Thursday, 23 June 2011

Apple Stores Will Be Just Fine Without Ron Johnson

I sat in a room with Steve, and he put on the table Apple’s product line. And we had four products, two portables and two desktop computers. The iPod wasn’t created yet. And that was a challenge (with only four products). But it ended up being the ultimate opportunity, because we said, because we don’t have enough products to fill a store that size, let’s fill it with the ownership experience. So we quickly moved from a buying experience to an ownership experience–Genius Bars, theaters, and face-to-face help and friendly people. But we had a liberty that most retailers don’t have that are overstuffed with products. You know, you don’t have the space to innovate.


Ron Johnson, 2005


$1.2 billion.


That’s how much J.C. Penney added to its market cap Tuesday by announcing it had poached Apple retail guru Ron Johnson to become its future CEO.


And for good reason: In retail, Johnson’s record is without rival. Under his leadership, Apple has opened 324 stores since 2001 and is scheduled to open about 40 more this year. According to Barclay’s analyst Ben Reitzes, sales through Apple’s retail stores will likely exceed $16.5 billion this year and grow to over $20 billion in fiscal 2012. As Needham analyst Charlie Wolf told AllThingsD, “Ron is arguably one of the great merchants in America. He and his team basically reinvented the retail concept in the Apple Stores.”


So it’s true that Johnson’s departure is a loss to Apple — a meaningful loss.


But beyond the search for his successor, it really doesn’t change anything.


Certainly, it’s not going to make Apple any less of a retail phenomenon. The company’s strategic direction in that space is set. And Johnson leaves behind him not just a team fully capable of executing it, but a retail business that today is the fourth fastest growing in the world, according to the National Retail Federation.


In other words, the hard work of conceiving and executing Apple’s retail strategy is done. And with the company adding more and more stores, particularly in eager new markets like China, there seems little chance for disruption in growth or performance — certainly not with Apple’s current product line, which continues to draw massive crowds to its retail stores in the States and abroad.


Which brings me to my final point. There’s no question that the decade Johnson spent shaping Apple’s retail strategy was critical to the company’s renaissance. But it’s important to remember that decade was also the one that birthed the iPod, the iPhone and the iPad. It’s those innovative products that played the biggest role in Apple’s retail success and will continue to drive it going forward. And they’re not going anywhere.



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Acer Not Selling So Many Iconia Tabs After All

Remember when demand for Acer’s Iconia Tab was so great that the company reportedly couldn’t keep up with it?


Neither does Acer.


This morning, the company put the knife to its full-year tablet forecast, slashing it by nearly 60 percent. Where once it planned to ship between 5 and 7 million Iconia Tabs in 2011, Acer now expects to ship 2.5 to 3 million, Chairman J.T. Wang told a shareholder meeting Wednesday.


“We have sold nearly 800,000 tablet PCs in the second quarter,” Wang said. “Our shipments of tablets will remain at the same level in the third.”


Evidently, it’s more of a struggle for Acer to replicate in tablets its success in notebooks than the company thought – even with new tablet-savvy leadership in place. That said, Wang believes Acer’s situation is improving.


“Acer’s decline in market share in Europe will stabilize in the second half,” he said. “The third quarter will be considerably more stable. It will be similar to the second quarter or better. The fourth quarter will be even better.”



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Nokia Shares Tanking Like It's 1998

The uptick in value Nokia’s stock enjoyed yesterday sure was short-lived.


Though the company’s shares surged 3.3 percent to $6.31 Tuesday on news of a lucrative patent licensing deal with Apple, they ceded those gains Wednesday as investors concluded that an upfront payment and ongoing royalties from Apple aren’t a cureall for the company’s considerable challenges.


Nokia’s shares, which are down well over 40 percent this year, tumbled 4.8 percent to $5.96 Wednesday, falling below $6 for the first time in more than a decade — 13 years, to be exact.


This despite the consensus among analysts that Nokia stands to collect half a billion dollars from Apple up front and quarterly payments of upwards of $38 million after that.


Even that good news isn’t enough to brighten Nokia’s increasingly gloomy long-term picture.


