With all the talk about retail malaise, another group of commentators have been speculating that we could be in for an increase in the rate of interest soon. But Bank of England governor, Mervyn King, appeared to dampen speculation yesterday, when he told a House of Lords committee that “a number of people in the last six months have been talking as if the MPC were targeting total demand or, even more oddly, targeting retail sales and consumer spending. We are not. We are trying to target inflation. We have an inflation target.”
Profits fall at Amazon
While all the other bell weather tech stocks see profits soar, Amazon is looking like a mature company now- and perhaps all shareholders can look forward to is single digit growth.
In fact profit in the last quarter was actually down 44% to $30mn. In fairness, this was largely due to a one off $40mn settlement of a patent infringement legal suit and sales were up 27%, but Amazon seems to be employing similar tricks to its High Street cousins - special prices for example. At the same time it has offered free delivery costs on items costing more than $25. or £15 in the UK, but, even so, in a quarter which saw the company sell 1.5millin copies of the new Harry Potter book in advance orders alone- Amazon is beginning to look like a middle lane tech.
Compared to the likes of Google, Apple, Yahoo and eBay there seems to be a lack of a big idea- maybe, the company is approaching its natural limit - after all how far can you take book selling?
Ericsson ends era for Marconi
When Harold Wilson talked about Britain being “forged in the white heat of a technologic (the scientific and technological) revolution,” no doubt, he expected one of the main providers of that white heat to be the General Electric Company, or GEC. At the time, it was after all Britain’s number one manufacturer - and having built upon the legacy of Guglielmo Marconi, the inventor of the radio, under the wise leadership of the late Arnold Weinstock, from 1963 to 1996, the company had a massive £2.6bn cash reserve.
But then, it all went horribly wrong. Lord Simpson took hold of the reins, and brimming over with ambition embarked on a spending spree, and what he saw as greater focus. The defence contractor part of the business was sold out to British Aerospace, the company was renamed Marconi, and in the heady days of dotcoms hysteria, the business was valued at £35bn. But in the wake of the dotcom crash, it turned out its investments in US telecoms and internet companies were not the masterpieces of savvy finance that the markets initially thought they were - and the share price imploded, debts started to mount- and the receivers were called in.
The resurgent Marconi has specialised in telecoms equipment. But it was a small player, not big enough to enjoy the economies of scale needed in this business - and with its failure to win a contract to supply BT with equipment for its 21st Century network, the writing was on the wall.
Marconi itself has not actually been sold. It will continue to exist, but under the new name of Talent. But in practice, the lion’s share, representing 75% of turnover, is going. Its purchaser- Swedish company, Ericsson has a heritage which is almost as rich. Tracing its routes back to 1876 when Magnus Ericsson set up an electro-mechanical repair shop, but while Marconi has stuttered and limped into the 21st Century - Ericsson is now the world’s largest maker of wireless networks.
Carl-Henric Svanberg, Chief Executive of Ericsson, said: “The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case. As fixed and mobile services converge, our customers will substantially benefit from this powerful combination. Ericsson and Marconi know each other well and have had a successful partnership for over ten years.”
In all, the Swedish company is forking out £1.2bn - but £185mn of that will be injected into the UK Pension Plan and £490mn will be retained in an escrow arrangement for the potential benefit of the UK Pension Plan.
What’s left of Marconi, or Talent, will focus on servicing Marconi’s customers such as BT, Cable & Wireless and Network Rail. Ericsson will be its key customer.
But while, Talent will have responsibility for the pension fund- it will in fact be dwarfed by the pension it administers, and there’s talk the fund could actually be spun off into a separate entity, listed on the stock exchange.
BP on course for best year ever - but can it last?
There was a sting in the tail of the latest quarterly profits from BP. But while it might spell bad news for shareholders, the rest of us should be whooping with joy.
Yesterday the company announced that third quarter profits and the replacement profits (that’s the measure the markets seem to put the most credence on), hit $4.4bn, from $3.8bn a year ago. But thanks to hurricane damage in the Gulf of Mexico and exceptional charges relating to its Innovene chemicals business, the profits were less than they could have been, and in fact down on the Q2 replacement profits which were just a few nickels short of $5bn.
