It's like Robert Burns once said, The best laid schemes of mice, men, Steve Ballmer and desperate Canadians often go astray. Fine. The great poet did not use those exact words some two hundred years ago to sum up today's tech market. Nevertheless, the Scot certainly nailed the sentiment considering the device markdowns on display this week. Microsoft ( MSFT) slashed prices on its Surface RT tablet on its Web site Monday to $349 from $499, with the version that includes the keyboard dropping to $449 from $599. Meanwhile, Best Buy ( BBY) chopped the price of BlackBerry's ( BBRY) Z10 smartphone to $49.99 with a service contract. The Z10 originally went on sale in the U.S. in March at $199.99, putting it right on par with Apple's ( AAPL) iPhone. All-in Mister Softee sold 900,000 of the devices in the first quarter of 2013, according to a May report from IT research firm IDC. That compared to 19.5 million Apple iPads and 8.8 million tablets from Samsung. Second-quarter tablet numbers have not been released yet, although the recent price cut offers a pretty clear indication that sales have not picked-up over the past three months. Same goes for the Z10 which came in almost 1 million units short of analysts' estimates last week and caused Blackberry's stock to lose a quarter of its value last month. Or, to use our own, far less poetic, words: Devices for sale! Devices for sale! Get your cut-rate, giant-killing gadgets here! We got BlackBerry Z10's, Microsoft Surfaces, you name it! If it was designed to slay Samsung or take a bite out of Apple, then have we got a deal for you! "BlackBerry is still in the early phases of our transition," said Blackberry CEO Thorsten Heins at the company's annual meeting last week. "This isn't just the launch of a new product but a whole new platform. While many will judge us on the basis of one quarter of a single product, we are not a devices-only product." We agree Thorsten. You are not a "devices" company. Now that the Z10 is headed to the discount bin, you are a single device company. Talk all you want about your network, but all you have left is the Q10 and that's not looking too steady these days. As for our old buddy Ballmer, well, he's hoping last week's reorganization will revitalize his device business. Steve shifted his troops around so they would work together, as opposed to competing against one another. And optimism over Microsoft's realignment may be the reason why shares of the lumbering tech giant hit a record high this week before selling off in the wake of its dismal second quarter results Thursday. Mister Softee said it earned 59 cents vs. the Street's estimate of 75 cents, including a $900 million charge, or a 7 cents per share impact, related to Surface inventory adjustments. Then again, Microsoft bulls betting that Ballmer's latest scheme is the first step to his own exit best be prepared to be disappointed. A bit of our own verse with all due apologies to Burns: While his best laid schemes may go astray, Steve Ballmer will never, ever go away.
4. Street Stroke
Temperatures have been averaging more than 90 degrees in New York City this week, so we suspect that's why Wall Street's analyst reports have been, well, a tad suspect of late. Admittedly, it's not easy to do your best work when drained of fluids. That's why we suggest the Street's scribes hydrate more before publishing research notes that don't represent their best work, or perhaps hydrate less at places like Hanover Harry's or PJ Clarke's. For example, the oppressive hotness must have had something to do with UBS's Eric Sheridan's decision on Monday to cut his rating on shares of Yelp ( YELP) to Neutral from Buy, while raising his price target to $40 from $32. Shares of the money-losing internet referral provider have more than doubled this year to more than $40, undoubtedly squeezed higher by bears who sold more than 16% of the company's float short at last check. Not that Sheridan gives the bloodied shorts too much credit for helping push the stock to an all-time high of course. No, in his newly Neutral view, the company's performance alone is what's rallying the stock. "Yelp's shares appear to be fairly valued at current levels," wrote Sheridan about the internet company with a gob-smacking forward P/E of 226. "That said, we continue to believe that Yelp is one of the best positioned businesses within our coverage universe in terms of key secular themes (social, local, & mobile)." Let's get this straight again. After the stock blew through his last price target, Sheridan is setting a new one 25% higher, while cutting his rating. And he says the company is perfectly "positioned," but still "fully valued," even though its clearly trading at nose-bleed levels. Yeah, we know the whole thing is puzzling for those unfamiliar with Wall Street double-speak. But don't sweat it Dumbest fans. It's not the heat that's getting you. It's the stupidity.
3. Killer Weather
Fine. We admit it. The heat is addling our brains as well. How else could we get such a kick out of Bank of America Merrill Lynch's report on funeral provider Service Corp. International ( SCI)? In a section entitled "Death rate update: Extreme weather could boost 3Q13," Bank of America Merrill Lynch analyst Robert Willoughby noted that U.S. deaths are up 6% year to date. Third quarter deaths, meanwhile, are up 2.8%. "While the likely benefit to SCI is small, we note extreme heat events, such as those occurring throughout the U.S. over the past several weeks, have historically corresponded to an increase in observed heat related deaths," wrote Willoughby, adding that extreme heat caused 658 deaths per year from 1999-2009, most of which occurred in July (39%) and August (27%). Hey, we're not knocking the guy for being thorough. Not at all. We totally agree with Willoughby that no death is insignificant when it comes to Wall Street turning a profit. Seriously, everybody knows it's not the monthly employment number that drives traders, it's the body count. And just because we're taking a perverse pleasure in this particular report doesn't mean he's dead wrong about Service Corp.'s prospects or death care being an "attractive industry." Not in the least. Willoughby has been killing it with his bullish calls on this stock. Shares of the company are up over 40% in the past year, nearly double the return of the S&P 500. And Willoughby expects the company to stay hot when it reports on July 24th. Of course, investors may want to steer clear of Service Corp. if the weather cools and we don't get those marginal, quarter-boosting burials. Similarly, they should also avoid Coca Cola's ( KO) stock if the globe suddenly stops warming. Coke CEO Muhtar Kent curiously cited "unusually poor weather conditions" during a conference call Tuesday to explain the soft-drink maker's disappointing 4% drop in profit, even though this past spring was one of the warmest on record. Revenue at the company dropped 3% to $12.75 billion, missing Street expectations of $12.96 billion. Coke shares fell 2% on the news. There was one heartening bit of news for Coke investors in the company's report however. Coke's non-carbonated beverage sales surged 6% despite the alleged chilly weather dampening its soda business. Putting it all together, what should retail investors take away from this week's weather-related weirdness? Simple. When things get real, real hot on Wall Street, the best place to be is dead in the water.
