type on this forum in years


Let's look at an entrepreneurial example relevant to this forum. My most satisfying large format purchases were the four cameras bought from Dick Phillips. Dick restricted the growth of his business (and income) by establishing annual production limits. There were waiting lists. Those who got the cameras paid a fair price and received top quality products. Dick earned a decent living and, apparently, great satisfaction from his work. I think that model makes more business sense than anything Wall Street ever heard of, much less practices.

Pawlowski6132
31-Oct-2012, 13:16
I guess I can't chime in with MY opinion. I'm getting consistently censored for my views in support of Wall Street.

Kirk Gittings
31-Oct-2012, 13:18
No you are being "censored" for your rude language.

Drew Wiley
31-Oct-2012, 13:20
Well, Dick certainly didn't do all that well with my purchase! He probably was lucky to break
even, and was almost apologetic that the camera didn't look as nice as the name brand
ones and didn't have all the fancy features. He called it an entry-level 8x10 and didn't know if he could sell more. But being as cheap as it was, I didn't think I could lose, so
took the bait. And it's still my favorite camera! The big retailers mocked his unorthodox idea. And at some point I think Dick started scratching his head, having a little chuckle to himself, and suddenly realized he was onto something. Seems to have initially been a case
of Dick wanting a personal camera, having fun, and deciding to make a few extras just
for the heck of it. I was sure lucky. If an marketing mgr in a Wall St company had come up
with the idea, the camera wood be made out of paper mache.

Steve Smith
31-Oct-2012, 13:22
More Wall Street BS. Making money does not require growth.

It's simpler than that. Making money requires making a product which people want to buy.


Steve.

Pawlowski6132
31-Oct-2012, 13:24
No you are being "censored" for your rude language.

I've never had any of my threads deleted for "rude" language before. That's not my style. And I didn't think referring to certain statements as being ignorant (in the literal sense of the word) was rude. Otherwise, I would've refrained.

But, I will comply.

Kirk Gittings
31-Oct-2012, 13:27
Cool.

EdWorkman
31-Oct-2012, 14:17
Sal
I'm also a retired engineer, I was my own boss for maybe half that, best job was a non-public corp that went belly up.
The other half i was a proprietor, and couldn't just sit and wait for the check to land in my lap.
I live on investments in publicly traded companies, which are in fact the basis for many pension funds, including those of gummint workers [ as in California PERS]. Yeah, mostly I saved the money to invest in wall street instruments.
"Wall Street" traders got stupid and got bailed out and got their bonuses, [and I hate them] but my investments are just fine.
No non sequiter at all, the system works, except when gummint gets crazy and interferes. Let the traders fail, let the rest of us own equities.
For example Kodak wasn't killed by "wall street" or so-called "bean counters"---see what Steve Smith said.

Drew Wiley
31-Oct-2012, 15:23
It's just that there's an enormous amt of pressure on the bean counters to come up with
something quarter after quarter. We're not a patient population. I too did OK on my pension funds, but I know a lot of people who lost almost everything. I think of Wall St as
more slash and burn agriculture - get a great crop real fast, but potentially ruin the soil
forever after. It doesn't have to be that way. Berkshire-Hathaway (Buffet) employs a strategy of buying solid mfg concerns and retaining not only the facilities but the experience of the personnel, basically keep the infrastructure intact so that you own a real asset - but it is a very tightly managed ship and outside the realm of the general public to invest in. Way too many buyouts lately have been unrealistically leveraged; and
then to make an appearance of profit, the tangible assets are thrown away, the product
line outsourced, and the end result is that they own nothing but a label and its marketing
rights - an extremely vunerable position for anyone involved.

Andrew O'Neill
31-Oct-2012, 15:32
I don't care how Ilford goes about their business, as long as they are in the black. Good news for once!

benrains
31-Oct-2012, 15:44
Let me just reiterate because this thread seems to have run off the road and into the weeds ... Yay! Ilford films and photographic papers are, hopefully, gonna be around for a while! I think HARMAN has been smart about their business and while still making an effort to service their customers. One great example is their willingness to accomodate the ULF folks with their annual special-size film orders. I think that's a wonderful way for them to accomodate the needs of a rather small segment of customers-- who probably don't number beyond some dozen people worldwide (maybe into the low hundreds in a good year). What other film company out there would make an effort to support such a small number of customers?

Drew Wiley
31-Oct-2012, 15:58
Well for one thing they actually communicate with their customer base to read the tea leaves. They follow what we are thinking. That's rare enough nowadays. And the quality is
very good and dependable. Score another point. They know who they are, and understand
who they're not. Another good sign. They have certain home-run products that dominate
discussion at the moment, like MGWT. So they deserve my business and will continue to
get it.

Kodachrome25
31-Oct-2012, 16:32
Well for one thing they actually communicate with their customer base to read the tea leaves. They follow what we are thinking. That's rare enough nowadays. And the quality is
very good and dependable. Score another point. They know who they are, and understand
who they're not. Another good sign. They have certain home-run products that dominate
discussion at the moment, like MGWT. So they deserve my business and will continue to
get it.

+1, even in film's heyday was it not *this* good, hubris was rampant at the big yellow for example in the 80's & 90's. Ilford / Harman realizes that film users want long term solutions with product lines we can trust will stick around and for pete's sake, top quality control. Short of pairing up with an enlarger company, they are the only cradle to grave solution for a serious analog shooter.....and they know this and are doing everything right.

Sal Santamaura
31-Oct-2012, 19:03
one of the most decent lines of type on this forum in yearsThank you Bob. I should add that Dick Phillips is one of the most decent people I've run across in 59 years on this planet.


...i was a proprietor, and couldn't just sit and wait for the check to land in my lap...Most employees don't do that either. Implying otherwise does them a great disservice.


...I live on investments in publicly traded companies, which are in fact the basis for many pension funds, including those of gummint workers [ as in California PERS]...Pension funds and how they invest has no bearing on HARMAN's report or how "Wall Street" would view those results. Dragging public employee pension funds into the discussion is even more irrelevant.


Yeah, mostly I saved the money to invest in wall street instruments...Let the traders fail, let the rest of us own equities...I've always felt that anyone should be able to go to Vegas or buy stocks. I'm just glad a great film and paper supplier like Ilford isn't dependent on either gambling industry for its financing. :)


...Kodak wasn't killed by "wall street" or so-called "bean counters"...Nor did I say or suggest it was. I simply pointed out that "Wall Street" would likely be unhappy with HARMAN's results were it a publicly traded entity. "Investors" would probably push it to make changes that wouldn't be good for Ilford or us, perhaps including ending the reportedly break-even annual special sizes runs. A privately owned (by silver imaging enthusiasts) HARMAN is far better. I'm convinced that profit-driven but non-greedy privately-held corporations serve everyone best.

