July 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Kirk Kirkorian is a rich man, and since he owns just short of 10 percent of GM, making him the largest shareholder in the world’s largest car manufacturer, he is also a very powerful man. And when a man like that says jump, most people under his employment somersault, just to impress him.

Not so, for Rick Wagoner. The chief executive at GM has presided over a disastrous few years, which has seen the company steadily run through its massive cash pile, and has seen its market share plummet, so much so that many expect Toyota to soon take the number one spot in the car super league. With some even warning of the threat of bankruptcy, you would think that Mr Wagoner would be doing all he could to placate his important shareholder.

And so, when Kirkorian had lunch with the car industry’s answer to Superman, Carlos Ghosn, the man who performed miracles at Renault and Nissan, and now occupies the unique position of boss of both companies, many thought it was curtains for Wagoner. Or if not that, then at least Wagoner would be forced to accept help from Ghosn, a man who is so highly regarded in Japan that there a comic character based on him.

And yet, Wagoner still continues to fight on. The latest set of results, have been held up as an example of why Wagoner can still resist the pressure from up high.

In the quarter just gone, GM lost $3.2 billion. That’s not good, and it is surely another nail in Wagoner’s coffin, you could be forgiven for thinking. But in fact, the big loss was largely explained by one offs. Laying off workers and reducing costs, led to a one off charge of $4.3 billion - that means earnings before special items of $1.2 billion, while revenue was up an impressive 12 percent.

And for once, the company’s ever shrinking pile of cash and marketable securities rose from $20.2 billion a year ago to $22.9 billion.

A star performer for GM was its subsidiary Saab, which saw sales rise 24 percent. Mr Wagoner could not help gloating about this performance. Kirkorian’s man on the GM board wants the company to sell the Saab subsidiary. Wagoner was effectively saying to his influential shareholder, “sir, yes sir, get your three bags full of sugar yourself, sir.”

But does all this mean GM is safe? That a tie in with Renault Nissan is off the agenda, that Carlos Ghosn, the man who has proved that Brazilian superstars don’t only exist on the football pitch, is not required at GM?

Don’t you believe it. A lot of GM’s good results came from one offs. For example, it recently sold a subsidiary, and improvements on its warranty costs are likely to boost the bottom line just the once.

Now contrast GM’s performance with Honda’s. Sales in North America were up 10 percent.

While GM reduces costs, and boosts revenue through selling’s assets, Honda booms because it produces cars people want.

You might blame GM’s antiquated pension and worker relations policies for its woes, but maybe there is a deeper problem, and it’s one that’s symptomatic of the entire US and its tendency towards introversion.

Global warming is a reality, and despite the fact that some still deny the link, there is little doubt in our minds it is due to pollution. The world still does not pay the true cost of petrol. At 70-odd dollars a barrel, the price of oil is still not high enough to reflect its true cost on the environment. In the UK, the government taxes petrol to the hilt, but in the US, its still subsidised. A reader recently sent us an article from a US magazine in which consumers were complaining about gas breaking though $3 a gallon. How the Brits would love to pay so little.

And just as the US buries its head in the sand over the effect of petrol consumption on the environment, GM buries its head in the sand over the inevitable move away from demand for fuel guzzling monsters of the highway.

Only when the company can combine cost cutting with a sense of realism on the importance of fuel efficiently can the company reverse its long running fall from grace.

To subscribe: visit this link

July 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Sometimes, a good business is built on one good idea. Perhaps it was skill, or perhaps it was luck, but the niche a company carves itself can propel it so far, but only for so long. Take Amazon. It’s good at selling books, we all know that. But what about expansion?

Of late, profits at the company have stopped growing, and recently results have been typified with news that the company is investing into some new idea, or technology

In the latest quarter it happened again. This time, things were not helped by the loss of the agreement with Toys ‘R Us. Amazon was once the online face of the giant toy shop chain. But one legal battle later, the partnership is no more and the online book seller is having to invest in its own toy category.

While Amazon has made book retailers across the world suffer from the challenge it poses, the online superstar is not immune to competition itself. To differentiate itself, it’s subsiding postal costs, but that costs big bucks

Put all that together, and Amazon has seen profits fall. In the latest quarter net income was 22 percent down on a year ago, at a mere $22million. And yet, sales were up. Worldwide they increased by 37 percent, and even the so-called “mature US market” saw growth of 21 percent.

To subscribe: visit this link

July 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Arun Sarin, Vodafone’s embattled chief executive yesterday lived to fight another day, although the doubts about his future still lurk.

The mobile phone market is tough. Prices are falling, Wi-Max will enable broadband internet access while you are out and the potential for VoiP over mobile threatens to undermine the industry business model. Expectations are just not what they used to be.

Even so, suggest the doubters, Sarin should do better. Many want him out.

But yesterday, at the AGM, rebellious shareholders made up just 9.5% of those voting, and with 4.5 percent abstaining, Sarin got away with it all rather lightly in the end.

But while it was hot outside yesterday, Sarin and allies were forces to sweat for different reasons.

One shareholders described the management team as a “board of charlatans” and while Vodafone’s outgoing chairman Lord MacLaurin tried to create the impression of a united board, saying “There is absolutely no question of Arun Sarin stepping down from this company”, his replacement, Sir John Bond said “Wherever you work in the world, the performance of management is constantly under review.”

