Boeing to Chop 10,000 Jobs

With demand for commercial jets losing altitude, Boeing (BA) reported a $56 million net loss for the fourth quarter of 2008 and said it is taking some tough steps to keep itself aloft. Will the moves pay off? It's not clear, and Boeing managers for now say they can't see well enough beyond 2009 to make a firm call. The "visibility" just isn't there from 2010 and beyond, says CEO W. James McNerney Jr.

Boeing on Jan. 28 reported surprisingly bleak results, even as its top executives forecast a modest rebound in sales this year. McNerney, citing "challenging economic times," doubled the number of jobs he plans to cut this year. Whereas Boeing on Jan. 9 said it would lop some 4,500 jobs from its commercial plane unit, McNerney hiked the figure to 10,000 on Jan. 28 and said the cuts would be spread all across Boeing's global operations, most of them in places other than the company's Seattle-area commercial-plane facilities. Such steps, amounting to a 6% trim in Boeing's workforce, are needed to preserve the company's financial strength, McNerney maintained.

For now, Boeing is sticking with plans to put its new 787 Dreamliner commercial jet into the air by June. After nearly two years of delays, the 787 remains on target, the company said. So far, only one customer has backed off on orders for the new plane, and its orders were scheduled for delivery late in the next decade. Boeing has some 895 orders on the new jet from 58 customers.

Impact of Machinists' Strike

Clearly, McNerney feels he must move aggressively to preserve the company's profit margins as tougher times loom. The company blamed most of its fourth-quarter loss on the 57-day machinists' strike that brought plane deliveries to a halt. The stoppage cut revenues 27% from the closing quarter of 2007, to just $12.7 billion, and trimmed operating earnings by some $1.2 billion.

In addition, Boeing had to charge off about $685 million because of costs in a delay-plagued update to its line of 747 superjumbo jets, including a freighter now due out late next year and a passenger version of the old plane planned for mid-2011. The red ink also included a reserve Boeing has set aside for litigation over faulty satellites.

The problems drove down full-year 2008 net income by 34%, to $2.7 billion, while revenues fell 8%, to $60.9 billion.

McNerney expects that sales will come back. With some 480 to 485 commercial planes on target for delivery this year—up sharply from the strike-shortened tally of 2008—he's predicting that sales will climb to between $68 billion and $69 billion for 2009. Still, this will be up modestly from 2007, when revenues came in at $66.4 billion.

But the CEO is pointedly not making any predictions for 2010 yet. Boeing managers believe they can forecast sales gains for this year because planes ordered long ago will only now be delivered. (The company records sales on the delivery of its planes.) But McNerney did say he expects some orders to slip for planes due out later, as airlines—especially those outside of North America—retrench in the global slowdown.

Cuts in Support and Administrative Staff

Even as the company makes plans to downsize, it is expecting to keep engineers and assembly-line staff on the job. The cuts in the commercial plane unit are expected to fall largely on support and administrative staff. Boeing already is feeling a strain from reduced labor in some of its production areas. In explaining delays in producing the new versions of its 747 plane, Boeing cited "limited availability of engineering resources inside the company." The planemaker also faulted design changes in the plane.

Unsurprisingly, the plans for job cuts are getting a cold reception from union leaders. Charging that delays in the production of the Dreamliner was a result of "poor management decisions" and "a business model that failed miserably," International Association of Machinists & Aerospace Workers District President Tom Wroblewksi said Boeing should cut contractors before axing employees. Boeing has not yet said how many—if any—production workers will be trimmed, but the union chief vowed that "subcontractors remaining on the property while our members receive layoffs are totally unacceptable and will be challenged."

Even amid all the problems, some analysts believe Boeing will do well at least this year. Aviation analyst Paul Nisbet of JSA Research argues that the company is still blessed with a 3,700-plane order backlog and that any cancellations or deferrals of orders by hard-pressed airlines will be offset by demands from other carriers in better financial shape. Nisbet adds that production for most of Boeing's jets is humming along at or near capacity. Moreover, he says the long-delayed 787 should soon take wing. "You look at all these factors together and it's a brighter picture for this year than many analysts and investors were anticipating," Nisbet says.

But for 2010, the analyst shares CEO McNerney's uncertainty. "That depends very heavily on the economy and what happens to oil prices and what happens to airlines in general," Nisbet says. "Who knows?"

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Onyx, a Sweet Deal for Bayer?

Big pharmaceutical makers, of late, have dominated the business news as the world's largest drugmaker, Pfizer (PFE), agreed on Jan. 26 to acquire Wyeth (WYE) for $68 billion. Now the buzz on Wall Street is, "Who's next?"

Certainly the Pfizer-Wyeth deal has brought a large dose of excitement to the otherwise moribund world of pharmaceuticals and biotechs. And analysts say the deal has stirred interest among some in the industry to hatch their own buyout or merger plans.

Some targets may be companies still below the radar of most investors, and may already have close partnerships with big drugmakers.

Competing with Pfizer

One such is Onyx Pharmaceuticals (ONXX), which is developing oral anticancer therapies designed to prevent cancer cell proliferation. Sales of Onyx's drug Nexavar have been strong for the treatment of kidney cancer (renal cell carcinoma), and analysts say it has the potential to become a blockbuster.

Interestingly, Nexavar competes with Pfizer's Stutent, which the Food & Drug Administration approved in 2006 for the treatment of both advanced kidney cancer and gastrointestinal tumors. Wyeth also has a new drug for kidney cancer called Torisel, approved by the FDA in May 2007. Onyx's Nexavar, O.K.'d by the FDA in December 2005 for kidney cancer and in 2007 for liver cancer, also got a green light for marketing in the European Union as well as in Japan, China, and South Korea.

Like other small drug companies, Onyx has partnered with a global drugmaker. Germany's Bayer, which trades in the U.S. over-the-counter market under the symbol BAYRY, and Onyx split the development cost of Nexavar and will divide profits on a 50-50 basis worldwide, except in Japan, where Bayer will pay a percentage of royalties to Onyx on sales in that country. In the first quarter of 2007, Nexavar sales produced a $3 million profit for Onyx, making the product a moneymaker for the first time.

Bayer, which offers a wide variety of products, including prescription drugs, diagnostics, and health-care consumer items as well as chemicals and agricultural products, "is the ideal company that could logically acquire Onyx," says Grant Zeng, health-care analyst at Zacks Investment Research, who rates Onyx a buy.

Bayer Gets Entre to Cancer Market

The German company, says Zeng, is starting to shift some of its focus to oncology, where it isn't a big player yet. Buying Onyx would quickly advance its position in the huge cancer market, says Zeng. Onyx and Bayer are working on expanding the application of Nexavar to other cancer indications, including non-small-cell lung cancer.

"Obviously, with its close collaboration with Onyx on Nexavar, Bayer already knows Onyx very well and could easily assess its value to its own operations," says Zeng. He figures that by 2010, sales of the drug will balloon, to $1.1 billion. In the third quarter of 2008, sales totaled $181 million, up 73% from a year ago. Based on Nexavar's strong sales in the first nine months of 2008, Zeng expects Onyx to post its first full-year profit in 2008. He figures the company earned 79 for the full year.

Zeng puts the value of Onyx at 45 a share based on his 2010 earnings projection of $2.14 a share. In an acquisition, it could fetch a higher price, says Zeng. Other large drugmakers, he adds, could also be attracted to the company.

Affordable

Surely Onyx's large institutional investors, which control some 90% of shares outstanding, will back a reasonable deal. The largest holder is OrbiMed Advisors, with a stake of 7.3%, followed by Fidelity Management & Research with 6.7%, Wellington Management, 5.8%, and Barclays Global Investors (UK) Holdings (BCS), 4.3%.

With a market capitalization of $1.8 billion, Onyx would be easily affordable for Bayer, whose market cap exceeds $43 billion. Shares of Onyx hit a 52-week high of 49.97 a share on Jan. 30, 2008, but tumbled to a low of 21 in October. The stock has since recovered, to 31 on Jan. 27. Bayer, on the other hand, has climbed from its 52-week low of 44 in November to 55 on Jan. 27, but is still below its 52-week high of 89 last May.

The recent rebound in Onyx shares is seen by some investors as an indication that the stock may be attracting new buyers, especially in light of Pfizer's acquisition of Wyeth. It would make sense for Bayer to act sooner than later if it is interested in acquiring Onyx, says Zeng.

