Business Most Popular Story

Architecture in Recession: India

Architecture in Recession: U.A.E.

2009-05-17T15:26:00.001-07:00

In recent years, architects descended upon Dubai, eager to capitalize on its feverish building boom. But while the Persian Gulf city's sprawling skyline is still dotted with cranes, the market here has fizzled.

As of early February, more than half of Dubai's real estate projects were on hold or canceled, from the 3,281-foot-tall Nakheel Tower designed by Woods Bagot to the Hydropolis, a 220-suite underwater hotel envisioned by designer Joachim Hauser. Analysts predict that Dubai property values, in total, will decline up to 60 percent in 2009 after years of record growth. Given this drastic turn of events, architects are being forced to reconsider their prospects in the region.

"Everyone is taking a real wait-and-see approach," says Wayde Tardif, an American designer who in 2007 co-founded POSIT Studio in Dubai. Tardif remains optimistic, noting that the slowdown will normalize the market and allow architects to catch their breath. He predicts a rebound in 16 to 18 months; he doesn't foresee a forgotten city full of empty towers. "Dubai has too much pride for that," he says.

In the past decade, Dubai, located in the United Arab Emirates (UAE), has embarked on ever-grander projects at breakneck speed in hopes of becoming a major world metropolis. Today, its economy relies on tourism, real estate, and financial services; oil revenues contribute less than 10 percent to its GDP.

Initially some thought the desert boomtown could skirt the global financial crisis. By October, however, foreign investors were vanishing, local lenders were retrenching, and oil prices were taking a dive. In recent months, The National, a UAE newspaper for expatriates, has been peppered with reports of mass layoffs. "There are many instances of consultant firms reducing staff by more than 50 percent, or closing their Dubai office altogether," says Scott Hyndman, a development manager at a Dubai-based property company. Some stories claim that hundreds, if not thousands, of cars sit abandoned at the Dubai airport, presumably left there by foreigners fleeing the country.

While holding faith in Dubai, many architecture firms are shifting their focus 70 miles to the southwest, to oil-rich Abu Dhabi. The capital of the UAE, Abu Dhabi has evolved gradually over the decades and often is regarded as a more livable—and more stable— urban center. "Where Dubai has been a speculative market, I think Abu Dhabi is a much more serious, play-by-the-rules market," notes Steven Miller, FAIA, managing director of FXFOWLE's Dubai office. His firm is actively pursuing work in Abu Dhabi, where major developments such as Saadiyat Island—a $27 billion multi-use project with buildings by Jean Nouvel, Zaha Hadid, and Frank Gehry—are reportedly still on schedule.

Guy Source, a UAE-based employment recruiter for the architecture industry, agrees that Abu Dhabi seems less affected by the financial crisis than Dubai. He adds that other Middle Eastern markets hold promise as well, noting that there are jobs waiting to be filled in Qatar, Kuwait, and Saudia Arabia.

FXFOWLE's Miller is no stranger to Saudi Arabia; he first worked there during the recession of the mid-1970s. Now, as he hunts for work beyond once-fertile Dubai, he is returning to familiar territory. "Saudi Arabia is off the charts right now," Miller says. "We're very busy there."

Architecture in Recession: SpainArchitecture in Recession: JapanArchitecture in Recession: IndiaArchitecture in Recession: GermanyArchitecture in Recession: ChinaArchitecture in Recession: Brazil

Architecture in Recession: Japan

Time Warner Backs Away From Pricing Change

2009-04-19T01:15:00.007-07:00

Time Warner Cable caved—for now. In the face of widespread consumer outrage over its plan to change its pricing for Internet access, the company said it will shelve plans to implement the new price formula in several new markets.

The about-face comes just two weeks after BusinessWeek.com first reported that Time Warner Cable (TWC) would roll out usage-based pricing to four cities. The No. 2 U.S. cable operator hoped to begin charging high-speed data subscribers for the amount of bandwidth they used in Rochester, N.Y., Austin and San Antonio, Tex., and Greensboro, N.C.

Time Warner Cable CEO Glenn Britt said the consumption-based model was needed to maintain an expensive, burdened broadband network, citing other countries that for years have had broadband-metering models, including Canada. But the plan unleashed a firestorm among the public and politicians who say the new method is discriminatory and would stifle innovation. Some politicians called for congressional hearings.

Surprised by Backlash

Britt and his executive team appear to have been unprepared for the pushback from consumers and are putting the plan on ice. On Apr. 16, Britt issued a statement saying: "It is clear from the public response over the last two weeks that there is a great deal of misunderstanding about our plans to roll out additional tests on consumption-based billing." Time Warner won't broaden its testing of the plan "until further consultation with our customers and other interested parties, ensuring that community needs are being met," Britt said.

What's more, Time Warner Cable said it would be working to make measurement tools available as soon as possible so consumers can learn just how much bandwidth they consume on average. For Britt, the episode was not exactly an auspicious start at the helm of a newly independent Time Warner Cable, fully spun off from parent Time Warner on Mar. 30. Shares of the company rose 2.7% to 29.58 on Apr. 16.

From the moment the news broke on Mar. 31, the blogosphere was filled with vitriolic posts and e-mails from Internet users slamming Time Warner Cable's plans. Within days, hearings were being held in Rochester and Austin. Rochester Congressman Eric Massa threatened to introduce legislation aimed at bringing more broadband competition to his home city. Massa also said he wouldn't rule out imposing price limits on Time Warner Cable, which he called a "functioning monopoly."

On Apr. 16, U.S. Senator Charles Schumer (D-N.Y.) and founders of a Web site called Stop The Cap! stood on the steps of Time Warner's Rochester offices to celebrate the company's decision to abandon broadband metering for now. Among the rally cries posted on Stop The Cap! over the past two weeks: "Caps are for bottles, not broadband, in the United States of America."

Larry Summers on Whether Those Rays of Economic Daylight Are Real

2009-04-19T01:15:00.005-07:00

No one in Washington is saying flat-out that the economy has turned a corner, but the Obama Administration is busily making the case that encouraging signs are starting to pop up. On Apr. 9, Larry Summers, director of the National Economic Council, pointed to positive indicators in a speech before the Economic Club of Washington, and five days later at Georgetown University, the President did the same. Is this more than a cheerleading exercise to boost public confidence? I talked with Summers after Obama's speech.

MARIA BARTIROMO

The President today talked about glimmers of hope in the economy, though he added that we are in for some tough news ahead when it comes to unemployment. Where has the growth been coming from most recently and where are the weak spots that remain?

LAWRENCE SUMMERS

Two months ago, you couldn't find anything positive. Every statistic was running negative, and you had a sense of an economy in free fall. I think today the picture is more mixed. There are obviously still problems in the financial market and weakness in housing. But production is now pretty clearly running below sales…which will be followed by an inventory cycle that can be a source of strength. You have a more mixed picture in terms of consumer spending, in part because the stimulus in the Recovery & Reinvestment Act is coming into people's paychecks. You have the fiscal policy coming online. You know, government almost never gets a positive surprise in how much things cost, but it's actually turning out that we're going to be able to do a lot of these infrastructure projects—and 2,000 have already been started—cheaper than we'd expected. That means more employment, more ability to do things.

The budget the President put forth suggests the economy will see 4% growth in 2011. Are you expecting that?
The President made the forecast several months ago in the context of the budget. It was pretty much a consensus forecast at the time. We will revisit the forecast, as governments always do, a couple times a year, and at that point, we'll be in a position to discuss a new forecast.

So if we were to see the economy not grow at 4%, would you be prepared to suggest that perhaps he should pull back his plans to raise taxes on the highest earners?
Let's just be clear here because what you said is not quite correct. The President isn't taking any action to raise taxes. Current law calls for [the Bush tax cuts for high-income earners] to expire [in 2011]. And the President does believe—and he is surely right in this conviction—that given the magnitude of the debt problems the country faces, we can no longer afford those tax cuts for a very small fraction of the population. If you look at the long-run fiscal burden imposed by those tax cuts, it's as great or greater than the entitlement programs that generate so much discussion, and the evidence suggests [the cuts have] very little stimulative benefit. So yes, we are prepared to let those tax cuts expire.

Mall Titan General Growth Cuts Itself Down

2009-04-19T01:15:00.003-07:00

The nation's second-largest shopping mall operator, General Growth Properties, which filed for Chapter 11 bankruptcy on Apr. 16, fell victim to the credit crunch and overambitious managers. But it is not likely to be followed into ruin by other big mall competitors, analysts and industry insiders say. Indeed, the bankruptcy filing by General Growth, which owns more than 200 malls in 44 states along with residential real estate and master planned communities, could make for an efficient way for rivals to pick up trophy properties.

Simon Property Group (SPG), the Indianapolis-based leader in the industry with 386 mall properties worldwide, has already been in touch with General Growth about snapping up some of the company's holdings. General Growth's properties include the Fashion Show Mall in Las Vegas and Chicago's trendy Water Tower Place, as well as master planned communities in areas in Maryland, Nevada, and Texas. General Growth also has joint ventures in shopping centers in Brazil and Turkey. "They have been marketing a handful of assets over the last several months. They have not sold any to date," says Stephen Sterrett, Simon Property Group's chief financial officer, confirming that contacts between the companies so far haven't led to a sale. He adds that Simon isn't interested in swallowing all of General Growth. "We have regular conversations with all kinds of people in our business."

For their part, managers at General Growth say they plan to hang onto most of the properties and to emerge someday from Chapter 11 reorganization. Thomas H. Nolan Jr., General Growth's president and chief operating officer, told reporters in a midday conference call on Apr. 16 that creditors and company executives alike want to keep the "strategic platform" together. He recognizes buyers might be especially interested in some of the 25 biggest properties—Boston's Faneuil Hall, for instance—but he said selling off the trophy properties or others in toto is not in the company's plans. "Could we sell off one of those, or two? I guess," Nolan said. "As part of a restructuring strategic review, we would consider looking at that."

To industry watchers, Chicago-based General Growth's fall came as no surprise. The real estate investment trust has been in tumult since early last year when the credit crunch began jacking up the cost of refinancing its staggering debt. John Bucksbaum, a son of the company founder, levered up the once cautiously run outfit with splashy purchases from the time he took over as CEO in 1999 until last year. He was forced out in October, as the company tried to negotiate with creditors to ease payments on a debt load that it reported in its bankruptcy filing to total $27.3 billion. General Growth valued its assets at just $29.6 billion, far less than the $40 billion- plus figures analysts had bandied about as recently as last fall. Bucksbaum remains chairman.

Vegas Shopping Spree

Under Bucksbaum, a hard-charging bicycling aficionado who palled around with racer Lance Armstrong and routinely went on rides in Europe's mountain countryside, General Growth was an anomaly in the world of big real estate investment trusts. While the others carefully tended to their balance sheets and kept debt under control, Bucksbaum had no fears about putting his company deep into debt. He rolled the dice heavily in Las Vegas, for instance, picking up shopping arcades in the Venetian and Palazzo casino complexes and buying Rouse, the big developer, in a debt-heavy $14 billion deal in 2004.

Architecture in Recession: U.A.E.

2009-04-19T01:15:00.001-07:00

Architecture in Recession: SpainArchitecture in Recession: JapanArchitecture in Recession: IndiaArchitecture in Recession: GermanyArchitecture in Recession: ChinaArchitecture in Recession: Brazil

Intel Says PC Demand 'Bottomed'

2009-04-15T09:30:00.009-07:00

The worst of the damage that has beset the PC industry is over, says Paul Otellini, chief executive of the world's biggest chipmaker, Intel (INTC).

Reporting first-quarter earnings that beat analysts' expectations, Otellini boldly said PC sales had "bottomed out" in the first quarter, adding that the industry is "returning to normal seasonal patterns."

Intel reported a profit of $647 million, or 11 a share, on sales of $7.1 billion for the three months that ended in March. Analysts had expected a profit of 3 a share, and sales of $6.98 billion.

Otellini's comments are one of the earliest signals that tech is poised to rebound from a several-quarter slump. A maelstrom caused by the mortgage market meltdown and financial crisis sliced demand for everything from chips and computers to consumer electronics and enterprise software and hardware; even Internet advertising dropped. In response, tech companies across the board curtailed production, reset sales forecasts, and eliminated tens of thousands of jobs.

Falling Inventories

Intel's results also suggest the company adjusted well to the drop in demand. "PC manufacturers saw that orders weren't materializing, and so they acted accordingly and stopped ordering new chips," says Dean McCarron, an analyst at Mercury Research, a chip industry consulting firm based in Cave Creek, Ariz. Intel and No. 2 chipmaker Advanced Micro Devices (AMD) reported disappointing earnings in January.

To cope, Intel slowed production and controlled other expenses. "While the global economy continues to be weak and uncertain, our execution this quarter was outstanding," Otellini said on a conference call. "We have adjusted quickly to this new environment where demand remained difficult to predict, and order lead times have contracted." One result: Inventories dropped by $700 million.

Wafer starts, a key metric of manufacturing activity, were reduced by a "significant" level, resulting in a 19% drop in inventory levels from the fourth quarter, Otellini said. Intel chose to forgo the cost of carrying more chips than it could expect to sell and opted instead to bear the costs of idling some of its factory lines. "Management sent the message that they were going to keep their powder dry and that is exactly what they have done," says Doug Freedman of Broadpoint AmTech Research in San Francisco. Chief Financial Officer Stacy Smith said six percentage points of gross margin were lost because of the underutilization of manufacturing capacity.

More Job Cuts

As hopeful as Intel may be about demand, the company refrained from issuing a profit forecast for the current quarter and said sales would be "flat" compared with the first quarter. And its results, while better than expected, showed that the recession continued to take a toll in the first quarter. Profit tumbled 55% from a year earlier and gross margin dropped 7.5 percentage points, to 45.6%, from the fourth quarter. This quarter, gross margin will remain in the "mid-40s," Intel said.

Reflecting the unease over Intel's outlook, the stock dropped in extended trading after the results were released. Intel shares declined 90, or more than 5%, after closing at 16.01, up 3. Shares of AMD fell more than 3% after hours. Freedman rates Intel a "buy" with a price target of 17. "The numbers are going to move higher through the balance of the year," he says.

To make sure it meets such expectations, Intel is pushing full speed ahead with a revision of its manufacturing technology, which will let it build chips with features of 32 nanometers in size, a leap from its previous generation of 45-nanometer technology. Costs associated with that transition are contributing to the decline in gross margin. Smith said he expects the costs of the manufacturing transitions to peak during the second quarter. Then gross margins will return to what he called a "normal" range of 50% to 60% in the second half.

Additionally there will be more cost cuts. Otellini said the company reduced headcount by 1,400 during the quarter, and expects to cut more jobs this year in line with the large-scale restructuring he announced in 2006.

Despite the lack of a concrete profit forecast, analysts were encouraged by the prospect that PC demand has hit a trough. It won't be easy to chart the "slope of growth…going into the recovery," says Ashok Kumar, an analyst at Collins Stewart (CLST.L). "At least it can be said that the worst is over."

Samsung: Good News Despite Bad Earnings

Sox revitalized, stay alive at home

Windows and Intel, Kings of the PC: Divided They Fall?

The Consumer Electronics Inventory Glut

How to Make Acquisitions in a Down Economy

2009-04-15T09:30:00.007-07:00

Impulse shopping is rarely a good idea—especially if you're buying a business. But you shouldn't overlook the importance of serendipity, either. The declining economy has left a raft of formerly solid businesses in distress, making it the right moment to consider whether an acquisition might make sense for you. With company performance—and therefore valuations—suffering, a recession can be an opportune time to buy. "It's a great time to be a careful buyer, which is not an oxymoron," says Eric Siegel, president of advisory firm Siegel Management in Bryn Mawr, Pa.

Just ask Larry Browne, chief executive of Houston-based freight forwarder Diligent Delivery Systems. In March, Browne closed on the acquisition of a four-person courier business in Memphis, opening up a new market for his own company. Acquisitions aren't new to Browne—he's made nine since taking over Diligent in 2001. He's still raring to go. "The opportunities were there last year and are here now," Browne says. "I'm feeling good about '09. We're going to do some deals." His company now has 72 employees and about $40 million in sales, up from less than $1 million in 2001. Browne attributes 25% of his company's growth to acquisitions.

There's more to successful deals than price and timing, of course. Any purchase needs to complement your business strategy and your plans for internally generated growth. Whether you're actively seeking out a deal or one falls into your lap, you'll need to know how to maximize and integrate the new assets before moving forward.

In the best-case scenario, an acquisition would improve your company's profitability and margins and provide dramatically better return than you would get plowing the same money and sweat into organic growth. You should be able to wring some cost savings out of the integrated operation—rarely as easy as it sounds. Alternatively, an acquisition could be a good defensive move, or could raise barriers to entry for competitors.

It's vital to understand exactly what you will need to get out of a purchase, whether it be cash flow, employees, customers, real estate, equipment, or technology. Be wary of buying a business that you suspect will complement yours but that you don't fully understand. Just because you make a great peanut butter doesn't mean you can successfully produce jelly.

And while many stellar companies may be temporarily cheap, the reverse isn't necessarily true. If the seller is desperate to get out, there's probably a good reason. Likewise, if the reputation of the company has been battered, or if it's difficult to get good financial information, walk away. Then there's this catch-22: While the recession has made plenty of companies newly available, it has also made it much harder to find financing. If you don't have cash on hand, you'll need to find a seller willing to accept a lengthy payout or shares in the merged company.

For the ready buyer, though, options abound. Nearly every industry has been affected by the recession, and those that rely on discretionary spending—real estate, luxury goods, and restaurant companies—may make for particularly rich prospecting.

Sound good? First, confirm that you have both the dollars and the management resources to tackle an acquisition. Once you have a target, you will need to scrutinize the other company's finances, customers, legal standing, and employees. Then consider the structure of the deal and whether it should be an asset or a share sale, which can significantly affect the price. And remember: Just because it's on sale doesn't mean it's a good deal.

LOOK IN THE MIRROR

An acquisition will put significant pressure on both management and finances, so evaluate yours before going on the prowl. "Your own operations should be very routine so that management has the flexibility to focus on the deal," says Siegel. You don't want to leave your core business struggling while you're playing wheeler-dealer.

Making certain that your balance sheet is solid is critical. The best tactic for a strategic buyer, experts believe, is simply to rely on cash.

Pfizer CEO: Wyeth Takeover Will Be Different

Marcial: ConocoPhillips, a Cheap Big Oil Play

Britain’s Big Banks Bailout

Goldman, Give It All Back

2009-04-15T09:30:00.005-07:00

If Goldman Sachs CEO Lloyd Blankfein wants to put his money where his mouth is, he won't stop with just giving back the $10 billion in federal bailout money the investment firm got last autumn. He'll also offer to return some of the $13 billion Goldman (GS) got from the U.S. government by way of the bailout of American International Group (AIG).

Goldman's decision to sell shares and raise the necessary cash to repay the government is being seen by some as a show of strength. That's especially so after the firm posted a better-than-expected profit for the first quarter of $1.81 billion—largely driven by its proprietary trading desk. That's the same group of bond and commodity traders responsible for much for Goldman's outsized profits during the credit boom. So everything old is new again at Goldman. Right?

But more than anything, the move to repay the TARP money is being motivated by Blankfein's desire to free his firm of all those nettlesome government mandates on executive compensation and bonuses. Now there's nothing wrong with Goldman giving back the TARP money if it really doesn't need it. After all, government officials have always said they expected the banks to repay Treasury at some point.

AIG's CDOs: How Different from TARP?

Still, if Blankfein really wants to help U.S. taxpayers out, he can go the extra mile and give back some of that AIG money the firm got, too. If the government had allowed AIG to file for bankruptcy, Goldman likely would have incurred an even bigger fourth-quarter loss than it reported. So Blankfein owes a bit of gratitude to Uncle Sam. And as my BusinessWeek colleague Roben Farzad pointed out on CNBC on Mar. 27, Blankfein can thank taxpayers by forking over its AIG largesse.

Now we know Goldman will object that the AIG bailout money is different from TARP. The firm will argue that the dollars that passed through AIG were nothing more than money it was owed on all those credit default swaps it had purchased to insure some of its portfolio of collateralized debt obligations, or CDOs. In Goldman's world, all the government was doing was allowing AIG to live up to its contractual agreements.

But, as we have seen in this financial crisis, some contracts can be broken. Maybe it was a smart move for the government to indirectly bail out AIG's trading partners to prevent a systemic financial collapse. But the government didn't have to make firms such as Goldman completely whole by paying face value for the CDOs that AIG had insured.

If nothing else, maybe Goldman should now take the haircut it probably should have taken on those CDOs at the time of the AIG bailout. The bank could start by offering to give some of that $13 billion back, too.

Magnificent 7: Rays amaze, top Sox

Bank CEOs Grilled on TARP

Automakers Rev Up for a Bailout, Too

Beloved Manuel makes Series special

The Fragile Flight of the Twitterlings

2009-04-15T09:30:00.003-07:00

Twitter executives don't disclose much about their plans to make money from the microblogging site. But that's not stopping scores of other companies trying to build their own businesses on the back of the increasingly popular communication tool. Take Tweetie, whose downloadable software makes Twitter available on Apple's (AAPL) iPhone. Sales of the $2.99 application have been climbing "exponentially," says developer Loren Brichter.

Twitter has inspired the creation of hundreds of third-party products and services, Twitterlings that make up a vibrant ecosystem reminiscent of those growing up around other devices and tools such as the iPhone and social network Facebook. San Francisco-based Twitter makes its code available to outside developers, who in turn use that knowhow to build tools that help people search, organize, or otherwise make better use of the millions of brief messages known as tweets sent over Twitter each day. "It's a symbiotic relationship," says Boris Veldhuijzen van Zanten, who created a site for Twitter analytics.

A variety of business models are emerging among these Twitterlings. Some, like multimedia-upload site Twitpic, rely on ads; others, like TwitterHawk, charge fees for information about potential customers on Twitter. Among 18 app developers contacted by BusinessWeek, almost half said they were drawing significant revenue. Almost all said they were still experimenting with different models.

Suddenly, Obsolete or Impossible to Find

While alluring, Twitterpreneurship carries risks. The site's sporadic service outages can hurt a company's reputation, and changes to its coding platform can have adverse effects on tools. With no notice, Twitter itself could replicate features found on some apps, rendering them obsolete. And the looming prospect of Twitter's acquisition by a larger Internet player with a different strategy further complicates any developer's long-term plans. "What happens when you wake up one morning and your application doesn't work anymore?" asks Oren Michels, founder of Mashery, a consultancy that helps companies, including Best Buy (BBY) and the New York Times Co. (NYT), open their own platforms to third-party developers.

Makers of Facebook-related tools and apps have learned the hard way the risks of hitching one's fortune too closely to a fast-rising social media property. Many third-party developers were left in the lurch last year when Facebook design changes relegated outside apps, or widgets, to harder-to-find locations on the site.

Few third-party Twitter developers need to invest in expensive technology like servers, but their sites suffer when Twitter's own servers get bogged down by the many millions of messages posted to the site each day. "One of the big challenges we face is when Twitter is slow or goes down," says Misty Lackie, CEO of Go Smart Solutions. Her Twitbacks service offers free custom backgrounds for Twitter profiles. "When this happens, our users can't post their backgrounds and oftentimes assume it is an issue on our end," she adds.

Some Twitter offshoots may ultimately find themselves vying with Twitter. "There is already an element of competition from Twitter as it improves Twitter.com," says Iain Dodsworth, the creator of Tweetdeck, a tool that lets users view and send tweets from the desktop. In December, Twitter CEO Evan Williams said at an event that the company is working on adding the ability to sort friends into groups, a feature available on Tweetdeck.

Drew delivers back-breaking blow

The iPhone Apps Sweepstakes

Phillies move within one win of NLCS

Facebook’s Fine-Print Fiasco

The Worries Facing Russia's Banks

2009-04-15T09:30:00.001-07:00

Is the financial crisis in Russia coming to an end? Or is it just beginning? That seems to depend on who you listen to.

In recent weeks, senior government ministers and officials have been striking an increasingly optimistic note amid signs the economic situation in Russia has stabilized. Russia's Prime Minister Vladimir Putin has been especially keen to emphasize the government's achievements in the banking sector. "Thanks to the actions of the authorities, the imminent threat of a banking sector collapse has been averted," he boasted to Russia's Parliament on Apr. 6.

Indeed, it's no small achievement that, despite the financial turmoil of recent months, no major Russian bank has gone bust, and there have been minimal signs of depositor panic. But in recent weeks, a chorus of doomsayers has been warning the stability won't last. A "second wave" of the crisis is about to hit Russia, they argue—and the epicenter of this coming shock wave will be the Russian banking sector.

The government now appears to be taking the threat seriously. It can hardly ignore the likes of German Gref, the chairman of Russia's largest bank, state savings bank Sberbank (SBER.RTS). In a conference presentation on Apr. 8, Gref pulled no punches when he warned of the scale of Russia's banking woes. "The banking crisis in Russia is in its very beginning," he said, accusing the government of "slow decision-making" in tackling the problem.

Gref's comments echo similar remarks by Petr Aven, president of Alfa Bank, Russia's largest commercial bank, who has also caused a stir by warning that hundreds of Russian banks could face bankruptcy this year.

More Bad Loans

At the root of these worries is mounting evidence that, as the recession bites, Russian borrowers are struggling to repay bank loans. As a result, the share of nonperforming loans appears to be mushrooming. "A month ago, 15% seemed like a negative figure. Now people are talking about [the share reaching] 20% to 30%," says Natalia Orlova, banking analyst at Alfa Bank. She estimates that around 10% of loans are already bad, but expects the figure to reach at least 15% to 20% by the third quarter.

The precise figure makes a huge difference, with the cost of recapitalizing the banks rising exponentially as the share of bad debts grows. According to estimates by Sberbank, if 10% of loans go bad, the government will need to inject some $6 billion to recapitalize the sector. But that figure skyrockets to $35 billion if the share of bad loans doubles to 20%—and no less than $80 billion if the share reaches 30%.

True, it's still far from clear whether the bad loan problem is actually as bad as the pessimists fear. Elena Romanova, banking analyst at Standard & Poor's (MHP) in Moscow, says that in general banks now regard around a third of loans as potentially "problematic." But it still remains to be seen how many of those loans will actually go bad and how many will be restructured. "The risk is serious," she says. "But it's difficult to say how the situation will develop in Russia, because we've never been through such a calamity before."

It doesn't help that Russia's system of accounting differs in important respects from Western standards, recording unpaid loans (including loans on which the interest is unpaid), rather than estimating which loans are fundamentally unsalvageable.

Russia’s Economy: How Bad Will It Get?

The Financial Crisis Deepens in Russia

The Stunning Collapse of Iceland

Marcial: Pros Gazing at Star Scientific

2009-04-13T14:06:00.003-07:00

Investors will be watching intently as a big tobacco industry patent-infringement case goes to trial in mid-May: a David-and-Goliath court battle pitting the second-largest U.S. cigarette maker, R.J. Reynolds Tobacco, a unit of Reynolds American (RAI), against the tiny and little-known Star Scientific (STSI).

Shares of Star Scientific, which has developed tobacco-curing technology that prevents the formation of certain carcinogenic toxins in tobacco, have started to attract some big investors. They're betting that if it wins a lawsuit it has filed against Reynolds, seeking damages of about $1 billion, the potential rewards to the small-cap company would be huge. The stock has been on the rise, climbing from a low of 1.48 a share on Nov. 20, 2008, to 4.84 on Apr. 9, 2009. Reynolds stock has also gone up recently, from 31 on Mar. 6 to 39 on Apr. 9.

Wall Street analysts haven't had much to say about the lawsuit. Of the 11 analysts tracking Reynolds, four of them rate it a buy, including MatrixUSA, which tags it a strong buy. But no analysts cover Star. While the disparity in size between the two companies is huge, investors in Star are upbeat. "Despite Reynolds' legal efforts to derail and delay the patent-infringement suit, Star Scientific succeeded in getting a trial date," says Neal Goldman, president of Goldman Capital Management, which holds a 4% stake in Star. That indicates Star has a chance of winning, "and we believe it will," says Goldman. The stock, he adds, is very undervalued, based on its technology, products, and likelihood of winning the patent fight.

Goldman notes that if Star emerges victorious, the loss to Reynolds would be huge. So he figures Reynolds may agree to an-out-of court settlement. At the same time, however, he doesn't discount the possibility that Star may be bought out before the case is resolved in court. A large tobacco company, he argues, could make a bid to acquire Star. Goldman puts Star's worth at 20 a share.

