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Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

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8:30 AM Friday, November 25, 2005: There is a minor tech boom going on. Companies like Microsoft, Dell, Intel, Texas Instruments and Best Buy have been moving up. The reason is twofold:

+ Great new "must have" gadgets -- iPods, giant TVs, neat digital cameras, satellite radio, cheap laptops and now, Microsoft's Xbox 360.
+ Some talk about how "cheap" the stocks have become. Cramer has been hammering on the "tech boom."

In reality, they're going up because there's a "story." This year 2005 has been full of "stories." A few select stocks (think Avian flu) bounce for a little while and them come back. If you want to play this game, you need to recognize you're playing the short-term. Like a week or two. Maybe a month at the most. For this "tech boom" I'd want to be out by the last trading day of the year. A bundle of all the stocks I mentioned above would probably give you a nice pop between now and December 30. Be careful, though. Sell them on the first sign of something awry.

Microsoft introduces its new Xbox 360: Facts: Microsoft's Xbox will sell millions. But it's not like Apple's iPod. Microsoft has lost money on each Xbox it had sold. (This one may be different.) It makes money on games it sells or those its developers sell -- $10 a game royalty to Microsoft. This assumes it can get developers to write to Xbox. Every five or so years, the world of gaming -- which is bigger than Hollywood and the TV networks combined -- switches leadership. Today Sony leads Microsoft by a huge margin. Nintendo drags along in the rear. There is talk that the Xbox might grab leadership.

The Economist writes:

Microsoft has been trying for years to move beyond the PC, and into other devices such as mobile phones, television set-top boxes and games consoles. “The big über-strategy that this falls under relates to what's happening in the home,” says Robbie Bach, Microsoft's “chief Xbox officer” and head of a newly formed business unit that brings together Microsoft's gaming, mobile and TV divisions. ... Sales of non-PC devices are growing much faster than sales of PCs. ...

Despite, or indeed because of, its success in PC software, Microsoft has struggled for years to break into these other markets. Its Windows monopoly was of no use outside the PC market, and while its hold on the market provided a war chest, Microsoft was hampered by its reputation as a monopolist. The leading mobile-phone companies formed a software consortium to keep Microsoft at bay. Cable companies were wary of using its software in set-top boxes, fearing that Microsoft would transform itself into the gatekeeper of their networks.

And Microsoft's hurried and belated entry into the gaming business in 2001, with the launch of the original Xbox, and its insistence on direct control over its online-gaming service, prompted widespread skepticism. But it is now clear that after years of effort, Microsoft is finally making progress in all three markets. What changed?

Start with the Xbox. Since launching its first console in 2001, Microsoft has sold 22 million units worldwide, putting it in distant second place behind Sony's PlayStation 2 (which has sold 92 million units since its launch in 2000) and just ahead of Nintendo's GameCube (which has sold around 19 million units), according to figures from Forrester. ...

Microsoft is thought to have lost around $4 billion on the original Xbox — equivalent to a subsidy of nearly $200 for every console sold. Its venture into gaming would appear to have been an expensive failure. But Mr. Bach disagrees. He prefers to regard the billions spent on the original Xbox as an investment that provided Microsoft with three assets: a prominent position in the marketplace, several strong franchises (such as the “Halo” series of games) and an impressive online-gaming service, Xbox Live. “Now our job is to turn that asset value into income statement value,” he says. And Microsoft is indeed widely expected to do far better in the next console cycle, for a number of reasons.

For a start, the new Xbox 360 is launching several months before its main rival, Sony's PlayStation 3, which is expected to appear in Japan next spring and in America only later in the year. (Nintendo's next console, the Revolution, is also due in 2006.) One of the reasons the PlayStation 2 did so well was that it got to market before its rivals, which never caught up. Microsoft hopes to mimic that trick with the Xbox 360. And after the original Xbox flopped in Japan, Microsoft has wooed Japanese games-publishers, hoping to counter the advantage enjoyed by its two main rivals.

