Analysts’ Ideas of the Week – AC/DC in Data Centers · 2013-10-28 · Theater Takes 50% $ 4.50...

Week of October 28, 2013

2013 Fundamental Research Corp. “ 10 Years of Bringing Undiscovered Investment Opportunities to the Forefront “ www.researchfrc.com

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Analysts’ Ideas of the Week – AC/DC in Data Centers www.researchfrc.com

Daniel Iwata, BA, Dip. Fin. Mgmt. Equity Research Associate AC/DC in Data Centers Continuing on our discussion on data centers, this week we look at the benefits of direct current (DC) power in Data Centers. Companies such as Facebook (NASDAQ: FB), Boeing (NYSE: BA) and Sprint (NYSE:S) have been experimenting with direct current architecture for their data centers over the traditional alternate current (AC) powered systems. We feel that DC has many benefits over AC for enterprise data centers and companies are beginning to explore the benefits of DC. AC power is the dominant form of electricity because it can alternate voltages, which is better for distributing power. This has made it the source of power throughout homes and electricity grids. However, the primary power source for electronics is direct current (DC power). Therefore, there are adaptors connected from the wall socket to your laptop and other devices. The conversion of AC to DC power is very inefficient, with up to 20% of electricity lost (think of the heat generated in the adaptor). DC conversion can reduce the number of AC / DC conversions by half. AC is also very inefficient because it is always running, and converting power to the device, even when it is not in use. For datacenters who operate thousands of servers, this lost energy due to conversion can be very costly. SAP (NYSE: SAP) found a $124,000 retrofit of one of their data centers saved $24,000 a year in electricity. Some companies have started developing DC data centers to increase efficiency. Large server manufacturing companies such as IBM (NYSE:IBM) are also producing more DC powered equipment.



Other benefits of DC data centers are:

Less wasted electricity (heat) allows for reduced cooling and less maintenance Fewer points of failure for the system Lower initial capital costs because DC systems require less equipment 25-40% less square footage due to less equipment (mostly backup power sources) Easier to convert solar and wind power into a DC electricity grid.

Although this technology has been developing for some time, the new USB PD device by Intel (INTC) is set to launch in 2014/2015. This will allow USB ports to charge up to 100 watts of power. We feel this will increase the awareness of DC power and the efficiencies. We would continue to watch the industry as it develops. Investors can follow Validus DC Systems and SGI (NASDAQ: SGI) for exposure to this technology. Validus is among the leaders in DC power centers, but is a private company. ABB, a global power and automation technology group, purchased a controlling stake in Validus in 2011. Investors can also look to SGI (NASDAQ: SGI) which designs, markets and sells servers and data storage solutions. They design and provide DC powered data centers.

Pooneh Ruintan, MEcon. Msc. Finance Equity Research Associate Independent film financing Part 2 As I described in my article last week, it is important to note that there are multiple exit strategies for film investors looking to get back their capital. Some do not even involve waiting until a film is released in theaters or other channels. Every year, there is at least one independent film whose distribution rights are sold on the spot for a multiple of its production budget. In such cases, everyone in that film earns a theoretical profit before the film has even started its commercial life. This return of capital eliminates the investor’s exposure to performance risk. Now, I want to discuss how investors and producers make money after releasing the film in theaters and other channels.



Let’s assume that a film that already has worldwide theatrical distribution rights, performed well at the box office in North America. Under a typical model (as there are at least 3 different models), the exhibitor that operates a movie theater, will retain about 50% of all ticket sales net of sales tax (10% in this scenario). From the remaining 50%, distributors will recoup their $500k Minimum Guarantee, and P&A expenses (for independent films, typically about 15% of worldwide box office sales). Also, distributors collect distribution fees which can be about 15-25% of the remaining ticket sales). Depending on other agreements, residual payments and talent participations might also be paid (these are called “exploitation costs” which are typically 10% of box office receipts). Now comes the point that financiers and investors start to receive their money back. The flow of DVD and Video On Demand’s (VOD) revenues are also similar to theatrical flows, which are described in the table below. (all figures and percentages are just examples, and are provided for educational purposes to simply give readers an idea of how cash flows breakdown)

Box off ice Revenue "BO" 10.00$

Net af ter 10% tax deduction

9.00$

Theater Takes 50% 4.50$ Distributor Takes MG ($500k)and P&A(15% of the BO)

2.50$

Dirstributor Fee (15-25%), w e assumed 20%

0.50$

Producer's Share 2.00$ Less Other costs: 10% of the BO

1.00$

Net Producer's share 1.00$

Revenue 1.00$ Net af ter 10% tax deduction

0.90$

Retailer pays 50% to distributor

0.45$

Dirtributor Takes MG ($100k)and marketing expenses( $100K)

0.25$

Dirstributor Fee (15-25%), w e assumed 20%

0.05$

Net Producer's Share 0.20$

Revenue 0.10$ less all the related costs (50%of the total)

0.05$

Net Producer's Share 0.05$ Total producer's share w hich is left for financier and investors

1.25$

Return 0.13$

Revenue Waterfall for Theatrical ($million)

Revenue Waterfall for DVD ($million)

Revenue Waterfall for VOD ($million)

Source: http://www.filmspecific.com and FRC



As a general rule, the first money received from net distribution revenues will be paid to senior debt, mezzanine debt and equity investors, respectively. Once the production budget and any preceding overhead and development costs are “recouped”, the film is said to have reached its break-even point. This then triggers a profit-sharing arrangement between the producer and investors. The film’s stars, writers, and director tend to be paid from the producer’s profit. At FRC, we cover two film financing film funds: Productivity Media and 982 Media. Productivity Media provides late stage debt financing mainly in the forms of pre-sale and gap-financing, and 982 Media provides mainly P&A financing.



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Analysts’ Ideas of the Week – AC/DC in Data Centers · 2013-10-28 · Theater Takes 50% $ 4.50...

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