But will it? Bayer couldn't be reached for comment, and it hadn't replied to an e-mail seeking comment at the time of publication. Onyx did not return a call seeking comment

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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Even Once-Strong Housing Markets Stumble

Home prices in 20 major metro areas nationwide fell 18.2% in November—a record annual pace—as the deteriorating economy pulled down previously resilient markets, according to the S&P/Case-Shiller Home Price Index released Jan. 27.

All 20 metro areas in the index saw annual price declines, 14 of which were double-digit drops and 11 of which fell by record rates. Only Denver and Dallas experienced a drop of less than 5%.

The index, which is a three-month moving average ending in November, captures the impact of the financial crisis following Lehman Brothers' collapse in September. The November decline was terrible, but it wasn't much worse than the October drop, said Patrick Newport, U.S. Economist for HIS Global Insight.

"There is so much inventory," Newport said. "Prices are going to continue to drop for quite a while."

Bargains in Worst Markets

But in the worst markets, including Miami, Phoenix, Los Angeles, San Diego, and Las Vegas, the year-over-year price declines—though deep—have remained relatively flat since the summer. A wave of foreclosures has depressed prices so much in those markets that investors and other first-time home buyers have moved in to scoop up bargains. According to a survey released on Jan. 26 by the National Association of Realtors, sales of existing single-family homes jumped an unexpected 7% in December from November's seasonally adjusted annual rate.

In Los Angeles, for example, the annual decline has stayed between 25% and 27% since June, according to the index. In Miami, the annual declines since may have remained in the 28%-to-29% range.

"If you buy a home and rent it out in these markets, you can have a positive cash flow just because prices are so low," said Mike Larson, a real estate analyst with Weiss Research in Jupiter, Fla. "Even though the economy is crummy, some investors are willing to nibble when the price is right."

Other resilient markets were feeling the impact of the economic downturn. Year-over-year declines have been accelerating in Minneapolis, Boston, Chicago, Seattle, Atlanta, Washington, Detroit, San Francisco, and Charlotte, N.C.

Charlotte Market Stumbles on Banking Woes

In Atlanta, for example, the year-over-year declines increased steadily each month, from 2.12% in November 2007 to 11.25% in November 2008, according to the 20-city index. In Charlotte, the banking capital of the South, home prices fell 5.33% in November 2008. By comparison, prices jumped 2.9% in November 2007.

The Charlotte housing market was relatively stable until the summer because the area had benefited from a population boom and a strong job market. But buyers grew cautious as problems worsened in the financial sector. Charlotte-based Bank of America (BAC) plans to eliminate up to 42,500 jobs worldwide as a result of mergers with Countrywide Financial and Merrill Lynch. And Wells Fargo (WF) also is expected to cut local jobs as a result of its acquisition of Charlotte-based Wachovia.

"People don't know how many layoffs there will be in Charlotte," said Professor Steven Ott, director of the Center for Real Estate, University of North Carolina at Charlotte. "There's a lot of uncertainty."

Charlotte appraiser Steven Stone said Charlotte's problems have worsened since November. Home sales were off 40% in December compared to the previous December. And prices are now down 15% to 20% for homes above $600,000 and down up to 20% for starter homes, he said.

The financial crisis is the "main reason Charlotte took the last punch compared with other markets," Stone said.

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A Red-Letter Day for Layoffs

In a single day, on Jan. 26, at least 50,000 new layoffs were announced at companies as varied as telecom giant Sprint Nextel (S), construction equipment maker Caterpillar (CAT), semiconductor manufacturer Texas Instruments (TXN), and pharmaceutical house Pfizer (PFE).

It was a stark reminder of how rapidly the recession is claiming jobs. Already 170,000 jobs have been lost in January. The U.S. economy lost 2.6 million jobs in 2008.

The worst news, though, may be that some economists say in their most optimistic view the U.S. has only reached the halfway mark in terms of the layoffs expected for this recession. A growing number of economists also say that the U.S. economy is not just shedding jobs temporarily, but may be undergoing a painful restructuring process that will eliminate some types of jobs for good. "We are seeing very large layoffs—the kind you get when companies don't expect to be re-employing any time soon," says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland. "They [represent] structural, not cyclical, changes to the economy. We're looking at a permanently smaller economy with prolonged unemployment at an unacceptable level."

Jobs Gone for Good

Morici says that housing, real estate, automobiles, finance, and retail sectors are resetting to "permanent lower levels" of employment. Mike Montgomery, an economist with IHS Global Insight, asserts that many jobs in autos, manufacturing, apparel, and textiles aren't coming back. Those industries "have been in a long-term decline, and the recession is knocking them out."

"We are very early in the cycle," says Morici. "We are going to see the fury of the Old Testament for what we have done to the economy."

Many economists see nationwide unemployment rising to at least 9% this year, possibly reaching double digits in 2010. Thirteen states are already above the national average of 7.2%, with Michigan (9.6%), Rhode Island (9.3%), California (8.4%), and South Carolina (8.4%) topping the list.

Worst Since 1982

On Jan. 26, a National Association for Business Economics (NABE) survey depicted the worst business conditions in the U.S. since the report's inception in 1982.

Among the cuts announced on Jan. 26:

• Caterpillar, the world's largest maker of mining and construction equipment, announced 5,000 new layoffs on top of several earlier actions. The latest cuts of support and management employees will be made globally by the end of March. The company says it is in the process of shedding about 20,000 jobs. The company employs 112,000 worldwide.

• Wireless phone carrier Sprint said it is eliminating about 8,000 positions in the first quarter as it seeks to cut annual costs by $1.2 billion. The layoffs will trim about 14% of Sprint Nextel's 56,000 employees. The company said it is also suspending its 401(k) match for the year, extending a freeze on salary increases, and suspending a tuition reimbursement program.

• Pharmaceutical company Pfizer, which announced a deal to buy rival drugmaker Wyeth (WYE) for $68 billion, said it would cut 8,000 jobs. The cuts will begin in the first quarter and are to be complete by 2011, according to company spokesman Ray Kerins. Cuts will include most departments, from administration and sales to manufacturing and research.

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Five Years to B-School: The Fourth Year

To help you, BusinessWeek.com is launching a new series: a five-year planner for business school. The five-part series—this is the fourth—will provide a year-by-year guide to what you should be doing and thinking about in building the sort of rsum and skill set that will be attractive to MBA admissions committees.

In Year One, you learned about how to get your career started on the right foot and find a mentor. In Year Two, you made inroads in the office and learned how to get noticed by the right people. Year Three was a turning point, when you might have moved to a different company or accepted a promotion. Now, in Year Four, you must make your mark and start preparing for the MBA application process. This is the year that you start tracking your achievements and devising future goals, so that you will be able to knock out a solid application essay and make a big impression in the interviews next year. There's no time to waste, so here goes:

BROADEN YOUR EXPERIENCES

By now, you should have been promoted at least once, perhaps twice. You are probably comfortable in the role you have at your company. If you can, take on projects and duties in other departments to get exposure to different careers and to show that you can wear many hats. This kind of work, besides serving as additional research as you decide exactly what you want to do post-MBA, can be great fodder for the application essay and interview. You might also pick up additional skills, which should be a goal of yours, especially if you plan on using the MBA to switch careers.

Just because you have earned a promotion or two does not mean that you should rest on your laurels. You still should strive to stand out at the company. Take advantage of leadership opportunities such as heading up a committee. Create projects and initiatives. Try to win awards for your work. You should have specific examples of where you are adding value to the company, whether that's helping launch a successful new product or undertaking a cost-cutting initiative with measurable results, says Julie Barefoot, associate dean for MBA Admissions at Emory University's Goizueta Business School.

Don't worry too much if the slower economy is slowing down your career, too. "We're not clueless about the economy," says Barefoot. "We understand that this group of students has been thrown a lot of curve balls." In other words, the admissions committee will understand if you have been laid off or if you were given more responsibilities without a promotion or salary change. Just be sure to explain the situation—and how you turned your lemons into lemonade. If you lost your job for a brief period, explain in your application essay how you freelanced while job hunting until you landed a better, full-time gig. Take on the challenges of a slow economy and perform well under difficult circumstances. For instance, says Barefoot, if you are helping your team at work to accomplish the same goals with fewer people, you should definitely bring that up in your MBA application.

