Get ready coffee drinkers around the globe...the single-cup coffee war is heating up......
Some of the main combatants in this battle include Starbucks (Nasdaq: SBUX) and Nestle ADR (OTC: NSRGY) with its Nespresso brand. The latest front in this battle sees Starbucks coming out this autumn with its own coffee maker branded Verismo in the North American market to compete directly with Nestle's Nespresso. These machines make espresso-based coffee drinks such as lattes in single-cup servings.
One of the first companies to suffer a wound from the fracas was not Starbucks nor Nestle, but Green Mountain Coffee Roasters (Nasdaq: GMCR). This company has been the leader in the United States for single-cup coffee makers with about a 75% market share for its Keurig single-cup brewing system machines. In the first quarter of this year, GMCR sold 4.2 million of the machines which is more than half the 6.5 million brewing machines sold in the entirety of the last fiscal year.
However, the company really doesn't make its money on its machines. Green Mountain's business is built on proprietary technology that merges home coffee and its K-cup pods. It sells its machines at cost, for as little as $100 and makes its profit on the individual pods (such as for Starbucks coffee) which retail for 60-80 cents each.
There will be a major difference between the Keurig machine and the one Starbucks is bringing out. Green Montain's is a low-pressure machine that produces only brewed coffee while Starbucks' machine will be a high-pressure machine which gives it the opportunity to deliver Starbucks-quality espresso beverages at home.
The machines will be produced in partnership with a German company, Krueger. Starbucks has yet to say how much these machines will cost but that the price of the capsules will be “comparable” to existing single-cup serving coffee products already on the market. Last November 1, Starbucks launched sales of Starbucks brand K-cups packs which were a raging success. Within two months of launch, Starbucks had sold 100 million of the packs.
Not to be forgotten is Nestle's Nespresso which dominates the European market for single-cup coffee makers. Sales of Nespresso last year rose by a heady 20% to more than $3.8 billion. Nespresso's profit margin is a very enviable 20%-30%. Nestle achieved those results by geographic expansion (including into the US), spending on advertising (such as with George Clooney), and setting up more than 300 boutique coffee stores around the world that reinforce Nespresso's image as a high-quality, premium brand product.
Nespresso's home turf of Europe may well be the most interesting battleground. Starbucks, which is already revamping its European operations, is soon expected to announce the European launch of its coffee capsule packs. But it faces a marketing juggernaut in Nestle which plans to open 40 more outlets this year including large stores in London and San Francisco to compliment its huge store in Paris.
It is unlikely that Starbucks will be able to beat Nestle and Nespresso on its home turf. Its success in the single-cup coffee war should come at home in the United States. It will be interesting to see if Starbucks can cut into the dominant market share in the US that Green Mountain Coffee Roasters currently holds.
This article was originally written for the Motley Fool Blog Network. Please check out my articles daily at http://blogs.fool.com/tdalmoe/.
Thursday, April 12, 2012
Wednesday, April 4, 2012
US Shale Gas Boom Depresses Coal Companies
The shale gas boom in the United States has been good news for companies involved in shale extraction and other including industrial companies and consumers who have benefited from lower prices for natural gas. But there is one industry in particular that has been impacted negatively in a big way by cheap and plentiful shale gas...the U.S. coal industry.
Both coal and natural gas are used to fire power plants across the country. And in fact, coal remains the largest source of electricity production in the United States. But the share of electricity in the U.S. generated by burning coal has been losing market share, as utilities switch to cheaper natural gas, falling to near a 35-year low.
In December, coal's share of the market fell below the 40% level for the first time since March 1978, according to the U.S. Department of Energy. Coal use for the generation of electricity peaked in 1985 at almost 60%. The drop below the 40% mark is a highly significant development since the United States is the world's largest electricity market.
Its significance has not gone unnoticed by the coal market. U.S. benchmark central Appalachian thermal coal prices recently dropped to $58 a ton, the lowest level in nearly two years. The price drop did not escape the notice of the stock market either. The stocks of leading U.S. thermal coal miners including Consol Energy (NYSE: CNX), Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) have dropped sharply and are near 52-week lows.
The drop in coal prices is forcing many domestic coal miners to cut back production and also attempt to export their excess supplies overseas into the $100 billion thermal coal seaborne coal market. This, however, is having a knock-on effect in that market. U.S. exports are creating a glut in that market too, sending global thermal coal prices to a 15-month low and hurting the leaders in that sector like Rio Tinto ADR (NYSE: RIO). Other large global producers of thermal coal include Anglo American and Xstrata.