Reexamining the Patent

At issue in the litigation: Star's patents covering a technology invented by CEO Jonnie Williams, the company's largest shareholder with a 15% stake. Williams began work on the project in 1996. The result: He developed novel methods to inhibit the "microbial nitrate-reductase" activity in tobacco that leads to the formation of nitrosamines. Williams says those are among the most active cancer-causing agents in tobacco and have been identified in animal and clinical tests as contributing to a variety of cancers, inducing tumors of the lung, oral cavity, esophagus, pancreas, and liver. Star was issued a patent for the technology on Mar. 20, 2001.

The legal battle started on May 23, 2001, when Star sued R.J. Reynolds Tobacco, accusing it of using and selling tobacco made by a process that infringed on Star's patent. Reynolds adamantly denies the charge and also questions the patent's merit.

David Howard, a spokesman for R.J. Reynolds, says the U.S. Patent & Trademark Office has granted Reynolds' request to reexamine Star's patent because of questions about its validity. The reexamination could take six to eight months, he says. "We are confident of winning the case," says Howard.

But on Mar. 9, 2009, the U.S. Supreme Court dealt Reynolds a severe blow by refusing to hear its appeal on the case. And on Mar. 31, Reynolds suffered another setback when U.S. District Court Judge Marvin Garbis denied its request to suspend a jury trial while the U.S. Patent & Trademark Office was reexamining Star's patent. The jury trial is scheduled to begin on May 18.

Stocks: Where the Bulls Are

Cooper has his bullpen’s back

Health 2.0: Patients as Partners

Rays closing in on playoff roster

Jack Bogle's Last Crusade?

2009-04-13T14:06:00.001-07:00

It's only 7 a.m., but John C. Bogle, 79, is already throwing elbows. He's impatiently boarding the Amtrak Acela in Philadelphia en route to Washington, where he's giving a lunchtime talk to a group of investment advisers. Today's speech is just the latest in a career-long campaign, on behalf of small investors, to wrest the financial system from overpaid financial middlemen. It's a quest he began even before he founded Vanguard Group, a pioneer in low-fee mutual funds, in 1974.

Bogle slowly takes his seat on the train, then contorts his arthritic hands to push the recline button. After taking a pull from his coffee, he ticks off some grim statistics: U.S. family wealth plummeted 18% last year, the most since the 1930s; $9 trillion in stock market value has vanished since 2007; the Dow Jones industrial average touched 6500 in March, a level not seen since Bill Clinton's second inauguration. And yet (and yet!) the financial services industry took home some $500 billion in fees last year. "What the hell for?" he thunders. "If they looked after other people's money with the same care they look after their own, we wouldn't have to be bailing out banks."

Bogle's latest mission may be his most ambitious yet: to persuade regulators to overhaul the U.S. retirement-savings system by simplifying account options, clamping down on fees, and making risk more understandable. It also might be his last. Bogle tells BusinessWeek his body has started to reject his 13-year-old transplanted heart. The attack, which began last summer, has landed him in the hospital on four separate occasions. Not that he's looking for sympathy. "I'm not introspective about my health, nor do I live in fear of dying," he says. "Your life expectancy is not enormous when you're 80."

Surely no one would begrudge Jack Bogle, who created the world's first "index" mutual fund in 1975 and retired from Vanguard a decade ago, the right to take it easy. But he won't hear of it. Much to the consternation of Eve, his wife of 52 years (who declined to comment for this story), Bogle spent seven hours a day during hospital stays last summer editing his seventh book, Enough: True Measures of Money, Business, and Life. In May he's bringing out a new edition of his 1999 best seller, Common Sense on Mutual Funds, and he has accepted at least eight speaking invitations between now and then. He's also making regular rounds on TV. "I need to be out here doing this," he says. "I'm a worker by temperament."

"It's a calling," says Jeffrey A. Sonnenfeld, a professor at the Yale School of Management. "He is the country preacher of finance. Henry Fonda would have played Jack Bogle in the movie."

THE GADFLY GENE

As the train reaches cruising speed, Bogle's rhetoric heats up. The financial system, he charges, is too far skewed toward Wall Street and money management firms. At the same time, he says, individual investors have far too much freedom to make ruinous decisions with their retirement accounts.

So how would he fix things? Bogle proposes the creation of a federal retirement board to simplify and clarify the retirement-savings process. The board would oversee a new kind of defined-contribution account to replace the salad bowl of options—401(k), IRA, Roth IRA, Roth 401(k), 403(b)—that currently confront and confound investors. It would also monitor savers' investment choices to help them determine just how much risk they can tolerate and would emphasize low-fee mutual funds over pricier ones. Just as important, Bogle is urging Washington to require retirement plan providers—and all money managers, for that matter—to meet basic client protection standards. He wants fuller and clearer disclosures of all potential conflicts of interest and any other information that might affect investing decisions.

If there's a gadfly gene, it runs in Bogle's family. Way back in 1868, his great-grandfather, Philander Banister Armstrong, needled his fellow insurance executives. "Gentlemen, lower your costs!" he challenged in a speech. In 1917, Armstrong, whom Bogle calls his "spiritual progenitor," published a 258-page diatribe called A License to Steal: How the Life Insurance Industry Robs Our Own People of Billions.

Advice for Today’s Market? Diversify Wisely

Architecture in Recession: India

Architecture in Recession: Spain

2009-04-10T12:10:00.011-07:00

The boom in Spanish housing construction, fueled over the past decade by low European Union interest rates, was dealt a fatal blow by the crisis this past fall. According to the Madrid College of Architects, a professional association, permits for new construction virtually came to a halt in 2008. Paloma Sabrini, head of the organization, estimates that at a national level, the market will require three years to absorb the existing overstock of one million units. In Barcelona, Carlos Ferrater, an architect who works in both the private and public sectors, reports that "Most developers have come to a full stop. We've gone from euphoria to ruin in three months."

Spain's investments in infrastructure over the past 30 years have turned the public sector into a major source of commissions and catapulted the country's architecture into the international limelight. But overspending has stretched local governments to the limit. Ferrater notes, "Municipalities like Madrid and Valencia are heavily indebted, and can't even handle projects already under way."

Rafael de La-Hoz, head of one of Madrid's largest studios, finds many public works in undeclared paralysis. "If you ask the clients, they'll tell you that everything is going forward, but the fact is that work has halted." Among the projects affected are his two courthouses for Madrid's Campus of Justice.

In response, President Jos Luis Rodrguez Zapatero announced a $10.6 billion program to finance municipal works in 2009. The funds will permit Madrid to revive lvaro Siza's modernization of the spaces around the Prado Museum and the reconstruction of the banks of the Manzares River over a buried highway, designed by a team led by local architect Gines Garrido. The city has dusted off plans for 269 projects, including 20 new child-care centers. Barcelona will spend $375 million on public spaces and social services.

Architects report slowdowns in roughly 20 percent of their current work. Francisco Mangado in Pamplona says, "Though the municipalities aren't paying right now, you know they'll eventually come through." Younger firms are especially vulnerable, but Csar Jimnez de Tejada of Estudio Entresitio in Madrid, reports that the open competitions for public housing and other local services on which they depend continue to be announced.

De La-Hoz has found some relief in international commissions. His newest clients are in Eastern Europe (including one in Bucharest); they look to Spain as a model for integration in the European Union. But he foresees that, "In the long term, the situation is unsustainable."

Like many architects, Ferrater balances design work with teaching, which allows him to take a long view on the crisis. "I want to focus more on the fundamental mission of the architect, in social, cultural, academic and professional terms. You've got to take a positive attitude, looking ahead, instead of behind you."

Architecture in Recession: JapanArchitecture in Recession: IndiaArchitecture in Recession: GermanyArchitecture in Recession: ChinaArchitecture in Recession: Brazil

Culture shock just what Rays needed

Architecture in Recession: Japan

How Microsoft Is Fighting Back (Finally)

2009-04-10T12:10:00.009-07:00

For 25 years, Microsoft (MSFT) held unquestioned dominance in the personal computer business. But last year the maker of the Windows operating system started to look like a weary, vulnerable champ. Fueled by iPhone-mania and the iconic "I'm a Mac" TV ads, Apple (AAPL) was nearing a double-digit share of the PC market. At the same time, a new generation of sub-$500 "netbooks" that ran on the free Linux operating system was taking off.

Now, Microsoft has launched a determined counteroffensive. Its uncharacteristically cool TV ads emphasize the affordability of PCs vs. Macs. And it has started offering PC makers a version of Windows, normally around $70, for as little as $15. Mac sales are sliding, and Linux is disappearing from most netbooks. Researcher NPD says 95% of PCs with a small screen and a sub-$500 price tag run Windows today, up from 10% in early 2008. "Microsoft has driven Linux off the lot in netbooks," says Roger Kay, founder of tech research firm Endpoint Technologies Associates.

Microsoft CEO Steve Ballmer and his top lieutenants say they're not done yet. They predict the introduction of the next Windows upgrade this fall will spark a renaissance in the company's flagship business. Named simply Windows 7, the program promises greater ease of use and reliability, rather than new bells and whistles. And while every major Windows overhaul in the past has required more powerful computers, Windows 7 can work with slower microprocessors and fit into less hard-drive space. That means it will run on a full range of PCs, including netbooks. "Although we make less per unit, we're making very decent money" on lower-price PCs, says Brad Brooks, Microsoft's corporate vice-president for consumer-product marketing.

Still, selling millions of copies of Windows 7 for $15 or so is hardly a positive trend. Microsoft investors are used to the massive profit margins that come with selling Windows for four times that amount. But Brooks says the company has found a way to attract new customers with cheap models, while minimizing price erosion. The secret is a new strategy behind its "Windows Anytime Upgrade."

EASIER UPGRADE

Because of the smaller size of Windows 7, three versions of the program will come loaded even on lower-end machines. If a consumer on a cheaper PC running the "Standard" version tries to use a high-definition monitor or run more than three software programs at once, he'll discover that neither is possible. Then he'll be prompted to upgrade to the pricier "Home Premium" or "Ultimate" version.

Microsoft says the process will be simple. Customers enter their credit-card information, then a 25-character code, make a few keystrokes, then reboot. Brooks says pricing hasn't been determined, but upgrading "will cost less than a night out for four at a pizza restaurant."

Even at Pizza Hut prices, it's a risky proposition. Consumers may not appreciate having to fork over more money to accomplish routine tasks. "It could create a backlash from consumers," says analyst Toni Sacconaghi of Bernstein Research. "Such a move could be viewed as a bait and switch." The current version of Windows, called Vista, also has different tiers, but few customers upgrade because it means ordering a DVD and going through a clunky installation.

The strategy had better work if Microsoft is to maintain its Windows franchise's high level of profitability. The business pulled in $13 billion in operating profits for the past fiscal year, on revenues of $16.9 billion. While the Linux threat may have cooled for now, reports have leaked out that major PC makers including Acer, Dell, and Hewlett-Packard are interested in using Android, another Linux-based platform championed by Google.

The leaks may well be a tactic to influence discussions Microsoft is having with PC makers over the pricing for Windows 7. Nevertheless, "Microsoft is trying to freeze average selling prices when everyone else is trying to go the other way" and lower prices, says Endpoint's Kay.

That's where the new ad campaign comes in. A year ago, the company devised a three-year strategy to reestablish the Windows brand with consumers. The latest ads, which feature volunteers who hunt for a laptop using money from what they think is a market-research firm, resonate particularly well with the thrifty mood of today's shoppers. In the first, a part-time actress named Lauren chooses a $700 laptop over a $2,700 MacBook. "I'm not cool enough to be a Mac person," she says. In the second, a techie named Gianpaulo picks a $1,500 PC. The third will feature a mother and her 11-year-old son, who opt for a Sony after the boy dismisses a pink PC and Macs, which can't run the Blu-Ray DVDs on which many games are printed.

Lauren has become a YouTube sensation, but Microsoft recognizes it still has work to do. "We're not cool yet. Trust me, my daughter tells me that every day," says Brooks. "But we're having a lot of fun telling our story. It's been a long time coming."

Rough start sinks Moyer, Phils in LA

Windows and Intel, Kings of the PC: Divided They Fall?

Music video highlights: ALCS Game 7

Burrell tweaks back during practice

How to Cut Payroll Costs Without Layoffs

2009-04-10T12:10:00.007-07:00

Ask any entrepreneur about his worst business experiences, and laying people off is sure to top the list. After all, people who work together in an intimate setting often form personal connections that mirror family bonds. Craig Lindell, chief executive of 17-person wastewater treatment company Aquapoint, remembers having to lay off staff in the mid-'80s, when he was chief operating officer of a fashion accessories company. "I faced those people when they lost their jobs," says Lindell, who still gets choked up talking about it. Reka Mostella, area manager of the Small Business Development Center at the University of South Carolina Aiken, sympathizes. "Business management is not about running a company under ideal circumstances," she says. "It's knowing what to change when things change."

Aside from the personal toll, losing highly skilled workers can inflict long-term damage on a business, making it hard to bounce back and forcing managers to spend precious time and money recruiting and training when conditions improve.

But salaries and wages typically account for 60% to 80% of a small company's expenses, according to Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University in Nashville. And with nearly 70% of small businesses suffering sales declines, their owners are doing "things that they hoped they would not have to do," says Alice Bredin, an adviser to American Express Open, AmEx' small business division. That often includes tightening payroll. In a survey fielded by Open late in January, one-quarter of small business owners said they were cutting staff hours or jobs, and 9 out of 10 said they were curtailing hiring plans. It adds up. In January, small businesses with fewer than 50 workers shed 175,000 jobs, according to payroll firm ADP.

Yet many entrepreneurs are trimming payroll costs without laying off hard-to-replace employees. Some, including Jim Strite, CEO of Strite Design & Remodeling, are working with staff to devise ways to save jobs and minimize the blow to workplace culture if cuts are unavoidable. Naturally, the first line of defense has been to shrink nonessential expenses such as travel and business meals, make do in smaller quarters, and postpone or cancel big-ticket investments. But some business owners are preserving jobs by reducing hours, encouraging employees to take unpaid leaves, and chopping pay (often their own).

If you're feeling the squeeze, it may be possible to squeak by without losing your company's best assets. Following are three strategies to help keep your prized employees on board.

TALK STRAIGHT, GET EMPLOYEES INVOLVED

Jim Strite, Strite Design & Remodeling

On Thursday, Mar. 20, 2008, Jim Strite gathered his staff around the oval table in his "education room," where charts illustrating the company's progress adorn the walls. The owner of Strite Design & Remodeling in Boise, and a former economics lecturer, Strite showed his 14 employees how the housing meltdown was affecting the company: Revenue was a third below target. Gross profit, off 40%, wasn't enough to cover overhead, putting the firm in the red. Quick improvement was unlikely. Spring usually yielded projects that lasted through the summer, but calls about kitchen remodels, bathroom makeovers, and dream additions weren't coming in nearly often enough, despite a stepped-up marketing effort.

Strite's employees were accustomed to straight talk, although they were surprised at the urgency of Strite's message. The firm is an "open-book" company, where employees see finances regularly, are schooled in the business, and are expected to drive its success. "Communication is important at all times. In tough times, it just becomes all that more important," says Rich Armstrong, president of Great Game of Business, a Springfield (Mo.) consulting company that promotes open-book principles. Armstrong says that candid dialogue eliminates distracting rumors and fears and fosters teamwork.

In Strite's case, staffers immediately volunteered cost-cutting ideas, including offers to cut their own hours and take unpaid vacation.

Cooper has his bullpen’s back

Cutting Work Hours Without Cutting Staff

Shifting into Cost-Cutting Mode

Soros Sees Strides in Fixing the Global Financial Crisis

2009-04-10T12:10:00.005-07:00

By the end of the day on Apr. 3, the Dow closed just over the 8000 mark, and a rally appeared to be taking hold on the heels of the G-20 summit in London. But at press time on Apr. 8, the Dow had dipped to 7837—in part because of remarks made by George Soros, the storied hedge fund investor. Two days earlier, Soros called the upswing of the Dow and the S&P 500 "a bear market rally," but he may not be as pessimistic as those words imply. I talked with Soros after the G-20 and again on Apr. 8, and while he remains cautious about the remaking of the world financial system and the direction of the market, he was heartened by the outcome of the summit. Soros, who came out of retirement last year to take charge of Soros Fund Management, now says he is back in retirement mode. Apparently, though, the lion in repose can still scare the jungle.

MARIA BARTIROMO

When do you expect a true turnaround in stocks?

GEORGE SOROS

I think we are in for a long period of bottom-building. We had a good bottom in February and a good rally following it. We are going to have a number of bottoms in the years to come. Whether they will be higher or lower than the February bottom, I cannot predict—especially since I argue in my new book [The Crash of 2008] that financial markets are inherently unpredictable.

What was your reaction to the outcome of the G-20?

They pulled a few rabbits out of the hat, and it was a very impressive communiqu [coming out of the meeting]. It was probably [British Prime Minister] Gordon Brown's finest hour. He really did see the need to address the global problem because you have the less developed world facing a potential collapse as the banks don't roll over their loans. I would say this is probably the first time the authorities are actually ahead of the curve. They've managed to forestall a crisis in the developing world.

The money that will be pumped into the IMF could rise to $750 billion. Is that enough?

What's very important is special drawing rights of $250 billion. That is internationally creating new money and will allow countries that are unable to print their own money the way the U.S. can to stimulate their economies. And it will provide additional stimulus for the world, and particularly the part most in need—less developed countries that have been hit by a crisis not of their own creation. So I think it was very important not just for moral purposes but also for our own self-interest because this will...help restart international trade.

When do you expect the U.S. recession to end?

It will take time. The magnitude of the problem cannot be overstated. It is bigger than it was in the 1930s. But [the outcome of the summit] is a very positive development.

FASB [the Financial Accounting Standards Board] says it will relax the mark-to-market rules—the way assets are valued on banks' books. How much will that help?

I remain critical because I think it would have been much more effective to recapitalize the banks, create clean banks that are able to lend. The way the TARP money was spent was very messy and badly done. And because of that, there's a reluctance by Congress to make new money available. So it will take a long time for the banks to dig themselves out. And while they're doing that, they will not be providing sufficient credit to carry on business, they'll be charging a lot, and that generally is going to weigh on our economy.

Are you expecting that we'll see more banks go down?

No, I think it's clear that no major [U.S.] bank whose failure would have a systemic effect will be allowed to go under.

They'll be nationalized?

It would be better to nationalize [the banks] than merely to nationalize their debt and leave them with the profits, because that's really to the disadvantage of the taxpayer.

Secretary [Tim] Geithner says the Treasury should be able to regulate nonbanks such as an AIG. Do you agree?

I do. Basically, this whole financial system collapsed because regulators failed to regulate. There was a belief that markets are self-correcting. That turned out to be wrong. So we have two tasks: One is to arrest the collapse and reverse it, and I think we are making good progress. And what happened at the G-20 is an important step. Now comes the task of rebuilding the financial system from its foundations, because it was built on false premises. That will take longer. There's much less clarity on that than there is on what needs to be done to stop the collapse.

What will the banking industry look like once we emerge from this crisis?

It will look fundamentally different because if you recognize that there has to be a guarantee for the deposits, then you also have to regulate those entities that are guaranteed. So it's not enough to regulate the money supply. You have to regulate credit. And you have to recognize that markets are prone to create asset bubbles and accept the responsibility of preventing those bubbles from becoming too big and self-reinforcing, because that's what a bubble is—a self-reinforcing process. And you have to recognize that markets have moods that regulators must counterbalance. You also have to recognize that if the markets don't know what equilibrium is, then regulators can't possibly know either. So you have to accept that regulators will be wrong. But with the benefit of feedback from the market, you can judge whether you've done too much or too little.

You saw the story about some hedge funds saying: "We're leaving London. The tax situation is not favorable. We don't like business conditions here."

Where are they going, another planet? There's general agreement that regulation has to be global. If you have global markets, you must have global regulation. There is no alternative now with tax havens being brought under control. Hedge funds will have to get used to being regulated.

The U.S. Economic Crisis: Three Growth Scenarios

Banks: Beyond the Citi Carnage

Global Stocks: Should You Pull Out?

After Huge Loss, Nissan Plans More Layoffs

Nissan's Cube Aims Young

2009-04-10T12:10:00.003-07:00

Back in 2004, when Toyota (TM) launched the Scion brand to grow into a younger niche, Scion's xB showed that young buyers weren't only into slammed Civics and souped-up Mustangs. A boxy, strange-looking vehicle, the xB was more about a rolling living room than a fast set of wheels. Now Nissan (NSANY) and Kia would like a piece of that action. They are using the original xB formula and coming to market with the Cube, for Nissan, and the Soul, for Kia, both of which are smaller than the latest-gen xB, which has grown bloated and more expensive than the original box that launched the Scion brand.

An aside: Some want to say Honda's (HMC) Element must share some DNA here as well, but given that the buyer age trends older, the Element is more like the young couple's car when they reject the minivan—or the empty-nester's car, when he or she also rejects the minivan and the pickup but spends a lot of time either surfing or heading to the garden center.

Why mention the Element? Because buyer age is a compelling story for all of these vehicles, since a strange thing happened to Scion as well as with Honda's Element: The target was millenials/eco-boomers, but both Scion as well as Honda found a two-tier pattern, with empty-nesters adopting their boxes almost as fervently as the kids.

Nissan says they expect the same to happen with the Cube, and the reasons are pretty clear why both very young buyers and certain empty-nesters will dig it:

• Iconic Design. The Cube isn't meant to be instantly lovable. The design is purposefully polarizing, like the xB before it. The Scion was once considered controversial, and now it's almost staid. Such design can be equated with rebelling from tradition, a virtue to the youth crew, but fiftysomething Dwell readers will likewise be attracted to the unconventional, modern hew.

• Utility, Comfort and Adaptability. The Cube is tall even though its wheelbase is quite short, even shorter than the compact Nissan Versa upon which the Cube is based. Height creates interior space, so there's incredible headroom in the car; one 6-foot, 6-inch tester at the launch still had plenty of space overhead. The car is comfortable and airy inside (height-adjustable driver's seat and steering wheel mean the short as well as the tall can get a decent perch behind the wheel), and the cockpit is easily altered to suit various needs. For instance, the front seats fold backwards completely, to meet the rear bench, which itself slides fore and aft up to six inches, depending on what you need to fit behind it; slide it backwards if you need more rear-seat legroom. Why would you want the front seats to fold completely backwards? Use your imagination. One wart: The rear seats fold forward, but they don't "dump" into the floor or flip forwards against the front seatbacks, so fully utilizing the back of the car for cargo requires a bit of fiddling. The flat load floor of a Honda Fit, for instance, is a little easier to manage.

Homers send Phils to Game 1 victory

Zemanta, for Snazzier Blogs

2009-04-10T12:10:00.001-07:00

Slovenia is a long way from Silicon Valley. But a two-year-old tech startup called Zemanta is bringing a little California magic to Ljubljana, the country's capital, with a cutting-edge software tool that helps authors worldwide easily add related content and multimedia to their blog posts and e-mails.

"People ask: 'Why Slovenia?' I say: 'Why not?'" says Alex Spetic, Zemanta's 36-year-old chief executive, who got his MBA at California State University at Hayward. "We're in the blogging business. It doesn't matter where you're based, it matters what you produce."

What Zemanta has created is a one-stop shop for bloggers looking to dress up their postings with related content links, images, audio, and video. Once a blog entry has been written, Zemanta's Web-based program—which is compatible with tools including Blogger from Google (GOOG), Movable Type from Six Apart, and the open source WordPress—scans the content using search technology. Then it suggests free and public-domain material that bloggers can add, ranging from YouTube videos and Amazon (AMZN) merchandise to Wikipedia entries and news articles from 10,000 Web sites. Inserting the suggested material is as easy as point and click.

Enhanced Content Is a Win-Win

"The biggest usage will be professional authors who are looking for other forms of content to add to their blogs," says Saul Klein, a partner at London venture capital firm Accelerator Group, which provided first-round funding to Zemanta. "If the content is enhanced, both the author and reader win."

Zemanta's premise may be simple, but bringing the product to life was far from it. For one thing, the initial prototype was written in Slovenian—not exactly a mainstream choice for reaching a wide Web audience. But after the company won a €50,000 ($67,200) prize in 2007 from Seedcamp, a European competition to foster entrepreneurship, Spetic and a team of five developers set about converting the software to English and raising more money.

"We only had 10 weeks to get it up and running," Spetic says. "All we could pay [the developers] was food and accommodation."

Despite the short development window, venture capitalists saw the potential. In January 2008, Accelerator, Britain's Eden Ventures, and New York's Union Square Ventures (which also backed Twitter), stumped up a combined 750,000 ($1.1 million) for an undisclosed stake in the startup. That was followed by a further $650,000 investment in September 2008, and now Zemanta is raising further capital (amount undisclosed) in a funding round expected to be complete by May.

Blogs Keep a Company Death Watch

Designs for Democracy

A Credit Card You Want to Toss

2009-04-07T14:52:00.003-07:00

Credit-card issuers have drawn fire for jacking up interest rates on cardholders who aren't behind on payments, but whose credit score has fallen for another reason. Now, some consumers complain, Bank of America (BAC) is hiking rates based on no apparent deterioration in their credit scores at all.

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter—headed "Important Amendment to Your Credit Card Agreement"—advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. "No one could give me an explanation," says Eric Fresch, a Huron (Ohio) engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit.

Bank of America spokeswoman Betty Riess confirms some bank cardholders could be receiving rate increases for reasons other than declines in credit scores, such as running higher balances with their Bank of America cards or with other creditors. She says the increases are part of a "periodic review" that assesses customers' credit risk. She declined to say if the Charlotte (N.C.) bank had changed its credit standards thereby bumping some consumers' rates or how many cardholders were being affected by the review. Bank of America has 40 million U.S. credit-card accounts.

Buzz about the letters is building on the Internet. Since mid-January Credit.com, a credit-card information site, has received 40 complaints from consumers Bank of America had notified of sharp rate increases, even though they were current on their bills, says Emily Davidson, a Credit.com researcher. Complaint sites My3cents.com and BankofAmericaBadforAmerica.org say they have also received similar complaints.

The so-called "opt-out" letters give borrowers the option of no longer using their card and paying off the balance at the old rate. But they must write Bank of America by later this month if they plan to do so—otherwise their rates on existing and new balances automatically rise.

Arbitrary Criteria

What's striking is how arbitrary the Bank of America rate increases appear, credit industry experts say. In recent years, many card companies have turned to a practice called "risk-based pricing," where they will raise a regular paying consumer's rate because of a decline in the person's FICO score. FICO is a credit-risk score developed by Fair Isaac (FIC) that includes a number of risk metrics the Minneapolis company doesn't disclose. Credit reporting bureaus supply creditors with FICO scores along with other data, such as late payments and debts owed.

In a December congressional hearing spearheaded by Sen. Carl Levin (D-Mich.), lawmakers slammed big card companies for using such pricing with customers who pay on time. By law, credit-card lenders can change terms as long as they notify borrowers. Even so, JPMorgan Chase (JPM) and Citigroup (C) announced ahead of Levin's hearing that they would stop the practice of raising card rates based solely on FICO scores.

But Bank of America appears to be taking an even more aggressive stance because, beyond credit scores, it is using internal criteria that aren't available to consumers. That makes the reason for the rate increase even more opaque. "Congress has faulted credit-card companies for lack of transparency in raising rates," says William Ryan, a financial industry analyst at Portales Partners, a New York-based research firm. "Bank of America is bringing it to a new level."

Is the Fed’s $800 Billion Plan Cause for Concern?

How Merchant Cash Advances Work

Architecture in Recession: Japan

2009-04-07T14:52:00.001-07:00

Architects are feeling the chill of an economic recession and the effects of the U.S. subprime crisis. Despite an estimated 2.2 percent drop in GDP in 2008, a decrease in housing starts, and a reluctance on the part of banks to lend, design firms large and small are hoping to wait out the storm. Due to its dependence on foreign financing, speculative housing has been particularly hard hit, falling 5.8 percent in December from the year before. As a result, developers are going bankrupt and projects are dying.

But other sectors have slowed without coming to a complete stop. "Sometimes a break is good, since it gives us a chance to take another look at the design and maybe make it better," says Michel Weenick, president of the Tokyo firm PAE Design and Facility Management. After a six-month hiatus, PAE is moving forward on an auction facility for trucks and construction equipment.

Large developers who are less dependent on foreign money and are engaged in a wide range of projects are faring better than those focused just on housing. Across the board, though, location is key. Large developments in central Tokyo, like Mitsubishi Estate's redevelopment of the city's Marunouchi District, are continuing at a steady clip.

But outside that highly desirable location, clouds are gathering as land values and rents drop. According to the Nikkei Real Estate Market Report, 52 mid-sized office buildings in the middle of Tokyo will finish in 2009, an improvement over the 44 that were completed in 2008 but considerably less than the 92 projected for this year.