With the price of oil so high, it is of course a bumper time for BP, as indeed it is with the other oil giants. The company’s annual profits are well on course to be the highest ever. But there are problems.
First Thunder Horse, its semi-submersible platform - which when on stream is due to produce 1/4million barrels of oil a day, making it the largest facility of its kind in the world - has been hit by delays. In the aftermath of Hurricane Dennis, it was discovered to be tilting to one side - but BP says that the problems with the platform have nothing to do with the storms. According to BP’s Lord Browne: “After a thorough investigation, we have concluded that it was not storm-related but caused by design weakness in the ballast system, which has been corrected offshore.” But whatever the reason, it’s not now due to come on stream until Q2 next year.
Then there’s talk that its US management are not sufficiently focused on safety. - Who said so? Former US secretary of State, James Baker, no less. He is leading an investigation into the cause of the explosion at a refinery in Texas, which claimed 15 lives. Mr Baker said: “We will determine if the corporate culture at BP Products North America is properly focused on preventing tragic incidents such as the one that occurred in Texas City, or if improvements are required.”
But with oil up in the $60 plus mark- BP can’t help but make massive profits.
The sting, which could be bad news for BP, but good news for Joe Consumer and the economy at large, derives from a comment from Lord Browne. He said that oil will be “well supported through the winter”, before dropping in the medium term to “more like $40″.
Lord Browne also had words of encouragement on the longer-term outlook too. Perhaps the most controversial issue relating to the oil industry right now is the question of how close we are to peak oil - the point at which annual oil production will start to fall. The pessimists say we are almost there now and that the oil price will steadily go up and up, and without a cost effective alternative that spells doom and gloom for the global economy. Lord Browne, however, said: “Many people are influenced by the view that oil production has peaked. We don’t believe that.”
Is the halo slipping at Apple?
Is the halo slipping at Apple? There have been a growing number of media reports criticising the new Apple Nano, suggesting its gets scratched too easily. Now the issue could be decided in court. Jason Tomcza, a early purchaser of the Nano, didn’t merely suffer the tragedy of one scratched Nano, the product he replaced it with got scratched too and yesterday he sued the company, alleging that Nanos “scratch excessively during normal usage, rendering the screen unreadable.” The lawsuit effectively argues that the product is too thin for its own good - and without a layer of sufficient thickness to shield the screen, it’s just too vulnerable.
KPMG see rise in fees
Red tape - is that a good thing or a bad thing? Maybe if you are a consultancy it’s good- because your clients need you to sort out the mess all the more. Certainly it’s been a good spell for the UK’s top accountants. Of the big four, fees are up at Ernst and Young, and PriceWaterhouseCoopers, and now KPMG too. In fact, KPMG says that its market share among the big four has grown this year as revenues increased 20% to £1.28bn. All this is good news for staff. The Firm is paying out £59mn in a bumper bonus to its 8,950 staff - an average of £6,592 each. Last year the bonus tallied out at £35mn.
Outside of the UK KPMG has grown too, with global revenues up by 16.4% to £8.86bn ($15.65bn).
Britain’s wealthiest man Lakshmi Mittal wins reality TV’s biggest ever auction
When Russia sold off state assets a shroud of mystery surrounded the dealings. No one seems to know, except for the man concerned presumably, how all those Russian Oligarths made their money - but in the Ukraine the government is determined to do things differently. Under the leadership of Viktor Yushchenko, the man who was disfigured by poising, the Ukraine government wants EU membership and determined to be seen to do things right.
A year ago, under the previous regime, the country’s big metal producer Kryvorizhsta was sold for 450m to a firm controlled by the son-in-law of then president Leonid Kuchma. The deal was overturned, and yesterday in the full glare of TV cameras the auction to determine the ownership of the company was started and then finished. It was perhaps the most extraordinary version of reality TV yet seen - more strange even then the recent live birth seen on a European Big Brother programme, as Europe’s No 1 player, Arcelor and Mittel Steel, headed by Britain’s wealthiest man - Lakshmi Mittal, bid for the spoils. And the winner was the Brit residing and Indian born man of steel - with his company agreeing to fork out $4.8bn (£2.7bn).