Another huge change, says Mr. Bach, is that the original Xbox was built from off-the-shelf parts. This reduced time-to-market—the Xbox took 18 months to design and launch—but prevented Microsoft from reducing the cost of the console during its lifetime. With no loss of performance Sony, for example, has gradually reduced the number of chips inside the PlayStation 2, cutting costs and enabling it to sell the consoles at a profit. Microsoft's use of multiple chips from different suppliers (such as Intel and Nvidia) made such integration impossible. But the Xbox 360 is based on a new, custom design that should give Microsoft the flexibility to integrate components in future. As a result, says Mr. Bach, the company will break even on the hardware over the console cycle. Since software sales will be profitable, the Xbox 360 should actually make Microsoft money.

Microsoft also has a strong lead in the emerging field of online gaming. Games publishers initially resented Microsoft's decision to centralize control of Xbox Live, in which Microsoft acts as a matchmaker between players. But the system is so slick and seamless that they have since put aside their objections. (So impressive is Xbox Live, indeed, that users may wish that their PCs handled downloads, updates and networking as effortlessly.) Xbox Live allows classic arcade games, game trailers and upgrade packs to be downloaded, and points the way to online delivery of games, and even “episodic” gaming, in future. ... For the entire Economist piece, click here.

All the reviewers love the Xbox 360, though they say it's expensive. The LA Times wrote:

...The powerful but expensive Xbox 360 is the first entrant in what's expected to be a ruthless fight for dominance in the $25-billion global games market. Rivals Sony and Nintendo Co. are readying their own next-generation consoles for release next year. Until then, Xbox 360 offers more than enough in the way of flashy graphics, sophisticated play and worthwhile extras to keep gamers' thumbs tapping happily....

But first, a reality check. At $300 for a basic system — and $400 for a nicely equipped one — Xbox 360's technical charms are not to be had cheaply. If they are to be had at all. Put it this way: If you didn't spend last night lined up outside an electronics store, this review is probably about as close as you'll get to an Xbox 360 before New Year's.

As with previous game console rollouts, demand for Xbox 360 sharply outstrips supply. In addition to games, Microsoft wants the white, curvaceous Xbox 360 to anchor living room entertainment. Connecting it to a home network allows the console to play music, run video and display photos stored on a personal computer. Changeable faceplates allow finicky buyers to coordinate the console with their interiors....

Three super-fast processors and 512 megabytes of RAM equip Xbox 360 with unrivaled power to render lifelike graphics. Best results appear on high-definition monitors, but players with standard television sets will notice a difference between the abilities of Xbox 360 and its predecessor. Many of the more than 20 titles available today showcase Xbox 360's strength.

In "NBA 2K6," for instance, players work up a sweat, just as they do in real life. Few details are overlooked: By the end of the game, Shaquille O'Neal's white jersey had visible sweat stains, and his brow was soaked. On-court movements were fluid and lifelike. The stiff, robotic motions of generations past give way to natural running, jumping and shooting. Even uniforms flutter like actual fabric.

In "Madden NFL '06," quarterback Donovan McNabb walks to the line of scrimmage before a play and his eyes scan the opposing defense. After each play, an instant replay is available, a great way to get a "Matrix"-like look at what just happened. Zooming in close to the action even shows the mesh of the jersey and the joints of the players' gloved fingers.

"Call of Duty 2" immerses players in a realistic World War II battlefield. In the snow-covered ruins of war-torn Russia, the fog of an enemy's breath is sometimes the perfect way to get a bead on him.

The games are so engrossing that players may lose track of time. But at least they'll be comfortable with Xbox 360's redesigned controllers. They fit in the hands better than previous versions, which always felt too big and clunky. Buttons are placed in natural positions. And a rechargeable wireless controller, included in the $400 deluxe package, is liberating.

Because Xbox 360 connects to the Internet and not just a TV, Microsoft has dedicated many of the console's new features to online gaming, building on the success of its Xbox Live online community...

Xbox Live offers two levels of accounts: A free Xbox Live Silver account is included, allowing players to sign on and send and receive voice and text messages, but not play games online. For that, a Gold account is required, with prices ranging from $7.99 for one month to $49.99 for a year. And gamers can even download new games — most for an additional fee — and store them on their hard drives for play at any time.