As I wrote back in May, Nokia’s “burning platform” is now a full-blown conflagration. The company can’t even provide annual targets for 2011 anymore. It’s losing ground too quickly. And with its first Windows Phone 7 devices not expected at market until the fourth quarter — at the earliest — it’s likely to continue losing it for the remainder of the year.



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Dolby Patent Suit Adds to RIM's Woes

Lousy news for Research in Motion on the eve of first-quarter earnings. Dolby Laboratories has filed patent-infringement lawsuits against RIM in the U.S. and Germany, claiming the company built Dolby audio compression technology into its BlackBerry smartphones and PlayBook tablet without obtaining the proper licenses.


Dolby, which claims the technology at issue here is licensed by “all other smartphone makers,” is seeking financial damages and an injunction halting sales of the allegedly infringing products.


“Litigation was regrettably our last resort after RIM declined to pay for the use of Dolby’s technology,” Dolby General Counsel Andy Sherman said in a statement. “We have a duty to protect our intellectual property.”



DolbyComplaint



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Break Out the Pepto-Bismol -- RIM Reports Earnings Today

With its stock hovering around a five-year low, Research In Motion reports earnings today, and after the company’s late April warning, no one seems to be expecting much of it.


Since slashing its estimates for the first fiscal quarter on April 28, RIM has lost about a third of its market value and seen its stock brutalized by downgrade after downgrade after downgrade. The company charted a course for underperformance and has been heading there with due haste ever since.


Analysts, on average, expect RIM to report earnings of $1.32 a share on revenue of $5.15 billion, according to consensus forecasts from Thomson Reuters. That’s on the lower end of the company’s updated forecast and a fraction of the top-line revenue growth it once reported. As for smartphone shipments, mosts analysts figure they’ll come in around 13.3 million to 13.5 million units for the quarter. Expectations for PlayBook sales vary, but most I’ve seen are in the “less than a half million” range.


These are all important numbers, but the real meat in RIM’s financial results will be found around its full-year guidance and executive comments about some promised product launches.


Few believe RIM can hit its projected earnings per share target of $7.50 for the current fiscal year. If things are as bad as they seem, the company’s going to have to abandon it sooner or later and today would be a wise time to do it. As ThinkEquity’s Mark McKechnie said in a note to clients Wednesday, “a lowering of the bar by RIMM’s management [would be] favorable for the stock as it would remove an ‘overhang’ for value investors.”


Want to know another thing that would be favorable to the stock? A refresh of RIM’s dusty BlackBerry smartphone line. And that will likely also be top of mind during the company’s earnings call today as analysts try to determine if RIM will bring its newest handset — the touch-screen BlackBerry Bold — to market before the end of the summer, complete with the Blackberry 7 OS, as promised. Because if it doesn’t and it misses that summer launch window, RIM’s competitive position will grow weaker still.


Said Susquehanna analyst Jeff Fidacaro in a recent research note, “We believe this could lead to an even worse [second half] not simply due to a push-out, but the timing would also pit RIM against the next-gen iPhone, as well as a slew of new Android devices from Samsung, HTC, and others, some with 4G radios.”



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The MacBook Air: Apple's $3 Billion Baby

When he last gauged the revenue opportunity of the MacBook Air back in April, J.P. Morgan hardware analyst Mark Moskowitz estimated it at $2.2 billion. But with a refresh of the machine in the offing and demand for it still strong, he’s reassessed and come up with a new figure: $3 billion.


Moskowitz’s rationale for this is simple: The Air’s sales rose 2.9 percent sequentially in the first quarter, significantly outpacing the Mac’s overall. Add to this the fact that Apple shipped 432,000 MacBook Airs during that period, up 412.9 percent year over year at a time when the broader PC market was down 10.1 percent, and it’s not hard to see that the machine is building up quite a bit of traction in the market.



“Our conversations with industry contacts, coupled with our team’s recent Asia tech food chain trip, indicate that the MacBook sell-in trend continues to exhibit increasing momentum,” Moskowitz says. “Over the next 12-18 months, we think that the average quarterly run rate of the device could reach 700,000 units, which implies a $3 billion-plus revenue opportunity.”