In regional cities, lending and new construction are practically at a standstill. "Basically lending has stopped for anything outside of Tokyo," says Weenick. Architects in Nagoya, Toyota's hometown, are facing a double whammy as diminished tax revenues from poor auto sales have led to budget cuts for existing projects like the public library being designed jointly by Jun Mitsui & Associates Inc. and Pelli Clarke Pelli Architects. Few architects are relying on public commissions these days—a sharp contrast to the 1990s, when public works in the hinterlands sustained many firms after Japan's economic bubble burst.

Another difference between the two recessions is the current decrease in international work. Instead of looking to the Middle East or China where opportunities abounded until recently, Japanese architects are searching for jobs at home. Branching out into interiors, renovations, urban design and feasibility studies—projects they would have passed on a year ago—has enabled many firms to maintain a sure footing. "It is a great chance for us to expand our capabilities and our client base," says Jun Mitsui. Not to mention hold onto staff. In Japan, once the land of lifetime employment, layoffs are still infrequent.

Architecture in Recession: IndiaArchitecture in Recession: GermanyArchitecture in Recession: ChinaArchitecture in Recession: Brazil

Architecture in Recession: India

MLB Network signs Vasgersian

Marcial: Sterling Construction, a Shiny Stimulus Play

2009-04-06T12:46:00.001-07:00

Some savvy investors have been scouting for infrastructure pure plays, mainly those operating in states where the Obama Administration's American Recovery and Reinvestment Act of 2009—known the world over as the U.S. stimulus package—will have greater impact. One name that has caught attention as a potential significant beneficiary of such spending is Sterling Construction (STRL), a relatively obscure contractor focused on road, rail, bridge, and water infrastructure projects in Texas and Nevada.

"Our research indicates that 86% of the projects that will be funded with stimulus dollars are construction projects, such as new lanes, new roads, and new bridges," says John Kasprzak Jr., an analyst at BB&T Capital Markets (BBT) (it has done business with Sterling), who rates the stock a buy. These are just the kinds of projects most suited to Sterling, he says.

The Texas Transportation Dept., he notes, has a list of 309 projects that will be funded primarily by the stimulus funds—roughly $2.8 billion worth. Five of the largest construction companies in Texas, including Sterling, will be seeking a share of the projects, scheduled for competitive bidding this summer.

flying high since the election

Kasprzak says that because of his confidence in the company's ability to benefit from the stimulus package he has raised his stock price target for Sterling to 22 from 20 a share. The stock has been flying high since November's Presidential election, most probably because of President Barack Obama's promise to create 3.5 million jobs through an infrastructure construction program.

From a low of 9.40 a share last Nov, 21, the stock zoomed to nearly 20 on Jan. 28, 2009. Profit-taking has since pushed the stock down, to 18.64 by Apr. 3. Kasprzak figures the stimulus dollars will help Sterling earn $1.45 a share in 2009 and $1.75 in 2010, up from 2008's $1.32.

"Sterling should benefit from the stimulus package in the coming months as money begins flowing into these projects," says analyst Craig Bell of SMH Capital, who rates the stock a buy. The state transportation budgets in Texas and Nevada, when combined with the stimulus funding, will provide a solid environment for Sterling to win projects and execute successfully over the next several years, he adds.

"Through a combination of growth in state funding and economic stimulus programs, Sterling's heavy construction projects are expected to jump by more than 50% in 2009 and 2010," says John B. Rogers, an analyst at investment firm D.A. Davidson, which would provide substantial opportunities for increased bookings or projects and earnings growth over the coming years. He rates Sterling a buy, with a higher price target of 23 a share. (Davidson expects to do business with Sterling.)

a long-term bet, too

Sterling isn't just a short-term play, however, that depends only on the stimulus package. Based on the prospect of increased economic activity, which should add to its work backlog over the near term and support growth for the long term, "we expect Sterling to realize solid, long-term earnings growth of about 11% over the next five years," says Rogers.

Some of the country's largest institutional investors have discovered and invested in Sterling, whose market capitalization of $233 million is tiny compared to the much larger big-cap stocks in their portfolios. Among them are Wellington Management, its largest shareholder, which owns a stake of 12.5%, or 8.3 million shares, and T. Rowe Price (TROW), with 8.2%, or 1.6 million shares.

Since the push began to bolster the economy through big-ticket infrastructure projects, Sterling's stock has produced nifty returns. And the stimulus spending hasn't even begun.

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.

Royals sign Wright to Minors deal

Stimulus: How Porky Is It?

Jobs vs. Protectionism in the Stimulus Package

The Peter Principle Lives

2009-04-05T06:31:00.001-07:00

The Peter Principle, about to be reissued in a 40th anniversary edition, was a best seller when it was first published. A satiric treatise on workplace incompetence, it touched a nerve with readers because it was so funny. And so true. Much like the film Office Space, NBC's The Office, and Scott Adams' Dilbert comic strips, this book by Laurence J. Peter (a former teacher) and Raymond Hull (a playwright) captured the twisted logic of workplaces—tapping into how ridiculous they feel to insiders. It gleefully emitted a cloud of jargon monoxide and absurd advice as it reached its famous main conclusion: "In a hierarchy, every employee tends to rise to his level of incompetence."

The Peter Principle made us laugh, but it also made us aware of the importance of simple competence—and of how elusive it could be. When people do their jobs well, Dr. Peter argued, society can't leave well enough alone. We ask for more and more until we ask too much. Then these individuals—promoted to positions in which they are doomed to fail—start using a bag of tricks to mask their incompetence. They distract us from their crummy work with giant desks, replace action with incomprehensible acronyms, blame others for failure, cheat to create the illusion of progress.

If Dr. Peter were alive today, he'd find that a new lust for superhuman accomplishments has helped create an almost unprecedented level of incompetence. The message has been this: Perform extraordinary feats, or consider yourself a loser.

We are now struggling to stay afloat in a river of snake oil created by this way of thinking. Many of us didn't want to see the lies, exaggerations, and arrogance that pumped up our portfolios. Instead we showered huge rewards on the false financial heroes who fed our delusions. This is the Bernie Madoff story, too. People may have suspected that something wasn't quite right about the huge returns on their investments with Madoff. But few wanted to look closely enough to see the Ponzi scheme.

Nor did anyone care to see the limits of professional athletes. Baseball's Barry Bonds was a great player, but excellence wasn't enough for the San Francisco Giants' management, himself, or deluded fans like me. During those alleged steroid years, Bonds sure looked juiced: His head resembled a balloon. My reaction? Like most Giants fans, I joked about the meds—and loved it when he blasted those homers.

The cure for our malady? We should return to what Dr. Peter wanted: rewarding ordinary competence and being wary of feats that come too easily. Perhaps the late Ray Kroc is the right role model here. One of his first steps in building the McDonald's empire was to run his own outlet—he cooked, cleaned bathrooms, picked up the trash. The focus on doing ordinary things well was, he believed, key to McDonald's success.

Simple competence was central, too, for former U.S. Marine Lieutenant Donovan Campbell, who led a platoon in bloody street battles in Iraq. As Campbell's account, Joker One, tells us, he earned his men's respect and protected them through simple acts: training them to get in and out of a Humvee quickly, reminding them to eat, and arguing with superiors when those under his command were unnecessarily put in harm's way.

Finally, consider how Captain Chesley Sullenberger III explained his astounding emergency landing of US Airways (LCC) Flight 1549 in New York's Hudson River in January. "I know I speak for the entire crew when I tell you we were simply doing the jobs we were trained to do," he said. As Dr. Peter might have observed, there were no pretenders, blowhards, or shared delusions that day, just the deftly coordinated actions of people who had not reached their level of incompetence.

Freegans and FreeCycling Gain Fans

The story of ‘Boo’ for a new generation

The Worst Predictions About 2008

As Factories Fail, China's Business Law Does, Too

2009-04-05T06:30:00.005-07:00

Dongguan, China - Business had been good, even great. But by early 2008, the lighting manufacturer realized his factory in China was heading for failure. The collapse of the U.S. housing market had devastated demand for his lamps and fixtures sold at American retailers. Costs kept rising in Dongguan, the southern city where he had expanded his operations. So the 43-year-old boss quietly slipped out of China, leaving behind $100,000 to cover the final month's rent and salary for his 400-plus workers. Suppliers were left unpaid.

Lucky he left early. As word spread about the factory's closure, furious employees streamed onto the nearby street, a narrow passage lined with Internet bars and outdoor pool tables. Suppliers drove up in blue moving trucks, blocked the gate, and sent in hired thugs to grab computers, cables, machinery—anything of value. Unable to find the boss, the gang roughed up the company's lawyer and held him hostage for much of the day. "It was a new factory and looked like a gold mine. They were going to take everything out," says the boss, a European who has been in hiding in Taiwan for almost a year.

Order was restored only after the landlord called in five truckloads of police to protect his property. And suppliers who arrived too late were out of luck. Xiao Xiaosan, a maker of metal parts for lamps, says he is owed $76,000. Although he rushed to the factory on the day of the closing, he doubts he'll ever see his money. "It's impossible for me to find the owner outside of China," he says.

As the global recession slams China, bankrupt business owners are shutting factories overnight. Often, they leave the mainland, afraid of angry suppliers and workers and uncertain about legal protections. Dongguan alone last year recorded 673 cases—up 24%—of owners fleeing their factories, leaving behind 113,000 unemployed workers owed $44.1 million. Labor disputes almost doubled, to nearly 80,000.

The problems are spurring everyone to be more cautious. In the past, many deals were made on the basis of trust. But suppliers these days are demanding bigger payments up front. "It's gumming up the normal free flow of goods," says Ben Schwall, an American who heads Aliya Lighting, a Dongguan company that supplies lamps sold at Home Depot (HD), Lowe's (LOW), and elsewhere. "A lot of friendly credit is disappearing."

Worried about factories going belly-up, buyers for multinationals are closely monitoring the financial health of their suppliers. "It's a big concern," says William Fung, managing director of Li & Fung, a Hong Kong company that handles purchasing in Asia for retailers worldwide. "The most often asked question by our buyers is whether the factory...will still be around tomorrow." Purchasers who once might have had little contact with suppliers to their suppliers—companies that sell, say, buttons or zippers to a shirtmaker—are now quick to react if they hear those smaller players aren't getting paid, a clear sign of trouble at the factory. "You can only deal with people you have known a long time," says Peter Lau, chairman of Giordano International, a clothing retailer with 2,000 stores across Asia. "And the trust has to be both ways."

In the U.S., factory owners could file for bankruptcy, getting some protection from creditors and maybe even court-ordered financing to keep operating. That was supposed to be the case in China, too, under a two-year-old bankruptcy law that was heralded as a key step in market reforms. But few judges have received the necessary training to understand the complex measure, so local officials often discourage hard-pressed owners from filing for bankruptcy. And by compensating creditors before employees, the law undercuts Beijing's desire to minimize labor unrest.

Tax Cuts Aren’t Off Obama’s Table

China’s Factory Blues

Report from the G-20, and the Man Who May Lead Britain

2009-04-05T06:30:00.003-07:00

It was a week of emotion and high drama in London as the chieftains of the world's 20 largest economies met for the second time to discuss solutions to the global recession. With the worst financial downturn in a generation as a backdrop, defenders and detractors of capitalism squared off. On one side, there was hope and pride as new American President Barack Obama met with British Prime Minister Gordon Brown, Chinese Paramount Leader Hu Jintao, Russian President Dmitry Medvedev, and other heads of state to talk about collective stimulus and avoiding protectionism. Meantime, protesters railed against the G-20, staging demonstrations, smashing windows (the building housing the Royal Bank of Scotland (RBS) was one target), and clashing with police. The protesters called this Apr. 1 "Financial Fool's Day," and even political leaders sometimes seemed agitated. French President Nicolas Sarkozy warned that he would not accept false compromises, and German Chancellor Angela Merkel has been resisting more stimulus, saying it wouldn't lead to "sustainable growth." Another critical voice was that of David Cameron, leader of Britain's Conservative Party, who blamed much of his country's economic mess on the Labour Party's Brown—a man whom many believe he will succeed in elections expected by June of next year. I talked with Cameron after he met privately with Obama.

MARIA BARTIROMO

You differ with President Obama on the need for more European stimulus. Can you explain your position?

DAVID CAMERON

I'm not against European stimulus. If European countries have put aside money in the good years, if they can afford a fiscal stimulus, then they should do so. In Britain, we can't afford an extra discretionary stimulus because we're already borrowing 10% of our national output. If we try to do more, we will actually find it's self-defeating in that the consumer and the businessman will actually think: "Hold on, I don't have confidence in the nation's finances."

Do you see this crisis, which spread so far so fast, as an indictment of globalization?
No. Look, we can all benefit from globalization, free trade, and open markets. Enterprise and entrepreneurialism have been a huge force for good in the world. It has lifted people out of poverty—whether in America or Britain or India or China—and it should do far more to lift people out of poverty in Sub-Saharan Africa. We should not turn our backs on globalization. We have to make it work. That means we have to recognize that because banks have a unique ability to bring down the economy, they need to be properly regulated. We need to make sure we don't have people inventing financial instruments, profiting hugely from their creation but not understanding the contagion they can spread. We need more balanced economies to make sure that, as in the case of the U.K., we're not so reliant on financial services. And in Europe, we have to deal with the enormous amount of welfare dependency that can sometimes be a drag on our economies. So if we do those things, I believe we can actually have a capitalism system that works. It has to be based on moral value, though. That's important. I've made many speeches about capitalism with a conscience. To me, markets are a means to an end, which is the wealth and prosperity we want to see. They're not an end to themselves, and it's very important that we bring a sense of values and a sense of morality to those markets.

If you were Prime Minister today, what steps would you take to get Britain out of this economic quagmire?
The biggest step we need to take right here in the U.K. is to get credit moving. You have to recapitalize the banks so they have the available capital. Then you've got to get them lending again. So we've argued for a big and bold and simple scheme where the government actually stands behind some of the new lending that the banks need to do.

Barclays (BCS) has declined to participate in that asset-protection plan, not wanting so much government intrusion in its affairs. Was that a wise decision?
Well, it's a decision for Barclays, and it's one they have to defend to their shareholders. I think it's an issue for them. Clearly, it's in the national interest that we clean up the balance sheets. And so any bank that decides not to participate has to demonstrate to its shareholders how it can get lending again.

The fact that you are the only opposition leader Obama is meeting with on this trip has not gone unnoticed. You are an upper-class British conservative; he a middle-class American liberal. Aren't the two of you an odd couple?
We get on very well. I think he's an intriguing politician. He's also easy to talk with. I mean, of course we're going to have differences, but...we both think green technology jobs are an important way out of the recession. We both have talked about the importance of the voluntary sector, families, and recognizing that real change is not just about government pulling levers, it's about all of us doing our bit—that society should bring about change, not just government. So I admire him very much.

Are some governments fanning the flames of class warfare? We see protesters on the street. We saw the home of former RBS chief Fred Goodwin vandalized.
There has been appalling abuse in terms of pay and bonuses and the rest of it. We should be very clear that there aren't rewards for failure, and people shouldn't get big bonuses when their banks have failed so badly. So government has got to regulate properly, but I don't think even ineffective government is a justification for violence on our streets. Anyone who wants to protest has a right to protest, but no one has a right to break the law, intimidate people, smash up property, and we shouldn't have any truck with that at all.

Unemployment: How to Slow the Bleeding

MBAs Go Micro

2009-04-05T06:30:00.001-07:00

Marley Hodgson couldn't believe his luck when the rsum of a top-notch local business school student landed on his desk last year. Hodgson, co-founder and CEO of Denver salad company Mad Greens, was looking for a vice-president for finance, and John Montgomery, an MBA student at the University of Colorado at Boulder's Leeds School of Business, fit the bill.

Prior to business school, Montgomery worked as a controller at restaurant chain Noodles & Co., helping it grow from 40 to 120 locations during his four years there. Hodgson hoped Montgomery would work similar magic with his fast-casual salad chain, which has eight locations in Colorado, around 100 employees and $6 million in revenue. "I really liked him, so then the question was how do I make sure he jumps on board with us," says Hodgson.

Hodgson knew he couldn't pay Montgomery the $130,000 to $150,000 salary he'd command at a larger company. To entice him, Hodgson threw in extra vacation, an attractive bonus, and equity in the company. "We wanted to give him some skin in the game," says Hodgson. His strategy paid off a few weeks later when Montgomery accepted the offer. The company is now considering hiring another MBA for a job opening later this year.

Dent in Recruiting

For years, small companies have had trouble competing with the larger firms that typically hire business school students, but that is starting to change. With the recession making a dent in campus recruiting, career service officers are advising students to broaden their job searches to include small businesses. Students are heeding their advice, and companies now have "access to a lot more talent than they ever had before," says Tracee Petrillo, career services director at Babson College's F.W. Olin Graduate School of Business.

MBA grads may not be happy about it, but small and midsize businesses have advantages that their larger brethren don't—and it's not just that they're hiring. Small companies can offer perks that will be tempting to students, such as allowing students to sit in on board meetings or mentorship from a top executive. In smaller organizations, many MBAs will be able to rise quickly up the ranks. And the ability to have an impact is far greater at small companies than it is at huge conglomerates.

Such benefits can easily outweigh some of the disadvantages of working for small companies. Montgomery, for example, said he was willing to take a substantial pay cut to work at Mad Greens, a company where he felt he could have "my hands in all the cookie jars," says Montgomery. Since he started, he has had the chance to work in almost every department, from marketing to operations, an experience that would be hard to replicate at a larger company. Says Montgomery: "It was worth the pay cut."

In many cases, going the small-company route is an opportunity for MBA grads to follow their passion or just to try something new. Stanford MBA student Kieran Furlong interned last summer with Solazyme, a 60-person South San Francisco biotech company, and accepted an offer with it in early November. Furlong, a former chemical engineer who worked for large multinational companies for nearly a decade before coming to business school, was eager to work for a smaller company, specifically one that focused on renewable energy. He knew he wouldn't get a signing bonus when he took the job at Solazyme, but he was able to negotiate a competitive salary, as well as stock options, and future equity in the company. "At the end of the day, I decided I've done the large corporate world before, let's try something different," he says.

Anxious Job Hunters Head for the Emirates

Architecture in Recession: India

2009-04-02T15:20:00.007-07:00

In the past five years, as India's hunger for glass-encased IT parks and marble-swathed gated communities appeared insatiable, architects designed supersize projects dreamed up by Indian developers. Then the money disappeared. As the global economic crisis has snowballed, the country's banks have turned skittish.

"The first to get hit are large projects," says Mohit Gujral, whose firm, Design Plus, does lots of big projects and has had to lay off a quarter of its 140 employees. Design Plus has worked on some of New Delhi's swankiest mega-malls and with Singapore-based Kerry Hill Architects on the city's first Amanresorts hotel. As business slows down, Gujral says, "You look at projects and scales you may not have considered earlier."

The Survam Knowledge Park, a 15-acre site in the tech suburb of Gurgaon, is an example of a "new India" project bowing to newer realities. Excavation began months ago on the $115 million project, but work has now paused. "They are revisiting the project," said Anil Rawat, India managing director for Canada's B+H Architects, which worked on the design and opened an office in the country with a local partner 15 months ago.

Smaller firms that work directly with users have been less affected. "They're still fitting out the same square footage, but at a reduced budget," said Rahoul Singh, whose firm, Rahoul Singh Design Associates, counts on residences funded by private wealth for half its workload.

Some major projects are going ahead, but with different customers in mind. B+H's Rawat said that townships the firm is designing around the northern city of Haridwar were planned originally to include apartments of 950 square feet as well as villas three or four times that size. Now there will likely be fewer villas and more of the smaller, cheaper apartments, as "affordable housing" becomes the new mantra for developers.

Indian cities face a shortage of 25 million housing units, mostly for low-income families. But most apartments advertised in major cities until last year cost upwards of 60,000 dollars—75 times India's average annual income. "There were never enough end-users for that and there were never going to be," said Manit Rastogi, of the mid-sized firm Morphogenesis, who says new projects will now be driven by real demand rather than speculative investment.

Rastogi has seen about a third of his projects shut down, but is optimistic about making up for lost work in areas that still face a shortfall—such as mid- and low-end housing, schools, and healthcare facilities. The firm is designing a university of 2.5 million square feet in a Delhi suburb. "There are real projects to be delivered," he said. "India is a developing country. We still have a shortage of housing. We have a shortage of true office space. We have a shortage of just about everything."

Architecture in Recession: GermanyArchitecture in Recession: ChinaArchitecture in Recession: Brazil

India Inc. Battered by Credit Crisis

Apple’s iPhone, an Indian Flop, Prepares for China

Fritz Henderson at GM: That's Some Tough Job

2009-04-02T15:20:00.005-07:00

Who is running General Motors (GM)? Is it Frederick (Fritz) A. Henderson, the GM veteran that the Obama Administration chose to replace Richard Wagoner Jr.? Or is it Team Obama?

This is a question worth pondering. Yes, GM needs a major shove to right itself, but too much meddling by the federal government could complicate a turnaround. "Henderson is going to have to stand up to the Treasury Dept.," says Sydney Finkelstein, a management professor at the Tuck School of Business at Dartmouth. "It would be a mistake if he thinks he can't make a decision without preapproval."

To a certain degree, Henderson has little choice. By the end of May, and with the threat of bankruptcy hanging over him, he must execute a plan shaped by the Treasury Dept. that is aimed at making GM viable. But Henderson, who is known for telling it the way he sees it, may feel compelled to push back if Obama's team asks him to implement strategies that are more aligned with long-term Washington policy goals than with selling cars. He also will need to educate a task force filled largely with auto industry neophytes. Henderson says his interaction with the task force so far has mostly involved "getting them up to speed" on a complex industry. "They were drinking from a fire hose," he adds.

In the coming weeks, Henderson, 50, will have to win his minders' trust. After all, he has worked at GM for 25 years and is a creature of the automaker's insular culture. As chief operating officer and Wagoner's heir apparent, Henderson executed several strategies that failed to turn around GM. His fingerprints are all over the restructuring plans the government deemed insufficient. And like Wagoner, Henderson wouldn't countenance killing any of GM's brands until the government suggested doing so.

A Hard Bargain

Henderson is already saying the "right" things, including an assertion that bankruptcy, once unthinkable inside GM, is now "more probable." But if he is to have real influence—not to mention keep the job he was groomed for—he will have to prove that he can wrest sufficiently deep concessions from the union and GM's bondholders. Henderson brings useful experience to the challenge. He helped negotiate a 2007 labor agreement that slashed wages for new hires and set up a health-care trust that would have put GM on a much sounder footing had the economy not imploded.

All the same, Henderson will be hard pressed to keep GM out of bankruptcy. First, he has to revise GM's sales projections (the feds thought they were too high) and then use a reduced, government-approved sales forecast to figure out how much debt GM can carry in the future. Since Treasury hasn't given GM a debt-reduction target, Henderson told BusinessWeek, he plans to keep negotiating it down until Obama's task force thinks he has cleaned the balance sheet.

The Man Who Could Run GM

General Motors: 60 Days to Show Results

One for all, all for one: Phils get it done

For the Next President, the Fastest Transition Ever

G-20 Summit: Thorny Issues, a Soothing Outcome?

2009-04-02T15:20:00.003-07:00

Unless U.S. President Barack Obama and British Prime Minister Gordon Brown manage to pull off some last-minute lightning, the save-the-world Group of 20 summit in grimy East London at an exhibition hall ordinarily used for boat shows probably won't offer many big achievements. On the summit's eve, the best outcome looks likely to be a soothing pledge by world leaders to continue efforts to turn around the ailing world economy. The gathered politicians may offer more detailed agreement in some areas, including a big capital boost for the International Monetary Fund, the need to impose stricter global rules on banks and other financial actors, and further tightening of the screws on so-called tax havens.

A few weeks ago, with expectations running high and markets in meltdown, such a minimal outcome might have been a disaster. Now, following a sharp runup in equity markets and some signs that parts of the world economy are improving—or at least getting close to a bottom—it may be less urgent for the G-20's presidents and prime ministers to reach sweeping agreements that were probably unrealistic anyway. "I think there is a little less pressure on these leaders to solve the world's problems than three or four weeks ago because the markets have a better tone," says Larry Kantor, head of research at Barclays Capital (BCS), the investment banking arm of the big British bank.

Kantor, who is based in New York, was recently in London somewhat warily unveiling a new volume of analysis called "Green Shoots Have Arrived." He acknowledges that the title seems saucy in the British capital, where economic gloom is de rigeur. Prominent Britons who now make the mistake of uttering the "green shoots" phrase—including Gordon Brown's key economic advisor, Shriti Vadera, who recently became a British minister—have been pilloried in the resolutely pessimistic local press.

Forecasting Positive U.S. GDP

Still, Kantor says that he sees signs that "the bottoming-out process has begun" in parts of the world including China, which he thinks has "turned the corner," and the U.S., where he thinks "consumption has stabilized," though at a very low level. His argument has three basic points: First, expectations have been battered down so low that they are now easier to meet or beat; second, whatever the criticism of the details, policymakers have deployed a huge amount of stimulus in the form of spending plans and rate cuts; and third, manufacturers have cut back so sharply in reaction to falling demand that they may well need to increase output soon—unless consumption takes another sharp leg down.

Kantor notes, for instance, that U.S. auto sales have fallen recently to a dismal 9.4-million-vehicles annualized rate (the old norm was 16 to 17 million), but car manufacturing in the U.S. has declined even further, to an annualized rate of about 4.5 million. "You can't keep producing half of what you sell," he says. "At some point you run out of product," Kantor says. All told, Barclays forecasts that real gross domestic product in the U.S. will turn positive in the fourth quarter of this year.

Kantor isn't alone in being cautiously optimistic. Michael Heise, chief economist at German insurance giant Allianz (AZ), opined on Mar. 31 that the worst of the downturn is likely over. Heise, like Kantor, partly bases his argument on the thinking that companies and economies eventually run out of downside. "The U.S. has been in recession for two years," he says. "Recessions come to an end at some point, and this one will, too."

Google-Yahoo: Unintended Consequences

Best ‘pen will write ending to Game 5

Weather leaves Series fit to be tied

Apple's iPhone, an Indian Flop, Prepares for China

2009-04-02T15:20:00.001-07:00

Take the most talked-about phone in recent history and launch it in one of the fastest growing cell-phone markets in the world, and you'd expect fireworks. But in India, where carriers Vodafone (VOD) and Bharti Airtel (BRTI.BO) have been offering Apple's (AAPL) iPhone since last August, unsold phones are stacking up at shops around the country. Apple won't break down sales figures by country, but a senior Airtel executive confirms analyst estimates that total official iPhone sales here have yet to touch 15,000 handsets. Vodafone, which has a lower-key advertising campaign, has sold even fewer, the analysts estimate. Even including sales on the black market, where the phone sells for half the $700 sticker price, the total only increases by an additional 15,000, according to an Indian customs official. That's puny, especially since Indian cell-phone providers have added nearly 20 million new customers since the iPhone's launch last year.

What has gone wrong for Apple in India? Nearly two years after the phone officially went on sale in the U.S., Apple's failure to gain a foothold in India's lucrative may hold lessons for its upcoming iPhone push into China. As the global recession hurts growth in the U.S. and other mature markets, Apple could use some success in these still-growing Asian giants. Sales are already slowing worldwide: The company says it has sold 30 million iPhone and iPod Touch units since their launch. On Mar. 5, JPMorgan Chase (JPM) analyst Mark Moskowitz cut his estimates for iPhone sales to 3.41 million for the January-March financial quarter, down from almost 3.85 million. "[Our] primary research contacts suggest that Mac and iPhone volumes had been trending below our prior expectations," Moskowitz wrote in a note to clients.

In India, Apple has run up against some big obstacles. For instance, it has to fight against Nokia (NOK), a longtime favorite among local consumers. The Finnish company dominates the Indian cellular market and is tops in smartphones, too, with about 40% share.

Three iPhones Equal One Car

The iPhone is also priced far beyond the reach of even many middle-class Indian consumers. Even though iSuppli, the El Segundo (Calif.) market research company, estimates iPhones cost less than $175 to build, both Apple and Airtel stuck to the approximately $700 price for the phone in India, vs. $199 with a two-year AT&T (T) contract in the U.S. In India, then, three iPhones equal one Nano, the $2,000 car that Tata Motors (TTM) launched in India just two weeks ago. An Apple spokesperson in London, Bethan Lloyd, said in an e-mail that pricing and tariff issues are decided by local partners, not Apple. Apple declined to make executives available for an interview.

For Airtel and Vodafone, subsidizing the phone has not been an option. The vast majority of Indian users have prepaid accounts, and even with the few regular contracts out there, high-end users generate just about $30 a month in call and data charges. Add to that the fact that the iPhone is easily unlocked and used on rival networks, and the carriers decided the AT&T model in the U.S. just wouldn't work in India.