CHOOSE YOUR RECOMMENDERS

Now is not the time to give up on your network. "Networking is like gardening," says Beth Flye, assistant dean and director of admissions and financial aid at Northwestern University's Kellogg School of Management. "If you have a garden, you need to constantly tend to it and care for it. It's the same for a network." Therefore, you should be continuing to keep in touch with your mentors, the people you are mentoring, and any other contacts you have made in the last three years.

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Pfizer CEO: Wyeth Takeover Will Be Different

Pfizer's (PFE) announcement on Jan. 26 that it will buy Wyeth (WYE) for $68 billion in cash and stock called up visions of past Pfizer acquisitions for many pharmaceutical executives—and some of those visions resembled nightmares. But Pfizer CEO Jeffrey Kindler, who took the top job in 2006, insists the Wyeth deal is different from its earlier mega-mergers with Warner-Lambert in 2000 and Pharmacia in 2003.

Kindler told a news conference that the Wyeth merger is not about "a single product or cost-cutting," as with past deals. Instead, "it's about creating a broad, diversified portfolio."

Nevertheless, cost-cutting there will be. Pfizer expects to achieve about $4 billion in "synergies" by 2012, enabling it to reduce the combined workforce of the two companies by 15%, or some 20,000 jobs. As part of those synergies, Pfizer announced Monday that it will eliminate 8,000 jobs, 10% of its workforce. It is closing five of its 46 manufacturing plants.

The company went through similar rounds of cost-cutting when it acquired Warner-Lambert in a deal worth $90 billion, and when it bought Pharmacia for $60 billion. Those acquisitions sparked criticism in the pharmaceutical industry because of the brutal staff cutbacks and—at least in the case of Pharmacia—because there was no big performance gain. Pfizer acquired Warner-Lambert mainly for the cholesterol-lowering drug Lipitor, which went on to become the world's best-selling drug. The company targeted Pharmacia primarily to acquire Celebrex, a top-selling pain pill. But Celebrex was in the same drug class as Merck's (MRK) troubled Vioxx, and when that drug was pulled from the market in 2004 for safety reasons, Celebrex sales fell off a cliff. Pfizer's stock has slid more than 50% since the Warner-Lambert deal.

Protecting Morale and Productivity

The two earlier mergers were done on former CEO Hank McKinnell's watch. Kindler said the company "has obviously learned a lot from our prior acquisitions" and believes it can do layoffs this time without harming morale and productivity. He emphasized that the combined company will have a strong edge in research and science, although Pfizer announced in early December that it will lay off 800 of its own scientists.

The deal was generally applauded on Wall Street because Pfizer desperately needs a diversified portfolio of new drugs and has been unable to create enough of them on its own. Currently 25% of its revenues come from Lipitor, but the drug is due to lose patent protection in November 2011. In fact, other looming patent expirations mean Pfizer could lose 70% of its 2007 revenues by 2015, and there are no potential blockbusters in its near-term development pipeline to make up the difference.

Wyeth has been struggling with similar problems. Its two biggest drugs, Effexor for depression and Protonix for heartburn, are coming off patent in 2010 and 2011, respectively. Kindler says Pfizer doesn't want Wyeth for those blockbusters but for its strong position in vaccines, biologic drugs, veterinary medicine, and consumer products—areas where Pfizer has little presence (it sold its consumer-products business to Johnson & Johnson (JNJ) for $16.6 billion in 2006). Kindler also praised Wyeth's promising development portfolio of Alzheimer's disease drugs, any one of which could become a blockbuster upon reaching the market.

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China's Recyclers: Is a Rebound Ahead?

For years China has been the world's dumping ground. Mountains of discarded plastic bottles, cereal boxes, cars, and other castaway items are shipped there to be melted, ground, or mashed into materials used by Chinese makers of everything from toys to packaging to steel girders. Some scrap dealers, such as paper maker Nine Dragons Holdings, made billions from the business. But the party came to an abrupt halt last fall as scrap prices fell by as much as 70% in the face of plunging demand. A pound of crushed soda bottles fell from 29 a pound on the U.S. West Coast to less than a dime as cash-strapped dealers in China couldn't pay up. "Even if you gave them the material for free, they couldn't afford to pay the customs duty," says Kathy Xuan, president of Romeoville (Ill.) plastics recycler PARC.

But as Chinese celebrate the weeklong Lunar New Year holiday, which started on Jan. 26, there are signs the Year of the Ox may be better for the trash business—and the overall economy. Aluminum alloy produced from scrap in China is now trading at $1,900 per ton. That's well off its August peak of $3,225, but higher than its November lows of $1,600. Waste paper has recovered to $100 per ton, after dropping from $230 to $90 last fall, while scrap plastic prices have clawed their way back to 14 per pound in the U.S.

More important, volumes are slowly picking up as Chinese manufacturers have begun to cautiously restock on recycled inputs. "Our orders have started to recover again in the past few weeks," says Tony Huang, president of Shanghai Sigma Metals, the world's largest recycling smelter, which produces aluminum alloy from shredded automobiles, window frames, and DVDs. Huang is pushing hard to expand domestic sales that he previously ignored during the export boom. "After the crisis we really start paying attention to the domestic market, but so is everybody else."

"Leading Indicator"

China is certainly struggling to cope with the fallout of the global financial crisis that has clobbered its export-oriented manufacturing industries in recent months. Last week Beijing reported fourth-quarter gross domestic product growth slumped to 6.8%, and economists are warning of an even weaker first half.

Still, some believe a recovery in recycled materials could presage improvements in China's broader economy later in the year. "This is a leading indicator," says Heather Hsu, an analyst who covers China's paper industry for brokerage CLSA in Hong Kong. She forecasts demand for container board will grow slightly this year as increased domestic demand offsets falling use in exports.

One source of growth will come from packaging for appliances sold in the countryside. Sales of refrigerators, color TVs, and cell phones are expected to get a boost from government subsidies of 13% on appliance purchases by rural consumers. Huang figures that if Chinese consumers buy enough toasters, motorcycles, and door frames, all downstream users of aluminum, then by yearend he can recoup sales lost overseas.

Those subsidies are part of a $584 billion stimulus package aimed at goosing the economy. Premier Wen Jiabao on Jan. 12 said the government would spend $88 billion on scientific and technological projects, on top of the stimulus unveiled in November. Although economists expect China's growth to slow to between 6% and 8% in 2009 after years of double-digit expansion, "our aim is to be the first to recover from the financial crisis," Wen said on Jan. 11, according to the official English-language China Daily.

Advantage, Paper Makers

That could be enough to help Chinese companies that weathered the downturn and bought scrap at rock-bottom prices. T&T Group, a Humble (Tex.)-based recycler that buys scrap plastic and processes it in the southern Chinese city of Dongguan, is seeing better days than it did during the boom, when materials were scarce. "There's not much competition," says T&T Group President Toland Lam. "For those who survived, the profit margin is two to three times higher."

Big players in the paper industry also stand to benefit from China's push to clean up the environment. Beijing has ordered the closure of hundreds of small paper producers, which will see some 6 million tons of capacity shut down in the next five years, or about 20% of the industry total. That should help leader Nine Dragons Paper (whose chairwoman Zhang Yin was China's richest woman in manufacturing until the company's shares hit the skids last fall) and No. 2 player Lee & Man Paper. Together, the companies produce about a quarter of China's recycled paper. Both companies once relied entirely on imported waste paper, but they're now sourcing increasing amounts domestically as China's recycling efforts gather steam.

But China will still be the world's biggest buyer of foreign waste for a long time to come. "We believe that worldwide demand for these resources will grow again," says Wes Muir, director of corporate communications at Houston-based Waste Management (WMI), which operates waste collection and recycling countrywide. "We definitely see China playing a role in this recovery." Shanghai Sigma's Huang agrees, noting that for now the country will rely largely on imported scrap, but that in five years or so, many cars now on Chinese roads will end up in his furnaces.

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What Data Crunchers Did for Obama

About three minutes into his speech on Jan. 20, President Barack Obama spoke a word never before uttered in a Presidential inauguration speech: "data.". The word may sound nerdy, and Obama used it in reference to indicators of economic and other crises. But it's no coincidence the word found its way into his remarks. The harnessing of data has been crucial to Obama's rise to power.