Annual contracts last year for thermal coal with large Asian consumers like Japanese utilities were settled at $130 a ton, a rise of 32.6% from the $98 a ton the previous year. It is expected that this year's contracts will be settled roughly 10%-11% lower at between $115 and $120 a ton. This is not a disaster yet for the likes of Xstrata and Rio Tinto with demand still rather robust in the Asia-Pacific region. After all, last year's price was an all-time record high and $115 a ton would be the third highest price ever for an annual contract.
The $115 a ton price probably looks tremendous to U.S. producers of thermal coal who are only receiving $58 a ton domestically. Expect more and more U.S. thermal coal to enter to the global seaborne market, thanks to cheap freight costs and the higher thermal coal prices overseas. As this occurs, the share prices of coal companies like Arch, Alpha Natural and Consol should stabilize and retrace some of their recent losses.
This article was originally written for the Motley Fool Blog Network. Please check out all my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/ or subscribe to them there.
Both coal and natural gas are used to fire power plants across the country. And in fact, coal remains the largest source of electricity production in the United States. But the share of electricity in the U.S. generated by burning coal has been losing market share, as utilities switch to cheaper natural gas, falling to near a 35-year low.
In December, coal's share of the market fell below the 40% level for the first time since March 1978, according to the U.S. Department of Energy. Coal use for the generation of electricity peaked in 1985 at almost 60%. The drop below the 40% mark is a highly significant development since the United States is the world's largest electricity market.
Its significance has not gone unnoticed by the coal market. U.S. benchmark central Appalachian thermal coal prices recently dropped to $58 a ton, the lowest level in nearly two years. The price drop did not escape the notice of the stock market either. The stocks of leading U.S. thermal coal miners including Consol Energy (NYSE: CNX), Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) have dropped sharply and are near 52-week lows.
The drop in coal prices is forcing many domestic coal miners to cut back production and also attempt to export their excess supplies overseas into the $100 billion thermal coal seaborne coal market. This, however, is having a knock-on effect in that market. U.S. exports are creating a glut in that market too, sending global thermal coal prices to a 15-month low and hurting the leaders in that sector like Rio Tinto ADR (NYSE: RIO). Other large global producers of thermal coal include Anglo American and Xstrata.
Annual contracts last year for thermal coal with large Asian consumers like Japanese utilities were settled at $130 a ton, a rise of 32.6% from the $98 a ton the previous year. It is expected that this year's contracts will be settled roughly 10%-11% lower at between $115 and $120 a ton. This is not a disaster yet for the likes of Xstrata and Rio Tinto with demand still rather robust in the Asia-Pacific region. After all, last year's price was an all-time record high and $115 a ton would be the third highest price ever for an annual contract.
The $115 a ton price probably looks tremendous to U.S. producers of thermal coal who are only receiving $58 a ton domestically. Expect more and more U.S. thermal coal to enter to the global seaborne market, thanks to cheap freight costs and the higher thermal coal prices overseas. As this occurs, the share prices of coal companies like Arch, Alpha Natural and Consol should stabilize and retrace some of their recent losses.
This article was originally written for the Motley Fool Blog Network. Please check out all my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/ or subscribe to them there.
Monday, April 2, 2012
Arm Holdings' Chip of the Future
While semiconductor company Intel dominated chip sales in the PC era, another company has taken over the mantle in the era of smartphones and tablet computers. Chips based on architecture designed by UK-based Arm Holdings (Nasdaq: ARMH) have become predominant in popular electronic devices like the iPhone and iPad.
Arm is not sitting on its laurels either. It is aggressively designing more semiconductors to be used in devices of the future. The company recently announced a significant development, an ultra-low-power chip that could pave the wave for an “internet of things”. Everyday items like refrigerators and clothing would have “online identities” that would give the complete history of the item to anyone with a smartphone to scan the information. Common items in our lives would all have the ability to communicate with each other using microprocessors from Arm's design. This would be useful in smart energy systems, for example.
The company said it had created the world's most efficient microprocessor design. The chips would be capable of fast processing as the chips in today's smartphones but using just a third of the power currently eaten by a typical, 8-bit microprocessor. The company's “Flycatcher” 32-bit design allows the chips to be just 1 millimeter square and be able to run off a tiny battery for very long periods of time. The chips would also have a very low power 'leakage'. This means that in the future these chips may be embedded in nearly everything we come across in everyday life.
Microcontrollers are a very fast growing source of revenue for Arm Holdings. Some one billion chips were shipped in the fourth quarter of 2011 alone that use Arm's architecture, up from 40% from a year earlier. It is expected the new microprocessors would sell for about 20-25 cents each.