Apple Raises Its iPhone Ante

India Inc. Battered by Credit Crisis

Marcial: Vital Signs at St. Jude Medical

Marcial: AutoZone Is in the Fast Lane

2009-04-01T13:38:00.001-07:00

The Obama Administration's efforts to rescue General Motors (GM) and the U.S. auto industry haven't cooled the mounting concern over their uncertain future. So shares of carmakers and auto parts and accessories companies continue to stagger. One bright spot has been the retailers that sell auto parts—and services—directly to the public. Investors have taken a particular shine to AutoZone (AZO), the largest automotive replacement parts retailer, which is bucking the market trend.

AutoZone's stock chart looks like it is in a bull market of its own, especially when you plot it against the besieged shares of auto titans GM and Ford Motor (F), and the various auto parts makers. AutoZone closed Mar. 31 at 162.62 a share, close to its 52-week high of 166.42 reached two days earlier.

The strength of AutoZone's fundamentals is one of the reasons the stock has been charging up. The company's results in its fiscal 2009 second quarter, reported on Mar. 3, attest to such vigor: Earnings climbed 21%, to $2.03 a share, beating analysts' forecasts. Total sales in the quarter jumped 8%, to $1.45 billion.

Consumers Keeping Cars Longer

AutoZone has benefited from tough economic times, which fueled the collapse of the new-car market and drove many car dealers out of business. Those factors have pushed up demand for auto parts and accessories for used cars. As consumers tighten their budgets, they've been extending the use of their cars and delaying plans to buy new ones. As a result, the median age of vehicles on the road has extended to more than seven years, from about five in 2003. And the decline in gasoline prices has led to increased driving, thus steering more customers into AutoZone stores, which sell a wide assortment of replacement hard parts, maintenance items, and accessories.

AutoZone targets retail customers in the $40 billion U.S. do-it-yourself market, which accounts for 83% of its revenues, as well as the commercial repair shops in the $56 billion "do it for me" business (11% of sales). The remaining 6% of revenues is largely from sales in Mexico.

"AutoZone shares have surged as investors recognize these favorable fundamentals," says Craig Kennison, auto industry analyst at investment firm Robert W. Baird, who rates the stock outperform. Based on his earnings outlook for AutoZone, he figures the stock in a year could trade as high as 190 a share, or 16 times his 2009 earnings estimate of $11.36 a share, and as low as 140, or 12 times the estimate. For 2010, Kennison expects earnings of $12.49 a share. (Robert W. Baird expects to do business with AutoZone.)

Benefiting from Closing Dealerships

Its continued success has driven AutoZone to spend part of its significant cash flow on expanding the number of its stores every year, aimed at further boosting its 13% share of the U.S. market. In 2008, AutoZone opened 160 new U.S. stores. In Mexico, it opened 25. So far this fiscal year, the company has opened 50 new stores in the U.S. and 10 in Mexico.

From Yankees bat boy to best-seller

Architecture in Recession: Germany

2009-03-31T12:25:00.001-07:00

It takes 12 hours to fly from Frankfurt to Hanoi, and Bernhard Franken is getting to know the route very well. Franken has a half-dozen projects in Vietnam. If his struggling Frankfurt practice has an angel looking out for it, she comes from the East. With startling speed, the German economy has turned sluggish and dyspeptic. Architects from Berlin to Bonn say small practices are shutting down or on life support. Larger ones are shedding staff, and Foster + Partners just closed its Berlin office.

"We can't survive by working in Germany alone," Franken says. "Practices have to be more specialized and globalized at the same time." A chance meeting through a friend led Franken to a pitch his firm's services to a Vietnamese real-estate concern working on a large, multiuse project called Tan Lab Green City in the coastal city of Nh Trn. Winning that project led to four others in Vietnam last year, and Franken soon opened a Hanoi office.

But at the same time, Franken's bread-and-butter work—interior installations for BMW and Mini at huge auto shows and dealerships—is drying up. BMW has already decided not to attend one of the big five shows this year and it is slashing budgets for the others. If Franken doesn't make up that business in the next two months, he's looking at cutting 10-to-15 percent of his 40-person staff.

These days, even a very young, two-person interior shop like KaiserSchnlein, based in Berlin and Hamburg, is looking to branch out, hoping to break into furniture design.

Demand remains steady, though, for green architecture, says Peter Kuczia, who is based in Osnabrck and works alone and with the firm agn Gruppe. "Almost every new client is demanding green elements in building," says Kuczia. "The main reason is not to save the environment, but to save their own purse." The Gruppe is also landing more school and state-sponsored projects, and Kuczia, who is from Poland, is picking up residential work there.

For her part, multidisciplinary Berlin designer Karin Ocker is doing theater set design and falling back on teaching. Ocker does a lot of work in Moscow and the east, but says that is no panacea. Private residences there are being postponed or cancelled, she reports, and a spa project she had in Kaliningrad fell through. A highrise office in Kiev, Ukraine, got through the design stage but then ground to a halt. Architects in Germany were just seeing rays of light last summer following a fairly fallow time, but then the markets turned sour in a matter of weeks, says Ocker. But she has found her own silver lining: the slowdown turns out to be a great time to have a baby. New German parents qualify for state subsidies. And by the time her new son starts sleeping regularly, maybe the Kiev highrise will start up again.

Architecture in Recession: ChinaArchitecture in Recession: Brazil

Architect Aoki’s Office Wins Good Design Award

British Banks Line Up for Bailouts

The Best Business Architecture of 2008

General Motors: 60 Days to Show Results

2009-03-30T14:11:00.007-07:00

President Barack Obama has a clear message for General Motors (GM) and Chrysler: Come back with a better plan or the taxpayer funds are cut off.

Senior Administration officials said on Sunday, Mar. 29, that after reviewing the plans submitted by GM and Chrysler, the President and his top advisers have determined that not only did the companies not finish the restructuring moves required of them to get more funding, but they need to go further than the Bush Administration originally demanded.

But the Obama Administration won't cut the two carmakers off, either. The Treasury Dept. will give GM 60 days to negotiate further cuts from the UAW, reduce its unsecured debt, and show a plan that works, according to senior Administration officials. The President's auto industry task force also decided that, contrary to Chrysler CEO Robert Nardelli's claims that the company can stand alone, it needs a merger partner. The government has given Chrysler 30 days to seal its deal to give a minority stake to Fiat (FIA.MI) or it will be cut off.

The government's intent is clear: President Obama won't throw money at two companies that have been lurching from crisis to crisis and losing ground to the Japanese and Koreans for years. They have to cut deep and show that they will be able to thrive. "It sounds like they figured it out," says Maryann N. Keller, a longtime industry analyst who now sits on the board of Dollar Thrifty Automotive Group (DTG). "They won't just put a feeding tube in these companies."

GM's Viability Plan Too Rosy for Treasury

In GM's case, the government wants a clean slate before it gives the company a substantially larger loan package. President Obama forced the resignation of GM Chairman and CEO G. Richard Wagoner Jr., giving his handpicked successor Frederick "Fritz" Henderson the CEO job. GM director and former Northrop Grumman (NOC) CEO Kent Kresa will become chairman of the board. GM will also have to replace more than half of its board, Treasury officials said. Picking Kresa, and not GM's current lead director and Wagoner supporter George M.C. Fisher, is a clear sign that the Administration wants change.

It won't stop there. Treasury officials say that GM's updated viability plan, which was submitted on Feb. 17, had rosy projections for market share and pricing. GM said it could hold 19% share in the U.S. by 2014, but its market share is under 19% in the last two months. Every lost point of market share means $2 billion in lost cash flow.

GM's plan also relies on improved pricing on its cars, but Treasury officials think that will be tough to get given the economy.

Then there is GM's huge debt burden. GM owes the United Auto Workers $20 billion to start a union-led trust fund that will pay for retiree health-care benefits. The Bush Administration wanted the UAW to take $10 billion in cash and the rest in stock. That may still happen, but Treasury officials think GM needs to reduce its retiree costs. GM and the Treasury Dept. are negotiating deeper concessions from the UAW on retiree benefits.

MLB Network signs Vasgersian

GM’s Latest Retooling: The Chrysler Merger

Auto Bailout: UAW Chief Draws a Line

‘Frank TV,’ take two

Bob Nardelli on the Future of Chrysler—With or Without Fiat

Marcial: Sara Lee's Makeover Is Turning Heads

2009-03-30T14:11:00.005-07:00

Sara Lee is almost done with a multiyear plan to shed underperforming businesses and boost its core operations, and several investment pros already find the makeover quite enticing.

Best known for its baked goods, Sara Lee (SLE) is a global consumer packaged-goods company that makes and markets a vast, diverse array of products. To consolidate and increase consumer focus on its more attractive product lines, the company has been busy in the past four years (as part of an ambitious five-year plan), transforming itself into a more profitable, cohesive, and efficient enterprise.

It has been selling or spinning off product lines that are less profitable, and committing more attention to brands that it thinks have the best potential to grow faster over the long term. It also aims to introduce new products to beef up revenues.

One of the areas Sara Lee wants to expand is healthier snacks. Management is committed to increasing sales by taking advantage of the growing popularity of such products. For example, demand for whole grain has been on the rise, so Sara Lee has introduced flour-blend breakfast items, including "Soft & Smooth" whole-grain white bread and English muffins. Other new products are Hillshire Farm Entre Salads, Senseo cappuccino, and more Soft & Smooth bakery products. Sara Lee is also launching Ultra Premium lunch meat, Caffiato iced coffee and tea, and Toastworks toasted sandwich.

In making a clear investment in innovation and marketing, "Sara Lee has been executing well," says analyst Timothy S. Ramey of investment firm D.A. Davidson, which owns shares. He rates the stock, which traded at 8.50 a share on Mar. 27, a buy, with a 12-month target of 13. The stock has been on the rise since hitting a 52-week low of 6.80 on Mar. 9, 2009.

Sara Lee is "building organic sales power," says Ramey, who believes it will continue shedding assets. One he predicts may be sold is Sara Lee's Household & Body Care unit, which he estimates is worth $3 billion. Who would be interested in buying? Ramey points out that either Unilever (UN) or Henkel would be logical buyers.

Unilever, apart from making branded and packaged consumer goods, including food, detergents, and fragrances, also manufactures home and personal care products. So Sara Lee's household and body care products would fit well there. Henkel also makes, among other goods, skin care products, hair dye, and soap.

$3.8 billion kitty

"Sara Lee remains our single best idea for 2009," says Ramey, as "we like the strong cash generation, the 4.2% dividend yield, and the prospects for meaningful growth." He forecasts earnings of 93 a share on revenues of $12.9 billion in fiscal 2009 ending June 30, and 89 on $13.2 billion in fiscal 2010. The drop in the 2010 profit estimate reflects the company's downsizing.

So far, Sara Lee has sold or spun off 40% of its businesses, generating $3.8 billion, which it has invested in product lines with more growth potential. It also expects to achieve cost savings in the range of $575 million to $800 million by fiscal 2010. The company forecasts that the transformation will expand operating margins to 12% by that year, from 7.7% in fiscal 2005.

In 2006, Sara Lee sold its European meats business to Groupe Smithfield (SFD) for $575 million, and spun off its Branded Apparel business, which is now called Hanesbrands (HBI) and trades on the New York Stock Exchange. Sara Lee also exited several businesses that it deemed unattractive, including the DSD Bakery and DED Foodservice units. It pulled out of a joint venture in Mexico involving a meat products business as well.

debt will get downsized, too

Sara Lee's five-year transformation should benefit the company over the long term, says analyst Steven Ralston of Zacks Investment Research, who also rates the stock a buy, with a 12-month price target of 15. The restructuring, started in July 2004 when Brenda Barnestook over as CEO, has already succeeded in making itself a smaller but leaner, more efficient, and more profitable enterprise, he notes.

Despite the global economic weakness, Sara Lee is on track to complete its restructuring this year, says Ralston, who points out that the company is also focused on cutting costs. The downsizing, he figures, will reduce its revenue base, from $19.6 billion in fiscal 2004 to about $13 billion in 2010. Concurrently, he estimates debt ought to be reduced from $4.8 billion to a range of $1.5 billion to $2 billion.

However, the potential for accelerated growth the transformation is expected to produce hasn't fully convinced most of the analysts who track Sara Lee. Only three of the 13 rate the stock a buy. The other 10 recommend a hold or neutral. But what's more significant is that none of the Street analysts recommend selling the stock. Further signs of a successful makeover at Sara Lee may lure more Wall Streeters into the "buy" camp.

Lincecum nabs MLB 2K9 cover

Marcial: Dick’s Sporting Goods, a Bargain Play

Lincecum nabs MLB 2K9 cover

Toyota, Honda Heat Up the Hybrid War

2009-03-30T14:11:00.003-07:00

Given the parlous state of the auto industry, the rivalry between Honda's (HMC) new Insight and Toyota's (TM) third-generation Prius is proving to be an enjoyable diversion. Committed to increasing sales of gas-electric models, the companies are launching hybrid cars in quick succession—and neither one is skimping when it comes to generating hype. The Insight boasts a sub-$20,000 sticker price, fuel economy of 40 miles per gallon in the city and 43 mpg on the highway, and is arguably more fun to drive. The latest Prius is larger than its Honda rival, gets better mileage, and (unlike the Insight) has an EV mode, where the driver instructs the car via the touch of a button to run solely on battery power. However, the soon-to-be-released Prius is expected to be more expensive, with a U.S. sticker price starting at around $23,000.

The battleground is nowhere more intense than in Japan, where the Insight went on sale in early February. Its initial success—Honda has received more than triple the 5,000 orders a month it was expecting—hasn't gone unnoticed at Toyota. At a recent test drive at Fuji Speedway for the near-final version of the Prius, Chief Designer Akihiko Otsuka said Toyota is planning a smaller, cheaper hybrid based on its Yaris platform to take on the Insight. "We are going to compete by expanding our hybrid vehicle lineup to smaller hybrids," Otsuka told reporters.

And Toyota has another Insight killer in store. On Mar. 26, Toyota Chief Executive Katsuaki Watanabe said the company will take the unusual step of selling a cheaper version of the current Prius alongside the new one. "There will be demand for the two to co-exist," Watanabe said at the unveiling of the new car for the Japanese market. "That Honda has come out with a wonderful car like the Insight gives us a big impetus to try to be more competitive." According to the Nikkei newspaper, this cheaper Prius, like the Insight, will go on sale in Japan for less than $20,000. Watanabe didn't say if Toyota will pursue a similar strategy in other markets.

A Wise Move?

Analysts question, however, the impact of launching a cheap version of the old Prius alongside the new one. They worry the older Prius may eat into sales of the new Prius and similar-sized models such as the Corolla, or that it might force Toyota to cut prices of nonhybrid models. If that wasn't enough to boost hybrid sales, unconfirmed reports in the Japanese media say the new Prius may go on sale in Japan for as little as $20,900, which would be $3,000 cheaper than the current model—even though the new Prius has a larger engine and is more luxurious.

With Toyota upping the ante, Honda is considering its next move. On Mar. 25, Norio Ano, who heads Honda's global Civic hybrid and Insight programs, said Honda will examine where it can make efficiency improvements in the production of the Insight. However, he warned against steps that eat into profitability. "I applaud Toyota if they can make it work as a business at the prices being reported," he said. "We will have to go back to scratch and review all our procedures from step one."

Yet even as the sparks fly—albeit politely—between Japan's two leading automakers, it is feasible both can win the hybrid war. For one thing, the rivalry is helping to bring the "hybrid premium"—the incremental cost of making hybrids compared with regular vehicles—down to levels where owning is as much about economic sense as sending an "I'm green" message.

Hybrids Heat Up at the Car Show

The Pros of Planting Startups in Smaller Cities

2009-03-30T14:11:00.001-07:00

Philip Eggers has started six medical device companies in his Dublin, Ohio, hometown. His last five followed a pattern: Eggers would develop the product in his Ohio lab, fly frequently to the Bay Area or Boston to raise money, then relocate the company to one of the coasts when ready to commercialize the product. But Eggers has a different plan in mind for his latest startup, Cardiox, founded in 2006 to develop a noninvasive way to detect heart shunts: He wants to find funding locally and keep his five-employee business in Dublin.

As the economy reels, Eggers is one of many entrepreneurs quick to tout the ease of doing business in small or midsize cities. Plenty of factors make the city of 38,000 outside Columbus attractive for starting up: Abundant, inexpensive office and lab space; a major university, Ohio State, nearby; a growing population; and good local schools to attract workers with families. "It draws the highly skilled and educated people you need to bring in, especially to a high-tech startup company," Eggers says.

In high-growth and more conventional businesses, many entrepreneurs find that bigger isn't always better when it comes to selecting a place to start a company. "People are being drawn by lower cost of living and better quality of life," says Jack Schultz, founder and CEO of industrial developer Agracel of Effingham, Ill., and author of Boomtown USA: The 7½ Keys to Big Success in Small Towns. He also says states and cities are beginning to recognize entrepreneurs as a "third leg" of economic development, as important as retaining existing jobs and attracting large corporations. While startup meccas like the Bay Area offer concentrations of talent and investors, new companies there face plenty of competition for those resources, and the cost of doing business is high. In smaller cities, new businesses enjoy lower costs and a higher profile to attract workers, and may be able to get government incentives to create jobs.

In fact, places like Boulder, Colo., (population 91,000) and Fairfax, Va., (23,000) are just as favorable for startups as San Francisco (733,000) and New York (8.2 million), according to research conducted for BusinessWeek by GIS Planning, a San Francisco-based geographic data firm that helps companies select optimal sites via its online tool ZoomProspector. The analysis weighed 11 factors to gauge an area's entrepreneurial climate, including the number of small businesses and startups, the quality of the workforce, how many universities were in town, and measures of innovation such as the number of patents issued and the amount of venture capital invested.

Fifty Cities

GIS Planning used this criteria to identify the best small cities (with populations between 20,000 and 200,000) for startups in each state. With that data in hand, BusinessWeek asked entrepreneurs in each city what people should know about starting a business there. Many said factors such as affordability, availability of talent, existence of a thriving business community, and quality of life helped them choose where to open shop. What emerged is a picture of 50 dynamic cities, each with its own draw for new businesses.

In many small or midsize cities, universities provided the resources of talent and infrastructure that helped them compete with metropolitan centers. Besides providing a steady stream of potential hires, big schools are often connected to startup incubators or programs to commercialize technology developed in academic research.

Entrepreneurs said incentives from local governments eager to attract growth industries helped make their cities attractive. In Edmond, Okla., Charles Seeney has tapped half a million in economic development grants for his five-employee nanomedicine company, BioNanoMimetics. "When you start a small business, economy is key to everything you do—getting the most bang for your dollar," he says. The incentives, combined with the low cost of doing business there, made the city of 83,000 attractive.

Startups also found skilled workers—especially younger ones—drawn to the perception of a higher quality of life. "A lot of people say, in rural areas, sometimes people are concerned they can't find employees, but my experience is that the quality of life and amenities actually draw people to the area, and they tend to be underemployed," says Bill Moseley, president of GL Suite, a Bend, Ore., 40-employee firm that makes software for regulatory agencies. "You have a really strong talent pool that's not nearly as expensive as in a big city."

All these factors can add up to significant competitive advantages for entrepreneurs launching new companies in small or midsize cities that are sometimes overlooked, says Anatalio Ubalde, co-founder and co-CEO of GIS Planning. "Location in many ways is a gift, because it's not something that a CEO has to work so hard at," he says. "You don't have to start from neutral. You can start from an advantage."

For a look at the top small city in your state, flip through this slide show.

Blogs Keep a Company Death Watch

What Will the Crisis Mean for Venture Capital?

What Small Business Can Expect From Obama

Gillick’s method produced success

Can Geithner's Toxic-Asset Plan Work?

2009-03-28T15:45:00.007-07:00

The stock market enjoyed an explosive rally on Mar. 23 after Treasury Secretary Timothy F. Geithner at long last unveiled a detailed plan to team up with private investors to rid the banks of troubled mortgage assets. No mystery here: Bolstering major banks so they can start lending again is essential if the economy is going to recover. Will it work? It might, but that may require some sizable bank asset sales to come together by early summer, followed by a steady flow of deals through yearend to get the program off the ground.

Geithner thinks he has the right mix of incentives in place to quickly ramp up the program. But it will take a sustained flow of deals to establish attractive prices for all manner of home loans and mortgage-backed securities, which have been devilishly tough for banks to unload since the credit crisis began back in late 2007.

The Treasury's Public-Private Investment Program aims to create investment partnerships that will combine government cash with equity capital from private investors. Uncle Sam will then lend those partnerships money at below-market rates so they have more funds to buy up the banks' bad assets. By providing much of the funding—and limiting private investors' potential losses—Geithner hopes to spur competitive bidding that will establish realistic prices for the toxic assets and get them off the banks' balance sheets. "The goal is to provide liquidity to the market on reasonable terms," says Larry Summers, head of President Obama's National Economic Council.

So far, private equity giant Blackstone Group (BX), bond mavens Pimco, and other investors have expressed interest in participating. Investors expect Treasury to line up a few high-profile deals by late May or June.

William H. Gross, Pimco's co-chief investment officer, argues that if the government lends to the partnership at rates as low as 2%—which the market expects—investors could pay close to 60 cents on the dollar for the devalued assets with returns of around 15%. Sellers would still have to make concessions, but far smaller ones than if forced to sell at today's fire-sale prices. "Geithner's plan closes the gap significantly, but we'll still have to see if anything crosses the market," says Gross.

With Treasury aiming to buy up to $1 trillion in bank assets, Gross wants to see a monthly deal flow of $150 billion in the second half. It will take that kind of volume to get a sustained lift in prices. "If this is working, you'll start to see housing and mortgage securities prices stabilize, and maybe even go up," says Steven D. Persky, managing partner of Dalton Investments.

Money pros say it will be a month or even two before enough is known about the terms of the deal to decide if it's worth participating. Also, the backlash against AIG's (AIG) bonuses makes a partnership with Uncle Sam risky. "Until we see how the pricing mechanism works, the rates the government is offering, and the expected returns, [we won't know] where the deals are," says Robert A. Eisenbeis, the chief monetary economist for Cumberland Advisors.

Another problem: Bankers are already complaining that they could be forced into big writeoffs if the prices for troubled assets remain too low. If the banks refuse to sign on, the Treasury program will tank. That's one reason why Obama plans to meet with the CEOs of JPMorgan Chase (JPM), Citigroup (C), and other banks on Mar. 27.

So it will be critical that the bidding process narrows the gap between what buyers will pay for the assets and what banks will sell them for. The market is in a deep freeze now, in part, because the two sides don't agree on the value of the tainted mortgage assets. Investors, who don't want to overpay, think most mortgage assets are worth only around 20 cents to 30 cents on the dollar.

But many banks argue that plenty of good mortgages have been knocked down to rock-bottom prices and they want 70 cents to 80 cents on the dollar; accepting less would lead to more ruinous write-offs. And if, as expected, U.S. accounting rulemakers meeting on Apr. 2 make it easier for the banks to avoid such write-downs, the banks may be even less willing to sell at a loss.

Administration officials make clear they expect the banks to take the haircut given the economic stakes. Those that do poorly on the so-called stress tests currently under way may have little choice but to cooperate. If they don't, expect another market mood swing, this time to one of despair.

With Theo Francis

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkPreventing the Next Crisis

The Obama Administration has proposed giving Treasury the authority to reorganize financial giants if their collapse threatens the economy, a more expedient approach than relying on bankruptcy courts. New York University economist Nouriel Roubini, credited with predicting the current crisis, says that such authority is long overdue.

To read Roubini's blog post, go to http://bx.businessweek.com/bailout/reference/

Britain’s New Rescue Plan

The Bailout: What Does Paulson Do Now?

Major Oil Companies Are Circling Iraq

2009-03-28T15:45:00.005-07:00

With security in Iraq improving, international oil companies are quickly moving in, often with little or no fanfare. Hanter Gasser, Royal Dutch Shell's (RDS) top executive for Iraq, recently spent a week in Basra, site of the country's biggest fields, checking on a joint venture Shell is starting with the Iraqis to find commercial uses for the gas that is flared off during oil production. Gasser says Iraq burns off enough gas to power two countries the size of Jordan.

Shell is one of about 30 oil companies, including ExxonMobil, Chevron, and BP, that are pursuing licensing agreements with Baghdad. Iraq intends to boost production in seven fields holding an estimated 44 billion barrels of reserves, more than a third of its total. Those agreements are supposed to be awarded in a few months. "We have high interest in Iraq, and we are waiting to see the terms," Gasser says. Iraqi oil production, at a low 2.5 million barrels a day, is just where it was before the war. If Iraq produced anywhere near its targeted 6 million barrels a day, it could change the industry's dynamics and curb talk of a looming shortage.

AGAINST OPEC'S FLOW

The key player is Oil Minister Hussein Al-Shahristani, a Canada-educated nuclear scientist and chemical engineer who spent 11 years in Abu Ghraib prison for refusing to help Saddam Hussein build a nuclear weapon. He is feeling huge pressure to boost production to compensate for falling prices. In an interview in Vienna, where he was attending an OPEC conference, Al-Shahristani came across as impeccably polite. He's also a nationalist, determined that Iraq regain its rightful place in the industry and the Middle East, whatever the objections of Saudi Arabia and the Gulf states, which might not welcome the rise of another Shiite-dominated petropower.

Al-Shahristani outlined for his fellow OPEC ministers an ambitious program to reach that 6 million barrel-per-day goal in the next six to seven years. That would make Iraq the world's fourth-largest producer, after Saudi Arabia, Russia, and the U.S. Al-Shahristani estimates that achieving his goal would cost $50 billion, which he hopes to raise almost entirely from the oil companies. Such a production surge would complicate matters for OPEC, which has cut output by 12%. "I am sure some [in OPEC] hope it doesn't happen soon," he says.

Later Al-Shahristani added by e-mail: "By the time we reach 6 million barrels per day in five to six years there will so much demand for Iraqi oil as other countries will go through a declining phase, and we do not expect much restriction on our production ceiling."

While skepticism remains about Iraq's ability to execute its plan on schedule, Baghdad's desire to boost production is no longer a pipe dream. The question is how fast Al-Shahristani can bridge differences with the oil companies to get some big deals rolling. Last year, several companies were close to agreeing to upgrade five fields when Al-Shahristani pulled the plug amid controversy that BP (BP), Shell, and other majors were close to landing contracts without competitive bidding.

He's now soliciting bids to squeeze about 1.5 million more barrels a day from the eight major fields. In essence, the companies will be paid a fee of perhaps $6 for every extra barrel they can coax from the wells. The majors worry about stiff penalties being imposed if they don't hit agreed-upon production targets. They're also leery about forming joint ventures with local companies that are holdovers from the Saddam era. "I would suspect that when we go to the board of directors, there are going to be a lot of questions asked," says one executive. Al-Shahristani is listening to the complaints. He's also dangling the possibility of production-sharing agreements, which would let the oil companies enjoy the upside in profits from the oil they discover and produce.

The major oil companies are taking their time with the bidding to make sure they get the best possible terms. To keep up the pressure, the Iraqis are cutting side agreements. Baghdad has negotiated, for instance, a deal with Chinese National Petroleum to develop the Ahdab field. "This showed the Iraqis could complete negotiations on a field," says Alex Munton, an analyst at Edinburgh consultants Wood Mackenzie. Al-Shahristani is also negotiating a deal on the 3.5 billion-barrel Nassiriya field with Italy's Eni (E) and others."Because bid rounds take a bit longer, we have decided to ask selected companies that have done their homework to submit an offer to us," he says.

Despite the fits and starts, the Iraqis seem bound to gain traction sooner or later. With 115 billion barrels of reserves, Iraq's potential production capacity could eventually challenge Saudi Arabia's 12 million barrels a day, according to Helmut A. Merklein, a former senior U.S. energy official who is now a consultant. "The [only] limitation is what the market will bear," he says.

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkA Gusher of Information

Wood Mackenzie, an Edinburgh-based oil and mining consulting company, has compiled a presentation that assesses the future prospects of the Iraqi oil industry. The 18-page document is packed with charts, maps, and other data. It also delivers a history lesson on Iraq's beleaguered oil sector.

To view the presentation, go to http://bx.businessweek.com/iraq-business/reference/

Rollins brings devotion to grand stage

Exxon’s Production Falls as Profits Soar

Chrysler’s CEO on a Bailout

Bob Nardelli on the Future of Chrysler—With or Without Fiat

2009-03-28T15:45:00.003-07:00

The Obama Administration's auto task force is set to report by Mar. 31 on the wisdom of continuing to bail out GM and Chrysler. Recent reports suggest that the deadline may not be D-Day for Detroit, as some have billed it. Instead, it may be the first step in a longer-term look at troubled U.S. automakers—and how much help they should get from the feds. The likelihood that Detroit will get more assistance got stronger on Mar. 19 when the Treasury Dept. released a plan to offer $5 billion in rescue money to auto-parts suppliers. Meantime, a deal under consideration could give Fiat a 35% stake in Chrysler and perhaps open the way for a larger ownership position later. Clearly, this is a defining moment for Chrysler, so I talked with Bob Nardelli, the CEO hired by private equity owner Cerberus to turn around the struggling carmaker.