Throughout the campaign, Obama and his team not only bested his Democratic and Republican rivals in social networking and fund-raising through the Internet, they also engaged in a data battle to locate potential swing voters. These efforts zeroed in on hotly contested states and congressional districts, where the shift of 1,000 or 2,000 voters could prove decisive—meaning the focus was on only a tiny fraction of the voting public. But to find those swing voters, both sides hired tech wizards to sift through mountains of consumer and demographic details. They scrutinized nearly everyone they could find.

Ten "Tribes"

One Democratic consultancy, Spotlight Analysis, took this hunt to extraordinary lengths. Working on behalf of Democratic candidates, though not directly for the Obama campaign, Spotlight crunched neighborhood details, family sizes, and purchasing behavior. It then grouped nearly every American of voting age—175 million of us—into 10 "values" tribes. Fellow tribe members may not share the same race or religion, or fall into the same income bracket, but they have common feelings about issues that transcend politics: God, community, responsibility, and opportunity. Spotlight believes that one of these tribes, a morally guided (but not necessarily religious) grouping of some 14 million voters—dubbed "Barn Raisers"—held the key to the contest between Obama and his Republican challenger, Arizona Senator John McCain.

The definition of a Barn Raiser cuts straight to the heart of what distinguishes political microtargeting from traditional political groupings. Barn Raisers can be of any race, religion, or ethnic group. About 40% of Barn Raisers are Democrats, or lean that way, and 27% favor Republicans—though the group strongly supported President Bush in his 2004 reelection campaign. Barn Raisers are slightly less likely to have a college education than Spotlight's other swing groups. They're active in community organizations but are ambivalent about government. And they care more deeply than most people about "playing by the rules" and "keeping promises," to use Spotlight's definitions.

With special appeals to Barn Raisers in swing states, Spotlight's clients, including the Service Employees International Union and the Democratic Senatorial Campaign Committee, hoped to turn battleground states such as Florida, North Carolina, Virginia, and Ohio. The data-based techniques they put to use, similar to those used to target supermarket shoppers and even to hunt for terrorists, are turning politics into the sophisticated calculations typically associated with Google (GOOG) and its ilk. In a fraction of a second, computers sort us into segments and then calculate the potential that each of us has to swing from red or purple to blue. For many, this signals the dehumanization of politics.

Others say political data mining helps better pinpoint individuals whose views and priorities may otherwise be overlooked. Consider a voter in, say, Richmond, Va. Republican and Democratic data miners count the number of children she has in school, they take note of her car, her Zip Code, her magazine subscriptions, and the balance on her mortgage. They might even find in her data that she has two cats and no dog. (Cat owners lean slightly for Democrats, dog owners trend Republican.) In the end, they place her into a political tribe and draw conclusions about the issues that matter to her. Is that so horrible?

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Architect Designs Sony's Virtual World

Back in July 2007, architect Kenji Ikemoto got an unexpected call from a contact at Sony Computer Entertainment, Sony's (SNE) video game unit. Was he interested in designing an online virtual world for the company's PlayStation 3 gaming console? Ikemoto, 37, was intrigued. The founder of Jota Associates had worked on residential and commercial buildings around Tokyo, but had no experience in video games and no clue why Sony would want to hire a real-world architect for such a project. The offer began to make sense when he met with officials at Sony Computer Entertainment's office: They wanted to create a virtual cityscape rivaling hip areas of Tokyo.

When PlayStation Home launched on Dec. 11, after more than a year of delays and months of testing, PS3 users in Asia finally got a glimpse of Ikemoto's Home Plaza. He had designed a split-level plaza surrounded by four buildings on an island. Off in the distance, beyond a body of water, tall buildings sat at the foot of a mountain range. If it were in the real world, the plaza would cover 5,000 square meters (54,000 square feet). "Everything in Home can actually be built if you spent the money," Ikemoto said.

The PS3 has trailed Microsoft's (MSFT) Xbox 360 and Nintendo's Wii for more than two years, and Home is Sony's latest attempt to give its machine a leg up on the competition. The online 3D world is part social network, part multiplayer online game, and it's a free download through Sony's PlayStation Network for the more than 17 million PS3 owners. For now, Home isn't much more than chic apartments, a mall, a bowling alley, an arcade, a movie theater, and a cafe. So it's no surprise that most of the reviews have been either mixed or critical. "For many of us, Home simply isn't anything we want," wrote Ben Kuchera on tech news site Ars Technica in mid-January.

Corporate Sponsors and Communities

And Sony has other, bigger problems. On Jan. 22, it forecast a $2.9 billion annual operating loss—its first in 14 years, and a significant downward revision from its previous prediction for profits.

Sony has recruited Electronic Arts (EA), Ubisoft, Red Bull, Paramount, Diesel, and others to set up their own shops and mini-game venues. Users start by creating a digital character, or avatar, picking outfits, and furnishing a new apartment. Once outside, they can roam the complex. Red Bull hosts airplane races and Electronic Arts will soon have card tables, golf, and go-kart racing. "Our goal for Home is to give users a fun place to form communities," says Junji Shoda, Sony Computer Entertainment's vice-president in charge of Home.

Tapping Ikemoto for the project wasn't the original plan. In early 2007, Shoda's team in Tokyo received the template from Sony's studio in London and worried that it wouldn't fly in Asia. One member of the Home team in Tokyo thought they should get a real architect and recommended Ikemoto. After he signed on, members of the Home team told Ikemoto they wanted a rolling landscape for Home Square. The rest was Ikemoto's call. "They told me: 'Here's a grassy area. Now build something,'" he said.

Unfamiliar Territory for Architects

Ikemoto had nothing to compare the experience to. Typically, architects have to think about cost, availability of materials, and local building codes, and can spend up to two-thirds of a project in on-site meetings with the builders and other contractors. With Home, none of those things mattered. It was as if a developer had written Ikemoto a blank check and freed him from the usual limitations. Ikemoto was stumped. "Without those considerations, it's harder than you might think," he said.

Sony's team in Tokyo was also in unfamiliar territory. Many of the team's members had experience creating games and were accustomed to giving orders to programmers and designers. "We had to do the opposite this time," said Home producer Yoshikatsu Kanemaru.

Using standard architectural CAD software called VectorWorks, Ikemoto condensed several months' work into a few weeks. He pulled all-nighters to finish a blueprint and kept up the frenetic pace during his Friday meetings at Sony's offices, where programmers and producers transformed his ideas into computer-generated 3D images.

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Behind Google's Glowing Earnings

Even as the economy skids, Google (GOOG) keeps on rolling—just a little more slowly than it used to. Bucking the stalling economy and worsening outlook for online advertising, the search advertising titan on Jan. 22 reported better-than-expected fourth-quarter results. The numbers suggest Google will keep grabbing more of the online ad market from traditional media and from struggling online rivals such as Yahoo! (YHOO) and Microsoft (MSFT).

Shares of Google, which fell 56% last year, slipped almost 3% in extended trading after an initial 4% gain. Enthusiasm for the company's fourth-quarter results was muted by questions about whether Google can keep posting solid gains as advertisers rein in spending. Investors also appeared to balk at an employee stock option exchange that will cost Google $460 million. Before the closing bell, the stock had climbed 1% to 306.50.

Google, which gets paid each time someone clicks on text ads placed on search results pages, had earnings of $5.10 a share, excluding some one-time expenses and stock option costs. That was up from $4.92 a year earlier. Net income, however, fell 68% to $382 million, thanks mainly to those charges, which include $1.1 billion in noncash charges to reflect the declining value of Google's stakes in Time Warner's (TWX) AOL unit and the wireless service provider Clearwire (CLWR).

Good Numbers in Bad Times

Sales rose 18%, to $5.7 billion, a considerable slowing of growth from previous quarters but still seen as positive in the current economy. "It was a very good quarter at a time when [Wall] Street was starting to penalize the company for the economy," says Sandeep Aggarwal, an analyst with financial-services firm Collins Stewart. After subtracting commissions paid to partners for sending traffic to Google, sales rose 21%, to $4.22 billion, about $100 million more than analysts expected.

Coming in a quarter when the economy's troubles deepened considerably, the results encouraged analysts who had been lowering their expectations about Google's performance. "The performance was really very impressive," says Jeffrey Lindsay, an analyst with Sanford C. Bernstein. "If they could do this well [during a tough quarter], this is pretty much how they'll perform through 2009."