Oren Grad
31-Oct-2012, 19:08
You may be right--you probably are. Although the press release cites Harman as being the manufacturer of a line of high end inkjet papers. I don't really follow the industry.

--Darin

Inkjet papers labeled "Ilford" are made by the Swiss company. Harman makes some inkjet papers too, but they're sold under the name "Harman". Under the reorganization, the Swiss company came away with overall rights to the "Ilford" name; Harman has the right to use it only for monochrome silver halide materials and directly related products.

Pawlowski6132
31-Oct-2012, 19:43
Ok Sal, let's take this one pont at a time. Please, enlighten us IN DETAIL, since you brought it up: Why would "Wall Street" likely be unhappy with Harman's results. Oh, and also, let us know WHO Wall Street is. Please share. Oh, and if you can, try to use facts. Not just your opinions. It tends to make your arguments much more convincing.

Sal Santamaura
31-Oct-2012, 20:06
...Why would "Wall Street" likely be unhappy with Harman's results...Not sufficient growth. Need more and more all the time. Too much emphasis on maintaining a long-term, sustainable business. Not enough short-term razzle dazzle to talk up into a "play," thereby taking quick profits and maintaining the "churn."


...Oh, and also, let us know WHO Wall Street is...Investors, especially institutional investors, the "analysts" who play the game with them and brokerages that live off the "churn."


...try to use facts. Not just your opinions...Which specific facts do you seek? Remember, I'm "ignorant." Enlighten me. :)


...It tends to make your arguments much more convincing.In this thread and others, I've stated my opinions. Just like everyone else who posts. Anyone who disagrees can and usually does post their own opinion(s). As long as they do so in a polite and respectful manner, I'm happy to have my opinions changed. Being wrong sometimes is a good thing; it means I learn something.

Pawlowski6132
31-Oct-2012, 20:14
Not sufficient growth? What was Harman's growth in quantitative terms? And, what does Wall Street require?? Good example would be, Harman had 3% year-over-year growth in revenue (not even talking about profit, you know the difference between profit and operating income right?) and Wall Street requires X%, therefore, Wall Street would not be happy with their growth. Can you present your argument in those REAL terms???? Or, are you just spouting off??

Pawlowski6132
31-Oct-2012, 20:19
Wall Street is investors? Especially institutional investors?? But, didn't you tell EdWorman NOT to drag institutional investors, like public pensions into this???? And what about all the individual investors? Do you know what an analyst is? Do you know who analysts work for? Do you know what an analyst does? And, how does a broker, who lives off the "churn" by which I assume you mean buying and selling, profit from being unhappy with insufficient growth?????

Sal Santamaura
31-Oct-2012, 20:34
I'll leave it for other readers to review this thread, determine whether the questions you ask have already been answered by previous posts (including the OP) and decide who is spouting off, in a most agitated manner by the way. What part of the financial "industry" do you have a stake in, Pawlowski6132? :)

Sure am glad HARMAN is doing well and isn't shackled to "Wall Street."

rdenney
1-Nov-2012, 06:40
Not sufficient growth? What was Harman's growth in quantitative terms? And, what does Wall Street require?? Good example would be, Harman had 3% year-over-year growth in revenue (not even talking about profit, you know the difference between profit and operating income right?) and Wall Street requires X%, therefore, Wall Street would not be happy with their growth. Can you present your argument in those REAL terms???? Or, are you just spouting off??

In my experience as a former executive of a publicly traded corporation, small-cap companies (those with a capitalized value in the tens of millions rather than hundreds of millions) are expected to achieve annual top-line growth in the range of 35%, while maintaining consistent profitability, to attract significant investment interest from the major investor classes.

There are other disadvantages to being publicly traded, too. One is having to comply with all the terms of the Sarbanes-Oxley Act, which make it very difficult for companies to take on projects that are likely to lose money without having board approval. When I was with such a company, that precluded me from doing any high-visibility-but-low-margin research projects, and I could never interest our top management, and through their persuasion, our board in a strategy that identified and pursued such projects. The board was filled with directors selected for their industry connections (ostensibly) and for their buddy relationships with others in the managerial classes (in practice). These interlocking directors are mutually protective and extremely conservative--not at all entrepeneurial. But those "losing" projects often make vigorous cash-cow growth possible in the future. Their bent was to achieve growth through acquisition, which is really the only way a company can improve the top line by 35% a year in a saturated market area. Not all market areas are undersupplied sufficiently to allow organic growth at that rate, but the investors we were trying to court seemed to think so. Thus, it is very hard for publicly traded companies in niche markets to attract investment, and thus they gain little from access to the public market (and lose much).

Then, there are other rules associated with publicly traded corporations, including restrictions on how insider owners benefit from the product. They can't receive any benefit not available to the stock holders who bought on the public market, and avoiding such usually puts them at a significant disadvantage. I could not trade my stock even on the basis of public news without providing a documentation trail to demonstrate that I was reacting to public knowledge. That was so demanding that most insiders trade according to a fixed schedule established beforehand as the only protection from accusations of insider trading. That significantly limits the desirability of internal ownership for publicly traded small-cap corporations, where the insiders are often not independently wealthy.

And Sal is right that the quarterly P&L statement was the life-or-death document in determining whether investors would come or go. Thus, the incentive was to make those quarterly reports look good at the expense of long-term growth and profitability. It's unsustainable for companies in stable (rather than exploding) markets.

The point of being publicly traded is to attract funds from outside the company's internal owners so as to fund a business plan that requires more capitalization than the current owners can supply. That's why it's called capitalism, by the way--it's a mechanism by which new ideas can be funded in return for a share in the ownership of the product.

Personally, I think we'd be a lot better off if people would quit expecting their mutual funds to be like a lottery with big winnings. There was a time when investors expected income rather than capital gain from their investments, and companies were rewarded for sharing profits in the form of dividends. Now, companies turn all their profits into acquisitions and aggressive development to try to make the stock value grow instead of paying dividends. But stock value seemed to grow for those companies that paid good dividends, too, so I'm not sure the strategy works in the real world, particularly in the long term. It certainly does not work in a saturated market area where one company's growth requires another company's downfall, and where maintaining profitability while aggressively acquiring those weak enough to be available for acquisition cause cost reduction that seemed to me like drinking one's own blood to slake their thirst.