MARIA BARTIROMO

How would you rate the job the auto task force is doing?

ROBERT NARDELLI

I certainly understand the learning curve they're on, having gone through it myself over the last 18 months. So I give them very high marks.

The point men on that task force are Steve Rattner, a former journalist, private equity firm partner, and Democratic activist; and Ron Bloom, a labor restructuring expert. Have they spent any time with you, understanding the view from Chrysler's corner office?
We've had two face-to-face meetings and countless exchanges of phone calls and information. I would say those two gentlemen are totally engaged. They bring unique experience, albeit different experiences, to the table, which is very helpful to our discussions.

Do you truly believe that without Fiat, Chrysler has a long-term future as an independent car company?
We do. We have a viable standalone plan. And Fiat enhances the viability of that plan. Fiat (FIA.MI) brings $8 billion to $10 billion of real product advantage. We really need to change the perception out there that Fiat is basically getting a free ride. They're bringing hard technology. They're bringing platforms with proven reliability and durability that not only have a very high market value but will leapfrog [Chrysler] four to five years. And most important, in regards to the environment, they have the lowest-emission engine in Europe.

If the Fiat deal does not go through, is there a chance there could be some kind of merger with GM?
No. General Motors (GM) took that off the table, and I don't believe there's any opportunity to reopen that decision. I don't mean to be a broken record, but if a Fiat deal doesn't go through, we have a viable plan. And we would still have the opportunity to do product alliances with Fiat like we did with Volkswagen (VLKAY), Nissan (NSANY), and Mitsubishi. But [the relationship with Fiat] would be on a much smaller scale and wouldn't enhance our ability to pay back the government loan sooner.

How much money does Chrysler need to survive?
If you'll remember, when we submitted our original plan, we asked for $7 billion. We received $4 billion in early January. From the time we made our original submission through Feb. 17 we saw unprecedented, continually downward-spiraling sales in the U.S. market. As a result of that, we raised our overall request from $7 billion to $9 billion—$2 billion of incremental dollars. If we receive the $5 billion, that will take care of the financial needs of our standalone plan.

Meet Koufax, the band

No time to dwell on loss for Rays

Sox’s playoff run ends with loss to Rays

Auto Execs in the Hot Seat

Cloud Computing: Understand the Risks

2009-03-28T15:45:00.001-07:00

All the data that make up our lives seem to be heading for the clouds. From photos on Flickr (YHOO) to memos on Google Docs, we are entrusting more and more to computers in giant data centers—a model called cloud computing. It's certainly convenient to have access to our stuff wherever we are and on whatever device we choose. But is it safe?

Yes, if you exercise reasonable care. The major providers of Web-based services have generally established an enviable record as stewards of their customers' data. Still, there are perils—just as there are with clouds of the atmospheric variety. A little thought and prudence may save you grief down the road.

There are two kinds of risks in putting your data online. One is that you can never be quite sure who has access to your information once it has migrated beyond the hard drives and backup storage devices in your home. The other risk is that the information, and sometimes the applications you need to make use of it, may be available only when you are connected to the Internet and the service is up and running.

These twin dangers are now abundantly obvious to users of a collaborative Web-based word-processing program called Google Docs. Google (GOOG) recently notified its users that a software glitch had allowed some subscribers unauthorized access to "a very small percentage" of these documents, which are stored on Google's servers.

The security of data stored in the cloud varies with both the design of the system and how well the safety measures are implemented. Some services encrypt information both in transit and in storage in such a way that only the owner can decrypt it. These services are generally the most secure against either accidental or malicious disclosure—though your information can be lost forever if you lose the password. In general, services that allow Web access to data from any computer are riskier than more restrictive systems, and those that allow the information to be shared among a group of users pose even greater hazards.

Sometimes you have control over this—for example, by declining an option that lets you access your data from a Web site. This choice is available on many online backup services and can be handy if, say, you are on the road and need to get a file that's on your home or business computer. But clearly that access increases the risk that your information could be exposed to third parties.

The security practices of cloud storage systems are usually described in the fine print of their security and privacy policies, but in practice it's difficult to assess safety. Corporations run security audits to gauge the practices of cloud computing operations, but this is beyond the reach of individuals or smaller businesses. The simpler course for most of us is to think before committing data to the cloud. Those photos from the family trip to Disney World (DIS)? No problem. But the term sheet for a proposed merger or acquisition should probably stay encrypted on a hard drive that you control. Anything in between? Just consider how much embarrassment or trouble it would cause in the wrong hands.

The issues of getting to your online data are less serious. The growing ubiquity of wireless services means there are fewer and fewer places where you can't get on the Net if you need to. Wi-Fi is even slowly creeping onto airplanes, the last wireless frontier.

Of course, if you know you will have to work disconnected, you can load the files you need onto a hard drive or USB memory key. And new technologies, such as Google Gears and Adobe AIR (ADBE), make it possible for some Web-based programs to be used on a computer even when you're not connected.

Will your cloud service be there when you need it? Google got a lot of unwelcome attention recently when its Gmail service was unavailable for about three hours. Back in the days of the Ma Bell monopoly, AT&T (T) promised 99.999% availability, which allowed a bit over five minutes of downtime a year. But "five nines" of reliability is fabulously expensive. Google promises its corporate Google Apps customers 99.9% uptime, which leaves room for outages of nearly nine hours a year. The fact is, most enterprises don't deliver higher reliability on their own systems; the difference is that outages on big public services get publicity.

Ultimately, putting your data in the cloud involves choosing convenience and productivity at the cost of some security risk. In the real world, convenience almost always wins, and there's nothing wrong with that. What's important is that you understand the dangers.

Gillick’s method produced success

Google-Yahoo: Unintended Consequences

Marcial: Energy Conversion Devices’ Bright Future

Core Labs, a Prime Pick in the Energy Patch

2009-03-25T17:06:00.001-07:00

Judging by its name alone, one would think that Core Laboratories (CLB) is a drug company or some other type of health-care outfit. It's not, although it does provide a form of "well care." The Netherlands-based company actually serves the energy industry, and it counts almost all of the global oil and gas producers among its customers. Core Labs' services boost their productivity by helping them improve the output of their oil wells and enhance their management of oil and gas reservoirs.

That pivotal role has enabled Core Labs to cope with the recent drop in spending by Big Oil. In terms of share price, the company is doing better than its customers, whose stocks have been on the ropes since crude oil prices retreated from their peak of $147 a barrel last summer.

In fact, Core's stock has run counter to those of such oil biggies as Exxon Mobil (XOM) and Chevron (CVX), which have been weak. Shares of Core have surged, climbing to 76 on Mar. 24, significantly up from their 52-week low of 48.41 reached on Dec. 12, 2008.

But don't think that Core Labs' stock is peaking. Far from it. It's still way below its 52-week high of 145.47, hit on Jun. 9, 2008.The stock is cheap at its current price, says Ryan E. Crane, chief investment officer of investment bank Stephens. Core Labs' shares recently traded at 12.6 times Crane's 2010 earnings estimate of $6 a share, far lower, the analyst notes, than the stock's five-year price-earnings average multiple of 17, and a 2004 p-e of 27.

An International Footprint

"The stock could double in a year or two," figures Crane, noting that Core has no big rivals in the industry. Its major competitors are the research units operating within the major oil and gas producers.

Crane says Core Labs is very well managed, with the company's earnings consistently rising. Core specializes in measuring the quantity and value of crude oil and natural gas in a company's reservoir, which accounts for about 47% of its operating income. Another part of its business (42% of operating income) aims at improving reservoir well completions and increasing production. The third part of Core's operations (11%) is reservoir management, specifically to solve reservoir-wide problems and to maximize daily production and total recovery.

"While Core's business isn't immune to adverse changes in the global rig count, the company is less affected than most, given its technological edge and international footprint," says analyst Karen David-Green of Oppenheimer (OPY). She rates the stock outperform with a 12- to- 18-month price target of 80 a share. She figures Core will earn $5.25 a share in 2009 and $6 in 2010. Those forecasts are below Core's 2008 per-share earnings of $6.18, mainly because of lowered forecasts for North American and international oil and gas production. According to a consensus forecast compiled by Zacks Investment Research, Wall Street analysts see Core earning $5.49 a share in 2009 and $6.22 in 2010. Among the 11 analysts who track the company, nine recommend buying the stock and two rate it a hold.

Mideast Strength

David-Green notes that 70% of Core's revenues come from oil reservoirs located outside the U.S. The company sees West Africa, the Middle East, Asia Pacific, and South Caspian regions as areas where it could generate flat to slightly increased revenues in 2009. Because it reduced operations in Russia, Venezuela, Mexico, and Nigeria over the past few years, David-Green adds, the company is more insulated from recent production declines in those regions.

Analyst James C. West of Barclays Capital (BCS) says that despite the challenging outlook for the industry as a whole, Core remains well-positioned to do better, in part because of its strong international franchise and good technology. West expects the Middle East to be a particular area of strength for Core in 2009. So he figures the company, which beat consensus earnings forecasts in the first quarter, deserves to trade at a higher price. Given what he considers "a solid outlook for Core Labs and the company's superior positioning relative to the oil-service group," he rates the stock overweight, with a 12-month price target of 87 a share. (Barclays has done banking for Core Labs.)

Should crude oil prices turn around, as many analysts expect (they have recently fallen to about $50 a barrel), and start spurting higher again, the company's shares will certainly surge along with the currently sluggish Big Oil stocks. But while investors wait for that resurgence, Core Labs looks like a safe-haven energy play.

From Yankees bat boy to best-seller

Exxon’s Production Falls as Profits Soar

Burns to take ‘Baseball’ to extra innings

Chevron: A Big Value in Big Oil

Nespresso Pitches 'Luxury' Coffee for Lean Times

2009-03-24T16:10:00.001-07:00

Nestl wants to help you kick your Starbucks habit. The Swiss food giant is mounting a major push into the U.S. with its Nespresso coffee system, which lets users make caf-style espresso at home. The company has opened six Nespresso boutiques in major U.S. cities—including three since January—in upscale locales such as New York's Madison Avenue and Boston's Newbury Street. More openings, in New York and Miami, are coming shortly.

With the economy mired in recession, it seems an odd time to urge consumers to spend $200 to $800 for an espresso machine that can only be used with prepackaged capsules that cost 55 a serving. But Nestl (NESR.F) is betting that coffee lovers will do the math: Just one cup a day from a local coffee bar can add up to more than $1,000 a year, vs. less than $200 annually for Nespresso capsules, plus the cost of a machine. "People still want little daily luxuries, but there's a return to consumption at home," says Nespresso Chief Executive Richard Girardot.

Starbucks (SBUX) clearly has been struggling, with U.S. same-store sales dropping 8% during the fourth quarter of 2008. The Seattle-based company has slashed more than 18,000 U.S. jobs and is closing 977 stores worldwide. But can Nespresso really pick up that slack?

George Clooney's Continental Boost

Nespresso has already established a strong base in Europe, which accounts for about 90% of its $2 billion annual sales. Indeed, it's now Nestl's fastest-growing brand, with sales up more than 30% annually for the past eight years. Nestl first introduced Nespresso in the 1970s, trying unsuccessfully to market it to offices and restaurants before relaunching it as a consumer brand.

In the past few years the brand has gotten a big boost from advertising featuring George Clooney, including a lighthearted series of TV spots that show beautiful young women ignoring the actor as they reach past him for a cup of Nespresso. (Alas for Nestl, Clooney's contract doesn't allow the company to show him in U.S. ads.)

Though Nestl doesn't disclose profits for individual brands, Julian Hardwick, a London-based analyst with ABN Amro, says Nespresso "certainly is profitable," and has helped Nestl widen its overall profit margins. These previously lagged those of European rivals Unilever (UN) and Danone (DANO.PA), but now are healthier.

Nespresso on the Champs Elyses

Worldwide, Nespresso is well ahead of competitors. The Senseo system from Philips (PHG) and Sara Lee (SLE) brewed up $547 million in coffee sales last year (Philips doesn't break out sales of the coffee machines alone). The current U.S. market leader, the Keurig system from Green Mountain Coffee Roasters (GMCR), booked revenues of $254 million from machines and coffee combined. Another rival, the Tassimo from Kraft Foods (KFT), saw sales near $300 million, Kraft says.

Zambrano Game 2’s central figure

Luxury Management Remains in Style

Shields takes pride in long outings

Pure Digital Flips the Script

2009-03-20T15:12:00.001-07:00

It's hard to imagine that Pure Digital Technologies, the company behind the popular Flip Video camcorder, wanted to design a "shy" product. But that's how Jonathan Kaplan, chief executive and founder of the San Francisco-based startup, describes the playful, inviting look of the device.

With nearly 1 million Flips sold since the digital camcorder's May, 2007, debut, and with enthusiastic fans like Oprah and Rosie O'Donnell, Kaplan and his design team seemed to have struck a chord with consumers. In a cutthroat market dominated by global consumer electronics giants such as Sony (SNE), little-known Pure Digital and its 80 employees have changed the game by making a bare-bones, affordable camcorder (starting price: $120 vs. the average $314). To put the number of Flips sold in perspective: About 6 million camcorders were shipped to U.S. retailers in 2007, according to the Arlington (Va.)-based Consumer Electronics Assn. Getting close to the 1 million mark in less than a year is impressive for a new product in this category, says CEA economist Shawn Dubravac. "Before, companies flaunted technical features for nerds and geeks, but consumers are responding to the Flip's convenience and price."

For years, the behemoths have been racing toward designing ever-more-complex video cameras. Then along came the Flip, daring to compromise video quality to offer a cheaper, simpler device. Its images lack the crisp resolution offered by big-name cameras. So should the likes of Sony and Panasonic be worried? Maybe: During the tough 2007 Christmas shopping season, Flip camcorders dominated the top five spots on Amazon.com' (AMZN)s list of most-popular digital video cameras. Kaplan says revenues have jumped 300% in the last year, though privately-held Pure Digital doesn't disclose sales figures. So how did this obscure upstart with no name recognition charm so many fans with a low-tech camcorder with subpar images?

Pure Digital began in 2001 as a maker of throwaway digital cameras for both still pictures and video. The cameras were sold in drugstores and required users to have their images processed on the premises or at a designated digital-photo lab. Buyers started offering unsolicited feedback. "They wanted a more permanent, shoot-and-share video camera that was fun and easy to use," Kaplan says. He paid attention, and created a product for them—without hiring focus groups.

SOAP-BAR SIMPLE

Timed to tap the craze of homegrown videos posted on blogs and YouTube (GOOG), the Flip made it easier for users to become amateur filmmakers. It's a no-frills camera the size of a bar of soap—without cumbersome cables that connect to PCs ("A Sweet and Simple Camcorder", BusinessWeek, 6/04/07).

Kaplan gave his designers a broad goal: strip away all control buttons and features from a typical camcorder and add back only the essentials. They began by eliminating the slot found on many digital cameras for extra memory cards needed to store lots of images. Instead, the Flip offers internal storage from a half hour to an hour, depending on the model. They replaced multiple controls with a simple series of buttons. The hardest part was replacing the unwieldy USB cables and chargers that come with most digital camcorders. First the team tried retracting power cables. But that didn't eliminate cords, which can tangle or get lost. Instead, they chose cheap AA batteries to power the Flip—so there's no need for a clunky plug or AC adapter.

Pure Digital's solution to the messy cables often needed to attach a camcorder to a PC to upload files is a design breakthrough: the flip-out USB key. And it became the Flip's brand symbol. Kaplan's inspiration came not from Silicon Valley but from Detroit—from the key to his Audi.

Sony Blames Profit Warning on Yen, Weak Demand

Can Olympus Keep Its Medical Video Camera Edge?

Coca-Cola: Building a Better Design Machine?

How Google Is Showing Off Chrome

2009-03-19T14:25:00.005-07:00

The Google (GOOG) home page has been ransacked. The familiar, colorful logo is upside down. The search box and the "I'm Feeling Lucky" tab have been uprooted and now point up at a rakish angle, jutting into white space. Other links have tumbled from the top navigation bar and lie in a heap on the side of the browser. What on earth is going on? Have the hackers taken over?

Yes, actually they have. But they were invited to do so. The screwy design is part of a new series, Chrome Experiments, that Google is launching on Mar. 18 to demonstrate the potential of Chrome, the search giant's much-trumpeted yet little-adopted browser, which itself was updated with a handful of new features the day before.

The jumbled home page is actually a program called Google Gravity. British interactive design firm Hi-Res! recreated the search giant's regular home page, giving users the ability to wreck the joint. With the mouse, a user can spin the traditional elements into space. They soar, they careen, they bounce, until they settle higgledy-piggledy at the bottom of the browser window.

Whimsical, Fun—and Pointless

There are a further 17 inventive devices displayed in Chrome Experiments, which was commissioned by tech lead Aaron Koblin, who works in Google's Creative Lab at the company's San Francisco office. He handed a simple brief to his chosen anarchists: "Here's this browser. Make something cool with it."

In Browser Ball, you casually bounce a beach ball between different windows on the screen. Twitch loads a series of windows to guide you through the levels of an infuriatingly addictive game. In BallDroppings, the user plays around with an interactive sound-generation device to produce artistically atonal results. A couple of the experiments use data from the micro-network Twitter as a starting point to create intricate visualizations. Not all of the projects are entirely clear. The overall results are whimsical, fun and, well, ultimately fairly pointless.

There is, however, a serious mission beneath the sense of play. Google wants consumers and advertisers to see the sophistication and reliability of Chrome's technology. These toys are built using the ubiquitous development language JavaScript, which has caused browser performance problems in the past. Given that many of Google's own Web programs, such as Gmail, rely heavily on JavaScript, Google is signaling that it's serious about building a strong, sturdy platform for cloud applications.

"There has been a steady flow of new releases and features [for other browsers]," wrote Gartner analysts David Mitchell Smith and Ray Valdes in a paper published on Mar. 13. "But the speed is not enough to keep up with Google's rising goals for Web applications." With Chrome, the company has taken matters into its own hands.

Slow Uptake of New Technology

Still, it's early days for Chrome, which is available only for PCs and currently boasts merely 1.15% of the browser market share, according to the latest figures from Net Applications. In contrast, Microsoft's (MSFT) established Internet Explorer (IE8 will likely be announced soon) has nearly 68%.

More serious for Google, as the company continues to build its case for cloud-based business apps, is the slow pace of enterprise adoption of new technology. According to Forrester Research, 60% of companies were still using Internet Explorer version 6.0 in the second half of 2008. That means they haven't upgraded to the latest version of the software they have, let alone contemplated shifting platforms altogether.

"There's a lot of effort and potential risk in moving off a browser," warns Forrester analyst Sheri McLeish. "Upgrading your company to a new browser may break customized enterprise applications." Design-focused programs build buzz and goodwill from early adopters, and a consumer-driven push could even help to drive buy-in from the bottom of an organization upwards. But McLeish notes, "Chrome is certainly not secure enough for prime time."

For now, Koblin says, he hopes the project will take on a life of its own and form a library of JavaScript experiments and a community of those constructing them—a "submit experiment" form is built into Chrome Experiments' interface. So is he volunteering to monitor the submissions personally? Koblin laughs. "The worst-case scenario of too many to look at would be wonderful."

Google-Yahoo: Unintended Consequences

Rollins brings devotion to grand stage

AIG's Liddy: 'I Asked for Bonus Givebacks'

2009-03-19T14:25:00.003-07:00

Edward Liddy, chief executive officer of American International Group (AIG), sought to blunt the outpouring of criticism over $165 million paid in retention bonuses at the beleaguered company, by asking many of the people who received them to return at least half the money. Some have already volunteered to turn in their full bonuses, Liddy told a House panel in Washington on Mar. 18.

Liddy, who took the job running AIG last September for $1 a year in pay, also said he expected a harsh public reaction to the retention bonuses but nothing like the firestorm he has seen. The fracas over them dominated a questioning at a hearing of a finance subcommittee, and President Barack Obama has urged that AIG be forced to rescind the payments.

Liddy stopped short of saying he would pursue the payments if staffers decline to return the money. He argued that he had to make the payments both because of contracts—which he said he never would have O.K.'ed—and because they have been needed to keep people on to unwind a troublesome area that had the potential to throw AIG into bankruptcy. "We concluded the risk to the company, and therefore [to] the financial system and the economy, were unacceptable," the CEO said.

Liddy sparred, mostly in polite terms, with congresspeople who repeatedly attacked the idea that bonuses should be paid to staffers at a company where bad market decisions have led to losses and the need for at least $80 billion in U.S. government support already—with more than $170 billion in potential exposure.

Contentious Proceedings

At times, however, he grew passionate. He declined to turn over names of the bonus payment recipients, for instance, and cited threats that have been made to AIG executives. One such threat suggested that they be killed with piano wire. He did, however, suggest that he would comply with subpoenas from the New York State Attorney General to reveal the names, so long as they are kept confidential. He said he would want assurances of confidentiality from the House before taking the same step there—to which Finance Committee Chairman Barney Frank refused to agree.

Passions around the issue even crept into the hearing room. Subcommittee Chairman Representative Paul Kanjorski (D-Pa.) angrily ordered demonstrators to turn over to security officers signs urging jail terms for AIG executives. The demonstrators, which Kanjorski referred to as the pink ladies because of their bright clothing and signs, had been trying to get their signs in the sights of cameras that crowded the hearing room.

The CEO suggested that the government will be paid in full for its loans and other support to AIG but that the process may take two to three years, depending on market conditions. Liddy is trying, for instance, to sell off insurance units—which other witnesses at the hearing suggested were healthy—but said there are no buyers for them at the moment.

He suggested that improvements at AIG have been substantial already, but that the job is far from finished. The company's troubled financial products unit, which created complex obligations known as credit default swaps among others, still has some $1.6 trillion in obligations to wind down. While down substantially from what the tally was just last fall, Liddy said the company needs to deal with those, and it needs to keep the people who can manage the total down.

Banks: Beyond the Citi Carnage

Bank CEOs Grilled on TARP

Apple Raises Its iPhone Ante

2009-03-19T14:25:00.001-07:00

For the past two years makers of powerful, Internet-connected smartphones have been racing to respond to the innovations unleashed by Apple's iPhone. While they've taken steps to narrow the gap, Apple may have just pulled further ahead.

Apple (AAPL) is doing that through a series of capabilities unveiled on Mar. 17 that make it easier for software developers to create nifty iPhone applications. In a packed auditorium at Apple's Cupertino (Calif.) campus, the company presented both a major update of its iPhone software and details of a software developer kit.

The likely result is that Apple will further solidify its position as the platform of choice for software developers—and as a result, many consumers. In just eight months programmers have created 25,000 applications that are available on Apple's online App Store. Of those programmers, 62% had never written anything for an Apple product. So far, consumers have downloaded more than 800 million of these apps, which include everything from games like Tetris to software that helps diabetes patients manage insulin levels. The wide range of apps is a major reason the iPhone quickly jumped to No. 3 in the cutthroat smartphone market.

Playing Catch-Up to Apple Apps

The App Store is also a key reason why rivals will have such a hard time closing Apple's lead. In recent weeks companies including smartphone leader Nokia (NOK), BlackBerry maker Research In Motion (RIMM), and Microsoft (MSFT) have announced plans to open their own app stores. While the three companies have sold far more devices than Apple, which has sold 17 million iPhones and 14 million iPod Touches, their products are used mostly for making calls and sending e-mail. People flock to Apple for other kinds of programs, including browsing the Web. "This will make Apple's big lead that much bigger," says Trip Hawkins, CEO of Digital Chocolate, a maker of popular iPhone games.

Many of the new capabilities address shortcomings with the current iPhone software. For the first time, iPhone owners will be able to cut and paste text or pictures between applications—say, to include in an e-mail a photo of a home for sale or restaurant meeting place. Users will be able to write e-mails in landscape mode, so the phone's software-only keyboard is larger. IPhone software chief Scott Forstall said the company also made upgrades to its server farms so it can now reliably offer "push notification" every time a user gets an e-mail or an application update.

The story of ‘Boo’ for a new generation

Nokia’s Touch Screen 5800 Nods to iPhone

Beloved Manuel makes Series special

The iPhone Apps Sweepstakes

Who's Who on AIG's List of Counterparties

2009-03-17T15:56:00.001-07:00

American International Group (AIG) broke the customary code of silence around financial transactions when it published a detailed accounting of its financial counterparties on Mar. 15. The pressure to do so had come from Congress, insistent upon learning the companies to which U.S. taxpayer aid had flowed. AIG explained its disclosure as a bid for "transparency," but the data were just as much an opportunity to demonstrate the systemic risk AIG had long claimed its demise would pose.

If releasing the list was a surprise, the names on it were anything but. A Who's Who of global financial behemoths, the list included several European banks as well as U.S.-based giants like Goldman Sachs Group (GS) and Merrill Lynch (BAC).

Of course, financial ties between Europe and the U.S. have been growing in recent years, and the flow of funds has hardly been a one-way street from the U.S. taxpayer to banks abroad. Brad Setser, a fellow at The Council on Foreign Relations, notes that the Bank for International Settlements has reported that European banks had an $8 trillion balance sheet going into the crisis, with a large share of that invested in U.S. corporate bonds and asset-backed securities. If the European banks dumped those holdings, it would exact a severe, negative effect on the price of U.S. banks and their balance sheets.

Kentucky's Bunning Leads the Charge

Further, if the government had not backed AIG, those who had borrowed securities from AIG and collateralized them with the company's debt surely would have sold the debt to cover their losses and brought more pressure on the insurer just as it was struggling most, notes one Wall Street source.

Congress' demands for the names came to a head earlier in the month with the very public dressing-down of Fed Vice-Chairman Donald Kohn by Senator Jim Bunning (R-Ky.), after Kohn refused to name names. The prominence of foreign firms like Barclays (BCS), Deutsche Bank (DB), and BNP Paribas, once the list was released, stirred chat room debate over the logic of American taxpayers helping foreign banks. "In a world where financial institutions operate globally, bailouts are still financed domestically, and do ultimately rely on a backstop from the taxpayers," says Setser, of the Council on Foreign Relations. "There's a complicated set of issues around burden sharing. It's not just AIG."

The transactions at the core of AIG's disclosure have little to do with its central insurance business. The counterparties named on this list were part of far more complicated financial dealings. Some were customers of its collateralized default swaps, in which AIG insured transactions between other parties, something those parties would pay to gain, due to AIG's then-sterling AAA credit rating. But when AIG's ratings were cut, the company had to come up with collateral to back those deals.

Music video highlights: NLCS Game 4

Shakeup in the Oil Ranks

Nell Minow on Outrageous CEO Pay—and Who’s to Blame

What Fadell's Departure Means for Apple

2009-03-16T15:02:00.001-07:00

At a company as tight-lipped about its inner workings as Apple (AAPL), changes at the top can be hard to gauge. But the Nov. 4 announcement that Tony Fadell, development chief for the iPod and iPhone, has been replaced by 26-year IBM (IBM) veteran Mark Papermaster underscored what's becoming a growing concern for many Apple investors: Is the company doing enough to nurture possible replacements for Chief Executive Officer Steve Jobs?

Apple has many top-notch executives. Chief Operating Officer Tim Cook is considered an operations virtuoso. Retail chief Ron Johnson turned Apple into the world's most successful retailer by some measures. But while there's no indication that Jobs is going anywhere soon, when he does move on, finding a successor who combines his penchant for product, head for business, and sales savvy will be no mean feat. Industrial design chief Jony Ive is often mentioned as a candidate. But he's a great product designer—not a businessman, technologist, or marketer. "It looks like there's only one horse in this race [to potentially succeed Steve Jobs], and it's Tim Cook," says John Thompson, vice-chairman of executive search firm Heidrick & Struggles. "It's not obvious to me that there's another candidate there."

Fadell, 39, wasn't necessarily tailor-made for the CEO job, either. Three people close to Apple say he wasn't considered a viable CEO candidate. He combines the engineering chops of an accomplished geek with the charisma and product sense of a marketer. He also excelled at managing engineers. But he lacked broader business experience.

Father of the iPod?

Fadell's departure may not have come as much of a surprise at Apple headquarters in Cupertino, Calif. One Silicon Valley executive says he got calls more than six months ago from companies where Fadell had applied for jobs. Some top Apple executives have bristled for years at the notion that Fadell was considered the "father of the iPod." Silicon Valley lore holds that while he was at Philips Electronics (PHG), Fadell came up with the idea for an MP3 player with a hefty hard drive that would synch to a music service, and that he left to sell the idea to other tech companies before joining Apple.