Google's results indicate that search advertising, while not immune to the economy, continues to look more attractive to marketers than other kinds of ads.

Researcher eMarketer estimates spending on search advertising will rise 15%, to $12.3 billion, this year, while spending on display ads will rise 7%, to $4.9 billion—though many analysts think display won't even do that well. Search ads generally catch people when they're close to a purchase, and their clicks and purchases can be measured more precisely than with other kinds of ads. "Paid search is every bit as robust as people theorized it might be," Lindsay says. "It's the platform advertisers will hang on to [till] the bitter end."

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Geithner Is Grilled on Bailout, Back Taxes

A measured and deliberate Timothy Geithner offered a glimpse of the Obama Administration's plans for tackling the financial crisis during his Jan. 21 hearing on his nomination as Treasury Secretary, even as he promised to work with Congress on shaping a massive economic stimulus bill and offered repeated apologies for failing to pay $34,000 in self-employment taxes in the past.

Geithner, the president of the New York Federal Reserve and a key player in the federal government's response so far to the financial crisis, told the Senate Finance Committee during a 3-hour session that Obama would "lay out a comprehensive plan…we hope in the next few weeks" to jump-start lending and stop a disastrous cycle of foreclosure and price declines in the housing market.

A Promise of Bold Moves, Fundamental Reform

Geithner, who was introduced to the committee by former Federal Reserve Chairman Paul Volcker, promised that the Administration's response to the crisis would be bold, calling any "tentative and incrementalist" approach dangerous. "In a crisis of this magnitude, the most prudent course is the most forceful course," Geithner said. At the same time, Obama is "committed to fundamental reform" of the financial rescue initiative implemented by the Bush Administration late last year, known as the Troubled Asset Relief Program, or TARP.

But Geithner declined to give much in the way of detail. "We've seen the cost of uncertainty created by tentative signals not followed up by clear action," he said, a veiled reference to the confusion sown last fall as the Bush Treasury appeared to change course repeatedly.

There was no indication that Geithner's expected confirmation by the committee or the full Senate were harmed by his appearance. "You will be confirmed," Senator Pat Roberts (R-Kan.) told Geithner. However, Roberts said that constituents were upset at the idea that the man who would be in charge of the Internal Revenue Service had tax problems of his own. The committee could vote as early as Thursday on the nomination.

Segregating Toxic Assets, Modifying Mortgages

Asked if the government was considering any of several "good bank/bad bank" proposals that would segregate some or all of the financial industry's questionable financial assets, Geithner said it was, and that it "is possible that it is something that will be part of the solution going forward." He acknowledged that such a move could be costly, but avoided addressing Senator Charles Schumer's (D-N.Y.) suggestion that the price tag could reach $3 trillion to $4 trillion.

Geithner also indicated that the Administration's proposal could include a measure put forward by Senator Dick Durbin (D-Ill.) to let bankruptcy court judges modify home mortgages. Responding to questions on the measure from Schumer, who supports it, Geithner reaffirmed Obama's campaign trail support for the concept and said it "is likely to be an important part" of the "comprehensive housing package" the Administration plans.

Failure to Pay His Own Taxes

Wednesday's hearing had been postponed by a week after questions surfaced about Geithner's past tax payments. Geithner acknowledged failing to pay self-employment taxes on income earned from his time at the International Monetary Fund, despite repeated guidance from the organization about the taxes for which he was liable. In 2006, following an audit, he paid back taxes for 2003 and 2004. But he didn't pay back taxes for the two previous years until after he was nominated for the Treasury post.

Geithner said he used TurboTax software to prepare his own taxes in two of the years in question—provoking a laugh from the audience, perhaps amused that one of the most powerful men in the U.S. economy used off-the-shelf tax software—but stressed that the errors were his, not the software's.

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Europe's Banking Blues

A cold wind is blowing from the City of London to the shores of Frankfurt's Main River—and it has nothing to do with winter. Instead, the chill sweeping across the Continent's financial capitals owes to Europe's worsening economy, as analysts and policymakers revise downward their estimates for 2009 and banks come under renewed suspicion over the health of their balance sheets.

The devastation in just the past few days—especially in Britain—has been nothing short of breathtaking. On Jan. 19, British Prime Minister Gordon Brown unveiled a new program to provide banks with unlimited insurance against further multibillion-pound losses and a 50 billion ($73 billion) fund to buy high-quality but illiquid securities. Yet if anything, the latest bailout plan seems only to have made investors more skittish: Shares in giants such as Barclays (BCS) and the "new" Lloyds (LLOY.L), formed by the government-engineered merger of Lloyds TSB and Halifax Bank of Scotland (HBOS), have since tumbled by 40% and 56%, respectively.

Financial institutions on the Continent are also suffering from increased investor anxiety. Germany's stalwart Deutsche Bank (DB) is off more than 27% since it announced on Jan. 14 that it would post an unexpected 2008 loss of $6.3 billion from winding down exposure to risky financial investments. France's top bank, BNP Paribas (BNPP.PA), is down nearly 30% over the same period. And even Spain's thriving Santander (STD) is off 12% in the past week.

The common theme provoking the banking meltdown is increased worry over the European and global economy. To be sure, there are still concerns over exposure to bad American debt—everything from risky hedge funds to monies parked in the alleged pyramid scheme run by banker Bernie Madoff. But now, with European gross domestic product in decline, unemployment rising, and market sentiment on the skids, investors are increasingly nervous about homegrown issues: the danger of local loan defaults, asset writedowns, and continued sluggish lending.

Not Near the End

"Last year, it was the banks that almost brought down the economy. Now, it's the economy that's threatening the banks," says Pete Hahn, a fellow at City University's Cass Business School in London and a former managing director at Citigroup (C). "We are no way near the bottom of this problem yet."

Nowhere is the situation worse than in Britain. Last October, British banks got a 50 billion (now $69 billion) cash injection from the government. But now the country is entering its third consecutive quarter of negative growth and most economists expect GDP to contract by at least 2% this year. Unemployment has jumped by two percentage points, to 6.1%, over the last 18 months, home prices fell 16% in 2008, and consumer confidence is at a 30-year low.

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Hong Kong Protesters Target Citi for Lehman Losses

The bankruptcy of Lehman Brothers has turned Alex Chow into one of Hong Kong's most unlikely street protestors. Nearly every day for the past month, the 50-year-old white-collar worker has spent his lunch hour protesting in front of a Citibank branch amid the office towers of the Central District. Clad in a conservative blue suit and owl-like glasses, Chow leads a group of demonstrators who lost much of their savings after Citi sold them financial products backed by Lehman. "They claimed it was like a money market," says Chow. "But it was very high-risk gambling."

In an attempt to get their money back, Chow and other middle-class Hong Kong investors have taken to the streets. With bullhorns blaring slogans such as "Citibank, shame of America!" they stand at one of the busiest corners in the city, across from a multilevel Louis Vuitton shop, carrying signs denouncing Citi as a "devil bank" that "swindled us out of our life savings." Some wear face masks (because, says Chow, they're ashamed to have lost so much), although Chow himself has no hesitation in appearing publicly. The goal, he says, is to "push the bank to make some compensation."

So far, they have made little headway. With New York-based Citigroup (C) breaking itself into pieces to survive, the bank has far bigger problems than the complaints of Chow and his crew. The bank says it has taken their complaints seriously and has looked into the allegations. "We have already had individual meetings with them several times," says Citibank Hong Kong spokeswoman Kathy Cheung. "We have studied their cases and carried out investigations." The conclusion? "Their cases are not valid," she says. "Everything was conducted in a professional manner. They signed the documents. We have seen nothing to indicate the transactions were carried out without their authority."

Compensation for Some

Not all the cases are so clear cut in favor of the bank, though. In instances where Citi finds salespeople behaved inappropriately, the bank will compensate investors, says Cheung. The bank won't comment on the number of those cases or the amount of compensation involved. However, Cheung says the bank has received "over 500 complaints so far" from the "under 2,000 customers" who had invested through Citi in Lehman equity-linked notes and market-linked notes issued by the doomed bank. Cheung argues not all of the people who have taken to the streets were naive and didn't know what they were signing. "A lot of them are experienced investors," she says. "They know they may not have a case, but they still try."