Which, frankly, isn’t that hard to imagine. Certainly not now with the impending launch of iCloud, which will temper the average user’s need for high-capacity hard drives and give the Air storage to match its performance characteristics.



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Patent Ruling Means Nokia May Have to Stop Selling Two Discontinued Devices

After four years of legal wrangling, IPCom has emerged victorious from its battle with Nokia, though perhaps with less than it had hoped to show for its efforts.


The U.K. High Court ruled today that IPCom’s “268″ patent on 3G mobile network technology is valid and found two Nokia devices to have infringed upon it, giving the Bavarian patent licensing company license to seek royalites from Nokia or a ban on the sale of those devices if it refuses to pay up.


Thing is, Nokia claims it no longer sells those devices and that nothing in its current handset portfolio infringes IPCom’s patent.


“We are pleased that the U.K. High Court declared that Nokia’s current products do not infringe the patent,” Nokia said in a statement to AllThingsD. “This means that we can continue selling those products, now with legal certainty.”


And, hey, thanks for clearing up the confusion, IPCom!


As one might imagine, Nokia’s interpretation of the ruling didn’t go over to well with IPCom.


“Nokia is clearly misleading the public on what the court ruled today,” IPCom managing director Bernhard Frohwitter told Bloomberg. “IPCom is ready to enforce the U.K. ruling.”



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RIM Co-CEOs to Critics: We're Awesome and We're Not Going Anywhere



Research in Motion co-CEOs Jim Balsillie and Mike Lazaridis have an answer for critics calling for their ouster, or at least the end of their power-sharing arrangement.


Take off, eh? We’re doing a great job.


During a bizarre earnings call Thursday, the two defended the company’s co-CEO structure essentially by praising one another and their accomplishments together, which, while considerable in the long view, are more than a bit lacking in the short term, as a quick glance at the company’s stock performance this year — or its moldering handset portfolio — will tell you.


“Mike and I would like to address some of the concerns that have been expressed surrounding the executive management structure at RIM and, specifically, the joint nature of our leadership,” Balsillie said. “Mike and I have been partners in this business for almost 20 years, and during that time RIM has grown to $20 billion in annual revenue. We are currently approaching the tail end of a significant transition in our business, that, frankly, few companies would have survived. But we have. And I believe, and I think Mike would agree, that neither of us could have taken RIM this far alone.”


“I agree with Jim’s comments,” Lazaridis added. “Our co-CEO arrangement is what led to RIM’s success over the past two decades.”


That point is well taken; there’s no question the two are responsible for turning RIM into an industry juggernaut. But that’s ancient history now. These are very different times, and Balsillie’s implication that he and Lazaridis are the only two executives on the face of the planet capable of continuing RIM’s legacy seems … questionable.


‘”I expect to see the Maple Leafs win a Stanley Cup before RIM builds a number one phone.”


Bing Gordon, Kleiner Perkins


After all, it’s RIM’s strategic missteps that brought the company to this sorry state in the first place. And responsibility for those rests firmly with the co-CEOs, who clearly had their heads in the sand when Apple’s iOS and Google’s Android first began to emerge as a threat back in 2007.


Yet Balsillie and Lazaridis seem entirely oblivious to this. Certainly that was the appearance they gave during Thursday’s earnings call.


“Jim and I have the perfect balance to make the hard decisions,” Lazaridis said. “This is fun. … We’re changing the world. We’re transforming the way people work. … We birthed a tablet in a year! … We transitioned to a new operating system!”


The only thing more tiring — and frustrating — than listening to the company’s repeated “just you wait, our new device is a quantum leap over anything that’s out there” promises is hearing the two guys who make and then break them congratulate each another on what a fantastic job they’re doing navigating a transition they didn’t have the foresight to prepare for — or see.


That they did this while their stock was tanking — falling some 15 percent as investors reacted to their company’s ugly financials — is simply astonishing.


“RIM has taken a unique path and the reason why we do things might not always be obvious from the outside,” Lazaridis said at one point during the call.