So what's not to like? For starters, the price. Xbox 360 is being released in two packages: the "deluxe system," which retails for $399, and the "core system," which sells for $299. The deluxe version includes a wireless controller, a three-month trial Gold membership on Xbox Live and a hard disk drive, among other things.

To save game progress, Xbox Live information and downloaded games, a hard drive is convenient. So buying the cheaper core system means later having to buy the removable hard drive for $100. And after playing with the wireless controller, being connected to a line will seem dated. That means spending $50 for another controller. Add that up, and the deluxe system seems like a bargain. But $400 might be too much for some families to spend on a game system...

The 360 offers the ability to rip and store music, movies and photos, presumably to play on your TV. It's pretty hard to imagine anyone doing something like burning a CD to the 360 when they can use iTunes instead. Also, Xbox 360 isn't fully backwards-compatible yet, meaning not all of the games from the previous Xbox will play.

How to make PDFs: PDF stands for portable docuement format. It's a universal computer file standard. This means if you send someone a PDF file, they should be able to view it on their computer -- PC or Apple -- and on some cell phones like BlackBerries and Treos. Most computers these days come with Adobe Reader, a simple free program to read PDF files. If you don't have one, click here.

Making PDF documents is a different matter. There probably 500 programs. None do a perfect job. Which means they often mess up complex diagrams, shadowing, etc. The best way of making perfect PDF documents - i.e. ones that look exactly like the original -- is to use an expensive program like QuarkXpress and have it save your document in PDF format. Microsoft eschews PDF (at least for now). So you can't save any Microsoft Office document in PDF format. That means a trip to a third party PDF doc maker. Among the many I've tested, the best value for the money is a piece of software called PDF Printer Driver. You can download a trial version of the software, but it will put a small plug for itself on every page it converts to PDF. Or you can pay $9.95 (which I did) and buy the real thing. To use it, you simply "print" your material to a file, to a place on your hard drive, not to a piece of paper. It couldn't be easier.

If you rarely need to convert a document to a PDF, there's an another way. Send your document to They'll convert it for you and return your new PDF document as an attachment to an email. Click here.

There is one other issue with PDFs. If someone sends me a PDF file -- say for a prospectus -- I like being able to excerpt words, mark up the document with yellow highlighting or add a little note with questions to myself. For that I've been using Adobe Acrobat. Its only problem is that it's expensive -- $300. If you're curious you can get a 30-day free trial, click here.

I've recently discovered something called Jaws PDF Editor, which seems to have everything Adobe Acrobat has and a little more, namely the ability to pull out, insert, delete and shuffle pages around. Best of all, it costs only $43. For a free trial, click here.

Yet another Thanksgiving story
A young man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird's mouth was rude, obnoxious and laced with profanity.

John tried and tried to change the bird's attitude by consistently saying only polite words, playing soft music and anything else he could think of to "clean up" the bird's vocabulary.

Finally, John was fed up and he yelled at the parrot. The parrot yelled back. John shook the parrot and the parrot got angrier and even ruder. John, in desperation, threw up his hand, grabbed the bird and put him in the freezer.

For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute. Fearing that he'd hurt the parrot, John quickly opened the door to the freezer.

The parrot calmly stepped out onto John's outstretched arms and said, "I believe I may have offended you with my rude language and actions. I'm sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior."

John was stunned at the change in the bird's attitude. As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird continued......................."May I ask what the turkey did?"

Recent column highlights:
+ Dumb reasons we hold losing stocks. Click here.
+ How my private equity fund is doing. Click here.
+ Blackstone private equity funds. Click here.
+ Manhattan Pharmaceuticals: Click here.
+ NovaDel Biosciences appeals. Click here.
+ Hana Biosciences appeals. Click here.
+ All turned on by biotech. Click here.
+ Steve Jobs Commencement Address. The text is available: Click here. The full audio is available. Click here.
+ The March of the Penguins, an exquisite movie. Click here.
+ When to sell stocks. Click here.

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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