President Yushchenko said “The amount we will receive for this company will be 20 per cent higher than all the proceeds received in all the years of the Ukrainian privatisation. What happened today shows Ukraine is capable of staging honest privatisations, observing all vital legal procedures.”
Advertising set for growth in emerging markets
How can this be? In 2005, Brazil, Russia, China and India are collectively expected to contribute 16% of the world’s growth in GDP, and yet they will account for 27% of the global growth in advertising expenditure. Or so says a new report from ZenithOptimedia.
According to the report, global advertising will jump 5.2% this year to a total value of $406,257mn followed by a 6.2% rise next and 6.1% the year after.
Not surprisingly the Internet is expected to account for a large part of the growth - with its share of the global advertising cake increasing from 3.2% in 2003, to 4.3% this year to 5% in 2007.
As for why advertising growth is outstripping GDP growth in the key emerging markets - maybe it’s similar to the reason advertising aimed at the young is so popular. Companies realise that consumers from the emerging counties will become more and more important to business as their respective economies grow - and so the plan is to reel them in now - build up brand loyalty today, while these potential customers are still new to the consumer society scene and presumably relatively impressionable.
Fed’s new chairman says what he thinks
If being good at spelling is a key quality required for governing the US Federal Bank, then you know the next chairman will be a good one. For Dr Ben Bernanke, the man who is set to replace Alan Greenspan as the worl’’s top banker in January was the champion speller of South Carolina in 1965.
But while Dr Ben may be able to spell, his is a good clear speaker too, said Georgie W yesterday, on the announcement of his appointment - still to be ratified by Senate. The US president said “As Fed governor, Ben advocated greater transparency in communication with the public and markets. His speeches were widely admired for their keen insight and clear, simple language.”
Was that a swipe at Alan Greenspan? Mr Bush has nothing but praise for the man who has held the position of Fed chairman since 1987 (stepping into the hot seat just two months before the market crash of that year) but the man who warned of irrational exuberance before the dot com tumble is hardly known for his blunt speaking. We have said as much here on many occasions, with some of the Fed announcements being shrouded in subtlety.
What is perhaps most surprising about the nomination of Dr Ben Bernanke is how widely it was predicted. He was the clear front runner, a contrast to previous appointees, Alan Greenspan and before that Paul Volker in 1979.
Dr Benranke has solid academic credentials. Born on December 13 1953, in Augusta, Georgia, when Bernanke graduated 23 years later at Harvard, he won the award for best undergraduate economics thesis. Since then he has gone on to bigger and greater things in the world of academia, and held the position of Professor of Economics and Public Affairs at Princetown for 20 years. According to George W’s speech yesterday, he is one of the most cited economists in the world.
He became a governor of the Fed earlier this year, and is known as something of a Bush favourite, but is not without critics. Some fear that he lacks experience outside the ‘twee’ world of education. Mr Greenspan, for example, was head of an economic consulting firm in New York for twenty years plus before his appointments, and held many directorships of large companies to boot.
In terms of policy shifts, it’s known that the new man for the job is a strong advocate of keeping tight reins on inflation. His blunt speaking might mean the Fed drops the word ‘measured’ when describing its approach to monetary policy, but it’s likely to continue to increase the rate of interest under his helm. But there is daylight between the new man and the present incumbent. Dr Bernanke is known to be a fan of the government setting its central bank inflation targets, Mr Greenspan liked to keep the markets guessing, leaving a slight aura of mystery surrounding the inflation target.
But lack of real world experience aside, there is another chink in Dr Ben’s armour. After becoming South Carolina spelling champ, he was knocked out of the nationals. Why? Because he was unable to spell that word which is so crucial to running a central bank - he mis-spelled the word ‘edelweiss’.
Heineken. ads no longer refresh the parts
There was a time when we used to fret over the amount of time our younger adults spent watching TV. These days it’s the advertising industry’s turn to fret. Take Heineken. The core target audience for its advertising is the 18 - 26 age group, and now it’s having to look for promotional vehicles which reach parts of the market segment that TV advertising doesn’t. As a result, the Dutch company is to ditch UK TV advertising next year and concentrate on sport sponsorship and poster advertising.