2. Heidrick's Struggles
If you were like us, you would think that executive search firm Heidrick & Struggles ( HSII) would be pretty solid in the CEO department and its leadership would have its act together regarding the company's strategic vision. Then again, if you were like us you would be completely and totally wrong. Heidrick's stock took a header Tuesday, sinking over 17% after the company announced it would not be selling itself and that its CEO Kevin Kelly was stepping down after seven years in the top spot. Kelly will also resign from the company's board of directors in order to return full-time to Heidrick's executive search practice in a senior client-service role. Heidrick said that Jory Marino, head of its U.S., Canadian and Latin American operations, will serve as interim CEO while the company hunts for candidates to fill Kelly's position. There is, of course, the possibility that Marino looks around and then decides to simply assume Kelly's old job. We're not counting that out. And we also doubt Kelly, a 17-year veteran, will stay on too much longer. Seriously, other than Pope Benedict XVI, can you name another chief executive that hung around the building after relinquishing his reign? To be perfectly honest, it's a struggle figuring out what's happening at Heidrick. Clearly the Street is not enamored with the uncertainty either, especially the company's decision to go it alone after getting everybody's hopes up in June about a sale. Heidrick should know by now that if you to tell the Street you are "reviewing your strategic alternatives," you better damn well offload yourself. Anything short smacks of internal problems or executive strife, which is exactly what the Street -- rightly or wrongly -- is seeing here. The only thing we do know is that the company that prides itself on finding leaders for others is not offering the market a lot of leadership right now. Heidrick did try to offer some positive information to offset the unwelcome news that it is taking itself off the market. The company said it expects 2013 second-quarter net revenue to be at the high end of its previous forecast range of $110 million to $120 million when it reports later this month. Analysts are penciling in $114.6 million. Unfortunately, the Street saw this feeble attempt to provide earnings guidance as pure spin from a company spinning out of control from the top down.
1. Radio Shaky
Here's what we think about Radio Shack ( RSH) and all the flak it's been taking over the past week: When the world as we know it comes to an end, whether by rising oceans, nuclear missiles or massive meteors, and the human race is no more. And cockroaches become the last living creatures to roam the planet earth, scurrying through civilization's rubble. Those cockroaches will still be able to shop at Radio Shack and choose not to. OK. OK. We're kidding. Radio Shack probably won't outlive a nuclear holocaust. However, the nearly century-old electronics retailer once again showed its survival skills after a Debtwire report last Thursday said it was seeking financial advisors in the face of looming debt maturities and rising inventories. Shares of the Shack sank over 20% to $2.18 on the report, which cited unnamed sources, before the company officially responded the following day. "Like many companies, we have discussions with investment banks from time to time to help us evaluate ways to further strengthen our balance sheet and manage it efficiently. That has been the sole focus of these discussions," the company officially stated last Friday, causing its shares and bonds to bounce back. Ah, the old "Nothing to see here, folks!" line. That really is one of our favorites here at the Dumbest lab. Unfortunately, that's exactly what customers say on the odd occurrence they step into one of the Shack's 4,300 stores. In fact, most are still amazed that they are still seeing a Radio Shack at all considering the damage Amazon.com ( AMZN) and Best Buy ( BBY) have done to its business. To reinforce the point that the Shack is not under attack from creditors, recently named CEO Joe Magnacca told CNBC that he's "not at all concerned" about an August 1 debt payment because "we can pay that off in cash." Which it can. RadioShack had $434.9 million of cash and cash equivalents as of last spring, more than enough to meet its $213 million in current outstanding debt. And we're sure it will be able to refinance or borrow as much as it needs because Wall Street -- like Tony Soprano -- loves lending to troubled companies. The problem is that Magnacca needs this cash to transform the stores and reinvigorate the brand, which he has been trying to do, even somewhat successfully. But as Ron Johnson learned at another iconic American retailer JC Penney, it's tough to remodel your stores and make Wall Street happy at the same time. Johnson, of course, made us very happy. He was an all-star in our eyes, making frequent appearances on the Dumbest list until he eventually had to go. JC Penney could soon follow if things don't turn around soon. The only thing keeping Penney stock in double digits is the fact that a quarter of its shares are sold short, making it susceptible to a squeeze. Similarly, Radio Shack shares are cushioned less by its CEO's platitudes than the nearly 40% of its float sold short. Not that the Shack is going anywhere. Not even when the cockroaches are gone. -- Written by Gregg Greenberg in New YorkFollow @5gsonthestreet