But one former Apple manager says the iPod project was already under way when Fadell arrived. Another source says Fadell was considered too self-promotional within Apple. For example, the company once insisted that Fadell remove Apple-owned photos of iPods from a personal Web site, and demanded that he change language on the site that suggested the iPod was his brainchild. Apple declined to make Fadell available for comment.

Apple insists Fadell will remain an adviser to Jobs. That may be, but it's common practice in Silicon Valley to grant departing executives a consulting gig that lasts as long as the clause in their initial contract that prohibits them from working for a competing company.

Fears That Others Will Follow

Apple remains a well-managed and well-positioned company, and may be one of the safest harbors for top tech talent. It's got $25 billion in cash, healthy margins, and its biggest product lines are growing faster than their respective markets.

Still, some former staffers wonder whether more company veterans will follow Fadell out the door. It's one thing to work for Apple when the stock is flying high and the company is breaking out of its core market into exciting new realms. Now, the stock is priced at about half of its all-time high, and the company, renowned for being a place where people work extremely hard, is a much larger battleship than it used to be.

Also, one former manager says the company isn't as focused as others at nurturing people's careers. At Cisco Systems (CSCO), IBM, and elsewhere, top performers are moved around the company in an effort to broaden their skills and groom them for bigger jobs. Apple's top executives have tended to move up the ladder in the areas where they were hired. Apple declined to comment on this specifically, but says it has a succession plan in place.

From Big Blue to Cupertino

Papermaster spent 26 years at IBM, where he developed chip architectures before becoming head of its blade-server effort in recent years. One Apple watcher believes Jobs intends to focus more on creating proprietary chips for its devices, to make it harder for rivals to copy its innovations.

To thrive, Papermaster will need to stay comfortable in Cupertino longer than former IBM Chief Counsel Donald Rosenberg, who spent just 10 months at Apple before leaving for Qualcomm (QCOM). Fadell may not have been in line to succeed Jobs, but his departure nonetheless leaves a big challenge for a newcomer to Apple's very particular way of doing things. After the job changes were made public, Apple's former software chief Avie Tevanian mused on his Facebook page that he "wonders how a 25-year IBM veteran will replace Tony," according to one of his Facebook friends.

Phils advance to first NLCS since ‘93

Apple’s iPod Problem

China Worried After Lending 'Huge Amount' to U.S.

2009-03-14T09:47:00.003-07:00

As China's slumping economy feels the impact of the global recession, Chinese leaders are showing their irritation with the U.S. That's obvious in the ongoing war of words following a near-clash between U.S. and Chinese naval vessels in the South China Sea on Mar. 8. Chinese gripes with the Americans extend to key economic concerns, too, such as U.S. complaints about the Chinese currency and Beijing's suspicion that the U.S. is lapsing into protectionist policies.

On Mar. 13, China's Premier Wen Jiabao ramped up the rhetoric some more. Wrapping up the annual session of China's Parliament, Wen took a swipe at the U.S., which has depended largely on Chinese investment in Treasury bonds to fund its large budget deficit. Over the past few years, China has built up the world's largest foreign reserves, totaling $1.95 trillion, with some two-thirds of that held in U.S. assets, mainly Treasuries. As the global economy has weakened, the value of China's investments has decreased. "We have lent a huge amount of money to the United States," Wen said at a press conference in Beijing's Great Hall of the People. "I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises, and to guarantee the safety of China's assets."

Another area of sensitivity is the value of China's currency, the yuan. With exports plunging in China, down 25.7% in February, and some 20 million in export factories out of their jobs, Beijing has slowed the appreciation of its currency. Chinese officials already reacted angrily to criticism that it was "manipulating" its currency made by U.S. Treasury Secretary Timothy Geithner during his late January Senate confirmation hearings. Signaling that Beijing has no intention of budging on the issue, Wen spoke out during the morning press conference. "I don't think the [yuan] is depreciating. Since we reformed the exchange rate in July 2005, the yuan has appreciated 21% against the U.S. dollar," the Premier said. "No other country can put pressure on our country to depreciate or appreciate the [yuan]."

Trade Protectionism?

China's leaders are also speaking out against what they see as "surging" protectionism, as Wen described it during the Mar. 5 opening of the National People's Congress. Over the past several months several of China's state-controlled newspapers have editorialized against "buy American" rules in the U.S. stimulus plan. "If a country only buys products that it produces itself, and forbids the import of other countries' products without reason, this suggests a move to trade protectionism," Chinese Commerce Minister Chen Deming said on Mar. 10. The most recent target of Beijing's ire: U.S. restrictions on the import of Chinese poultry. "I believe that any trainee with a preliminary knowledge of the WTO disciplines will tell that this section violates the basic rules of the WTO," a Chinese trade official said, referring to the ban, at a WTO meeting in Geneva on Mar. 12, according to official news agency Xinhua.

Along with the tough talk, Beijing is expressing confidence about China's ability to weather the global recession. While conceding that China will face challenges in reaching a planned-for 8% gross domestic product growth this year, Wen said he expected ultimate success. And while Beijing did not announce plans to expand the size of its $586 billion stimulus as some had anticipated, China has the ability to spend more, since it has targeted a relatively small budget deficit of 3% of GDP for this year. "We have prepared enough ammunition and we can launch new economic stimulus policies at any time," Wen said.

China Prepares for Urban Revolution

Maddon had great mentor in Mauch

B-School in a Recession, With Family

2009-03-14T09:47:00.001-07:00

Libby Smith toured Emory University's Goizueta Business School when she was pregnant and arrived on the Atlanta campus this fall with her six-month-old baby, Jackson, in tow. In between changing diapers and playing with her son, she juggled schoolwork, an internship search, and a long-distance relationship with her husband, Rob, an army operations officer stationed two hours away at Fort Benning. Says Smith: "It's been harder than I thought it would be."

Now a new worry is surfacing. With her husband's stint in the military set to end in six months, the couple, who recently purchased a home in the Atlanta area, soon won't have a paycheck coming in unless Rob finds a job fast—no mean feat in a crumbling economy. With mortgage payments to meet and looming student loans, Smith has taken to "living a little cheaper," clipping coupons and buying supermarket-brand paper towels instead of Brawny. Though she has a summer internship at consulting firm Booz Allen Hamilton, Smith, 29, is wary of the future. "It's stressful to think that nothing is guaranteed anymore," she says.

Juggling school and family life has never been easy, but the economic downturn is adding a new wrinkle. In recent years, as B-schools have gotten better at helping families make the transition to academic life, more students with partners and young children have headed to campus. To accommodate the needs of these students and perhaps entice them away from rivals, B-schools have created organizations for spouses and partners, launched child playgroups, and offered job and relocation assistance. Some schools let spouses audit classes, invite them to school functions, and offer free counseling services and support groups—perks that will become more essential in lean economic times, particularly for partners of newly admitted students. "The networking and job assistance has been ramped up because people are a little more nervous," says Wendy Metter, associate director of student affairs at Northwestern's Kellogg School of Management. "They want help finding a job now, as opposed to June."

As the economy unravels, that's not all they'll need help with. Long-distance relationships may become more common as partners stay behind to keep jobs rather than risk losing the family's sole source of income. And relationships could grow more strained as students struggle to find jobs in an increasingly grim market. Nearly 56% of B-schools reported a significant drop in recruiting activity on campus this winter, according to a survey by the MBA Career Services Council, an association of business school career officers.

Schools are preparing for the worst. At Dartmouth's Tuck School of Business, where 40% of students have partners or young families, the therapist who runs the partner-support group will keep a closer eye on students this spring. And at the University of Virginia's Darden School of Business, which has 65 married students among this year's class of 333, the student affairs office is posting information about signs of depression and how to help friends struggling with it.

For students with young families, the pressure can be intense. Richard Core, 27, a second-year student at Darden, is in the midst of a wide-ranging job search that so far has produced no offers. As he nears graduation, his search has taken on an "added layer of stress" because he feels responsible not only for himself but for his three-month-old son, Trip, and wife, Mandy, on maternity leave from her finance job. The couple has contingency plans to move in with Richard's parents in New Jersey if the search drags on. "There's a bit more urgency to finding a job now," says Core, who worked at Merrill Lynch (MER) before business school. "I'm at the stage of life where making sure I have things like health insurance is more important than I ever realized."

Even students who land jobs feel insecure. Monte Searle, 39, at Indiana University's Kelley School of Business, moved 1,500 miles with his wife and three children, ages 10, 12, and 14, from their home near Salt Lake City to Bloomington. Searle's decision to go to B-school has strained family finances. His wife, Tanya, took on a 30-hour-a-week job as a teacher's aide to make ends meet. The couple has cut costly organized sports activities for the children, and their daughter pays for half of her piano lessons with babysitting money. Books come from the library, not Barnes & Noble. "We've cut back as much as we can without the kids feeling like they're really sacrificing a lot," Tanya says.

The family was relieved when Monte got a job offer in the corporate finance department at Dow Chemical (DOW), but they have lingering concerns, from the stability of the job market to whether they'll be able to get a mortgage. "I've seen worry and anxiety on my children's faces, and I'm definitely still worried to see how this plays out," Searle says. "It's something that's always in the back of my mind."

Anxious Job Hunters Head for the Emirates

University of Washington Admissions Q&A

MySpace: A Playbook for Beating Facebook

2009-03-12T16:08:00.009-07:00

Hunched over a small conference table, MySpace CEO Chris DeWolfe is in full spin mode. MySpace, which DeWolfe co-founded before selling it to News Corp. (NWS), has been getting a lot of bad press of late. Key executives are fleeing, the social network's chief rival, Facebook, is signing up millions more new users while MySpace is essentially flat, and rumors are flying that Google (GOOG) next year will pull out of—or dramatically cut—an advertising pact that provides nearly 40% of MySpace's revenues.

That's why DeWolfe, a resolutely earnest chap even in his trademark pointy-toed boots, is eager to talk about the new services being readied to help pump up MySpace's revenues. The year-old MySpace Music, he says, will soon allow its 18.1 million music customers to purchase concert tickets and band merchandise. MySpace is beefing up its game offerings, and will start selling "virtual" merchandise, including cupcakes people can send to friends and loved ones. "Too bad you're not here a month from now," says DeWolfe, 42.

Of late, DeWolfe and his team have been focusing more on making money than attracting millions of new users. As such, he says he "has been too focused on creating a profitable site" to worry about the recent spate of bad news. "I don't know Facebook's profitability," he adds. "But if I could have 300 million people using MySpace or be profitable, I would take profitability."

"A Huge Audience to Monetize"

DeWolfe says MySpace is making money. But News Corp. acknowledges that hefty spending on new features and an international expansion crimped earnings, which it doesn't break out. What's more, Wall Street has been largely unmoved by the MySpace story for the last year, when the company's revenues came up short and News Corp. failed to reach the $1 billion goal it had set for its Fox Interactive Media group, of which MySpace is by far the largest piece. Analysts figured FIM came in at closer to $900 million. And if Google pulls out of the advertising deal, MySpace could find it difficult to find another search engine willing to match the $250 million MySpace will receive this year from Google.

It's true that Facebook, with 236 million unique visitors worldwide in January, is now bigger than MySpace, which has 126 million globally. But MySpace maintains its edge on Facebook in the U.S., based on unique visitors and time spent on each site. As of January, each MySpace visitor spent an average 266 minutes on the site in a month, vs. 176 minutes on Facebook, according to the tracking firm ComScore Media Metrix. Marketers like that because it means people are hanging around long enough to see their ads. DeWolfe wants to keep visitors on MySpace even longer. His executives have been signing deals with TV producers to make more of the six-minute shows it needs to siphon off users from YouTube, and they are working on new video games to hike traffic on MySpace's game site.

Down the road, DeWolfe is planning advertisements for the mobile world where MySpace has more than 50 deals worldwide. Meanwhile, MySpace Music is experimenting "with five or six things," including an online radio service for its users, says its president, Courtney Holt. "Everything we do now is focused on generating revenue," he says. "We have this huge audience that we intend to monetize."

Long balls lead Dodgers in Game 1

Facebook, Meet the Locals

MySpace China Looks for Answers after Setback

Facebook’s Fine-Print Fiasco

Madoff: What's the Right Penalty?

2009-03-12T16:08:00.007-07:00

It's the question of the moment for many: Is there any punishment severe enough to fit Bernard Madoff's crime? With the perpetrator of what may be the largest financial fraud in history due to plead guilty on Mar. 12 to 11 felonies in U.S. District Court in Manhattan, the issue of an appropriate penalty is about to move center stage. It's hardly surprising, given the magnitude of losses and number of lives shattered, that Madoff's victims have dreamed up all manner of punishments they would like visited upon him.

Nobel laureate Elie Wiesel, who saw his life savings vanish and whose charity lost $15 million as a result of the Ponzi scheme, recently told The New York Times that he wished Madoff would be confined to a solitary cell and forced to watch a continuous video of his victims for five years. Others have called, quite literally, for Madoff's head.

Such intense and public emotion certainly presents challenges to Madoff's lawyers as they try to limit the consequences to their client. "You hope, you expect, and you have faith that the sentencing judge is going to disregard the vitriol… and give a sentence [he] believes is fair," says Madoff's attorney, Ira Lee Sorkin, who himself has been excoriated for defending Madoff. More broadly, some worry that the ire directed at Madoff reflects a widespread antipathy towards business that could jeopardize the status of many executives. "When circumstances are so notorious, such as the situation we're in now with this financial crisis, they can result in criminal prosecutions that behave completely differently than any normal case," says Daniel Petrocelli, a lawyer at O'Melveny & Myers in Los Angeles who represented former Enron CEO Jeffrey Skilling. "The government can bring these cases simply because of bad business judgments or mistakes, and they can get convictions," he says.

Sentencing Likely Months after Plea

That is carrying over to sentences, as well. "For any kind of business crime, any kind of fraud, judges are much tougher on offenders at sentencing in an environment like this," says Alan Ellis, a San Francisco attorney who specializes in representing defendants during sentencing. "They sense the public outcry."

But Reid H. Weingarten, a defense lawyer at Steptoe & Johnson in Washington, D.C., says that shouldn't be too much of a factor. "I'm hopeful and expect that a federal district court will make a ruling on the merits, not based on there being a howling mob outside," he says. "You're in court, you're not in the French Revolution."

Madoff's sentencing will likely not occur until a few months after he has entered a plea. During that period, the government will prepare a detailed pre-sentencing memo chronicling his crimes, a process sure to be particularly complex in this case. At some point later this year, U.S. District Judge Denny Chin will hold a sentencing hearing. Federal guidelines, which are advisory only, will call for a life sentence based on the multibillion-dollar amount of Madoff's fraud and the number of victims. A 2004 federal law also gives those victims a right to submit filings in the case. Many are likely to appear and be heard at the hearing.

Skilling encountered victims after being convicted of fraud in the Enron case in 2006. Petrocelli, who calls it "a surreal experience," says "it was extremely disturbing to have people who have very strong feelings…approach a microphone within a few feet of your client and simply spew venom for several minutes with the blessing and imprimatur of the court," he says. A federal appeals court ruled in January that Skilling, who was ordered to serve 24 years in prison, should be resentenced, possibly to a lower term. Currently in a low-security federal prison in Littleton, Colo., Skilling has asked the U.S. Supreme Court to review his conviction.

Medium Security is Likely

Where Madoff, who is 70, ends up incarcerated will be a decision for the federal Bureau of Prisons. Concerns among some people that he could end up in a cushy "Club Fed" are misplaced. Such comfy quarters, defense attorneys say, are a thing of the past—and to a great extent existed more in legend than in fact. At the same time, those hoping for Madoff to rot in a Devil's Island-like detention will also be disappointed.

Under Bureau of Prison guidelines, Madoff is likely to end up in a medium-security prison. That's more restrictive and regimented than a minimum- or low-security facility, but it's a far cry from a super-max lockup reserved for the nation's most dangerous inmates. Still, says Peter Henning, a criminal law professor at Wayne State University Law School, "it's no fun."

Enron’s Skilling Loses Appeal

Mort Zuckerman on the Madoff Scandal

Best-of-seven series a better test

India’s Madoff? Satyam Scandal Rocks Outsourcing Industry

Weather leaves Series fit to be tied

Marcial: Could J&J Make a Run at Schering-Plough?

2009-03-12T16:08:00.005-07:00

Wall Street is abuzz with speculation that Johnson & Johnson (JNJ) may try to muscle in on Merck's (MRK) $41 billion bid to buy Schering-Plough (SGP). So far, J&J is tight-lipped.

A potential J&J move on Schering may result in a bidding war, with J&J raising Merck's cash-and-stock offer of $23.61 a share and presumably pushing Merck into hiking its bid by about 10%, some analysts figure.

Analysts who follow the pharmaceutical industry aren't sure whether that scenario will indeed play out.

"A Good Fit"

"Could J&J come in and bid for Schering-Plough? The fit between the two companies is as good, if not better, than the fit between Schering and Merck," says Timothy Anderson, senior health-care analyst at investment bank Sanford C. Bernstein (Bernstein has done business with Schering and Merck.) He doesn't see many significant impediments to the deal but says "it is theoretically possible that J&J comes in and bids for [Schering] because the fit would be a good one."

Catherine Arnold, pharmaceutical analyst at UBS (UBS), says "a bid by J&J can't be ruled out" because of both strategic and financial reasons. That's partly because J&J and Schering co-market the anti-inflammatory drug Remicade; J&J distributes the drug in the U.S., while Schering controls the non-U.S. market. The joint venture also covers the anti-inflammatory drug golimumab, scheduled to be marketed later in 2009. Arnold believes J&J would surely seek to protect its rights to the anti-inflammatory drugs it is co-marketing, either by making a counterbid for all of Schering or by cutting some kind of deal with Merck. If it doesn’t, J&J could lose those rights should Merck/Schering decide that they want the drugs for themselves through some means.

Therein lies the problem: Part of the Schering-J&J agreement is that J&J gets full rights to Remicade and golimumab should Schering be acquired by another company. To get around this provision, Merck drew up a reverse merger deal in which Schering becomes the surviving company but retains the name of Merck—and will continue to be controlled by current Merck shareholders.

Bernstein's Anderson says it seems logical for J&J to challenge Merck on the deal and to at least try to extract something of value out of its venture with Schering on Remicade and golimumab. Merck has told analysts and the press that its interest in Schering goes beyond Remicade and golimumab. Nonetheless, Remicade is an essential part of the deal: It produced revenues of $2.1 billion last year for Schering, while J&J posted $3.7 billion in Remicade sales.

Bidding War Ahead?

UBS's Arnold says a J&J deal would almost surely require a 10% premium to Merck's bid, bringing a sweetened offer to around $25.98 a share. She says a move by J&J to outbid Merck would be out of character for the New Brunswick (N.J.) company, "but not impossible." J&J's largest-ever acquisition was its $16.6 billion purchase of Pfizer's (PFE) consumer health-care unit in June 2006. J&J hasn't entered into any bidding wars with its pharmaceutical or biotech peers, notes Arnold. However, the company faces numerous challenges such as stiffer competition in some of its diverse businesses, and particularly so in the pharmaceutical division where it could use more new drugs in development. So it may break from its traditional ways, argues the analyst, "in pursuing what we believe to be the most attractive target in the pharma space."

If that happens, the story won't end there. Merck certainly has the option of raising its bid above any potential offer from J&J, and still derive benefits from the higher-priced combination. Arnold figures Merck could go as high as $39 a share without damaging whatever benefits it will reap from the combination. However, J&J, she estimates, could go as high as $40.40 a share in its bid.

Shares of Schering have jumped since Mar. 6—the day before the Merck deal was announced —from 17 a share to 22.09 on Mar. 9, when the offer was disclosed. The stock hit a 52-week high of 22.32 on July 15, 2008. Merck is down to 22 from a 52-week high of 45.73 on Sept. 9, 2008, and J&J has slid to 47 from a 52-week high of 72.76 on Sept. 9, 2008.

What's Schering's big appeal? Arnold estimates it will have the largest potential earnings growth rate in the pharma group from 2009 to 2015 and will be consistently near the top of its peers during those years. That could be plenty of inducement for a competing bid.

J&J spokesman Jeffrey Leebaw declined to comment.

Stay tuned.

Marcial: Allergan: A Lift from More Than Botox?

Marcial: Why Schering-Plough is Alluring

From Yankees bat boy to best-seller

Sox’s playoff run ends with loss to Rays

The World's Most Powerful Hybrid Car

2009-03-12T16:08:00.003-07:00

To celebrate 20 years as a brand Infiniti has produced a stunning concept car for the 2009 International Motor Show in Geneva. The Infiniti Essence is the world's most powerful Hybrid car with a total of 600 horsepower combined output from its V6 twin turbo and electric motor. The luxury sports car hybrid offers enormous power on the open road and zero emission driving in urban settings.

In specification the car looks very much like a hybrid version of Nissan's GT-R. (Infiniti is a Nissan owned brand) With a 3.7 liter V6 DOHC Twin Turbo VQ based engine (VQ37DETT) putting out 434 hp (320 Kw) in a rear wheel drive FM (Front Midship) platform currently used in modified form in both the Nissan GT-R, 350Z and Infiniti V36. An additional 158 hp (116 Kw) and 500 Nm comes from the twin clutch mounted Disc type electric motor giving a total of 592 hp (435 Kw). No combined torque figure was released by Infiniti but it should be in the region of 1088 Nm (802 Ft/lb).

Strictly a two seater, the front-engined rear wheel drive super-luxury coupe is Infiniti's first super-performance car with design cues that Infiniti says will distinguish its production cars of the coming years. The Essence is a real styling exercise featuring razor sharp lines, side windows that appear to be resting on a ledge and a steeply raked windscreen that combines as a sun roof and extends all the way to the B pillar while the car rides on 22-inch wheels. The Essence also comes complete with Bespoke Louis Vuitton luggage.

The petrol engine and electric engine can work independently or together as a "parallel" hybrid system. At urban speeds the Essence operates as a pure battery electric vehicle. A lower trunk mounted laminated lithium ion battery supplies power to a new type of electric motor called the 3D Motor. The motor is a BLDC design that maximizes torque density to meet tough requirements on size and power output. The result is a particularly slim, disk-shaped motor that has twice the torque of a conventional unit. Its design was achieved by 3D magnetic field analysis to optimize the layout of the electromagnetic coils and permanent magnets. The motor is positioned between the engine and transmission and provides 158bhp (116 Kw). The 3D Motor operates in both propulsion and power regeneration modes to recapture braking energy to keep the battery pack charged up.

600 hp + 30 MPG

Optimized energy usage across the widest possible range of driving conditions is guaranteed by two separate clutches which "switch in" the motors as required. It is a system that needs no torque converter and the result is a 600 hp sports car with combined fuel economy of 8 liters / 100 km (30 US MPG).

The Essence also previews some next-generation collision avoidance safety features. Distance Control Assist (DCA) and Lane Departure Prevention (LDP) systems are available in today's production Infinitis but the Essence adds Side Collision Prevention (SCP) and Back-up Collision Prevention (BCP) to extend the anti-collision shield all the way around the car.

With SCP, when the driver decides to change lanes, side-mounted sensors activate a warning if an approaching vehicle is detected in the driver's intended lane. A yaw mechanism is then activated through brake control of individual wheels to help prevent a potential collision. Back-up Collision Prevention works in a similar way, sensing a vehicle behind, giving the driver a warning but then, if the warning is not heeded, activating the brakes automatically.

Test-Driving VW’s Touareg Hybrid

Audi’s New A1 Sportback Hybrid

Chrysler Goes Electric—Finally

Equities: Dead, or Just Resting?

2009-03-12T16:08:00.001-07:00

These are truly scary times. The stock market has lost some $11 trillion in value since its October 2007 peak. Blue-chip companies like AIG (AIG) and Citigroup (C) are now penny stocks, while General Motors (GM) and Las Vegas Sands (LVS) trade at less than 2 a share.

It seems that everybody is scouring through the numbers, trying to figure out how far down is down—and how long this bear market will last.

And if the stock market train wreck isn't enough, investing icon Warren Buffett has come along with a new warning. "A few years ago, it would have seemed unthinkable that yields like today's could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms," he writes in his latest annual letter to Berkshire Hathaway (BRKA) shareholders. "When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary." Great.

No Longer a Cornerstone

What is the average saver in a 401(k)-type plan supposed to do? Abandon equities? Flee bonds? (Sales of home safes are up, but that's not recommended.) Two simple market stories reinforce a time-honored lesson for all investing seasons. You don't have a clue what investment will do well going forward, and neither do the experts.

The first story: The old attitude of buying solid stocks as a cornerstone for one's life savings and retirement has simply disappeared. Younger investors, in particular, are avoiding stocks. In fact, the only reason the mutual fund industry has been able to survive the death of equities is the dramatic success of such funds which invest in T-bills, bank CDs, and other short-term paper. Says Alan B. Coleman, dean of Southern Methodist University's business school: "We have entered a new financial era. The old rules no longer apply."

Those thoroughly modern-sounding lines were plucked from one of the most famous cover stories in business journalism, BusinessWeek's August 1979 piece "The Death of Equities." Needless to say, BW's bold pronouncement became the favorite example of contrarians. (Type "The Death of Equities" into your search engine and you'll see what I mean.) Case in point: "By the end of the 1970s, things were so bleak on Wall Street that a pessimistic BusinessWeek cover proclaimed "The Death of Equities," Money magazine wrote last year. "That, of course, turned out to be one of the great buy signals of all time."

Really? The contrarian story doesn't stand scrutiny. Rereading it today, it's a well-reported, well-written article that thoughtfully looked at why individual investors were abandoning stocks nearly seven years after the Dow's peak and suffering through years of raging inflation. Here's the rub: The stock market didn't bottom out until August 1982—three years later. That's one long lasting contrarian indicator. Hopefully anyone who invested on the theory that magazine covers are useful contrarian indicators had very deep pockets and a long time horizon.

Phils take 2-0 NLCS lead over Dodgers

Stocks: The Individual Investor’s Dilemma

Marcial: Sanderson Farms, A Grade-A Poultry Play

2009-03-09T16:37:00.001-07:00

In this market, equity investors must sometimes feel like they're playing chicken with an oncoming freight train. (Guess who's winning.) However, there is one attractive chicken play that might help them sidestep disaster.

Sanderson Farms (SAFM), hardly a household name, is the fourth-largest U.S. poultry producer and processor—and a tempting pure play in chicken. Providing both fresh and frozen chicken products to food-service companies, restaurants, grocery stores, and supermarkets, Sanderson is poised to be the first outfit to gain from the imminent recovery of the chicken industry, some analysts assert.

In the pecking order of the poultry business, the leader is Tyson Foods (TSN), but it produces and processes not only chicken but also beef and pork products. It has 20% of the chicken market, vs. Sanderson's 6%. Tyson's 2008 revenues of $26.8 billion and market cap of $3.5 billion dwarf Sanderson's $1.7 billion and $675 million, respectively.

Lower Grain Prices Help

Pilgrim's Pride was the largest producer, with 24% of the market, until it filed for Chapter 11 bankruptcy in December. It has since closed three of its processing facilities. Privately held Perdue Farms is the third-largest producer, with an 8% share.

Some analysts contend that Sanderson's stock is the top choice in the industry. For starters, the stock has been agile and upbeat. It has gone from a 52-week low of 20 a share in mid-November to 33 on Mar. 6, trading at 9 times projected 2009 earnings of $3.66 a share. Tyson's stock has climbed from 4.40 on Nov. 20 to 7 on Mar. 6, trading at 18.8 times 2009 estimated earnings of 40 a share.

The chicken business has had little to crow about: Thus far in 2009, production is down 3% to 5%, with many producers still in the red and burdened by troubled balance sheets. Part of the problem was the rising prices of grain in 2008, which pushed up production costs. But the rise in commodity prices has abated, analysts note.

Although Sanderson beat consensus fourth-quarter earnings estimates, the company posted a loss of $2.13 a share for all of 2008. But based on the company's outlook, some analysts aren't feeling discouraged.

Balancing Supply and Demand

"Sanderson is well positioned to benefit from the recovery in the chicken industry," says Farha Aslam, managing director at investment bank Stephens (it has done business with Sanderson), who rates the stock overweight with a 12-month price target of 50. She raised her 2009 earnings forecast from $3.56 a share to $3.66. For 2010, she expects profits of $5.25 a share.

Aslam's outlook for the chicken market is "cautiously optimistic," as supply and demand appear to be coming more into balance, with prices showing signs of improvement. At the same time, she anticipates feed costs coming down this year. The analyst notes that Sanderson sees 2009 feed costs likely declining $166 million, or 6 a share.