At this point, I wonder if it’s obvious to anyone but RIM’s co-CEOs.



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Analyst Consensus on RIM: Look Out Below

The market’s reaction to Research in Motion’s latest financials was quick and brutal — a 20 23 percent gutting of the company’s stock that slashed more than $7 dollars from its share price. And reading over the slew of analyst downgrades issued this morning, it’s only going to get worse. Consider these headlines: “RIMM: 2 Strikes in 2 Months” (Gleacher), “Miserable Execution Squanders Even Contrarian Bull Case” (Caris) and “Ctrl + Alt + Delete” (Caris).


RIM’s leadership may vehemently insist the company is “through the worst of its product transition” and poised to recover its lost glory, but no one’s buying it anymore.


“Following a full-blown void of new handsets year-to-date, after having already misread customer demands and competitive landscape, it appears RIMM has now sunk into eroding mismanagement, having delayed even just its evolutionary Bold 9900 refresh multiple times,” Caris & Co. analyst Robert Cihra told his clients. “We don’t see this exactly lending confidence to a timely rollout of RIMM’s more critical NEXT generation dual-core “super-phones,” targeted to start launching early CY12 and migrating to RIMM’s new multitasking QNX OS as its long-overdue rewrite of the core BlackBerry OS.”


Citigroup analyst Jim Suva is even more dubious about the company’s outlook. “Bottom line, we believe RIM has no short-term fixes to improve product portfolio, brand perception, to reinvigorate share gains, revenue growth and profitability,” he said this morning. “Can things get worse for RIM … ? We think so.”


Sterne Agee analyst Shaw Wu offered a similarly bleak outlook, saying he’d mistakenly thought consensus estimates for the company had been cut enough to reflect a worst-case scenario.


“As bizarre as this may sound and we admit we may be early, we believe there is risk that its much lowered FY12 guidance may still prove too optimistic,” Wu said. “That’s because even the latest outlook assumes a strong recovery in BlackBerry unit shipments in the second half of the year.”


There was also this from Deutsche Bank’s Brian Modoff, who was put off by the bizarre earnings call performance co-CEOs Jim Balsillie and Mike Lazaridis turned in yesterday. “While the miss did not necessarily surprise us, we were caught off guard by management’s failure to acknowledge any problem with the company and its current strategic position,” Modoff wrote. “When discussing the headcount reduction, they would not acknowledge that it was a re-organization, much less a restructuring – something we would have viewed as a positive. … They also gave a poor answer to a question about the viability of a co-CEO structure. … The casual style of their answer seemed to be more of a staged piece of theatre than a serious answer to a serious strategic question. We think an about-face change to the company message would be welcomed by investors.”


And then perhaps the biggest blow of all. RIM’s sixth-largest investor, Jarislowsky Fraser Ltd., said it had dumped half its stake in the company and planned to unload more in the future. “We are on the way out,” Chairman Stephen Jarislowsky told Bloomberg. “The stake has been reduced by more than 50% or even more. … They are resting on their laurels.”



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Attention D9 Attendees: Unplug That Pogoplug

We don’t normally post recall notices to AllThingsD, but this one might be of special interest to readers who attended our D9 conference earlier this month. Pogoplug is recalling its Pogoplug Video device for potential overheating problems, and if you were at D9, you received one in your schwag bag.



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Apple: Samsung Is an Even Bigger Copycat Than We Thought

Apple ramped up the rhetoric in its patent infringement battle with Samsung on Thursday, filing an amended complaint that includes more allegedly infringing devices and stronger accusations that the company copied the look and feel of its iPhone and iPad.


Which is saying a lot, because as of its last court filing, Apple had taken to referring to Samsung simply as “the copyist.”


“[Samsung's] products … blatantly imitate the appearance of Apple’s products to capitalize on Apple’s success,” Apple says in the complaint, which now weighs in at an impressive 63 pages, up from its original 38. “The copying has been widely observed in the industry and has been mentioned in multiple articles reviewing Samsung products.”


It then goes on to explain just how grievous an offense that alleged copying is, by recounting the years of R&D work that went into developing the iPhone.


