Cracking The DeVice Code

Looks like Martin, Larry, Sean & Co. were dead right about oil and gold.

Geez. Just yesterday, gold rose another $5 and change, while oil zoomed by nearly $2 per barrel.

These markets are running fast. And theyre showing no sign of slowing down. If anything, like Martin told you yesterday, theyre just beginning to accelerate higher.

So Wall Street is in a state of shock. But you should not be at all surprised. Youve been reading about all this, well ahead of time in Money and Markets.

Meanwhile, in my world technology I see an equally large profit opportunity, provided you can crack what I call the DeVice Code.

In other words: Find the single device that will revolutionize our world, follow it with your money, and then ride it as far as it will take you. Specifically consider this question:

Which device is potentially more popular than an iPod and possibly more profitable than selling 40 million copies of The Da Vinci Code?

Ill give you my answer in a moment. But first let me tell you how I discovered it …

Why I Didnt Sleep Enough
On My Last Flight to Taiwan

My desk is piled high with research, quarterly and annual reports, industry studies, technical journals, trade publications, press releases, and a wheelbarrows worth of newspapers and magazines.

So usually, I have no time for fiction. But for my 14-hour flight from Los Angeles to Taipei last month my wife Kelly gave me The Da Vinci Code. The book was so good I found myself spending too much time reading and not enough time sleeping.

About 40 million other people must feel the same way because thats how many hardback copies Random House has sold. That makes The Da Vinci Code the second best-selling book of all time (behind the Bible).

Plus, over the next few weeks, youre going to hear a lot more about the book than you probably ever want to hear: The movie adaptation hits theaters on May 19.

What do fictional novels like The Da Vinci Code have to do with making money? Plenty!

Thats because a new piece of technology is going to forever change the way many of us read books, newspaper, and magazines.

Doodad Deluxe:
The Sony Reader

Sony (SNE), one of the most innovative technology companies in the world, is about to release a new product that will revolutionize the book industry much like the iPod revolutionized the music industry: The new Sony Reader.

The Reader, expected to hit U.S. retail shelves this summer, is an amazingly functional and lightweight (8.8 ounces) portable electronic book reader that keeps hundreds of books at your fingertips.

It is roughly the size of a paperback novel but much, much thinner. It uses an innovative electronic display system that delivers a crystal-clear image that truly rivals traditional paper. In fact, when I looked at a Sony Reader in Hong Kong, the text was so ink-like, at first I thought it was a printed page with a plastic wrapping.

The large, six-inch screen is easy to read in any lighting, and can be viewed from nearly any angle. But my favorite feature is the ability to enlarge the text by up to 200%, allowing me to read without glasses.

You wont have to worry about your battery running out, either. One charge lasts long enough for the average reader to get through about 7,500 pages. Heck, you could probably read The Da Vinci Code 16 times before running out of juice.

And Guess What!
You Get the Books
With the Reader.

For investors, the key is that Sony is copying Apples ultra-successful business model by bundling the hardware and the books into one easy-to-sell package.

The Sony Reader will retail for $299 to $399 depending on accessories, and Sonys online bookstore will offer about 10,000 titles, including The Da Vinci Code. Youll be able to download hundreds of books within a few minutes of taking a Sony Reader out of its box.

Heres the part youll really like: All of those books will be priced at approximately 20% to 25% below the regular retail price. For example, The Da Vinci Code will only cost $14.95.

Not sure which book to buy? No problem. For a taste, you can also download the first chapter of each book. Or your reader can get you the latest book reviews and author bios.

Most people dont like reading a book on a computer screen. But this format emulates the size and convenience of a paperback book so neatly, it should easily overcome that objection. More so than any other technology in recent memory, it has the potential to transform the world of reading forever.

Books Today; Newspapers Tomorrow

The applications for the Sony Reader go far beyond just books.

For example, several major newspapers are testing e-paper initiatives that would turn the Sony Reader into an automatically updated electronic newspaper.

With a simply Wi-Fi attachment, the Sony Reader can download news on the fly, which means that someone sitting in a train or coffee shop can have their newspaper delivered right to their fingertips. Instantly and always up to the minute.

De Tijd, a Belgian financial newspaper, launched an e-paper test to a select group of its subscribers this month and has ambitions to roll it out to its entire base. Other newspapers, like the Financial Times and New York Times, are close behind.