Chow disputes Citi's conclusion and has taken his case to court. Last June, he alleges, a Citi agent behaved inappropriately when convincing him to buy a Lehman $130,000 equity-linked note. "They did not disclose there was no guarantee," he says. "We had a feeling it was only a safe deposit instead of a high-risk investment."

The concerns of small investors such as Chow hurt by the Lehman collapse is a hot political issue in Hong Kong. Investors in the city purchased some $2.5 billion in Lehman structured notes (known as mini-bonds) and other products. The Core Group of Citibank Victims, launched in October to lobby on behalf of investors who had purchased Lehman products through the bank, has more than 1,000 members, says Lawrence Tse, 48, who heads the group. Overall, he puts the number of Hong Kong people who purchased Lehman products from banks locally at more than 20,000.

Bank Misconduct?

Lawmakers have been critical of the banks in the fallout from the Lehman failure, and regulators are vowing to tighten rules governing how banks market such products. On Jan. 16 the Hong Kong Monetary Authority (HKMA), the territory's top banking regulator, announced it had referred to the Securities & Futures Commission (SFC) eight Lehman-related cases involving complaints of alleged misconduct by two banks. A spokesman for the HKMA told BusinessWeek no executives were available to comment. However, according to its Web site, the HKMA has referred a total of 251 cases involving 15 banks to the SFC since October. In a Jan. 9 statement, the HKMA said it has also informed banks it expects them to implement a series of measures "aimed at strengthening the existing regulatory regime and investor protection framework."

Still, Chow and his band of protestors say the government should do far more. Josip Ma is chairman of the Right to Inherent Dignity Movement Assn., a group advocating for people caught up in the Lehman debacle. "Why did the government allow these wholly unregulated, uncontrolled products to be sold to the public?" he asks. Ma argues that blaming people who lost money isn't fair. "Everybody thinks we have good regulations, control, supervision," he says, so investors expect the government to protect them from "unusual terms, hidden risks, and legal pitfalls." Tse, from the Core Group of Citibank Victims, says his organization is talking with similar groups in Taiwan, Macao, and Singapore about joining forces to launch a class action in the U.S. "We are not satisfied with the attitude of the [Hong Kong] government," he says.

Chow knows many pedestrians passing by him and the other protestors in front of the Citi branch are skeptical of their motives. "Most of them think, you must want to get more money," he says. "But that's not true." The street protests, he vows, will continue.

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Old Enemies Unite to Embrace Health-Care Reform

What could unite the American Medical Assn., the lobbying arm of the pharmaceutical industry, Regence BlueCross BlueShield, and the Service Employees International Union (SEIU) in a common cause? Surprisingly, health-care reform. The four groups and others joined together to launch a multimillion-dollar ad campaign on Jan. 8 calling for fast action on the issue from the Obama Administration.

These are some of the same forces that scuttled President Bill Clinton's health-care reform effort in 1993. Now insurers, employers, drug companies, and doctors are all clamoring for change. Their about-face is driven not so much by the 45 million uninsured Americans as by the $2.2 trillion the U.S. spent on health care in 2007, equal to 16% of the gross domestic product. That's 6.1% more than was spent the prior year. Since 6 in 10 non-elderly Americans are insured through their jobs, much of those costs come directly out of corporate pockets.

There's still sure to be intense wrangling over details—including where, exactly, costs should be cut from the system. But the points of concurrence between the different interest groups are striking this time around. Incoming President Obama wants large employers either to provide insurance to their workers or pay into a publicly funded program, and employers aren't vigorously resisting this idea. Nor are insurers loudly protesting Obama's call for increased regulations. "In 1993, everyone got their second choice, which was to do nothing," says Len M. Nichols, health-care policy director for the New America Foundation, a nonpartisan Washington think tank. "This time around, everyone knows that the status quo is clearly not sustainable."

Obama's appointment of former South Dakota Senator and longtime reform proponent Tom Daschle as Health & Human Services Secretary is widely read as a sign the new President means business. Now, Washington is awash in reform pitches. Senator Max Baucus (D-Mont.), chairman of the Senate Finance Committee, issued his plan in December, and Senator Ted Kennedy (D-Mass.) is working on a bipartisan bill that should land within a month.

Comprehensive proposals have been presented by the Business Roundtable, the Healthcare Leadership Council, the American Benefits Council, AARP, even America's Health Insurance Plans (AHIP), the industry's lobbying arm. "Unlike the health-insurance industry in 1993, we recognize that the nation expects us to come up with proposals," says AHIP President Karen Ignagni.

It helps that Obama is not looking for a big expansion of the government's role in covering the uninsured, although the Congressional Budget Office does estimate his plan could cost up to $65 billion to implement. Obama wants to decrease the number of uninsured by preserving the employer-based system while tinkering with tax and regulatory policies.

Insurers are gearing up to oppose Obama's call for a government-funded plan to cover people who can't afford private coverage. The industry also wants Congress to mandate that all Americans must buy coverage, a radical change that Obama has been reluctant to embrace but Baucus supports.

Covering the uninsured may seem relatively easy, however, compared with pushing through cost-cutting measures. Almost every proposal aims to overhaul the way doctors and hospitals are reimbursed, for example. Today, most medical providers are paid for every single procedure and service rendered. Various studies have estimated that a third of health spending is wasted on unnecessary care, and many blame this fee-for-service system.

FEE RESTRUCTURING?

Most reform proposals, from both Congress and business lobbies, want to reward quality of care, preventive care, and outcomes, rather than volume. But Richard J. Umbdenstock, president and chief executive of the American Hospital Assn., warns that "if there are going to be payment cuts to hospitals, then we're not interested."

But even doctors aren't happy with the present system, and they may be willing to accept fee restructuring in return for the $50 billion Obama says he will include in his stimulus package to set up electronic medical-records systems.

An early indication of whether lawmakers will take on the doctors could come this spring when Congress must consider Medicare payments. Physicians are scheduled to get an automatic 21% Medicare fee cut on Jan. 1, 2010, because of a legislative mandate known as the sustainable growth rate (SGR). Congress has overridden the SGR cuts seven times, but this time it may use the issue as a vehicle for overhauling physician payments.

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Highest IT Salaries: San Francisco, London

Even as some of the world's biggest IT employers trim staff to withstand the recession, wages for those who remain employed in tech appear to be holding up.

Pay for IT jobs is buoyant at companies that are eliminating staff since employees who keep their jobs "often are more senior people who cost a bit more" and work longer hours, says Al Lee, director of quantitative analysis at PayScale, a Web site that gathers information on salary info. "I wouldn't expect to see any downward trends in pay in these jobs." PayScale shared its information exclusively with BusinessWeek.com.

IT salaries are especially high in such markets as London and San Francisco, where big-name tech companies employ a large portion of the workforce, according to PayScale, which based its analysis on information entered on its site in 2008. Workers in major tech centers command earnings that average up to 33% more than the U.S. median, PayScale says.

The Valley Is Still Tops

Of the five U.S. markets included in the PayScale survey, San Francisco topped the list of average wages in each of 10 different job titles, including software developer and IT project manager. In the Bay Area, home to such Internet giants as Google (GOOG) and computer makers such as Apple (AAPL), software development managers ranked highest in pay, at $136,000 per year. The lowest-paid IT jobs in San Francisco are help desk specialists, who earn $53,300 a year, PayScale says.

Outside Silicon Valley, pay tends to be tied to demand in local industries. In Seattle, home to Microsoft (MSFT) and Amazon.com (AMZN), software developers make an average of $88,400, higher than in most places.

The salaries tracked by PayScale may not remain high in coming months, as laid-off workers find new IT jobs, in some cases settling for lower wages, Lee says. "I expect annual increases will be much more modest" next year, he says. Also weighing on increases is a noticeable decline in the size of bonuses reported on the site, PayScale says.

Growing Government Positions

Overall, new job postings are down about 35% since last year on Dice, an online job board for technology positions around the country. According to Tom Silver, Dice's chief marketing officer, new postings on the site for jobs in the Silicon Valley area have dropped about 50%, to 2,700, since January 2008.

One market not covered in PayScale's research is faring well on Dice. In the Washington-Baltimore corridor, job postings were flat at about 7,400, roughly the same level as a year ago. "This is attributed to the growing number of government or government-related positions" in tech, Silver says.