“While the iPhone was an instant success, there was nothing instant about the design process,” the complaint reads. “Over the course of several years, Apple had teams of people working on developing each aspect of the design of the phone itself — the shape of the phone, the materials used, and the size and placement of the mask that frames the screen — as well as the Multi-Touch user interface, to make a product that looked and felt entirely different from prior phones on the market. The end result was a very clean shape for the phone, with an entirely flat glass panel for the front, gently rounded corners and integrated casing, and intuitive touch features. Before Apple’s introduction of the first iPhone product, no other company was offering a phone with these features.”


But there were quite a few that came after it, including a bunch from Samsung, Apple says. Among them, the 15 devices Apple singled out in its first complaint and the 12 new ones it added to it Thursday.*


So, a significant escalation of hostilities, particularly coming as it does on the court-set deadline for Samsung to provide Apple’s outside counsel samples of its already-announced upcoming products, including the Galaxy Tab 10.1, Infuse 4G, and Droid Charge.


*Samsung devices mentioned in Apple’s original complaint: Captivate, Continuum, Vibrant, Galaxy S 4G, Epic 4G, Indulge, Mesmerize, Showcase, Fascinate, Nexus S, Gem, Transform, Intercept, Acclaim and Galaxy Tab.


Samsung devices added in Apple’s amended complaint: Droid Charge, Exhibit 4G, Galaxy Ace, Galaxy Prevail, Galaxy S (i9000), Gravity, Infuse 4G, Nexus S 4G, Replenish, Sidekick, Galaxy Tab 10.1 and Galaxy S II.


Update: At a court hearing on Friday, the judge in the case encouraged the two sides to negotiate with each other, according to a Reuters report.


Apple’s lawyer told the judge that the case has gotten the attention of top executives at both companies, Reuters said. The judge asked whether the two sides might be willing to talk to one another, even joking that he would throw in a box of chocolates to get things going.


“They are in fact meeting and talking,” Apple attorney Harold McElhinny said, according to Reuters.



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Apple and Intel Could Raise Ante in Google's Play for Nortel Patents

Earlier this week Nortel postponed the bankruptcy auction for its collection of 6,000-plus wireless patents by seven days, citing a “significant level of interest” in them. Now the source of that interest has been identified: Intel, Ericsson AB and patent risk solutions provider RPX, who’ve all been accepted as qualified bidders in the June 27 auction.


Also qualified as a bidder: Apple, which, as AllThingsD reported back in December, has been sniffing around Nortel’s IP for months now.


With these four participating in the auction for Nortel’s portfolio, it seems almost certain Google will have to raise its $900 million “stalking-horse bid” if it hopes to prevail. Already some private equity investors are saying the final price on the patents may reach $1.5 billion if a real bidding war erupts over them.



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Consumers Don't Want Tablets, They Want iPads

A theory: Though consumers desire the iPad for the functions it performs, they want it more for what it is. Just as many preferred the iPod to the generic MP3 player, so too do they prefer the iPad to the generic “tablet.”


Apple is succeeding in the category because it reinvented it. Now anyone that hopes to compete in it must do so by peddling products similar to it. And because of that, Apple will dominate the tablet category in much the same way it dominated the portable music player category.


So there is a tablet market, but it’s been subsumed by the iPad market, just as the MP3 player market was engulfed by the market for the iPod.


Consider this observation from a new Bernstein Research survey: “We find that consumers are not interested in form factors that deviate from the benchmark set by Apple. Few consumers, less than 15 percent prefer the 7″ screen size versus the 10″ screen of the iPad. Over 50 percent of respondents are firmly in favor of the 10″ screen, which leads us to conclude that the 7″ tablet models recently launched, like the BlackBerry PlayBook, are destined for failure. Consumer’s preference for the 10″ form factor explains the lukewarm response to Samsung’s 7″ Galaxy tablet and the rapid introduction of larger screen models in that series.”



In other words, success in the tablet market may well be dependent on how similar a manufacturer’s offering is to the iPad. Which is quite a challenge given the formidable combination of hardware, software and app ecosystem that the iPad represents — not to mention the sheer power of its brand.