Telecom equipment company Ericsson ADR (Nasdaq: ERIC) recently forecast that there would be roughly 50 billion connected devices by 2020, up from just 5 billion in 2010. And Arm chips are likely to be in most of them. So even though Arm receives a royalty of only 1%-2% on each chip, it adds up quickly. For those interested in that future with 50 billion connected future, there is interesting information on Ericsson's website about it and can be found here.
Already Arm has licensed its Cortex-M0+ processor design to semiconductor companies Freescale Semiconductor (NYSE: FSL) and NXP Semiconductors (Nasdaq: NXPI). NXP should be familiar to investors as a leader in NFC (near field communications) chip technology. So not only is it looking to cash in on the lucrative mobile device transaction sector, but also on the 'internet of things' in the years ahead.
Takeover candidate Freescale is a big believer in the technology. Its vice-president Geoff Lees said “It opens up all devices to the potential of being connected all the time. It allows us to provide connectivity everywhere.” There are many more chip companies likely to follow, licensing the design from Arm Holdings.
That is not to say that Arm is alone in designing ultra-low-power chips. Two U.S. semiconductor companies are also competing in this space – Atmel and Microchip Technology. Atmel offers 32-bit “Avr” products along with Arm-based chips while Microchip Technology builds a range of 32-bit “Pic” microcontrollers.
The “internet of things” is coming and as Tom Halfhill of the research firm Linley Group said, “The internet of things will change the world as we know it”. And for now, it looks like Arm Holdings chip designs will be at the forefront of this new technological age as it was the mobile phone and tablet computer age.
This article was originally written for the Motley Fool Blog Network. Please check out all of my daily posts for the Motley Fool at http://blogs.fool.com/tdalmoe/
Arm is not sitting on its laurels either. It is aggressively designing more semiconductors to be used in devices of the future. The company recently announced a significant development, an ultra-low-power chip that could pave the wave for an “internet of things”. Everyday items like refrigerators and clothing would have “online identities” that would give the complete history of the item to anyone with a smartphone to scan the information. Common items in our lives would all have the ability to communicate with each other using microprocessors from Arm's design. This would be useful in smart energy systems, for example.
The company said it had created the world's most efficient microprocessor design. The chips would be capable of fast processing as the chips in today's smartphones but using just a third of the power currently eaten by a typical, 8-bit microprocessor. The company's “Flycatcher” 32-bit design allows the chips to be just 1 millimeter square and be able to run off a tiny battery for very long periods of time. The chips would also have a very low power 'leakage'. This means that in the future these chips may be embedded in nearly everything we come across in everyday life.
Microcontrollers are a very fast growing source of revenue for Arm Holdings. Some one billion chips were shipped in the fourth quarter of 2011 alone that use Arm's architecture, up from 40% from a year earlier. It is expected the new microprocessors would sell for about 20-25 cents each.
Telecom equipment company Ericsson ADR (Nasdaq: ERIC) recently forecast that there would be roughly 50 billion connected devices by 2020, up from just 5 billion in 2010. And Arm chips are likely to be in most of them. So even though Arm receives a royalty of only 1%-2% on each chip, it adds up quickly. For those interested in that future with 50 billion connected future, there is interesting information on Ericsson's website about it and can be found here.
Already Arm has licensed its Cortex-M0+ processor design to semiconductor companies Freescale Semiconductor (NYSE: FSL) and NXP Semiconductors (Nasdaq: NXPI). NXP should be familiar to investors as a leader in NFC (near field communications) chip technology. So not only is it looking to cash in on the lucrative mobile device transaction sector, but also on the 'internet of things' in the years ahead.
Takeover candidate Freescale is a big believer in the technology. Its vice-president Geoff Lees said “It opens up all devices to the potential of being connected all the time. It allows us to provide connectivity everywhere.” There are many more chip companies likely to follow, licensing the design from Arm Holdings.
That is not to say that Arm is alone in designing ultra-low-power chips. Two U.S. semiconductor companies are also competing in this space – Atmel and Microchip Technology. Atmel offers 32-bit “Avr” products along with Arm-based chips while Microchip Technology builds a range of 32-bit “Pic” microcontrollers.
The “internet of things” is coming and as Tom Halfhill of the research firm Linley Group said, “The internet of things will change the world as we know it”. And for now, it looks like Arm Holdings chip designs will be at the forefront of this new technological age as it was the mobile phone and tablet computer age.
This article was originally written for the Motley Fool Blog Network. Please check out all of my daily posts for the Motley Fool at http://blogs.fool.com/tdalmoe/
Subscribe to:
Posts (Atom)
Posts
