Case Study On Teradata And Keysight Technologies

Case Study On Teradata And Keysight Technologies by Ben Strubel, Strubel Investment Management

Dear InvThis month, we sold out of our position in Dolby Laboratories (DLB) with a very modest gain. In our last quarterly letter, I mentioned we were researching one company that was a former high flier, Teradata Corp (TDC).  Teradata is a leader in a popular technology buzzword: “big data.” (It develops software and hardware products to gather and analyze large volumes of data.) Teradata was a market darling from 2009 to mid-2012, climbing from $10 to almost $80 per share. A chart of the stock price is shown below.

After Teradata fell back down to earth, we decided to take a look. Unfortunately, rather than looking like a good investment, Teradata looks more like an excellent case study on what happens when a company possesses no economic moat and is under siege from competitors on all sides. Just about every large hardware and software company has launched big data initiatives.

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As one of the first companies to bring to market big data analytics solutions, Teradata enjoyed strong profits and strong growth. As competitors entered the market, Teradata’s advantage began to erode. In fact, an astute investor could have easily avoided Teradata’s subsequent plunge in 2012 and 2013. The chart below shows the 10-year history of the Return on Assets (ROA) and Return on Invested Capital (ROIC) of Teradata.

Teradata And Keysight Technologies

(data from

As you can see, ROA and ROIC have steadily fallen throughout the last decade. Investors in Teradata would have had plenty of warning about the looming threat of competition if they paid close attention to the businesses returns on capital.

Until we see some evidence of a moat at Teradata, we won’t have any interest in the stock.

Keysight Technologies

Instead, we purchased Keysight Technologies (KEYS). Keysight is a recent spinoff from Agilent Technologies, which is itself a spinoff from Hewlett Packard, which is a spinoff from… No wait, we’re done. Hewlett Packard was the original company.

Keysight produces a variety of electronic testing and measurement devices that are used in the development, manufacture, and repair of electronic equipment. The company primarily serves the telecom and wireless network, defense and aerospace, and computer and semiconductor industries. Products range from devices to analyze wireless signals, products to test fiber-optic source lasers, to devices to measure the distance on circuit boards at the sub-nanometer level.

Unfortunately, during its time as part of HP and Agilent, Keysight generally was run as a cash cow business, with its profit used to support management’s other priorities, for example, the expansion of the life sciences business at Agilent. As a separate company with its management focused solely on one business unit, Keysight, we think, will be able to unlock untapped potential through higher growth and better capital allocation.

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Historical results are not indicative of future performance. Positive returns are not guaranteed. Individual results will vary depending on market conditions and investing may cause capital loss.

The performance data presented prior to 2011:

  •  Represents a composite of all discretionary equity investments in accounts that have been open for at least one year. Any accounts open for less than one year are excluded from the composite performance shown. From time to time clients have made special requests that SIM hold securities in their account that are not included in SIMs recommended equity portfolio, those investments are excluded from the composite results shown.
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Performance data presented for 2011 and after:

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  • Reflect the reinvestment of capital gains and dividends.

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