Outside the U.S., PayScale found stark differences in IT wages. In five tech-heavy markets—London, Sydney, Toronto, Singapore, and Bangalore—pay is highest in London. There, IT project managers make $107,000, a 30% premium over the median U.S. pay for the same position.

Meanwhile, in Bangalore, India, a help desk specialist makes only $10,700, or close to one-fourth what an average U.S. worker would make in the same role.

Sums Are Relative

Of course, IT job seekers have more to consider than just potential salary when deciding where to move. In tough times, it's especially important to consider the cost of living in a big city. PayScale found that experienced IT workers in Austin, Tex., have their median pay adjusted for cost of living, since about 90 has the same buying power in that city that $1 has, on average, across the country. By comparison, San Franciscans pay $1.74 to buy the same goods that the rest of the country buys with $1.

Moving from a low-wage area to one where pay is higher can sometimes work against employees. Explains Charles Geoly, managing director of executive recruiting firm Russell Reynolds: "If you have an individual who lives in Arizona, a place relatively hard hit by the downturn, and he or she is being recruited to Boston, a place that's not been hit quite as bad, the relative drop in equity value increases the switching cost for the employer." On the whole, Geoly says demand for his firm's services were down in 2008, but companies are still willing to pay nearly what they used to in order to fill their top posts with the best candidates.

Even during a recession, relative pay is less important to some job seekers than landing a satisfying job. According to PayScale's Lee, software developers who build video games at startups are less likely to be paid as much as someone who, for example, builds a new payroll system at a big corporation. "A lot of gaming companies tend to pay a little less than companies like IBM (IBM)," Lee says, "mostly because it's the kind of work people really like to be a part of."

Click here for a city-by-city comparison of how IT salaries stack up around the world.

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Obama's Speech Links Economy, Broad Change

In an inaugural address at once soaring in style and optimistic in tone, President Barack Obama kept the economy front and center, quickly making the case that tackling the country's deep economic problems would require both bold, immediate action and sweeping changes to the nation's infrastructure and its energy and health-care sectors.

Although he offered no new specifics, Obama cast the goals of the proposals he has been shaping in grand terms, promising to "harness the sun and the winds and the soil to fuel our cars and run our factories" and "wield technology's wonders to raise health care's quality and lower its costs," according to prepared remarks.

Without pointing fingers too specifically, he briefly scolded potential opponents "who question the scale of our ambitions—who suggest that our system cannot tolerate too many big plans." He admonished that "their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage."

Question of Whether Government Works

Obama, who became the nation's 44th president and the first African American to hold the office, spoke to a crowd that stretched along the National Mall, essentially unbroken from the U.S. Capitol to the Lincoln Memorial. Generally good-natured despite temperatures in the mid-20s and the threat of snow, some toward the rear of the huge crowd sang "Hey, hey, hey, goodbye," an obvious reference to the end of the Bush Administration. They switched to chants of Obama's name as the introductions of other dignitaries dragged on.

The Reverend Rick Warren, a controversial and conservative evangelical minister whose position against gay rights drew protests from many more liberal Obama supporters, offered a largely nondenominational prayer, asking God for both forgiveness and guidance, but uncharacteristically invoking Jesus Christ only at the end and in personal terms.

Calling for an end to "stale political arguments," Obama laid the groundwork for what many predict will be an expansion of the federal government's efforts unseen for many generations.

"The question we ask today is not whether our government is too big or too small, but whether it works—whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified," he said in prepared remarks. "Where the answer is yes, we intend to move forward. Where the answer is no, programs will end."

The Common Good

Throughout, his tone was upbeat, promising that the nation could rise above its economic troubles and work through the threat of terror and the wars in Afghanistan and Iraq. And while he touched on where the blame lies for the economy's crisis—speaking generally, as he has increasingly done since winning the Presidency on Nov. 4—he didn't dwell on it, declaring that the "question before us" is not "whether the market is a force for good or ill."

"Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control," Obama said in his remarks.

Obama also signaled an intent to follow through on campaign promises not to simply improve the economy, but also to try to ensure that its gains are felt by Americans both poor and wealthy. The country's economic success, he said, "has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart—not out of charity, but because it is the surest route to our common good."

In campaign speeches and, to some degree, in comments since his election, Obama showed little hesitation in blaming the Bush Administration for the country's ills. By contrast, in his inaugural address he didn't mention Bush directly, except to thank him at the beginning. And yet, in many ways, the speech was a veiled repudiation of the policies and approach of the Bush era.

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Praying for Success in Shanghai

Shanghai - On a gray Sunday morning, some 800 people are crammed into Thanksgiving Church in Shanghai. Among the congregants is Wang Cuimei, a 21-year-old from a village in northern China. She just started working at Semiconductor Manufacturing International, whose headquarters are down the street. While Wang isn't a Christian, she decided to attend the service after hearing about it from the leader of her new-employee training program.

It didn't hurt that top SMIC executives had helped set up the church. "The leaders care about us," Wang says. "Apparently everyone is a Christian, so we wanted to take a look." Adds her friend Liang Shuihong, 21: "We have a responsibility and a duty as employees to go." So the pair made the five-minute walk to the church from their SMIC dorm. Following a sermon from the government-approved pastor and much singing of hymns (with Chinese lyrics projected onto giant screens suspended from the ceiling), Wang says she is impressed and plans to return. "There is a lot of kindness in this place," she says.

That's good news for Richard Chang, the Taiwanese-American chief executive of SMIC. Chang, who eschews the expensive suits, flashy watches, and other bling favored by China's new business class, says spreading the gospel is a key part of his work. He and his colleagues "were called to China to share God's love," Chang says. That sort of talk is rare in a country ruled by a Communist Party that is officially atheist and has a long history of hostility toward Christianity. Yet Chang, 60, feels no hesitation in describing the role his faith plays in his business life. "The Lord says, 'Do good things to those in need,'" he says.

Chang could use some help himself. He spent nearly three decades at Texas Instruments (TXN) and other semiconductor companies before launching SMIC in 2000. Since then, he has built the company into China's largest chipmaker, with operations in five cities, and the world's No. 3 foundry, or contract manufacturer of semiconductors. But even with a slew of A-list customers such as Qualcomm (QCOM), Toshiba (TOSBF), Broadcom (BRCM), and Freescale, Chang has struggled to make the company profitable. SMIC lost $19.5 million on sales of $1.5 billion last year, and its New York-traded American depositary receipts have dropped more than 80% since the company's initial public offering in 2004.

HELP FROM ABOVE?

Righting the ship is now Chang's biggest business challenge. In April, SMIC announced it had phased out memory chips, which once contributed a majority of the company's revenue, because it's so difficult to turn a profit in that cyclical business. Instead, SMIC is focusing more on higher-end chips. In December the company signed a deal to license advanced chip manufacturing technology from IBM (IBM). And SMIC says it's talking with potential strategic investors interested in taking a stake in the company to help fund new, multibillion-dollar chip plants. "We knew there would be challenges [in China], but we knew the Lord would help us to solve the difficulties," Chang says.

Chang's efforts are part of a growing focus on China by evangelical Christians from the West. Although Beijing requires all congregations to adhere to a one-size-fits-all Protestant church that doesn't differentiate among Methodists, Baptists, or others, there are signs that evangelicals are gaining popularity. Geoff Tunnicliffe, CEO of the World Evangelical Alliance, traveled to China in April, and Franklin Graham, Billy Graham's son and heir, gave a Sunday sermon in May to 12,000 people in the eastern city of Hangzhou.

Few mix the Bible and business as openly as Chang. He helped fund the church in Shanghai—which opened on Christmas Day 2005—and several others across the country.

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The Uber Lobbyists of Washington

THE PODESTA CLAN: A D.C. DYNASTY

With Obama bemoaning the prevalence of lobbyists in Washington, weekly family dinners at the Podesta households occasionally have grown awkward. Lobbying power couple Tony and Heather Podesta take turns hosting meals with Tony's brother, Obama transition boss John Podesta, and his wife, Mary, a mutual funds association lawyer. Now, sometimes, "we'll say something, and John won't respond. There'll be silence," says Heather, who changes the subject to wine or contemporary art. "Frankly, we're counting the days until the end of the transition so things can go back to normal."

Still, John's temporary gig hasn't exactly been bad for business. Tony and Heather have separate firms: He built his, The Podesta Group, into one of Washington's 10 largest lobbying outfits over the last two decades, while she started her fast-growing firm, Heather Podesta+Partners, two years ago. Both say they're signing clients at an unparalleled clip.

