Walter Hutchens’ Blog

Apple has reported great results for their quarter ending this September (Q4 in their FY).

Even in a post-Reg FD world, some journalists get the quarterly results before the call. Today’s call began after 2 pm PST (after 5 pm EST, more than an hour after the Nasdaq’s normal trading day closed), but the Wall Street Journal story on Apple’s quarter was posted about 15 minutes before the call began.

I own a few shares of Apple, so I’m delighted with these results.

I expect Apple’s strong results to continue. Barring some general economic meltdown, there should be more upside because, inter alia, 1) They’ll have strong holiday sales, especially of the new lineup of iPods. 2) We’ll see continued ramp up in iPhone sales as they begin selling iPhones in Germany and the UK next month, with roll out in Asia and other European countries still ahead. 3) A new version of the Mac OS will be released this Friday, which will drive some incremental revenue, plus 4) Macs are gaining share (reversing a long-time trend of dwindling market share for Macs), partly as a spillover or halo effect from the popularity of iPods and iPhones.

Besides selling more Macs, iPods and iPhones as those devices currently exist (along with lots of music downloads), I imagine we’ll eventually see a larger iPhone-like mobile device, something like the Nokia N800 or what Microsoft may have originally imagined Origami (UMPCs) as being. If so, I know I’ll want one of those.

On the other hand, certainly there is potential downside—there could be an unforeseen product recall, a new competitive product, loss of market share in online music sales (to the new Amazon initiative, or more loss of contracts with the music companies whose content populates the iTunes Music Store), leftover problems from the options backdating mess or even a virulent Apple-specific virus. Most of the upside may already be priced in, too.

But it seems less probable to me that these risks will materialize than the upside factors will. I’m staying long.

The market seems to agree; the shares are trading above $187 from the close of $174. Some of that noise may die down by tomorrow, but the $200 targets some analysts have put on the stock don’t seem at all far fetched.

Today in my international business class I played an excerpt from the Yum Brands (YUM) conference call for the third quarter, held just last week. (Yum’s corporate website; Google Finance info; Yahoo Finance info).

The first part of the call is dominated by discussion of China, the brightest spot in Yum’s operations. Yum’s CEO said he imagines having 20,000 restaurants in China one day, which he asserted seems entirely reasonable given that McDonald’s Corp. has 14,000 outlets serving a US population of only 300 million (compared with China’s 1.3 billion).

Yum grew by more than 20% in China for the quarter, compared to essentially flat growth in the U.S.

After listening to this CEO in Louisville, Kentucky brag about how his company was buoyed by its China results, the class compared the US and Chinese websites for KFC. We noted how the Chinese website has a much more youthful and sports-focused theme.

The class didn’t have any students who read Chinese, so I gave them a little guided tour of the website, pointing out how the name of the featured 3-on-3 basketball tournament creates a nice English-Chinese rhyme (between 3-on-3 and Ken-de-ji or Kentucky in Mandarin). I also pointed out how the website featured a booklet celebrating KFC’s 20 years in China.

The US website, though carrying a nice banner about a corporate effort to fight global hunger, looked much flatter than the Chinese site and emphasized, if anything, cheap prices more than youthful vigor.

On the call the CEO noted that besides KFC and Pizza Hut, Yum is developing some chains in China that don’t yet exist in the US, including a sit-down restaurant called Tea Time which they say might be able to challenge Starbucks in China. They are also testing a different quick-service chain in Shanghai now.

I think hearing about how Yum’s China operations are the company’s best current and future growth story and noting some contrasts in the marketing messages between the two websites helped drive home some lessons about the challenges (and opportunities!) of striking the right balance between global standardization and localization. The website contrasts also helped underscore the difference between corporate strategies of competing on price vs. other kinds of distinctiveness.

Bloomberg’s coverage of Yum’s earnings report is available here.

It’s always bothered me that I spent three years and more than $100,000 on a legal education (which included a required full academic year of studying contracts) yet saw my first contract only after I graduated, passed the bar and was sent to a room filled with boxes of contracts and told to “look for anything unusual.”

Reeling from that experience, I’ve always made an effort to distribute at least one sample contract to my business law students and teach them some basic things about typical contract structure.

Of course I don’t need to prepare my students—mostly undergraduate business majors—to do legal due diligence, but I think showing them at least a few sections of a sample contract accomplishes several useful things. It’s extremely helpful for them to learn how lawyers can add value to corporate transactions by providing terms that help assure risks are thoughtfully allocated and information asymmetries between buyers and sellers are reduced. It’s also good for them to understand how reps. and warranties, covenants and indemnification provisions function in a typical M&A deal. At the very least, I want them to know what is meant by “due diligence.”

In previous years I’ve used the table of contents and a sample provision or two from the ABA’s Model Stock Purchase Agreement, but today I tried something different.

Earlier this semester I had talked with the students about the Viacom v. YouTube/Google litigation, using this current (and thus far unresolved) case as a way to illustrate some basic principles of court procedures (in particular, the necessity of a court having both personal and subject matter jurisdiction and how a complaint plus the defendant’s answer constitute the pleadings that kick off litigation). More recently the case helped me underscore the significance of some IP rules.

Because virtually all the students use Google every day and most of them have watched YouTube videos on occasion, I think it’s been a vivid series of examples. Today I used another Google example to begin our discussion of contract law.

I gave each student a copy of the contract for Google’s acquisition of YouTube.

I showed them how I found it through the SEC’s EDGAR service

To set the stage, I explained what an information asymmetry is (for example, I know what’s on the test but they don’t). I explained how problems of information asymmetry are inherent in many types of business transactions including M&A deals and the public trading of securities (because insiders know more about a company than outsiders and that information is important for valuation).

I then talked about how (1) mandatory disclosure for public companies, (2) due diligence investigations by business people (and their accountants and lawyers) and (3) the terms of a stock purchase agreement are all ways to overcome these information asymmetries.

I then began to walk them through the Google-YouTube contract, explaining how the reps. and warranties section creates disclosure duties (”we’ve paid all our taxes and have no litigation except as disclosed on the attached schedule”).

Next time we’ll look at the indemnification provisions that add force to the reps. and warranties.

Recently I stumbled across the Law Talk Podcast. The most recent episode has a fantastic discussion between Nathan Oman, assistant professor at William & Mary’s law school, and Doug Berman, professor at the law school of Ohio State. They talk about how technology is influencing legal scholarship. They discuss how blogs, podcasts and services like SSRN interact with the traditional dead-tree (though now usually electronically accessed) modes of legal scholarship.

Berman has a very well-known blog on federal sentencing law. It has been cited by the US Supreme Court and been extremely useful to practitioners and members of the judiciary during recent periods of sentencing law upheaval. Drawing upon that experience, Berman also writes the blog Law School Innovation.

It was nice to hear two people living “inside” the current legal scholarship system talking about how its conventions are at least at the margins being affected by technological change.

I find the conventions of traditional legal scholarship—that one will write a 100+ page article, festooned with perhaps a thousand footnotes, which will then wait months for publication after being turned over to student editors, and will finally be read in its entirety by virtually no one—deadening. It’s just not the kind of stuff I am eager to read or write. (Alas, this hasn’t been a great stimulus to my academic career! Recently my enthusiasm even for blogging has lagged, too. That hasn’t been ideal, either. But I’m now employed at a teaching institution, so the prevailing modes of legal scholarship are, at least for now, largely immaterial to my own career).

The Law Talk podcast is available through Apple’s iTunes Music Store and here.

Interesting article from Christianity Today on the phenomenon of lapsed blogs.