So, the question I have for Wall-Street investors is: Even though there is no overall growth potential in a given market area, it is a stable and profitable market. Should it continue to exist? Many would say no, or imply no by their unwillingness to receive stable income from the investment rather than big short-term gains.

Tax policy that treats dividend income as regular income while taxing capital gains at a lower rate is partly to blame for this trend. But there are those who would insist that those profits are more productively reinvested. But that is only true in growth markets where innvotion can provide a significant edge. There are many stable markets (design engineering for public works projects is an example where I have some expertise) where the primary cost is in staff and the the product being sold is their time, neither of which are amenable to the significant growth by reinvestment, except by acquisition.

Harman's top-line growth was 4.4%, and their bottom-line profitability improved by about 10% to 9.3%. That would be okay for investors (including stable internal owners) wanting dividends--that's what some of that 9.3% would fund. But it would be completely unacceptable to investors wanting significant capital growth, where the 4.4% would barely keep up with inflation.

As an aside, someone asked about entrepeneurs. Capitalism is not necessarily just entrepeneurial. It works best when it is market-driven, and it promotes entrepeneurs by rewarding them directly, but being market-driven or entrepeneurial is not part of its definition. It is a mechanism by which goods and services are produced using investment from private owners (even if they bought the investment on the public market), and by which those owners share in the profits of that production. Socialism is a mechanism by which goods and services are produced by companies owned by the state, and profits returned to the state, which then provides for individuals. Entrepeneurs are possible in each system and in all the continuum in between those extremes. Market forces are also possible in both systems, though state-owned enterprises usually don't have a market-sensitive incentive structure. (In practice, the incentive structure is more related to production--i.e., keeping people busy.) I've heard it said, for example, that nobody is more capitalistic than the Chinese, which I think reflects a misunderstanding of the Chinese system and mentality. I would agree that nobody is more entrepeneurial than the Chinese, or perhaps even more market-driven. But private capitalization is not built into their system at all.

Rick "since you asked" Denney

Pete Watkins
1-Nov-2012, 14:35
Just remember this is "Rip off Britain" , have you seen their prices? The average idiot could make a profit at those prices.
Long live Foma!!
Pete.

Jody_S
1-Nov-2012, 15:22
In my experience as a former executive of a publicly traded corporation, small-cap companies (those with a capitalized value in the tens of millions rather than hundreds of millions) are expected to achieve annual top-line growth in the range of 35%, while maintaining consistent profitability, to attract significant investment interest from the major investor classes.

There are other disadvantages to being publicly traded, too. One is having to comply with all the terms of the Sarbanes-Oxley Act, which make it very difficult for companies to take on projects that are likely to lose money without having board approval. When I was with such a company, that precluded me from doing any high-visibility-but-low-margin research projects, and I could never interest our top management, and through their persuasion, our board in a strategy that identified and pursued such projects. The board was filled with directors selected for their industry connections (ostensibly) and for their buddy relationships with others in the managerial classes (in practice). These interlocking directors are mutually protective and extremely conservative--not at all entrepeneurial. But those "losing" projects often make vigorous cash-cow growth possible in the future. Their bent was to achieve growth through acquisition, which is really the only way a company can improve the top line by 35% a year in a saturated market area. Not all market areas are undersupplied sufficiently to allow organic growth at that rate, but the investors we were trying to court seemed to think so. Thus, it is very hard for publicly traded companies in niche markets to attract investment, and thus they gain little from access to the public market (and lose much).

Then, there are other rules associated with publicly traded corporations, including restrictions on how insider owners benefit from the product. They can't receive any benefit not available to the stock holders who bought on the public market, and avoiding such usually puts them at a significant disadvantage. I could not trade my stock even on the basis of public news without providing a documentation trail to demonstrate that I was reacting to public knowledge. That was so demanding that most insiders trade according to a fixed schedule established beforehand as the only protection from accusations of insider trading. That significantly limits the desirability of internal ownership for publicly traded small-cap corporations, where the insiders are often not independently wealthy.

And Sal is right that the quarterly P&L statement was the life-or-death document in determining whether investors would come or go. Thus, the incentive was to make those quarterly reports look good at the expense of long-term growth and profitability. It's unsustainable for companies in stable (rather than exploding) markets.

The point of being publicly traded is to attract funds from outside the company's internal owners so as to fund a business plan that requires more capitalization than the current owners can supply. That's why it's called capitalism, by the way--it's a mechanism by which new ideas can be funded in return for a share in the ownership of the product.

Personally, I think we'd be a lot better off if people would quit expecting their mutual funds to be like a lottery with big winnings. There was a time when investors expected income rather than capital gain from their investments, and companies were rewarded for sharing profits in the form of dividends. Now, companies turn all their profits into acquisitions and aggressive development to try to make the stock value grow instead of paying dividends. But stock value seemed to grow for those companies that paid good dividends, too, so I'm not sure the strategy works in the real world, particularly in the long term. It certainly does not work in a saturated market area where one company's growth requires another company's downfall, and where maintaining profitability while aggressively acquiring those weak enough to be available for acquisition cause cost reduction that seemed to me like drinking one's own blood to slake their thirst.

So, the question I have for Wall-Street investors is: Even though there is no overall growth potential in a given market area, it is a stable and profitable market. Should it continue to exist? Many would say no, or imply no by their unwillingness to receive stable income from the investment rather than big short-term gains.

Tax policy that treats dividend income as regular income while taxing capital gains at a lower rate is partly to blame for this trend. But there are those who would insist that those profits are more productively reinvested. But that is only true in growth markets where innvotion can provide a significant edge. There are many stable markets (design engineering for public works projects is an example where I have some expertise) where the primary cost is in staff and the the product being sold is their time, neither of which are amenable to the significant growth by reinvestment, except by acquisition.

Harman's top-line growth was 4.4%, and their bottom-line profitability improved by about 10% to 9.3%. That would be okay for investors (including stable internal owners) wanting dividends--that's what some of that 9.3% would fund. But it would be completely unacceptable to investors wanting significant capital growth, where the 4.4% would barely keep up with inflation.

As an aside, someone asked about entrepeneurs. Capitalism is not necessarily just entrepeneurial. It works best when it is market-driven, and it promotes entrepeneurs by rewarding them directly, but being market-driven or entrepeneurial is not part of its definition. It is a mechanism by which goods and services are produced using investment from private owners (even if they bought the investment on the public market), and by which those owners share in the profits of that production. Socialism is a mechanism by which goods and services are produced by companies owned by the state, and profits returned to the state, which then provides for individuals. Entrepeneurs are possible in each system and in all the continuum in between those extremes. Market forces are also possible in both systems, though state-owned enterprises usually don't have a market-sensitive incentive structure. (In practice, the incentive structure is more related to production--i.e., keeping people busy.) I've heard it said, for example, that nobody is more capitalistic than the Chinese, which I think reflects a misunderstanding of the Chinese system and mentality. I would agree that nobody is more entrepeneurial than the Chinese, or perhaps even more market-driven. But private capitalization is not built into their system at all.