"Investors can be confident in holding the stock through a volatile period in anticipation of an earnings recovery," assets Aslam.

"Best in Breed"

Sanderson produced 2 billion pounds of chicken, or 343.6 million chickens, in 2007 and owns 7 hatcheries, 6 feed mills, and 8 processing plants. The Mississippi company's products are sold under the Sanderson Farms brand name, sold mainly in the Southeast and the West.

"Sanderson remains best in breed in our view, as it is not only most capable to weather the storm but also will gain the greatest momentum in earnings power from the chicken margin recovery," says Kenneth Zaslow of BMO Capital Partners (BMO) (it has done banking for Sanderson), who rates the shares outperform with a 12-month price target of 50. He adds that notwithstanding persistently weak demand from food-service companies, earnings at Sanderson have hit bottom and have started to rise as prices—chicken breast meat prices, in particular—increased and feed costs declined.

Sanderson's most recent fiscal quarter results affirm "the bull case argument that the company is moving out of the trough," says analyst Christopher Bledsoe of Barclays Capital (BCS), who rates the stock overweight, with a higher 12-month price target of 58 a share. At its current price, Bledsoe says, the stock affords investors an opportunity to build positions ahead of expected earnings improvement throughout 2009, "with Sanderson's clean balance sheet providing a bridge to a potentially more favorable period." Any way you slice it, investors may find Sanderson an inexpensive way to add some protein to their malnourished portfolios.

Marcial: ConocoPhillips, a Cheap Big Oil Play

Marcial: Making Eyes at Google

The Liquidation Business: Too Liquid?

2009-03-08T03:56:00.005-07:00

Since the economic distress took hold this autumn, liquidators have sold off some $15 billion worth of stuff—the stuff of executives' miscalculations and failed aspirations, but for all that, just everyday stuff. Suits and sheets and college sweatshirts. Video games, GPS devices, and plasma televisions. These goods had been accumulating at troubled stores around the country, including Mervyns, Linens 'n Things, Steve & Barry's, KB Toys, and Circuit City. And liquidators think it's possible that some 12,000 other stores, stuck with several billion dollars' worth of more stuff, may go out of business this year, too.

This abundance is providing a bit of good fortune for liquidators, who are brought in to sell a bankrupt company's inventory, and sometimes the furniture and computers, too. But it is also unexpectedly complicating their business. They have so much work that the big four among them regularly join forces just to handle it all. They can hire consultants for each project from a growing number of talented, unemployed retail executives.

For the first time, though, liquidators are also competing with some of the most respected retailers around, stores that never used to lower their prices as precipitously as they now must. Because so many Americans aren't buying anymore, merchants are desperately trying to get rid of whatever they're selling. "The work is harder," says Scott K. Carpenter, the head of retail operations at the liquidation firm Great American Group. "It's harder to predict how consumers will react. It's harder to predict our sales."

GET THERE FAST

Steve & Barry's, like most of these defunct retailers, came to a quick end. The chain, opened in 1985 and known for selling reasonably well-made clothes for $24.98 or less, had been in the midst of an ambitious plan to expand its stores and refashion its brand. But poor management in a suddenly unforgiving economic environment led to the inevitable. The founders filed for bankruptcy in July, and a month later private equity firms Bay Harbour Management and York Capital Management bought part of the company for $168 million. But they too had trouble getting financing for the retailer and had to shut it down. The bankruptcy court approved the liquidation of Steve & Barry's Thanksgiving week.

For the liquidators, speed is crucial. When they make a deal with a retailer, either they are paid a percentage of the final sales (the retailer and its creditors get the rest) or they take over the company entirely. In the case of the Steve & Barry's closeout, Great American Group and its partners were working for a cut of the proceeds. But whichever way it goes, no one wants to spend a dollar more than necessary on salaries or leases or advertising.

At Steve & Barry's, the liquidators gave themselves eight weeks to sell some $275 million worth of clothes that were piling up in 173 stores and a warehouse. The retailer had down coats, sweatshirts, dress shirts, jeans, children's clothes, Sarah Jessica Parker's Bitten line, and the Starbury sneaker by Stephon Marbury. But mostly it had T-shirts: 5.4 million T-shirts. Getting rid of them would prove to be a challenge.

It is the consultants who manage the day-to-day business of the stores, often working in locations they've never seen with employees they don't know. Great American Group has about 300 consultants on call, 57 of them retained in the past six months. They have to be ready to start on a project with just 48 hours' notice. Among them is someone we'll call Mike Smith. Like many on this side of retail, he is an experienced executive (20 years in the business) whose own stores were closed out—in his case by Great American Group. Four months later, he was working for the liquidator. Carpenter finds a lot of good people on the job, as it were. "The ideal candidates are those who have lived through it themselves. They bring empathy and respect," he says. Smith, sensitive to the delicacy of his situation, didn't want his real name to appear in this story. "In the stores, they just call us the liquidator," he says.

The Rise of the Super-Discounters

A Very Anxious Christmas for Toys ‘R’ Us

Cooper has his bullpen’s back

An Order Slowdown Hits Boeing

2009-03-08T03:56:00.003-07:00

The global slump in travel and sharp fall-off in financing for purchases of everything from homes to companies is hitting Boeing's (BA) order book for new jets with a vengeance. The planemaker on Mar. 5 reported that it clocked just four new orders for planes in February, a big decline from 125 in the same month last year. Even more dramatically, the company reported that it has lost 32 orders for its still-to-be-delivered 787 Dreamliner.

Analysts say Boeing, which until last fall was soaring on ever-rising orders, appears to the be the latest victim of a credit crunch that shows no signs of abating soon. "The world has changed," says Jefferies (JEF) analyst Howard A. Rubel. "The world is short of capital, and this is a capital good." Boeing shares shed 3% on Mar. 5, to 29.39, amid a broad stock market sell-off.

Boeing's Record Order Backlog

But analysts say the decline in orders should not hit Boeing's financial performance for the remainder of this year, at least. Such orders are generally for planes to be delivered years from now, and Boeing is still working down a record backlog of some 3,700 orders—although the company will likely shuffle deliveries to account for cancellations and deferrals. "It's going to be a very difficult year in terms of orders," says Broadpoint AmTech analyst Peter Arment. "We believe deferrals and cancellations will probably exceed new orders."

Boeing delivered 36 jets in February, down just three from the year before. The company, whose production tally for last year was cut by some 100 planes by a nearly two-month-long machinists strike, has plenty of work to carry it through the rest of 2009 and for some time beyond, analysts say. The global slowdown is also hitting Boeing's chief rival, Airbus (EAD.PA), which reported orders for just four planes in January, compared with 238 planes a year earlier.

Analysts Sticking by 2009 Forecasts

So far, much of Wall Street is sticking by estimates for Boeing's financial performance for the next couple of years, although some analysts say they are less confident about 2010 than this year. Indeed, Boeing Chief Executive W. James McNerney Jr. has declined to make any predictions about results next year. Jefferies' Rubel forecasts that net income this year will rise to $3.8 billion, up from $2.7 billion in 2008, while revenues will climb to $69.4 billion, up from $60.9 billion last year.

The Seattle-based planemaker, in a weekly posting of orders on its Web site, reported a net decline of 10 orders for the year so far. New orders, primarily for 737 and 777 model planes, were offset by a loss of 32 orders for the much-delayed Dreamliner. But for now Boeing still has plenty of Dreamliner orders on its books, 878 in all for the new jet, which is due to take wing by June. Most of the cancellations for the plane, nearly two years late, are from a Russian carrier and a Middle Eastern leasing company.

Anticipating tougher times, the company in January disclosed plans to cut some 10,000 jobs. About 4,500 of the cuts are slated for the commercial plane unit, and are planned for back-office support functions instead of production-line posts. "We do have some orders, and that's something to celebrate," says spokeswoman Liz Verdier. "We are working hard with the customers to help them get what they need. It's really important now to keep working with them."

Airbus Flies in the Face of Recession Winds

Five-run second propels Dodgers

Boeing to Chop 10,000 Jobs

Best ‘pen will write ending to Game 5

GM's Big Assumptions

2009-03-08T03:56:00.001-07:00

If there's one thing that investors should have learned as a result of the recent credit crisis, it's the danger of accepting inflated numbers—whether they be home prices or advertising pages—as the norm. Newspapers have to accept that they won't be able to return to the day of fat print budgets, and carmakers will have to adapt to a world where only people who can truly afford a new car will buy one.

But there's a lot of disagreement about what that world will look like. And just how big the future car market will be plays a major role in General Motors' (GM) survival. In fact, as its annual filing with the Securities & Exchange Commission made clear on Mar. 4, GM's auditors have "substantial doubt" about the carmaker's ability to continue as a going concern.

That statement may have been routine business for GM's auditors, but the company's plans to return to viability seem to be based on two pretty big assumptions. The first assumption is that there is a bonanza of pent-up demand on the other side of this downturn. The second is that the rebound will be big enough to service the debt that the company will have as it borrows more from the government.

Betting on a Recovery

For the last decade, "all the tools were there to let the market overheat," says Gary Dilts, senior vice-president for J.D. Power's Global Automotive group. "Everything was geared to do that. Now it's geared to not do that."

Just look at the car market. GM and most other automakers think that the current rate of sales—a dismal 9.1 million annualized selling rate in February—will add up to a flurry of car purchases once the economy recovers. By 2012, GM thinks carmakers will once again start selling 16 million cars a year and that could go as high as 18 million.

Maybe pent-up demand will spring loose a bonanza. But analysts are increasingly thinking that even selling 16 million cars and trucks may be a great year, not the norm. J.D. Power thinks consumers will buy between 14 million and 15 million vehicles a year, Dilts says. Ford Motor (F) market analyst George Pipas says 16 million may "be the high watermark." He could well be right.

A Boom Fueled by Cheap Credit

Let's consider a few facts. For the past 10 years, auto sales soared well over 16 million cars and trucks every year. In 2000, at the height of the dot-com boom and when real estate was surging and credit was easy, Americans bought a record 17.8 million vehicles. That was pretty astonishing growth back then when you consider that annual auto sales only crossed 16 million vehicles in the U.S. in 1999 when stock markets were booming. Other than that, car sales were between 12.3 million and 15.5 million for the entire decade of the 1990s.

At the start of the decade, auto executives figured the car market was around 15 million. That was the rule of thumb. With a strong economy or a pitched sales war that led to price cuts, it could go higher. But 15 million vehicles was the benchmark.

Since 1999, Americans have bought a lot more than 15 million every year. They used home equity loans, easy credit from auto finance firms, cheap lease deals, and huge rebates to buy cars even when the one they had was just a few years old. Some people who once could only afford a used car were buying new rides. All of that inflated the car market by about 1 million vehicles a year, says J.D. Power.

Leases and Rental-Car Sales Fall

Many banks won't even do lease deals anymore. GMAC Financial Services does little if any leasing and GM owns a stake in that lender. The banks that are leasing are using tougher terms, so the monthly payments are higher. And home equity? Let's all bow our heads to the passing of home equity.

With ALDS set, Rays ready for White Sox

Auto Sales Worst Since 1983

The 65 mpg Ford the U.S. Can’t Have

The Stock Market’s Biggest Losers

Did Obama Cause the Stock Slide?

2009-03-05T15:58:00.007-08:00

At least on Wall Street, the honeymoon is over for President Barack Obama.

Polls still show the President has strong popularity among the general U.S. population, and Obama continues to command power in Congress. But among investors, fairly or unfairly, there is griping that the new Obama Administration is at least partly to blame for the recent slide in stocks. Since Nov. 4, Election Day, the broad Standard & Poor's 500-stock index is off about 25%, and since Jan. 20, when Obama took office, the "500" is down 15%.

It's never easy to determine exactly why the stock market moves in a particular direction. Plenty of other factors have influenced stock prices since November. For example, the global economy has slowed further and the outlook for corporate profits has worsened.

But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.

Bar Was Too High

It wasn't always so. On Nov. 21, word arrived that Timothy Geithner would be tapped as Obama's Treasury Secretary and markets rallied immediately. The S&P 500 rocketed 15% higher that day and the following trading session.

Stocks continued to climb into January, and even rallied in the week after the inauguration. "Hopes were too high," says independent market strategist Doug Peta. Too many were hoping the new Administration would have "this magic potion to solve our problems," he says. "That was unrealistic."

Proposals for a stimulus bill pushed infrastructure stocks to unsustainable heights. Caterpillar (CAT) surged 39% from the market lows in November to early January. Since then, shares in the maker of construction equipment have tumbled back down again, falling 43%.

Charges of Bungling

Many investors hoped Obama could start to solve the stock market's—and the economy's—biggest problem: the credit crisis. "It was a false hope," says Brian Reynolds, chief market strategist at WJB Capital Group, who believes there is "nothing the government can do to stop the crisis."

Others are more hopeful the government can ease credit conditions, but say the Obama Administration has bungled the operation so far. A Feb. 10 presentation of a financial-sector relief plan by Geithner was widely criticized. Stocks fell almost 5% that day.

Geithner was a "particularly poor salesperson back on Feb. 10," says Marc Chandler of Brown Brothers Harriman, who says he voted for Obama. "The Obama Administration has failed to get ahead of the curve."

Uncertainty Leaves Room for Rumors

A lack of details from Geithner disturbed investors, says Quincy Krosby, chief investment strategist at the Hartford (HIG). "Markets need certainty," she says. "The market has been sitting here waiting, waiting, waiting. That allows rumors and conspiracy theories to dominate."

Jerry Webman, chief economist at OppenheimerFunds (OPY), defends the Administration. "I would like to see Administration people more visible" on the issue, he says. But, "the problem is: What do we expect them to say? 'This is a big complicated problem and we don't know where we're going to get the money to solve it'? That would be the truth," Webman says, but it wouldn't make market participants very happy.

Credit issues may be the chief complaint about Obama among investors. But they're hardly the only gripe. In recent weeks, Obama has made clear he intends to keep campaign promises on health-care reform, climate change regulation, and higher taxes for Americans who earn more than $250,000.

Homers send Phils to Game 1 victory

The Six Unknowns That Are Roiling the Stock Market

Stocks: A Painful New Phase

Will Microsoft Buy Research in Motion?

Empathy Is Growth

2009-03-05T15:58:00.005-08:00

The economic crisis has sent shock waves through companies around the world. In order to survive, businesses are laying off employees by the thousands, adjusting their forecasts downward, and scaling back plans for expansion. While such drastic measures may help companies ride out the turmoil, they are short-term fixes—at best. Smart leaders of all kinds are simultaneously grappling with the most important question facing business today: Once things stop getting worse, how will we grow?

It's become fashionable in the last decade to prescribe innovation as the cure for every ill facing business. If companies could only start creating compelling products and services on a regular basis, they would never need to worry about next year's growth figures. While that might be true, such talk tends to focus on design or even flashy marketing. In the process, a critical factor gets left out of the conversation: empathy, the ability to see the world through the eyes of another person. Unless new products or services connect with the lives of real people, design or marketing can't do much to make them succeed.

When organizations develop a shared and intuitive vibe for what's going on in the world, they're able to see new opportunities faster than their competitors, and long before the rest of us read about them on the Internet. They have the courage of their convictions to take a risk on something new. And they have the passion to stick with it even if it doesn't turn out right the first time. Despite years of hype, the problem with business today isn't a lack of innovation; it's a lack of empathy.

Microsoft Scores with Xbox

The benefits of empathy in business—and what happens if you don't have it—can best be seen in the tales of two major product launches from the same company: the Xbox and Zune from Microsoft (MSFT).

By early 1999, the video game console business had become far too big for Microsoft to keep ignoring. Company executives had watched as pioneers like Atari and then Nintendo developed the fledgling industry, built a fan base, and made it financially viable for both console manufacturers and game developers alike. But then, in the mid-1990s, Sony (SNE) took the business to a whole new level. Sony had leveraged its vast technical capabilities to make PlayStation a worldwide success.

Now, Sony was readying the launch of PlayStation 2. The PS2 was much more than the toys that had come before it. The console was a high-powered entertainment engine capable of playing DVD movies, importing digital video, and connecting to the Internet. And it did it all without using a single line of Microsoft programming code. Having successfully fought off rivals like IBM (IBM), Apple (AAPL), and Netscape, Microsoft now faced the prospect of irrelevance as younger people came to spend more time on their video game consoles and less time on their PCs. Microsoft had no choice but to act and formed an internal hardware team to develop a console of its own.

A little more than two years later, Microsoft launched Xbox, a brawny game system that featured Halo, an adrenaline-fueled shooting game that was beloved by hard-core players. Xbox was an overnight sensation in the U.S. Halo alone sold more than 5 million copies, making it the top-selling title of its generation.

Sony Launches PlayStation Home (Finally!)

Architect Designs Sony’s Virtual World

China Stimulus Unlikely to Help Neighbors

2009-03-05T15:58:00.003-08:00

Until recently, South Korea's Hyundai Heavy Industries enjoyed an extraordinary shipbuilding boom that lasted for several years, thanks largely to orders from the fast-growing economy in China. As Chinese factories consumed more and more raw materials from abroad, demand soared for Korean-made bulk carriers that could ferry iron ore and coal from faraway places like Australia. At the same time, China's export machine required ever-more container ships to carry Chinese-made shoes, clothes, electronic gadgets, and other products to the U.S. and other markets. Indeed, the demand was so great that a would-be customer of Hyundai had to wait for three years before the Korean shipbuilder would even begin building a vessel.

Recession in the U.S., Europe, and Japan has now put a damper on China's exporters, and the impact of the Chinese slowdown is rippling outward to Korea and neighboring countries. Hyundai Heavy, which used to secure new orders for more than 100 ships annually, has had virtually no new orders in the past four months.

You might think, therefore, that Hyundai executives would be excited about Chinese government efforts to spend massive amounts of money to rev up the economy. On Mar. 4 a senior Chinese official said Beijing is planning another big economic stimulus package, on top of the $586 billion plan the government announced in November. Chinese Premier Wen Jiabao will provide more details when he opens the annual session of China's National People's Congress on Mar. 5, said Li Deshui, former head of China's statistic bureau, Bloomberg reported. The news cheered investors, who pushed up shares in Shanghai 6% on Mar. 4.

Hyundai Heavy Needs the U.S.

Investors are hopeful, driving up stock markets in Japan, Korea, and Taiwan on the news of Wen's planned announcement. But others aren't so confident. With the Chinese government spending so much to stimulate the economy, could Hyundai Heavy and other companies from China's neighbors stand to win back some orders? "No way," says Kim Jung Gwee, Hyundai's vice-president in charge of global sales. If the Chinese are going to be ordering any ships, he says, they'll make sure to give the business to Chinese shipbuilders. Recovery will only come, he says, when the U.S. economy picks up. "The shipbuilding market will remain nonexistent until American consumers start spending again and banks begin lending," Kim declares.

During the early days of the subprime crisis many people in Northeast Asia thought Chinese demand could immunize the region from a downturn in the West. Today, though, Japan, Korea, and Taiwan are among the hardest hit by the collapse in global demand—and they're not getting a hand from their giant neighbor. "China appeared the last resort until four months ago," says Cho Hong Rae, chief global strategist at Korea Investment Holdings, which controls a number of financial institutions. "In fact, it will pose the biggest risk for the next year or two."

The about-face reflects a U-turn in exports in Northeast Asia. Shrinking consumer demand in the West triggered a sharp fall in China's exports, creating a turbocharged knock-on effect in its neighbors. China is the No. 1 trader for all three, and recently their shipments to China have been plummeting even faster than they had been growing over the past several years. In January exports fell 46% in Japan and 44% for Taiwan, while in Korea exports fell 26% in the first two months of this year. (Japan and Taiwan have yet to release trade statistics for February.)

Phillies’ win honors Manuel, mother

China’s Economy: Some Reason for Hope

China’s Recyclers: Is a Rebound Ahead?

Red Sox force decisive Game 7

European Carmakers Are Pulling for Opel

2009-03-05T15:58:00.001-08:00

Viewed from a cold-blooded economic standpoint, the demise of General Motors' (GM) struggling Opel unit would be a good thing for competing automakers. One less major European manufacturer would help to relieve a surplus of production capacity that some auto execs estimate at 20%.

But surprisingly, there seems to be no schadenfreude among Opel rivals. Rather, they say they would mourn the loss of a venerable brand and respected competitor.

Daimler (DAI) Chief Executive Dieter Zetsche, for example, sounded as though he meant it when he answered, "I hope so," to a reporter's question about whether Opel can survive. Zetsche even expressed tentative support for a state-sponsored rescue of Opel. "It's not the role of government to define the future structure of the industry," Zetsche told a small group of reporters at the Geneva auto show on Mar. 3. But he added that he is not opposed to short-term aid to help a company get through a rough patch.

Others in the auto industry also expressed regret at Opel's problems, even as they noted how difficult it would be for the company to make it as a standalone manufacturer. Opel, which has its operational base in Rsselsheim, Germany, about 20 miles west of Frankfurt, probably needs to cut ties with GM to assure European authorities that no government aid will flow to Detroit. "It won't be easy" for Opel to make it alone, said Klaus Berning, a member of the management board of automaker Porsche (PSHG_p.DE). "But it's not impossible. I'm keeping my fingers crossed."

Introducing the Ampera

Despite the crisis at Opel, GM Europe CEO Carl-Peter Forster maintained a brave face in Geneva. As if to underline his belief in Opel's future, he unveiled the company's electric Ampera on Mar. 3, demonstrating how a cable that plugs into the side of the car will connect to a standard electrical outlet. Opel plans to begin selling the Ampera, a European version of the Chevy Volt, in 2012. (For images of the Ampera and other cars shown in Geneva, see our slide show.)

After the presentation in Geneva, though, Forster was quickly surrounded by reporters barraging him with questions about Opel's woes. "We believe we have a good future," he said, noting that an independent Opel would continue to cooperate closely with GM. Forster also underscored the urgency of state aid for the company. "Anyone who knows anything about economics knows how important the auto industry is," he said. (German Chancellor Angela Merkel doesn't entirely share that view, though: In comments on Mar. 3, she said Opel isn't a "system-critical" company of the same economic importance as major financial institutions.)

In fact, Opel will probably get several billion dollars in aid from the German government, if only to avoid massive layoffs in an election year. Opel employs more than 50,000 people in Europe, about half at four factories in Germany and the rest at other European locations, including in Spain, Belgium, and Poland, which may also contribute to a bailout. Governments will be less willing to prop up the company once the economy improves, however.

Auto-Parts Suppliers Brace for Downturn

Lincecum nabs MLB 2K9 cover

GM, Ford Prepare for Congress

Hungry Carmakers Are Making Some Sweet Lease Deals

Marcial: Qualcomm, a Rare Tech Haven?

2009-03-04T12:51:00.003-08:00

In these paralyzing days of plunging stock prices and corporate spending cutbacks, fearful investors are anxiously waiting for the market meltdown to end.

So when Qualcomm (QCOM) announced on Mar. 3 that it was hiking its quarterly dividend—yes, a company boosting its payout while other firms slash theirs—the unlikely news came as a blast of fresh air. Shares of Qualcomm, the leading maker of wireless products based on its CDMA (code division multiple access) technology, bounced that day to 33.67 a share from a closing price of 32.79 on Mar. 2, the day the Dow Jones industrial average sunk to an 11-year closing low of 6,726.02. The number of corporations, including behemoths like General Electric (GE), that have cut their dividends has been growing as firms scramble to preserve cash and reduce losses.

3G Revenue Potential

Although Qualcomm's stock is still well below its 52-week high of 56.88 reached on Aug. 15, 2008, it is one of the few tech stocks that has risen in the past five months, up from a 52-week low of 28.16. When Qualcomm was last featured in this column, the shares were trading at 48.

The dividend news and the stock's recent steady rise has provided comfort to Wall Street analysts who have remained upbeat about Qualcomm even amid the dismal performance of the market and other tech stocks. Of the 32 analysts who follow Qualcomm, 22 recommend buying the stock, nine peg it a hold, and one rates it a sell, according to data from Bloomberg.

"We believe Qualcomm is well positioned to weather an economic downturn," says Tom Carpenter, senior technology analyst at investment firm Hilliard Lyons , who rates the stock a long-term buy. The company will likely continue to generate strong cash flow, notes the analyst, who has a 12-month target price of 46.

Qualcomm had a $9 billion cash hoard as of the end of its December fiscal quarter, according to data provider Capital IQ.

The company stands to benefit from wider adoption of the next-generation 3G wireless standard. Qualcomm earns a royalty of $4 to $8 each time a 3G phone is sold—$4 from Nokia (NOK) and $8 from most other customers that use Qualcomm's chipsets, based on the current average selling price of $200 for a 3G handset.

"We project 3G phones will increase their percentage of the world's cell-phone mix from today's 40% to 70% in 2012," says Carpenter. This will mean hundreds of millions of dollars of profitable incremental revenue for Qualcomm, he points out, based on the company's 85% operating margin.

Teaming Up with Nokia

He notes, however, that mobile-phone sales are slowing worldwide and phone companies are cutting back on inventory to offset lower sales, which could weigh on Qualcomm's near-term outlook. Fewer mobile phones in inventory mean fewer phones that contain Qualcomm's chipsets. Nonetheless, Qualcomm appears to be increasing its market share of chipset production, with new customers Nokia, Research in Motion (RIMM), and Motorola (MOT) either producing or scheduled to produce phones with Qualcomm's chips, says Carpenter.

Former rivals Nokia and Qualcomm agreed in February to co-develop next-generation cell phones aimed at the U.S. market. The new phones are expected to make their debut in mid-2010. The two companies resolved a protracted litigation last year in which Nokia agreed to pay royalties to Qualcomm to settle a dispute. Nokia has about 40% of the global market but has been weak in the U.S.

"We view the [joint venture] announcement as a positive for Qualcomm, as it further solidifies the company's leadership in 3G technologies and presents an opportunity for growing its market," says analyst Maynard Um of investment bank UBS (UBS). He rates the stock a buy with a 12-month target of 45.

Anil Doradla, tech analyst at investment firm William Blair , says the focus of the Nokia-Qualcomm plan will be on the high-end smartphone market. He rates Qualcomm outperform, in part based on projected earnings of $1.75 a share for its 2009 fiscal year ending on Sept. 30, and $2.04 for fiscal 2010.

Many investors are now scouting for companies with strong balance sheets that generate sizable cash flows. Qualcomm fits the bill, and offers some exciting new products to boot. Those factors make it one of the most appealing plays in tech right now.

Nokia Aims to Be No. 1 on the Mobile Web

How Bad Is the Mobile Meltdown?

A $200 Billion Credit-Crunch Buster?

2009-03-04T12:51:00.001-08:00

The federal government on Mar. 3 provided some long-awaited answers on how it plans to unlock consumer and small business credit markets, which have been frozen more solid than an icy tundra.

The $200 billion joint Federal Reserve Board and U.S. Treasury program, known as the Term Asset-Backed Securities Loan Facility, or TALF, is intended to get money flowing for small employers, student-loan providers, credit-card issuers, and auto lenders.

TALF was first announced late last year, but with only hazy parameters and few details. Whereas the better-known Troubled Asset Relief Program, or TARP, was created to bail out banks, TALF's purpose is to induce investors to buy up AAA-rated securities backed by new consumer and small business loans by offering $200 billion in low-interest loans to would-be investors. The idea is that these securities will spur enough investor interest to eventually generate up to $1 trillion of lending.

Since last year, the credit markets have been essentially at a standstill with no new investors willing to purchase securities backed by consumer loans.

Requests for loans—which have to meet certain terms and conditions—will be accepted starting Mar. 17, and funds will start being dispersed later in the month. The program will run through December, but could be extended. The $200 billion of Fed backing could also be increased if needed.

Enough Investor Interest to Revive Lending?

TALF was supposed to begin a month ago, but in congressional testimony Fed Chairman Ben Bernanke counseled patience and said that a number of legal steps had to be taken before the program's rollout.

It remains to be seen, however, whether the program will coax investors back into the markets in a way that revives consumer lending. Much like mortgages, student loans, credit-card loans, and auto loans normally are packaged together into a security, which is then sold to investors. During the headier years, investors were all too pleased to invest in these securities backed by consumer loans. That enabled lenders to move the loans off their books, and get cash to make new loans.

After the mortgage meltdown, however, investors have grown wary of purchasing securities, because they're unsure of the risks for default. Also, some of those investors the Fed and Treasury are counting on are still struggling to off-load toxic securities backed by soured mortgages.

Initially the Fed had planned on offering one-year loans to investors. However, officials extended the length of the loans to three years. A longer loan life might help persuade investors to dip their toes in again. But like so many of the government's prior efforts to revive financial markets, it is difficult to predict how the market will respond.