They've been there before: John was Bill Clinton's chief of staff, and Tony, a former Ted Kennedy aide, is a longtime Washington player who strategizes and raises money tirelessly for Democrats. In October he rushed back from his 65th birthday party in So Paulo to Johnstown, Pa., to rescue the campaign of John Murtha, chairman of the House's chief military appropriations committee.

Heather, 26 years Tony's junior, built her reputation working for Democratic members of Congress before meeting her husband. Their political savvy, friendships, frequent dinner parties, and the millions of dollars they raise for Democrats, make the pair, who married in 2003, among the Capitol's most popular players. Among clients of Tony's firm: BP (BP), Lockheed Martin (LMT), General Dynamics (GD), and Hertz (HTZ). Heather's clients include Boeing (BA), Cigna (CI), and HSBC (HBC).

MARRIAGE OF PARTISANS: CROSSING THE AISLE

These days, the savviest lobbying firms are hedging their bets. Predominantly Republican firms are scrambling to add Democrats, while others are keeping influencers from both parties who are respected by the opposition.

Examples of such marriages of partisan convenience are as common as tassled loafers on K Street. Former Louisiana Democrat John Breaux and Mississippi Republican Trent Lott, with 70 years in Congress between them, have launched their own firm, the Breaux Lott Leadership Group, which represents Shell Oil (RDS.A), Chevron (CVX), and the pharmaceutical industry. Breaux was a centrist in a narrowly divided Senate who often could be counted on to help add a few critical votes from either side.

Kenneth M. Duberstein is held in similarly high regard across party lines; his past as Ronald Reagan's chief of staff doesn't matter to many Democrats. It helps, of course, that he has partnered with Michael S. Berman, a former Clinton White House adviser and Democratic conventions organizer. Duberstein Group clients include the health insurance industry, Comcast (CMCSA), UAL (UAUA), Novartis (NVS), Sara Lee (SLE), and BP (BP).

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Sweden Puts Its Bets on Green Tech

Lake Trummen in southern Sweden used to be a polluted, weed-choked mess. Now, after a $14 million cleanup, bathers crowd its clear blue water in summer. Vxj, a city of 80,000 that sits on its shores, is vying to be the most environmentally pristine place in Sweden. The town's car fleet is being converted to biogas, a clean fuel based on methane, and a new biofuel factory has created 320 jobs. Vxj has cut its carbon dioxide emissions cut by a third over the past 15 years, and the town even channels leftover heat from the local crematorium into homes.

Swedish business and political leaders think places like Vxj are on to something. A few decades ago the country led the world in developing mobile technology through companies such as Ericsson (ERIC). Now, with telecom sales flattening, business and political leaders think green technology could spark a new export boom—crucial to Sweden, where exports account for more than half of gross domestic product. "There is huge demand around the world for this technology," says Anders Brnnstrm, president of Volvo Technology Transfer, a subsidiary of truck and bus maker Volvo (VOLVa.ST) that has invested about $20 million in clean tech companies.

While Denmark has wind power giant Vestas (VWS.CO) and Germany has a host of big outfits such as Q-Cells (QCEG.DE) that make solar cells and panels, Sweden's clean tech sector is made up mostly of smaller companies. In Vxj, for instance, IV Produkt makes energy-efficient ventilation systems it exports to 15 countries, from Belgium to Ukraine. The company says the systems mean energy savings of 80%, paying for themselves in about two years.

Going Like a Steamroller

Some 30% of IV's $38.6 million in revenues came from exports last year, a number that is likely to hit 50% by 2012, says sales manager Bjrn Fredriksson. In a Bauhaus-like suburban research park outside Stockholm, a startup called TranSIC is designing computer chips for the power systems of hybrid vehicles. And deep in the pine forests of Boden near the Arctic Circle, Swebo Bioenergy makes systems to burn manure and wood chips for heat.

The company, with close to $8 million in annual sales, says it is deluged with orders from the U.S. and Europe. "This is going like a steamroller," says export manager Mattias Lindgren.

Sweden boasts some 3,500 clean tech companies that together book roughly $14 billion in revenues. Exports, which make up about a quarter of their overall sales, have grown 75% over the last four years. To further boost the industry, the government is earmarking $590 million for environmental projects over the next two years, including $180 million to commercialize green tech. None other than King Carl XVI Gustav has become the green industry's biggest promoter and fan: He heats his suburban Drottningholm Palace with wood pellets and drives himself to and from Stockholm in a dark blue Volvo C30 station wagon that runs on biofuel. Where possible, light bulbs in the royal residences are being replaced with the energy-saving variety. He also has a prototype car that runs on hydrogen.

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Airbus Flies in the Face of Recession Winds

At a Jan. 15 press conference at Airbus (EAD.PA) headquarters in Toulouse, France, Chief Executive Tom Enders displayed a satellite photo of a massive, swirling hurricane to illustrate the outlook for the commercial aerospace industry this year.

Yet Airbus, in contrast to its U.S. archrival, Boeing (BA), is predicting it can fly through the turbulence with relatively little disruption. On Jan. 9, Boeing said it would lay off 4,500 workers, or 6.7% of its commercial jet workforce, on expectations of a sharp downturn in 2009. Airbus says it expects no layoffs—and it's forecasting that it will deliver almost as many planes this year as it did in 2008, when it shipped a record 483 aircraft. (Boeing, crippled by a two-month strike, delivered only 375.) "We are calm and confident," Enders says.

True, Airbus expects a big drop in new orders this year and next. The European planemaker made a strong showing in 2008, selling 777 planes, well ahead of Boeing's 662 orders. But in 2009, the company says it expects to log only 300 to 400 new orders—"probably in the low end of that range," says John Leahy, Airbus' sales chief. Moreover, Leahy predicts the market weakness will extend well into 2010.

Cash on Delivery

Another challenge for both companies is making sure that airlines actually take delivery of planes rolling off their assembly lines. That's urgent, because more than 90% of an aircraft's sales price is typically paid upon delivery. Canceled and delayed orders are a worry in any downturn, but especially this one, because of the global scarcity of credit. Boeing has already said it will extend at least $1 billion in financing to credit-squeezed airlines, and Leahy says Airbus is likely to extend a similar amount.

Airbus is counting on European export credit agencies—quasi-governmental banks that help finance export deals—to provide financing for about half of Airbus deliveries this year, twice the normal level.

At the same time, Airbus executives say that a two-year-old cost-cutting program, known as Power 8, has yielded benefits that make layoffs unlikely. The company has slashed annual operating costs by more than $1.7 billion and is on track for more than $2.5 billion in additional savings by 2012, Chief Operating Officer Fabrice Brgier said on Jan. 15. Already, the company's full-time workforce has been cut from 54,000 to 47,600, with some of those positions shifted to temporary workers or subcontractors.

That's likely to help the company, whose competitiveness has been badly dented by the euro currency's strength against the dollar. Airbus also plans to outsource a record 50% of major work on its next planned aircraft, the A350, including substantial work in lower-cost venues such as China, Russia, and North Africa.

Customer Withdrawals?

Still, is Airbus underestimating the challenges it faces during the worst economic downturn in more than half a century? Key drivers of growth for both Airbus and Boeing in recent years have been fast expanding carriers in emerging markets such as China and India, as well as low-cost airlines that have flourished worldwide.

The risk now is that these formerly enthusiastic buyers will cancel or delay delivery of planes they've ordered. Airbus lost a 65-plane order last year when Skybus, a startup discount carrier in the U.S., went belly-up—one of some 30 airlines worldwide that went out of business last year. Bloomberg News reported on Jan. 15 that China Eastern Airlines (CEA) might cancel 15 aircraft orders, divided between Airbus and Boeing.

Sales chief Leahy acknowledges that emerging-market and low-cost carriers are likely to face further "shakeouts." But he says massive cancellations are unlikely, since stronger carriers will emerge who can take delivery of planes already in the order book.

One encouraging sign for Airbus is that no carrier has canceled or delayed an order for its much delayed A380 megaplane. Nine additional A380s were ordered last year, bringing the total order book to 198. Leahy says he expects to log roughly the same number this year. On Jan. 15, Air Austral, a carrier based on the French-governed island of Runion, signed a preliminary agreement to buy two of the doubledecker jets.

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