Rick "since you asked" Denney


As an honest-to-(non-existent)-god socialist I feel compelled to respond. What the fuck is wrong with an honest, dependable 3-5% annual return on investment!? I should be so lucky with my mandated pension fund. Seriously, the Wall St. casino will be the end of us all. 1000 years from now, as cavemen huddle in their caves and as the tribe historian describes the fall of what we call 'modern' civilization, hundreds of school-child age cavemen kids will lift their hands to the sky and ejaculate: "Wall Street!"... in answer to any canned question. "Wall Street" being the epithet that concisely describes the downfall of civilization.

Edited to remove references to politics ;)

Sal Santamaura
1-Nov-2012, 17:59
Just remember this is "Rip off Britain"...Pete, your Ilford bashing seemed to have subsided for a while, but has now resurfaced. Why is it you can't see what you have and probably won't unless it's gone?


...Long live Foma!!...Good luck with that for more than the short- to medium-term future. And enjoy the "quality."

marfa boomboom tx
2-Nov-2012, 06:41
[QUOTE=[/QUOTE]

in case someone missed it, congrats to the folks at Ilford. Plant the seed, we gave you, well.


boomboom

rdenney
2-Nov-2012, 08:26
As an honest-to-(non-existent)-god socialist I feel compelled to respond. What the fuck is wrong with an honest, dependable 3-5% annual return on investment!?

(The socialist societies, at least those at the extreme end of that spectrum, have never done that well in the long run. Most have ended up bankrupt. But that's another story...)

If milk and bread prices are rising at 3-5% or greater, then your money is worth less than when you started.

It's quite reasonable to expect a 3-5% return above inflation. That is why I invest in broad-market mutual funds, using asset allocation strategies and only reviewing those allocations once or twice a year. That's a good long-term strategy for getting 3-5% in real dollars. My investments have certainly done that well over the (many) years.

But look at it from the perspective of those who trade in ownership shares (aka, stock brokers). They get a percentage of the transaction, so the growth has to be greater than their commission percentage, which compounds over a number of turnovers. (That's one reason I invest in broad-market index funds--there is very low turnover of the stocks owned by the fund.) If something is offered at a price, there will be those who earn their money putting buyers and sellers together, which is not exactly an easy thing to do. Those who desire to buy and sell a lot need those services, and must be prepared to pay for them at some level. Those who buy high-growth mutual funds in their retirements don't understand the basic common relationship between risk and reward. I have not noticed this ignorance is in any way related to their political leanings.

A far worse problem than people expecting their long-term retirement funds to earn 20% a year is when they bought their house, not to live in, but as an investment vehicle. Many people I know laughed at me because I refused to play that game (having already witnessed first-hand a housing bust in Texas back in the late 80's, and in the DC suburbs in the middle 90's). Some were lucky and got out in time, and a few did quite well. But I would expect those who trade in such things for a living to spend eight hours a day being expert at it, the same way they eight hours a day being expert at whatever it is they do for a living. The problem is the amateur syndrome. Amateurs can avoid that mistake through simple long-term strategies like index funds and asset allocation strategies, and not putting that stock-market app on their iPhone. As for me, I bought my house to live in. It's value now is below what we paid for it 10 years ago, but it's still a nice place to live even when another dozen trees on the ground after Sandy. We plan to live here for many more years. The investment has paid off richly in quality of life, even if it hasn't in dollars.

By the way, there was nothing in my homily that suggested a modest but dependable return on investment was either wrong (a moral assessment) or inappropriate (a financial risk/reward assessment). I was just explaining that those who invest in riskier small-cap publicly traded corporations expect real growth in return for accepting that risk. One venture capitalist (meaning he capitalizes new ventures--let's know what terms mean) told me he expects only one home run for every ten companies in which he invests. Thus, he expects the winners to win big. But most publicly traded small-caps are beyond venture capital, and are pursuing other higher-risk investment sources, such as hedge funds. The big institutional investors generally don't waste their time on thinly traded small caps, because they need to buy in bigger pieces. That's another reason why small companies should stay private. Staying private does not, of course, mean they cannot attract investors such as venture capitalists. It just means their stock is not traded on the open market.

Back to topic: Harman is doing fine if their owners are happy with modest growth and profitability. If I owned them, I'd be happy as punch. But I would not be dreaming of an IPO.

Rick "this is not political" Denney

rdenney
2-Nov-2012, 08:34
Just remember this is "Rip off Britain" , have you seen their prices? The average idiot could make a profit at those prices.
Long live Foma!!
Pete.

If Harman/Ilford's prices were really too high, you would not see growth in top-line sales. Just ask Kodak.

Remember, part of what goes into those prices is what they have to pay those British workers, as opposed to what those fellows in Eastern Europe are paying their workers.

Thus, you should level your complaint at your fellow photographers, who pay Ilford's prices in increasing numbers (as reflected in top-line sales), and to British workers, who demand more pay for their hours. At 9.3% margin, Ilford's owners are neither being greedy nor are they getting rich, compared to other ways in which they might invest their money.

Rick "noting that Ilford does not owe you prices that you deem acceptable" Denney

Jody_S
2-Nov-2012, 09:08
(The socialist societies, at least those at the extreme end of that spectrum, have never done that well in the long run. Most have ended up bankrupt. But that's another story...)

If milk and bread prices are rising at 3-5% or greater, then your money is worth less than when you started.

It's quite reasonable to expect a 3-5% return above inflation. That is why I invest in broad-market mutual funds, using asset allocation strategies and only reviewing those allocations once or twice a year. That's a good long-term strategy for getting 3-5% in real dollars. My investments have certainly done that well over the (many) years.

But look at it from the perspective of those who trade in ownership shares (aka, stock brokers). They get a percentage of the transaction, so the growth has to be greater than their commission percentage, which compounds over a number of turnovers. (That's one reason I invest in broad-market index funds--there is very low turnover of the stocks owned by the fund.) If something is offered at a price, there will be those who earn their money putting buyers and sellers together, which is not exactly an easy thing to do. Those who desire to buy and sell a lot need those services, and must be prepared to pay for them at some level. Those who buy high-growth mutual funds in their retirements don't understand the basic common relationship between risk and reward. I have not noticed this ignorance is in any way related to their political leanings.