Said Bernstein, “Fifty percent of respondents preferred Apple over all other brands. There is a remarkable degree of unanimity in consumer’s preferences for the iPad over competing products. … In the US, we find that Apple has more than double the brand appeal of BlackBerry, HTC, Motorola, Nokia and Samsung combined. These manufacturers have a very high level of brand equity and visibility in adjacent categories. It is striking that they hold so little appeal for consumers in tablets.”


No surprise then that Bernstein sees the tablet market playing out in two ways, each with Apple in the catbird seat.



UPDATE: Some additional perspective on this from Instapaper creator Marco Arment (via Daring Fireball)



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The Total.Chaos Domain Has Already Been Registered? How About Shameless.Money.Grab?

Think Internet domain namespace is an unnavigable mess now? Just wait. ICANN, the Internet’s body for domain-name management, today voted to allow domain names using any combination of letters, including non-Latin characters. Beginning next year, anyone can register as a TLD (top-level domain) any combination of letters they like, their range limited only by the breadth of their own imaginations and the $185,000 application fee.


“This may be the dawn of a new age of online innovation in the domain name space. … The Internet’s addressing system has just been opened up to the limitless possibilities of human imagination and creativity,” ICANN chief executive Rod Beckstrom said during a press briefing this morning.


But by “limitless possibilities of human imagination and creativity,” he really meant corporate imagination and creativity. Because that’s who’s being targeted here: Entities with the money to blow on $185,000 TLD application fees and a desire to promote themselves. This is going to be a massive brand-identity landgrab and one that’s unlikely to do much good for consumers, but plenty for ICANN and its coffers.



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QOTD: Maslow Revisited

Among the hierarchy of human needs, we believe — somewhat facetiously, but not entirely — that voice and data connectedness is now third behind food and shelter.


— Bernstein Research



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Speaker Series: Michelle Rhee on putting Students First

Ed. note: Michelle Rhee, Founder & CEO of StudentsFirst and former Chancellor of the D.C. Public Schools, recently spoke at LinkedIn’s Mountain View campus as part of our inDay Speaker Series. Check out Michelle’s entire presentation here.


For those familiar with the debate over school reform, Michelle Rhee needs no introduction. With a strong sense of purpose, she has become a passionate champion for the transformation of education in this country.


Known for her bold, controversial moves to overhaul D.C. public schools, Michelle has taken her cause nationally as the Founder & CEO of StudentsFirst, an organization dedicated to transforming public education in America.


Michelle spoke about what she’s doing to reform the U.S. public school system – and put students first – during a presentation at LinkedIn’s corporate headquarters in Mountain View. See a brief overview below or click through the entire presentation here.



Michelle talked about how, as a nation, the United States’ public education system has fallen behind and how even our best performing students are not competing globally. The top 5 percent of children in the U.S. are ranked 23rd among 29 developed nations across the globe. “We’ve lost our competitive edge and our competitive spirit” Michelle said. “If we continue to build a culture where we’re allowing kids to celebrate mediocrity, we’re going to lose overall as a nation.


Her solution: to start a movement on behalf of the nation’s children by mobilizing parents, teachers, administrators and others to take action and produce meaningful results on both the local and national level.


Michelle launched StudentsFirst with an audacious goal: to raise $1 billion with 1 million members by the end of this year. Within the first week, the organization had 100,000 members. Through Michelle’s passion, StudentsFirst has tapped into a desire of the American people to get involved in education and do something about the problems they see.


Social media can be a transformational force to engage with large groups of people across the country, she said. It can bring together not only those whose viewpoints vary widely, but also like-minded individuals—such as teachers who support education reform, to let them know they’re not alone.


Michelle’s presentation is a continuation of our LinkedIn Speaker Series, featuring interviews with industry leaders and visionaries—many of whom are transforming the education world – like Charles Best from DonorsChoose.org or Salman Khan of the Khan Academy.


Check out our past Speaker Series videos here.


Stay tuned for more Speakers Series presentations in the months to come. Do you have a request for interesting individuals who you’d like to see included in our Speaker Series? Share your comments below!



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