Plus, the Sony Reader also reads PDF files; Internet downloads, such as blogs and news sites; JPEG photos, and AVG audio files.

In the very near future, I envision a world where trains, planes, and breakfast counters are filled with people glued to their Sony Readers, and I wouldnt be surprised if Sony Readers become even more common than iPods.

Enjoy the Doodad,
Love the Stock

As you can no doubt tell, I am pretty impressed with Sonys Reader.

More importantly, I expect the product to supercharge Sonys profits, much like iPod did for Apple.

Consider this: Apple Computer has sold 1 billion songs through its online iTunes store. At $0.99 a song, thats a ton of money, and the major reason that Apples stock has increased 1,000% since the start of 2003.

The book market is equally juicy, if not more so. According to the Association of the American Publishers, Americans bought $25.1 billion worth of books in 2005.

Its too soon to say what chunk of that book market Sony will end up capturing. But Im pretty certain about one thing: It wont be small!

Not a One-Hit Wonder

In addition, theres a lot more to love about Sony than its new Reader. The company is well diversified, with an array of business units:

Electronics: Audio, video, televisions, communications, and semiconductors.
Gaming: PlayStation game consoles and gaming software.
Music: Production and distribution of music.
Pictures: Production and distribution of motion pictures and television programming.
Financial Services: Life insurance, leasing and credit financing, and Internet-based banking.

Big products to watch include Sony Playstation 3, which is scheduled for a November release, and Blu-Ray, a new DVD format.

Never heard of Blu-Ray? These new DVDs look identical to conventional DVDs. But they offer several advantages:

Advantage #1: More Data. Blu-Ray DVDs hold as much as 20 times more data than traditional DVDs. Not only does this allow more information on a single disc it also improves picture clarity significantly. Think about that 20 times more movies, 20 times more songs, and 20 times more lines of code, graphics, and text.

Advantage #2: Interactivity. Blu-Ray DVDs not only store more digital data, they can also download and record data from the Internet. This has huge commercial applications. Example: A kid could buy a Spider-Man 3 Blu-Ray DVD and decide to buy the Spider-Man video game, movie soundtrack, or a copy of Spider-Man 1 and Spider-Man 2.

Plus, he could seamlessly switch among a movie, a 3-D version of any particular scene, an interactive game based on the movie, or the movie soundtrack.

Advantage #3: Security. Movie and record companies are losing billions of dollars to piracy. The situation is so bad that movie theaters in Asia and Eastern Europe are slowly but steadily going out of business.

Blu-Ray DVDs make it possible to stop that kind of piracy in its tracks, putting billions in lost revenues back into the pockets of movie and record companies. Do you think those industries are interested in Blu-Ray DVDs? Bet your boots they are!

Buy on the Dips

My Conclusion: Sony is a great company with a very bright future, but that doesnt mean you should rush out and blindly buy it. After all, the company just reported its first-quarter results last week and they werent good.

Sony has been on a cost-cutting crusade ever since Howard Stringer, the first foreigner to head Sony, took over ten months ago. As a result of massive restructuring costs and heavy R&D investments for the Playstation and Reader products, Sony reported a $581 million loss for the first quarter.

In addition, I dont expect the Reader, Blu-Ray, or Playstation 3 to make a meaningful impact to Sonys bottom line until later this year. So, the best strategy may be to wait for Sonys stock to get a bit cheaper. This is exactly what I plan on doing. Then, I plan to jump in with both feet.

Another Company
To Watch Out For

Sony is a giant company. You cant bet purely on the Sony Reader by buying Sony shares.

But if youre interested in a pure play on media readers, keep your eyes peeled for an IPO by iRex Technologies, a small Danish company, which is a spin-off from Royal Philips Electronics.

Why? Because it will be making its own version of a portable electronic reader called the iLiad.

Because its a start-up, its shares are certainly going to be a more risky and volatile investment than Sonys. But it could also turn out to be like investing in Apple when it was still operated out of Steve Wozniaks garage.

Final Thought: Keep Looking Overseas

Frankly, my larger point is that there are lots of attractive technology companies abroad. Whether its Sony in Japan or iRex in the Netherlands, youre missing out on a world of opportunity if you are only investing in the United States.

So stand by. And dont be surprised if, one day in the not-too-distant future, you find yourself reading our daily Money and Markets on a portable reader.

Best wishes,

Tony

For more information and archived issues, visit http://legacy.weissinc.com.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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