A far worse problem than people expecting their long-term retirement funds to earn 20% a year is when they bought their house, not to live in, but as an investment vehicle. Many people I know laughed at me because I refused to play that game (having already witnessed first-hand a housing bust in Texas back in the late 80's, and in the DC suburbs in the middle 90's). Some were lucky and got out in time, and a few did quite well. But I would expect those who trade in such things for a living to spend eight hours a day being expert at it, the same way they eight hours a day being expert at whatever it is they do for a living. The problem is the amateur syndrome. Amateurs can avoid that mistake through simple long-term strategies like index funds and asset allocation strategies, and not putting that stock-market app on their iPhone. As for me, I bought my house to live in. It's value now is below what we paid for it 10 years ago, but it's still a nice place to live even when another dozen trees on the ground after Sandy. We plan to live here for many more years. The investment has paid off richly in quality of life, even if it hasn't in dollars.

By the way, there was nothing in my homily that suggested a modest but dependable return on investment was either wrong (a moral assessment) or inappropriate (a financial risk/reward assessment). I was just explaining that those who invest in riskier small-cap publicly traded corporations expect real growth in return for accepting that risk. One venture capitalist (meaning he capitalizes new ventures--let's know what terms mean) told me he expects only one home run for every ten companies in which he invests. Thus, he expects the winners to win big. But most publicly traded small-caps are beyond venture capital, and are pursuing other higher-risk investment sources, such as hedge funds. The big institutional investors generally don't waste their time on thinly traded small caps, because they need to buy in bigger pieces. That's another reason why small companies should stay private. Staying private does not, of course, mean they cannot attract investors such as venture capitalists. It just means their stock is not traded on the open market.

Back to topic: Harman is doing fine if their owners are happy with modest growth and profitability. If I owned them, I'd be happy as punch. But I would not be dreaming of an IPO.

Rick "this is not political" Denney

I'm sorry I went off on a bit of a rant yesterday, of course it wasn't directed at you, it was sort of a frustrated comment on the state of US banking and management culture. There's a reason manufacturing is being done in China, and it's not just the wages they pay their workers. If you walked into a bank in the US with a credible plan to manufacture widgets with a 3% annual return after, say, a 5 year start-up, you'd be laughed out the door. In China, the state-run bank will finance you, and if they don't like the risk there's black-market sources who will for slightly more.

Leigh
2-Nov-2012, 09:23
"Wall Street" being the epithet that concisely describes the downfall of civilization.
Absolutely true. Public ownership of corporations is the worst plague to befall mankind in the last 20,000 years.

It provides a home for "Hoodie Robb", the practice of stealing from the poor and giving to the rich.

- Leigh

Drew Wiley
2-Nov-2012, 09:39
In China you can also put up a plant very very quickly with very little concern for things
like zoning, pollution, or worker safety. But none of this, including sweatshop wages,
necessarily makes a product cheaper to make in China. Depends on the specific commodity, of course; but you still have to ship it halfway across the world in our case.
And long supply chains equate to frequent losses of sales. And the even bigger factor is
the myth that an item is simply being outsourced when it is actually a quality bait and switch - so the consumer gets less for his money, and the mfg often ends up with a lower
profit simply because the retail outlets who demand low bidder merchandise also demand
unsustainably low fixed costs from the so-called manufacturers. I sure wouldn't want my
film coming from there. The Chinese are smart people and can hypothetically produce good
products - but sadly, that's not generally why companies move manufacturing there. It's
to make a quick buck on junk, often at the cost of the company's long-term reputation.
It can be corporate suicide.

rdenney
2-Nov-2012, 11:31
I'm sorry I went off on a bit of a rant yesterday, of course it wasn't directed at you, it was sort of a frustrated comment on the state of US banking and management culture. There's a reason manufacturing is being done in China, and it's not just the wages they pay their workers. If you walked into a bank in the US with a credible plan to manufacture widgets with a 3% annual return after, say, a 5 year start-up, you'd be laughed out the door. In China, the state-run bank will finance you, and if they don't like the risk there's black-market sources who will for slightly more.

I can see why they would not be interested in a 3% return. Why would anyone invest in a company for a 3% return? One can do that well (with large sums of money) in regular investments with very low risk--much lower risk than any startup.

The Chinese have a saying: Lend a little, and have a debtor; Lend a lot, and have a partner. But do not expect them to loan money when the risk/reward ratio is inadequate. Governments (particularly on the socialist end of the scale) will invest in low-margin enterprises, but for the them the goal is making work for people, not making profits. Consider the (at least sort-of on-topic) story of Carl Zeiss Jena, or Arsenal (maker of Kiev cameras and optics), both of whom were subject to central planning rather than market-driven goals. They were directed by output goals, not by profits, and their quality control was poor compared to their western counterparts, in addition to their innovation being spotty. They made some world-class stuff, often because they carried ancient (pre-Soviet-control) designs into more modern implementations, and partly because some other instrument of the state needed something advanced. But they also over-produced, and they employed far too many workers to be usefully productive. I think CZJ had 70,000 employees at one point, making products that nobody was buying. That is not a quality formula, but it certainly does lower prices, heh. They were never particularly profitable, though they did in some cases bring in hard currency which the state desperately needed.

Given the photo equipment I've gathered, I'm certainly not prejudiced against that stuff on political grounds. And I have owned both Czech and East German tubas, too, some of which are still among the best ever made.

But there's a lot of space between 3% and 35%, and somewhere in that range you and I could find agreement under the general heading, "what is wrong with US banking and management culture".

Rick "who blames the Harvard Business School, which first established the notion that managers didn't need to know about the products their managees produced" Denney

Jody_S
2-Nov-2012, 11:42
Governments (particularly on the socialist end of the scale) will invest in low-margin enterprises, but for the them the goal is making work for people, not making profits. Consider the (at least sort-of on-topic) story of Carl Zeiss Jena, or Arsenal (maker of Kiev cameras and optics), both of whom were subject to central planning rather than market-driven goals. They were directed by output goals, not by profits, and their quality control was poor compared to their western counterparts, in addition to their innovation being spotty. They made some world-class stuff, often because they carried ancient (pre-Soviet-control) designs into more modern implementations, and partly because some other instrument of the state needed something advanced. But they also over-produced, and they employed far too many workers to be usefully productive. I think CZJ had 70,000 employees at one point, making products that nobody was buying. That is not a quality formula, but it certainly does lower prices, heh. They were never particularly profitable, though they did in some cases bring in hard currency which the state desperately needed.