Back in December, Dennis Moroney, a research director at TowerGroup, a financial-services industry research firm based in Needham, Mass., criticized the plan in a report on TALF's impact on the asset-backed securities market. In the report, Moroney and co-author and fellow research director Bobbi Britting said they felt the original pool of possible loans was too small. Now that the potential pool has been increased to $1 trillion, they think TALF is significantly improved and could really help consumers and small business owners seeking loans.

"We have to start thinking positive about this. It's also important that this gets AAA ratings," says Moroney.

California to Feds: Got a Spare $7 Billion?

Is the Fed’s $800 Billion Plan Cause for Concern?

Shared Sacrifice Will Ease the Credit Crunch

In China, Bracing for More Tibet Trouble

2009-03-03T11:49:00.005-08:00

As members of China's National People's Congress head to Beijing for the opening of the annual session on Mar. 5, the faltering won't be the only thing for them to worry about. The nearly 3,000 delegates now converging on the capital surely will discuss, even if only behind closed doors, how to deal with the specter of a renewed flare-up of unrest in Tibet. The meeting of the NPC in Beijing coincides with several sensitive anniversaries marking Chinese rule in the strategically important high plateau region. Last March, for instance, protests by Tibetans led to bloodshed in which at least 19 Tibetans and Han (ethnic Chinese) died.

Should such destabilizing violence break out again, the Chinese government's response is almost certain to be another heavy crackdown. Despite reports that Beijing has sent thousands of troops to Tibetan areas, unrest appears to be growing. According to the human-rights organization Students for a Free Tibet, hundreds of Tibetans in Sichuan and Qinghai, provinces that border Tibet and include large areas that are majority Tibetan, have protested against Chinese rule during the last two weeks. A monk who lit himself on fire while carrying a homemade Tibetan flag with an image of the Dalai Lama was shot by Chinese police on Feb. 27 in Sichuan, according to reports by several human-rights organizations. "With Tibetans showing an increased determination to protest in the face of highly provocative military build-ups within Tibet, a bloody repeat of last year's crackdown by China looks increasingly likely," warned Stephanie Brigden, director of the rights group Free Tibet, in a statement released Feb. 27.

Death Threats

That prospect is likely alarming for at least some multinationals. Last year, there was a backlash against foreigners, with nationalistic Chinese youth using the Internet to organize boycotts of companies they perceived as supporting Tibetan independence. After French politicians made statements that were critical of China's Tibet policy, angry Chinese targeted French retailer Carrefour, and thousands of protesters picketed its shops in six cities. Protesters also called for a boycott of French luxury-goods company LVMH Mot Hennessy Louis Vuitton.

French companies weren't the only ones burned last year. Chinese critics singled out Time Warner's (TWX) broadcasting unit CNN for alleged bias in its coverage of the protests. In April, a Tsinghua University engineering student created a Web site that became popular, anticnn.com, aimed at criticizing CNN's coverage of Tibet. At the same time, a song titled Don't Be Too CNN swept the Internet. "Don't believe that lies will become mottos if they are repeated a thousand times," the song's refrain went. "What's the purpose of racking your brains to turn fraud into truth? Don't be too CNN." On a more serious note, staffers in CNN's Beijing office received death threats.

Many Chinese are again resentful of what they see as meddling in China's affairs. "I don't understand why [foreigners and overseas companies] have to intervene in Tibet. It's our own business," says Eric Chen, a 25-year-old graduate student in Beijing. While there have been no Tibet-spawned boycotts yet, pressure is building. The latest target: luxury-goods maker Gucci. Franois Pinault, the now-retired French businessman who founded Gucci's parent company, Paris-based PPR Group (PRTP.PA), has supported organizations seeking freedom of the press in Tibet—although according to associates he has never taken a public position on Tibetan independence. Nevertheless, a Xinhua columnist wrote on Feb. 27 that "[the power of the] money held by 1.3 billion Chinese is becoming stronger. There's no reason that Chinese people should choose to buy Gucci which sponsors 'Free Tibet' movements." A Gucci Group spokeswoman says the group is aware of the Xinhua article "but is not concerned about the possibility of a boycott since the group and its brands do not take or support political causes."

Maddon had great mentor in Mauch

MySpace China Looks for Answers after Setback

China Prepares for Urban Revolution

Can Chinese Tourism Beat the Credit Crisis?

Stocks: After Dow 7,000, What Next?

2009-03-03T11:49:00.003-08:00

Investors don't lack ways to measure the carnage on Wall Street. What they're missing is a way to calculate when the losses will stop.

In falling markets, technical analysts look to stock market history for points where buyers might jump back into the game. These so-called support levels are places where, at least in theory, stock market momentum should slow or shift.

The 7,000 level for the Dow Jones industrial average is a nice round number, but it definitely wasn't a support level. On Mar. 2, the Dow blasted through 7,000, dropping almost 300 points, or 4.24%, to 6,763.29.

SEEKING PREVIOUS LOWS

Rather than a round number, a more commonly cited support level is a previous market low. As the market tumbled last fall, technicians looked back at the lows of the bear market in the early 2000s. In 2002 and 2003, major indexes repeatedly hit and then bounced off the same support level—about 7,500 for the Dow and about 800 for the broad Standard & Poor's 500-stock index.

Yet those support levels were no match for the financial crisis as it worsened. On Nov. 20, the Dow closed at 7,392.27 and the S&P 500 closed at 752.44, wiping out a decade's worth of stock market gains.

Here, stock market technicians seemed to have a new support level. Stocks rallied in late November and December off these lows. Even when the market faltered, buyers seemed to keep indexes above these seemingly rock-bottom lows.

FLOORED

Then, in late February, the floor fell out: By Mar. 2, the Dow was trading at levels not seen since 1997.

A wide variety of technicians and investing experts say they no longer see any support under the market:

"We're largely in uncharted territory," says Richard Sparks of Schaeffer's Investment Research. Technicians would need to look back to 1996 or 1997 for appropriate support levels—and few traders or investors are looking back that far.

"If you're 40 years old, that's probably when you started investing," says Dave Rovelli, managing director of equity trading at Canaccord Adams. The bottom line, he says: "We've taken out every major support level on the Dow."

Uri Landesman of ING Investment Management (ING) says he agrees. "Right now we're just in a freefall," he says. Major indexes have "broken through every level of support in the last five years. That's one of many things that is scaring people."

WEIGHING THE NUMBERS

Without support levels, investors still search for numerical signals of when the selling might stop. One can look at the duration and the size of losses in previous bear markets, for example.

So far, the S&P 500 is down 55% from its peak close of 1,565 on Oct. 9, 2007. The Dow has dropped 52% from its peak on the same day. If you measure from those October highs, the current bear market has lasted almost 16 months.

An analysis by Sam Stovall of Standard & Poor's is discouraging for those who hope the declines just can't reasonably get any worse—or last much longer—than this.

The 15 bear markets since 1929 have lasted an average of more than 18 months and lost investors a median of 34%. However, for "mega-meltdowns"—where indexes fell more than 40%—the average drop was 51% and the bear market lasted more than two years.

Between 1929 and 1932, the S&P 500 fell 86%. The 1938 to 1942 bear market lasted 42 months.

Stock Decline Hits Depression Levels

Stocks: Rating the 2008 Meltdown

Never counted out, Rays take Game 2

Phils take 2-0 NLCS lead over Dodgers

The Stock Market’s Biggest Losers

Latvia's Crisis Mirrors Eastern Europe's Woes

2009-03-03T11:49:00.001-08:00

Linards Naglis says he can't sleep at night. For the past 15 years, the enterprising Latvian has made a good living as a project manager for a consortium of Western investors in his Baltic homeland, buying up land to be used for real estate development. But recently, Naglis—and nearly all of his company's staff—was handed his notice as business evaporated. Now, instead of planning family holidays to Florida, he worries about how he will pay household bills. His life savings, invested in property in Bulgaria, have vanished, too. "I never thought I'd be in this situation, to be honest," he says. "I wasn't expecting to be a millionaire, but I expected a comfortable, decent life. Now I really don't know what will happen."

Naglis' story is in many ways a metaphor for his entire country. Of all the nations hit by the global financial crisis, none has suffered such a devastating reversal of fortune as Latvia. The tiny Baltic Republic saw its economy shrink by a heart-stopping 10.5% year-over-year in the last quarter of 2008. A further gross domestic product slump of 12% is forecast for 2009. Despite a $7.5 billion bailout from the International Monetary Fund in December, the government is being forced into severe economic measures, including public-sector wage cuts of 15%.

It's a remarkable turn of events for a country that until recently was regarded as an economic success story. In the capital Riga, what immediately catches the eye is the striking evidence of recent economic development. The city has become a magnet for Western tourists, turning the city center into a colorful maze of fancy boutiques, cafs, and restaurants. Modern bank branches, mostly Scandinavian banks such as Sweden's Swedbank (SWEDA.ST) and SEB (SEBA.ST), are visible on every street corner.

Yet these conspicuous signs of wealth are deceptive. In January the picturesque streets of Riga's medieval old town became the unlikely setting for violent clashes between stone-throwing youths and police, after a peaceful demonstration by 10,000 anti-government demonstrators turned sour. Political turmoil culminated with the resignation of the center-right coalition government on Feb. 20. Latvia's newly appointed Prime Minister, Valdis Dombrovskis, has admitted the country is "on the brink of bankruptcy," urging the nation to accept the IMF-backed austerity package or face financial ruin.

Real Estate Repercussions

What went wrong? As the global recession bites, Latvia, a small and open economy, is being hit especially hard by declining exports. Its problems are exacerbated by having a currency pegged to the euro—a linchpin of the country's economic policy that now looks increasingly problematic. But the foundations of the crisis were in fact laid years earlier.

It's a familiar tale of an overheated property market, fed by lax credit, excessive borrowing, and complacent regulators. "This real estate market was insane," says Aleksis Karlsons, a hotel owner and property developer in Riga. "The mentality set in: I own an apartment or two—that means I'm rich. People thought they were wealthy without doing anything." At their peak two years ago, apartment prices in Riga reached €2,000 per square meter ($234 per square foot). They have since plunged by more than 50%.

While ordinary Latvians can be partly blamed for their naivete, the government bears an even heavier responsibility for failing to prick the bubble when it had the opportunity. "The government did nothing to stop the party. Instead it joined in," says Peteris Strautins, chief economist of Swedbank in Riga.

The U.S. Economic Crisis: Three Growth Scenarios

Burns to take ‘Baseball’ to extra innings

A Miserable Start to March for the Markets

2009-03-02T16:54:00.009-08:00

By BW staff

If stock market action on the first day of the month is any indication, March isn't looking any better than February. A fresh batch of bad news brutalized U.S. stock indexes on Mar. 2, with the Dow Jones industrial average falling below 7,000 for the first time since 1997. News of a massive loss at ward of the state American International Group (AIG)—a record $61 billion in red ink in the fourth quarter—and setbacks during the quarter for investing icon Warren Buffett's Berkshire Hathaway (BRKA) put already bearish investors in an even worse mood.

To put an exclamation point on things, the Oracle of Omaha in his annual note to Berkshire shareholders said the economy is in "shambles."

And while reports released Mar. 2 on personal income and spending for January came in ahead of Street expectations, as did the Institute for Supply Management's February reading on the health of the manufacturing sector, the news wasn't enough to put a dent in the bearish sentiment.

What are Wall Street strategists and economists saying about the current market and economic situation? Here, BusinessWeek presents a selection of comments published Mar. 2:

Phil Roth, Miller Tabak

The DJIA and the S&P 500 closed at new lows for the cycle [on Feb. 27], but there were a number of positive divergences. The Nasdaq Composite and the Russell 2000 did not break their fourth-quarter 2008 lows, nor did the cumulative advance/decline lines for the S&P 500 stocks and for the NYSE operating companies. However, all those measures are close to their lows, so the only way to convert those divergences to important bullish signals is for a strong rally right away. A few bad days, without intervening strength, will likely result in broad confirmations on the downside. Similarly, momentum indicators, including measures of price, breadth, and volume momentum, have not reached the negative extremes recorded in October-November 2008, but the same caveat applies.

In any case, even if an exploitable bottom is made around current levels, months will be needed to establish a base for a broad, sustained recovery. At best, we believe 2009 can be a transition year even if the lows are in.

Sam Stovall, Standard & Poor's

All 15 bear markets since 1929 declined a median 34%, over 18 months. They retraced 60% of the prior bull market's advance and took 17 months for the S&P 500 to get back to break-even. For mega-meltdowns, or declines in excess of 40%, the numbers were more severe: They declined an average 51%, retraced more than 100% of the prior bull market, and lasted longer than two years. The worst decline occurred in the Great Crash from 1929-32, when the S&P 500 fell 86%. The longest bear lasted 42 months, from 1938 to 1942, while the greatest give-back occurred during the 1937-38 bear, in which the S&P 500 retraced nearly 120% of what it gained in the 1935-37 bull. Therefore, when this bear market is finally over, nothing says it couldn't have experienced the worst of all levels.

Richard Dickson, Paul Desmond, Lowry's Reports

If equities were not low enough on Nov. 20 or on Feb. 23 to attract aggressive buying, then even lower prices are likely before the start of a sustained market advance. As long as the current patterns of increasing supply and weakening demand persist, investors should take advantage of periods of rally to sell into strength and add to defensive positions.

Michael Englund, Action Economics

Today's U.S. economic reports revealed upside surprises to January income and spending that suggest a less dire outlook for the consumer [in the first quarter], though this "missing weakness" appeared later this morning in the January construction spending report. It now appears that construction activity will post its ugliest quarter of the down-cycle in Q1 by a considerable margin, and we now project massive 23% rates of decline for nonresidential fixed investment in both Q4 and Q1 that leave businesses leading the charge lower for the economy as we entered 2009. Today's ISM [manufacturing] report was a tad stronger than expected, but the employment component set a new all-time low (as did the import component), leaving a dismal outlook for Friday's jobs report. As it stands, we now expect fourth-quarter GDP to be revised to -6.5% from -6.2%, with a 5.0% decline still likely for the first quarter.

Standard & Poor's Ratings Services

Through a combination of actions, AIG will reduce its obligations under the current $60 billion lending facility from the Federal Reserve Bank of New York (FRBNY). We expect that this will provide the company with the flexibility to continue its asset-disposition plan at a more measured pace.

Although in our view the actions of the U.S. government have largely eliminated the risks of further rapid deterioration in the company's creditworthiness, intermediate-term concerns about the company's ability to retain key staff and market profitable new business remain. AIG expects that the planned sale of the life operations, which we believe likely, will take longer than originally planned, partly because of the lack of liquidity in the capital markets. As a result of these medium-term risks, the outlook is negative…[which reflects] our view that increased pressure on the performance of AIG's insurance businesses is likely. We believe AIG is particularly susceptible to these broader market trends given its somewhat weakened position. Although at this point we have not seen clear evidence of long-term damage to AIG's franchise, there have been widespread reports that competitors are actively pursuing AIG's accounts and key underwriting personnel.

Stocks: A Painful New Phase

Stocks: Rating the 2008 Meltdown

How Bad Is the Mobile Meltdown?

Shields takes pride in long outings

Zambrano Game 2’s central figure

Telecommuting: Once a Perk, Now a Necessity

2009-03-02T16:54:00.007-08:00

Eve Gelb's life was once a blur of hour-and-a-half commutes on the 405 Freeway in Los Angeles. What memories: The NPR fatigue. The stale minivan air. The deep identification with the characters in Waiting for Godot. But that's all in the past. Gelb, a project manager at a giant HMO, SCAN Health Plan, has given up her Ethan Allen-style office, yanked down the family photos, and moved into her home office. Members of the professional class normally have to beg their managers—or at least delicately negotiate—to allow them to work remotely. But in Gelb's case, it was her boss's idea.

SCAN is one of a growing number of companies encouraging workers to toil from home. Sure, employers have been doing this for years. But as the recession bites and companies look to save money on real estate costs, what was once a cushy perk is now deemed a business necessity. And that, along with a few choice enticements—voila!, a shiny new BlackBerry (RIMM)—is how companies are selling it to employees, whose emotions range from ecstasy to befuddlement.

The health-care sector is one of the few industries that is still expanding these days, and SCAN is no exception. "We needed to find a way to grow without incurring any more fixed costs," says Chief Financial Officer Dennis Eder. To encourage more of its workforce to become post-geographic, the company has been offering free high-speed Internet access and gratis office furniture, complete with a couple of delivery guys to set it all up.

Gelb jumped at the opportunity but still found herself struggling to adjust. "I never thought to myself: What would I do with all that extra time that I wasn't sitting in my car?" So she set about building new routines. "Instead of going on my commute in the morning, I go for a walk," says Gelb, 40. That makes up for the cardio workout she used to get running up and down SCAN's four flights of stairs attending meeting after meeting. Now that she simply dials in, "I don't really move much," she concedes. On the days when she does come into the office, Gelb shares her old digs with her three direct reports, who also work flexibly. She says they see each other more now than they did when they were squirreled away in their corporate warrens.

Still, persuading managers to embrace no-collar work isn't always easy. Jack Weisbaum, CEO of accounting firm BDO Seidman, has spent endless hours over the past year managing what he calls the "yeah buts." These are the old-school execs among his crew who have an arsenal of reasons why untethering workers is a lousy idea: They'll become Facebook addicts, ignore clients, develop a bad case of alienation. Weisbaum went on the road to nearly all 37 of the firm's offices to explain how he sees flexibility as a business strategy. He told the troops that allowing people to work where and when they want is enabling BDO to prevent layoffs. The real estate savings are a big reason for that. When BDO moves into its new Los Angeles offices in June, it will be taking over a radically reduced space. "Bricks and mortar are like a noose around your neck," says Christopher Tower, BDO's leader for the Western region.

"Homeshoring" has enabled BDO Seidman's controller for the Western U.S., Grace Renteria, to essentially give herself a raise: the amount of money she saves by working at home, a caf, a club—anywhere, in short, that doesn't require a commute. There's the $15 a day Renteria used to lay out for lunch. Then her $70 a week in gas. Add wear and tear on her Lexus LS 400. On top of that, she no longer has to lose productivity from co-worker interruptions. "I only go into the office," Renteria says, "when I don't have a lot going on."

"THIS IS DESTINY"

Capital One (COF) is one of many companies where status has long been measured in square footage. The bank's human resources chief, Matt Schuyler, has had to deal with executives made anxious by the prospect of losing their wood-paneled lairs as they begin new lives as laptop hobos. Schuyler, who is also in charge of corporate real estate, meets with them one on one, whipping out the stats showing how much a skinnier footprint benefits the bank. Then he delivers his sweetener: "The bad news is, I'm taking away your office. The good news is, here's your new laptop and your shiny new BlackBerry." Another enticement is the $1,000 managers can dole out to workers to freshen up their home offices. So far the company has cut 20% of its real estate costs. "This is destiny, and other companies will have to get there," says Schuyler. "We're at the tip of the iceberg with respect to this stuff."

None of this is to say the corporate office will disappear. But hard times will accelerate a Digital Age makeover. Adieu to cubicle farms, fixed walls, and standing-room-only conference rooms. Hello to sliding walls, moveable furniture, and lots of lounge areas. Space will be allotted by function, not title. Square footage will be based on office presence, not rank. The flexibility will cut costs and at the same time accommodate both loud talkers and hermits. The new workplace will be less about working alone and more about working together. One thing, however, will never change: The office will remain the primary spot for meetings, collaboration, and, of course, gossip.

Chinese Exporters Look to Sell in the Home Market

NLCS has all the makings of a classic

Shifting into Cost-Cutting Mode

Zambrano Game 2’s central figure

The Real Estate Crunch Comes to Russia

Luxury Management Remains in Style

Academic Endowments: The Curse of Hoarded Treasure

2009-03-02T16:54:00.005-08:00

Something seems wrong with the way elite U.S. universities finance themselves. The problem: They're addicted to multibillion-dollar endowments. When the endowments suddenly shrink, they can seem more like curses than blessings. Harvard University, the richest institution of higher education on the planet, gets about one-third of operating funds from its endowment.

Now that Harvard is expecting a roughly $11 billion endowment decline over the current academic year—30% of the total—the university is in such a financial squeeze that it has frozen faculty salaries and offered early retirement to 1,600 employees. Princeton is even more addicted to its endowment, which provides about 45% of its operating budget. Princeton Provost Christopher Eisgruber warned in February: "We are beginning to live in the 'new normal' and we should not expect to go back to how we operated in the last 10 years."

Is there a better way? There could be. Here's an idea: Maybe rich universities should act more like companies, which somehow manage to operate without endowments. Universities could raise just as much money from wealthy alumni and other donors as they do now, but they wouldn't hoard it in a great big piggy bank. They'd spend it as it came in, the way companies spend their revenue on current needs.

Why must universities Hoard money?

Most universities that aren't super-wealthy already do behave like companies because they have little choice: They don't pile up endowments because they have urgent current needs for the money. Take California State University at Long Beach, where about a third of undergraduates are first-generation college students. The school does raise money from alumni and other sources, but it puts most of the proceeds to use right away for such purposes as scholarships. In a Feb. 27 interview, President F. King Alexander said: "Our students need that money. We're not wealthy enough to sock it away when we have so many needs on our campus right now."

Any ordinary company that followed the money-hoarding strategy embraced by such institutions as Harvard, Princeton, Yale, and Stanford would soon receive an inquisitive letter from the likes of raider Carl Icahn, who would want the CEO to explain why he or she couldn't find anything more useful to do with the money than stash it away. It's a fair question, both for companies and for universities.

The most frequent argument for having a big endowment is that it's supposed to tide schools over tough times. It sure isn't working out that way. True endowment funds can't be spent even in an emergency; only the cash income and capital gains from them can be spent. (Does anyone remember what capital gains are these days?) So-called quasi-endowment funds can be drawn down if necessary, but universities seem loath to do so even in the current circumstances, as if preserving capital is a higher priority than preserving academic programs.

Big Endowments Flow To Risky Markets

Harvard compounded its problems by investing in exotic assets that it can't now sell at any reasonable price, but other schools are down as well. Between July 1 and Nov. 30 last year, endowments at 435 surveyed schools lost 23% of their value, according to the National Association of College and University Business Officers.

Sure, the bad economy is also walloping universities that don't have endowments, as strapped donors cut back. But a big endowment tends to tie a university's fortunes closely—probably too closely—to the vagaries of the financial markets. In 2007, when markets were still flying high and schools were loaded, BusinessWeek printed an eye-opening article called "The Dangerous Wealth of the Ivy League."

Mutual Funds: Know Where the Risks Lie

What Will the Crisis Mean for Venture Capital?

Marcial: CardioNet's Heartening Outlook

2009-03-02T16:54:00.003-08:00

Not many companies can boast that their shares have climbed this year in the face of the stock market's continuing decline. Even so-called recession-resistant enterprises haven't escaped the market's wrath.

So it's quite a feat for a little-known company—CardioNet (BEAT)—to thrive in the current environment and handily beat the market: Its stock has vaulted to 25 a share on Feb. 27, up from 17 on Dec. 9.

What's CardioNet's secret? The company is a leader in wireless medical technology that's associated with coronary care. Its chief product, a portable wireless monitoring device, is designed to keep track of a person's heartbeat 24 hours a day for an extended period of time.

For instance, a person being treated for a heart disorder, such as arrhythmia (an abnormality in the rate or rhythm of the heartbeat), need not be consigned to a hospital bed while doctors keep track of his or her heartbeat. CardioNet's Mobile Cardiac Outpatient Telemetry, or MCOT, device allows a patient to go about his life as the wireless device monitors the heartbeat. CardioNet digitally reads the data from labs at its headquarters in Conshohocken, Pa., and alerts the patient or his physician quickly if an emergency condition develops.

"Many of our patients wear our device 24 hours a day, and could even play sports and live normal lives," says CardioNet Chairman, President, and CEO Randy Thurman. Demand for this life-saving device—the size of a BlackBerry, he adds—is rising at a fast clip.

Heartbeat-By-Heartbeat Monitoring

Analyst Sara Michelmore of investment firm Cowen (COWN) (it has done banking for CardioNet) forecasts that the company's sales, which totaled $120 million in 2008, will jump to $173.7 million in 2009 and to $244.1 million in 2010. By 2011 sales could shoot up to $300 million, she figures. Rating the stock "outperform," Michelmore estimates that CardioNet's earnings will grow along with rising revenues. She figures earnings will climb from 2008's 39 a share to 69 in 2009, $1.37 in 2010, and $1.89 in 2011.

More than 44 million Americans, notes the analyst, suffer from arrhythmia. Outpatient case studies are being done for a significant number of patients each year, she notes. Currently, CardioNet has captured about 5% of the growing market. But the market opportunity for the company could expand to as much $1.5 billion, estimates Michelmore. Growth in demand is being powered by the device's efficiency as it offers continuous "heartbeat-by-heartbeat cardiac monitoring for an extended period of time (up to 21 days), automated wireless data reporting, and improved patient compliance," says the analyst.

Double-Digit Growth Ahead?

Analyst Rick Wise of investment bank Leerink Swann (it has done banking for CardioNet) recently raised his 12- to 18-month price target from 31 to 35, based on 25 times his 2010 estimated earnings of $1.40 a share. With its "proven management team and…superior technology addressing the substantially large and underpenetrated [heart] monitoring market," CardioNet could realize sustainable strong double-digit sales and earnings growth through 2012, says Wise.

Merrill Lynch (BAC) analyst Bob Hopkins, who rates the stock a buy with a higher price target of 38 a share, considers CardioNet's FDA-approved device for abnormal heartbeats to be "three time better than the current standard of care." And the stock, he adds, is mispriced, trading at a "significant discount to its peers."

That notion should be enough to make investors' hearts beat, well, faster.

Marcial: Procter & Gamble, Durable in a Downturn

Marcial: Vital Signs at St. Jude Medical

Marcial: Acacia Research Finds Ways to Make Patents Pay

Shared Sacrifice Will Ease the Credit Crunch

2009-03-02T16:54:00.001-08:00

Is the U.S. heading for another Great Depression? Probably not—but we are about to go through a period future generations may call the Great Repudiation.

The root cause of today's crisis lies not in the housing market but in America's foreign debt. Over the past four years the U.S. private sector has borrowed an astonishing $3 trillion from the rest of the world. The money, directly and indirectly, came from countries such as China, Germany, Japan, and Saudi Arabia, which ran huge trade surpluses with America. Foreign investors trusted their funds to U.S. financial institutions, which used much of the money for mortgage loans.

But American families took on a lot more debt than they could comfortably afford. Now no one is sure how much of that towering sum the U.S. is going to pay back—and all the uncertainty is roiling the financial markets.

The Washington bailout debate boils down to this question: Who is going to bear the burden of the $3 trillion mistake? Will low- and middle-income borrowers have to cut back on spending to pay their mortgage bills? Will taxpayers have to chip in big bucks to pay for defaults on those debts? Or will Washington act in a way that imposes large losses on foreign investors—in effect, repudiating some of the debt? The best outcome is shared sacrifice among borrowers, taxpayers, and foreign investors—but that result may be politically difficult to achieve.

FINDING A FAIR PLAN

Since mid-2004, American households have taken on a bit more than $3 trillion in mortgage debt. The official statistics are very fuzzy, but it looks like at least one-third of the debt, and perhaps half, was financed with foreign money. As a result, foreign investors are sitting on an enormous mountain of mortgage-related securities.

The value of those securities, though, depends on both economic and political factors. Real wages have dropped for most U.S. workers since 2004. To make good on their mortgages, many low- and middle-income families would have to sharply cut their spending, hurting both the domestic economy and countries that export to the U.S.

A better solution is for borrowers, U.S. taxpayers, and foreign investors to share the burden of the excess debt. The question, though, is finding the fair division of pain. So far the U.S. government has taken over Fannie Mae (FNM) and Freddie Mac (FRE), a move that provides a taxpayer guarantee to investors, many of them foreign, who own securities issued or backed by those companies. The Paulson bailout plan, too, would devote up to $700 billion of taxpayer money to buying up bad securities, with non-U.S. investors some of the major beneficiaries.

Given the hostility to the Paulson plan, however, it's unlikely we will see more money to prop up the prices of securities. The next step in Washington could be legislation to benefit homeowners—say, by allowing bankruptcy courts to reduce mortgage debt, which they cannot do now. Alternately, the government could let more homeowners default and more financial institutions go under. In either case, the value of mortgage-related securities would drop, with foreign investors taking much of the hit.

The global response to such a move depends a lot on how it's presented by the leaders in Washington. It's unseemly for the world's richest country to refuse to pay some of its debts. That's especially true since much of the money came from poorer countries such as China. In the worst case, the losses by foreign investors would lead to an unwillingness to invest in the U.S. while fueling anti-American sentiment around the world.

U.S. politicians are accustomed to playing to a domestic audience. But in the end, making the case for shared global sacrifice may be the biggest task facing the next President.