Rick "who blames the Harvard Business School, which first established the notion that managers didn't need to know about the products their managees produced" Denney

There's a difference between 'Communism' and 'Socialism'. A Socialist idea would be that, say, Exxon should be at least partially nationalized (because oil in the ground belongs to everyone, not just whoever happens to sign a deal with the gov't) and the profits used to pay for universal health care in the USA. Of course, that would be crazy (http://en.wikipedia.org/wiki/Statoil). It could never work (http://www.data360.org/dsg.aspx?Data_Set_Group_Id=600).

I'm going to have to apologize again, I'm not trying to hijack the thread. This is germane to photography, particularly niche markets such as large format. We're seeing the effects of different management cultures on the price and availability of film, of course (Kodak, Polaroid), but we're also paying the price with a dearth of new cameras, lenses and supporting gear. You simply cant have a start-up company in the USA to make new cameras; those who attempt it are individuals with woodworking skills and independent means of earning a living. They're hobbyists, not manufacturers. And when you get to something that requires substantial investment, such as the film-holders discussed elsewhere, the money just isn't there. But China is cranking them out no problem. How much of a market could there be? I don't know how many cameras they make or what sort of investment in tooling it took, but again my point is that it simply can't be done in the USA, and I don't think Ilford/Harmann could survive as a start-up in the UK either. But I expect to be buying Shanghai film for years, and their quality is improving.

rdenney
2-Nov-2012, 13:20
Socialism is what I defined it to be in my first post. Your definition is consistent with that, except that it is only partway along the continuum between capitalism and socialism. As I have said, most places where enterprise is fully nationalized do so for reasons other than profits. Again, your description is consistent with that. Whether it is a good or bad thing is as much related to the culture as it is to the system's attributes. You are making an argument of that; I'm not.

But I think you are wrong with respect to making cameras. Many U.S. companies have succeeded in niche markets just fine, and found the financing to do so. Consider, for example, the range of American bicycle manufacturers. None make them in the quantities (or at the low price point or quality) supplied by the Asian manufacturers whose products fill department-store toy sections. But any good bicycle shop will often carry at least one American consumer brand, such as Trek or Cannondale, and maybe even some boutique brands, such as Waterford or Serotta (and many others). My own fleet comprises two U.S.-made Cannondales, a Trek, a Co-Motion, a custom-built Moore, and a Schwinn Homegrown mountain bike, all of which were made in the U.S. (and still are). (I also have a British track bike and a Belgian road bike, plus one single Taiwanese time-trial bike.)

Edit: I see that Cannondale has off-shored their production, before everyone corrects me. But they were the company least satisfied with a good ROI rather than trying to play the market, and they ended up getting bought out.

In another example, the finest amateur radios in the world are made in the U.S., by three manufacturers (Ten-Tec, Elecraft, and Flexradio), despite that the most expensive radios on the market are Japanese. And that market has maybe a hundred potential customers for every one potential large-format film camera buyer. Two of those manufacturers are relatively recent startups--within the last 15 years or so.

I submit that there are no manufacturers of large-format film cameras that are NOT in the hobbyist-craftsman category, with the exception of Cambo, Sinar, and Linhof. That's just as true of the Asian manufacturers, including Shen-Hao, Ebony, and Chamonix, who either make things one at a time or use workers who make other things and make other things mostly and make cameras only part-time. I don't know if Toyo is still making cameras; perhaps they are. Most of the current factories have production levels for film-based view cameras so low that if they weren't already in business (such that they had amortized their tooling already) they would not be able to start up much of anywhere. It would not be difficult in the U.S. or U.K. to start up a company like Chamonix, for example. The question is: Would people pay the price for one? If the quality is high enough--yes. Just ask Dick Philips. But they would all have to start as hobbyist-craftsmen, and would have trouble finding financing from anyone outside their families no matter what. Do you think Carl Koch could start Sinar now, anywhere in the world, making the Norma? I don't see it. Would you loan money to a Carl Koch? Any business plan that starts with "Market size: thousands, or maybe even hundreds" is going to struggle, unless one can sell them at bespoke prices. Would you pay $10,000 for a Sinar film camera?

You can't blame banks for a lack of market for a product. Niche markets have always depended on the niche supplying its own financing.

Rick "most business are started by people spending their own money, or money they personally raise rather than borrow" Denney

Jody_S
2-Nov-2012, 14:42
But I think you are wrong with respect to making cameras. Many U.S. companies have succeeded in niche markets just fine, and found the financing to do so. Consider, for example, the range of American bicycle manufacturers. None make them in the quantities (or at the low price point or quality) supplied by the Asian manufacturers whose products fill department-store toy sections. But any good bicycle shop will often carry at least one American consumer brand, such as Trek or Cannondale, and maybe even some boutique brands, such as Waterford or Serotta (and many others). My own fleet comprises two U.S.-made Cannondales, a Trek, a Co-Motion, a custom-built Moore, and a Schwinn Homegrown mountain bike, all of which were made in the U.S. (and still are). (I also have a British track bike and a Belgian road bike, plus one single Taiwanese time-trial bike.)

Edit: I see that Cannondale has off-shored their production, before everyone corrects me. But they were the company least satisfied with a good ROI rather than trying to play the market, and they ended up getting bought out.



Rick "most business are started by people spending their own money, or money they personally raise rather than borrow" Denney

How about something a little more difficult, like the geartrain and brakes? How many of those are made in the USA? Bicycles are like computers, anyone can weld a frame together, stick a 'made in USA' sticker on it, and put a bunch of off-the-shelf parts on it. We have a long tradition of those in Canada also, although the larger brands have started buying their frames in China also, and merely do the final assembly here. With a 'made in Canada' sticker of course.

rdenney
2-Nov-2012, 15:20
There are three significant full-groupset manufacturers. Shimano is based in Japan, Campagnolo is based in Italy, and SRAM is based in the US. All make parts all over the world, but their high-end stuff is made in their headquarters countries.

SRAM is an example, though. It was started by Americans, who fought hard for a market position (including a successful challenge against industry-leading Shimano for unfair practices), and it was capitalized in the U.S. They have acquired other manufacturers around the world, including France-based Sachs-Huret. It's major growth was just in the last 15 years or so.

But with bicycles, the frame is it. That's where a lot of the technology is, and that's at least half the price of a high-end bicycle. Gerard Vroomen, of the now-famous Cervelo brand (based in Canada) did not succeed because he used Shimano or Campy drivetrain components.

Many of the wheels used on high-end bicycles are made by other boutique makers, some of whom are based in the U.S. (e.g., Spinergy, Hed).

Bicycle stuff is made all over the world. Many U.S. companies participate in this market, and do so with stuff made here. But they aim at the quality segment that can support the high price points that can pay the high costs of U.S. production.

Another example where U.S. makers are very strong on the quality end of the scale is with musical instruments. These were started by enthusiasts, but many became quite successful on financial terms, even in relatively small niche markets.

It's just wrong to say that it's impossible to start a successful niche business in the United States. Bank loans are hard to get anywhere, and people who ask for them often don't have a clue as to how business works. But U.S. makers have to understand the difference between price and cost, and have to find segments of the market that can support a price high enough to cover their costs. And their quality has to match that price point. Then, people will buy, especially in the niches where the buyers are often enthusiasts themselves.

Rick "noting that it is also true that bankers are hated everywhere" Denney

Pawlowski6132
2-Nov-2012, 20:56
Rick, I have worked as a finance manger in a privately owned company for over ten years and my wife is a partner at Ernst & Young with the audit group working with large publicly traded companies.

1. Wall Street doesn't expext anything except what the CFO tells the street to expect. Even if they lose billions of dollars, as long as it's communicated, stock price should remain stable. Bottom Line: Wall Street doesn't like suprises.

2. And no, Sal is not correct in that the public companies live and die by the P&L. Analysts look at the balance sheet (debt), cash flow and many other ratios depending on the companie's industries along WITH the P&L.

3. Yes, there are many regulations, hoops, laws, etc. that a public company must comply with and to. Is this bad? Really? Sarbanes-Oxley, etc. all exist becuase of horrible disasters that occured because rules and regulations DID NOT exist. Did we all forget about WorldCom, Enron, Tyco, blah blah blah already????

4. Companies go public for one reason: A HUGE injection of cash. Yes, some of that goes to the owners (which is fine) and the rest is used for capital investments like R&D, plant expansion, acquisitions.


I think it's EXTREMELY irresponsible and (Yes Kirk) ignorant to claim that the notion of an organization being public vs. private is bad in any way.

Robert Budding
2-Nov-2012, 21:06
There are alternatives to Wall Street, Cuba being one

And there are alternatives to the way Wall Street is run now, other than adopting the system in Cuba. Creating a false dichotomy does not further your point; it only makes you appear ignorant.

AuditorOne
2-Nov-2012, 23:11
This has been a hugely interesting thread to follow. Obviously, Ilford being privately owned has allowed them to pursue their market in their own way, or so it would appear from the outside. But although they have not had to worry about public investors, nor some of the more onerous regulations that publicly traded companies face, I would be willing to bet that they still have to convince their bankers that they are doing the right thing from time to time.

Personally I feel that their present success actually has less to do with their being a private or public company, and more to understanding their customer and their market, their commendable attention to building a consistent and reliable product for their customers, and working hard to keep their customer base satisfied by communicating with them on a regular basis. They have managed to stay focused on producing a few, good products, and refused to over reach.

Being primarily interested in my own welfare (in other words I am interested in continuing to be able to use a quality product) I sincerely hope that they are able to continue with this successful formula.

If anyone from Ilford is reading this, congratulations on your recent success and thank you very much for continuing to support this small, niche market. Although I am not wealthy, nor am I a professional photographer, I will continue to support you in my own small way.

Thanks.

rdenney
3-Nov-2012, 06:32
Rick, I have worked as a finance manger in a privately owned company for over ten years and my wife is a partner at Ernst & Young with the audit group working with large publicly traded companies.

1. Wall Street doesn't expext anything except what the CFO tells the street to expect. Even if they lose billions of dollars, as long as it's communicated, stock price should remain stable. Bottom Line: Wall Street doesn't like suprises.

2. And no, Sal is not correct in that the public companies live and die by the P&L. Analysts look at the balance sheet (debt), cash flow and many other ratios depending on the companie's industries along WITH the P&L.

3. Yes, there are many regulations, hoops, laws, etc. that a public company must comply with and to. Is this bad? Really? Sarbanes-Oxley, etc. all exist becuase of horrible disasters that occured because rules and regulations DID NOT exist. Did we all forget about WorldCom, Enron, Tyco, blah blah blah already????

4. Companies go public for one reason: A HUGE injection of cash. Yes, some of that goes to the owners (which is fine) and the rest is used for capital investments like R&D, plant expansion, acquisitions.


I think it's EXTREMELY irresponsible and (Yes Kirk) ignorant to claim that the notion of an organization being public vs. private is bad in any way.

Good for you. You are on the inside, but audit standards are quite different than what it takes for a small company in a stable, niche market to attract strong stock sales.

1. Wall Street is not monolithic. Some in Wall Street take a larger view, and others grab their cash and run. Large traders will generally not be interested in a thinly traded small cap, simply because they can't buy enough to move the needle on the 10-billion-dollar fund that they manage, or persuade their favorite whales to make a big purchase. Big companies can lose billions, because they have billions to lose, though it's frankly nutty to think that the stock price isn't affected. Analysts look at the fundamentals, sure enough. But not everyone in the public market is an analyst. Ernst and Young is a good auditing firm--they always did our audits and we were also squeaky clean and a solid performer. But I watched our stock prices vary from $12 a share to a buck and a quarter (it's at a buck and a half now), with no relationship whatsoever to the fundamentals. When a stock only trades a few thousand shares a week, someone, particularly an insider, making a big sale can spook the market, and someone making a big buy can double the price of it in a day.

2. Most of the people who attended our quarterly financial calls hung up after we went through the P&L. Sure, they want to know about debt and about accounts receivable, so they look at the balance sheet, too. But the point is that their focus is on the quarterly report with small caps. The reason is simple: A big company can lose billions and still have mountains of assets. A small company can be sunk by one project that turns bad, or one IP lawsuit they weren't expecting. That's why those investors look for big returns--it's what offsets that risk. I did not say that was wrong, just that it was true.

3. Big publicly held companies should certainly be subject to fair regulation. When I did say otherwise? But that does not mean that a small company is wise to subject itself to that level of regulation. Companies that act like General Motors (to harken back to a day when GM was the biggest corporation in the world) rarely become big--they bury themselves in process. GM wouldn't have become big if they acted when they were small like they did once they got big. We regularly competed against another company who cornered the market on a certain type of analysis by deciding to lose money on a long series of research projects, which made them the leading expert in that area. That was a decision they could make in five minutes--they could put all the owners in one room and ask them, and no further documentation is required. If the project came down to cost, as it often does in that domain because public money is involved, we'd lose. Remember, the purpose of all that regulation is to protect outsider investors, particularly those in the public who bought on the open market. If all the owners are insiders, they know the risks they are taking. Sure, partners screw each other all the time, but we aren't talking about bad actors, we are talking about what makes sense for good actors, as we assume Harman to be.

4. When our company went public, we did not get a huge injection of cash. We did provide a mechanism by which our investors could convert their investment into cash if they wanted to, and we provided a way for employees who had been granted stock options to exercise them. And we went public when it was good to go public--for certain types of companies (such as those making 35% per year, as Bear Stearns, our market adviser, told us--well before 2007 of course). We did get investment from some hedge funds, and they got a seat on the board in return for it. Thus ended agility. We eventually did fund the business plan and the company is still a good performer. It has been pretty consistently profitable and has grown at a reasonable pace. But the stock price still a buck and a half--12% of what it was when we were privately held.

I was not making a moral judgement, and you are showing your bias when you do. I was simply stating that small companies like Harman/Ilford (which is half the size of my former employer) are better off not being publicly traded, and what I saw in their report would probably not attract much investment in any case.

Rick "who has lived this first-hand, but from the other side of the street than where you sit" Denney

rdenney
3-Nov-2012, 06:37
Personally I feel that their present success actually has less to do with their being a private or public company, and more to understanding their customer and their market, their commendable attention to building a consistent and reliable product for their customers, and working hard to keep their customer base satisfied by communicating with them on a regular basis. They have managed to stay focused on producing a few, good products, and refused to over reach.

Absolutely right. The thing to remember is that when a company is publicly traded or even widely invested in the private equity market, they have two sets of customers: Those who buy what they make, and their stockholders. And it's the latter group that runs the board, if the principal isn't a majority owner. CEO's are usually hired to impress and manage the second set of customers, often without knowing anything about serving the first set. Examples abound.

Rick "happy that Harman can just focus on one set of customers" Denney

Len Middleton
3-Nov-2012, 06:54
3. Yes, there are many regulations, hoops, laws, etc. that a public company must comply with and to. Is this bad? Really? Sarbanes-Oxley, etc. all exist becuase of horrible disasters that occured because rules and regulations DID NOT exist. Did we all forget about WorldCom, Enron, Tyco, blah blah blah already????


Joe,

Minor correction...

I worked at PwC in the management consulting practice at the time of the Enron meltdown, and seem to remember in that and the other examples you note, the issue was not that there were insufficient rules and regulations in place, BUT that they were not followed...

There was in some cases, major games played in accounting rules that hid expenses, hid risks, had revenues allocated to the wrong period (i.e. moved forward), etc....

Certainly not the finest hour for any of the players involved, including the late Arthur Anderson accounting firm...

mdm
3-Nov-2012, 14:19
The public company funded the industrial revolution, colonial exploitation, brought us railways, cars and aeroplanes, etc. Without them we would all be living in mud huts and wealth would be concentrated in far fewer hands than it is now. The problem is not public companies, Polaroid is a public company that once did great things, Apple too, can you imagine a privately held company building airliners and other very complex and capital intensive machines. The problem is with the expectations of spoiled, greedy investors who have become accustomed to making a quick buck during the boom in share prices since the fifties but specially since the eighties, and nowhere more so than in the US.

rknewcomb
3-Nov-2012, 14:58
But, is film going to be around for a few more years???
That's all I want to know.

rich815
3-Nov-2012, 16:22
But, is film going to be around for a few more years???
That's all I want to know.

Probably not. Almost 10 years ago people on photo.net were predicting film to be very hard to get within 3 years and pretty much gone in 5, so any time now it will be gone.

rknewcomb
3-Nov-2012, 18:47
Probably not. Almost 10 years ago people on photo.net were predicting film to be very hard to get within 3 years and pretty much gone in 5, so any time now it will be gone.

Maybe just a little bit of a "wise guy" answer there Rich.
I know, I know, nobody can say for sure. Just getting tired of worrying about it.

Leigh
3-Nov-2012, 19:33
The public company funded the industrial revolution...
The problem is not with public funding, it's with public ownership.
The former does not require the latter.

Take banks for example.
When you deposit money in a savings account you don't gain partial ownership of the bank.

Public corporations could work the same way, which would restore the long-term focus to
producing quality goods, growing the business, and satisfying customers. These are the
goals of privately-held corporations.

My wife worked for a telecom company that was owned by a European woman, one of the
richest women in the world. It was an excellent company to work for, with good salary and
benefits, strong emphasis on quality, and extremely high ethical standards.

The current situation, with stockholders owning the business, focuses strictly on short-term
returns and couldn't care less about anything else. They don't match the characteristics
described above. All they care about is profits, and big bonuses for executives.

- Leigh

rdenney
5-Nov-2012, 09:15
Any system can generate successful outcomes, at least occasionally. Any system can be subverted. Some systems are more likely to be doomed by undermining the inventive relationship between risk and reward, but that can happen in systems ostensibly aimed at that attribute because of corruption in the way information is reported.

It is true that selling ownership shares in return for the cash to fund a business plan has made a great deal of innovation possible that could not have happened otherwise. And it was a democratic move away from innovators seeking patronage from the noble/royal classes, which is how it was done previously.

But any system can be corrupted. There is nothing wrong with requiring those who run publicly held companies from being transparent and truthful. Some recent regulations, however, have also limited the way in which business decisions can be made, which have placed publicly held corporations at a disadvantage versus privately held and overseas corporations. In my experience, it limited business opportunities significantly.

All corporations have boards of directors, no matter who owns the stock. If the person with the real vision is does not control the board, the board may fight that vision. If it's the right vision (exampe: Apple), that can undermine the company. That's why Jobs left Apple, and only came back when he could have that control. If it's the wrong vision, the company will struggle to survive in any case (example: GM, Kodak).

When people invest in a company because they believe in that vision, publicly held ownership is at its best. When they invest for short-term financial objectives, and don't know anything about that vision, then it undermines the value of public ownership. If enough of the ownership comes from that perspective, the board will eventually reflect that perspective and the vision will be subdued or subverted.

Apple reminds us how important it is for the CEO and board to understand the company's products and the vision for where to take those products. Too many current coporations are run by "managers" instead of people who have real expertise in the product technologies central to the company. That is an outgrowth of the desire to make companies look good to the investor classes who are disconnected from a company's mission.

Rick "not seeing the issues in just black and white" Denney