Even Sarin’s pay is coming under tighter scrutiny than ever. The man at Vodafone who is responsible for independently reviewing the pay for Sarin and other top management is none other than Luc Vandevelde, the man who once known at lucky Luc, but whose halo took a nasty dent after he was ousted as Chairman of MS before the replacement management turned the company around. Yesterday, he was jeered at, and 20 percent of shareholders present voted against his remuneration policy, a policy which had softened targets for bonuses because of the tougher business climate

But, for the time being at least, Sarin is safe. but, one more crisis or one more mistake and the knives will be out.

To subscribe: visit this link

July 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Not everyone was convinced. Rumours had been circulating for some time of a boardroom rift, between BP’s chief executive Lord Browne, (who is 18 months from his 60th birthday) and its chairman Peter Sutherland. But yesterday, Lord Browne protested loudly and vehemently, if perhaps a little too much saying, “…reading the speculation about my position, I was both astonished and rather shocked by it all. I want to be crystal clear about the situation. As I have said many times publicly in recent months, I will be retiring in 2008. Peter Sutherland and I have discussed this and agreed it between ourselves and the board that I will leave BP at the end of 2008.

“Let me add that even if I was asked to stay, I would decline,” he explained.
But despite the strong words, the FT headlined “Sutherland triumphs in power play” while the Independent said ” Lord Browne is said to have clashed with Mr. Sutherland over the timing of his retirement at a tense meeting between the two last Friday” So is he jumping in 2008, or being pushed?
Either way, there will be no shortage of companies wishing to avail themselves of his wisdom. Lord Browne says that while he will be stepping down from BP, he has no intention to retire.
But what of BP? Yesterday the company posted record profits of $6.1 billion. That’s 23 percent up on last year. Records always make markets sit up, but this time, the reaction was to sell.

Lurking amongst the good news about the profits was some bad. In the US, BP has been rocked by safety scandal and, as a result, the company is investing heavily into improving safety which has increased costs.
Delays to the Thunder Horse platform in the US Gulf of Mexico, which was handed out a drubbing by the hurricanes last year, have also hit projected profits.

To subscribe: visit this link

July 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Is Four Play what the market wants? That’s broadband, fixed and mobile telephony, and TV? When Virgin Mobile and NTL first announced their plans to merge, analysts were cynical. It was a case of personal versus family. The choice of TV subscription, broadband supplier and fixed line telephony was a family decision. Mobile phones are personal. Why bring them together, they asked?

Then take into account that Virgin mobile tends to attract a more downmarket customer base - precisely the audience broadband and TV subscription companies are not interested in, and you see why there is cynicism.

But despite these misgivings the merger of NTL and Virgin Mobile went ahead. Sir Richard Branson became the company’s biggest shareholder, and with it the opportunity to add the title “media tycoon” to his name.

Since then war has broken out. Broadband has been attracting new contenders in the stakes to dominate the market for fast Internet access, like flies on, er, honey.

And in the battle to be number one, each contender has been claiming its free service is better, and cheaper than other free services.

NTL reckons it has risen above all that. In fact the company has slammed BSkyB for what it calls “hot air”. The company should know all about that, of course. After all, its main shareholder became even more famous through harnessing hot air to fly across the Atlantic. However, NTL claims the BSkyB free broadband service is not as cheap as they would have us believe, and is taking out ads in the national media to say so.

NTL, on the other hand is not pretending to offer free broadband. Not for them, giving broadband away for free, but making the money on other services. Instead, NTL has come up with a new and bold strategy: it’s charging for broadband, and giving away TV access.

In fact, the company will offering digital TV, with free broadband thrown in, for £20 a month. It claims, that at that price, it is £162 cheaper in year one than the free BSkyB service.

And for those of us who would like to see fixed and mobile telephony thrown in, it’s offering the full four play package for £40 a month

Will the public want all four? The move towards video TV on mobile phones shows the obvious synergy.

But, frankly if you want to view TV and video on your mobile, one would assume you would be more likely to be interested in the content available. The recent victory of BSkyB in securing the broadcasting rights for the lion’s share of premiership football, is perhaps a more significant than the NTL four play package.

To subscribe: visit this link

July 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Do you feel richer? Today the UK is worth £6.01 trillion. That’s to say our net wealth, the value of our houses, roads, hospitals etc. has broken though the £6 trillion mark, compared to a mere £1.7 trillion when Mrs Thatcher moved into number 10.

In fact, in 1948 we were worth a mere £551 billion.

How has this happened?. No prizes for guessing the big contributor to our wealth: it’s our homes. Today, 59.9% of our wealth resides in property, compared to just 42 percent in 1994, after the crash in the housing market.

But is that we are really worth? According to the Office of National Statistics it would cost £2.67 trillion to replace all the country’s capital assets.

Maybe the difference between the cost to replace and the valuation is hot air. Perhaps the valuation is being driven up by house buyers and sellers filling each other’s coffers?

Some say the high level of our wealth shows how sustainable the UK economic boom is. But its seems to us that if wealth is built on a bubble the assertion is a tad absurd.

To subscribe: visit this link

July 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

You see what we mean about video content? While BT, NTL and BSkyB reckon they have found the answer to competing in broadband (bundle lots of content) they are facing growing competition from companies who are not being burdened with the cost of providing their own Internet backbone.

BT, by pinning its hopes on its video service, are in effect taking on a plethora of highly dynamic and creative companies, previously not considered to be in competition at all. There’s Google for example.

And now, or so the rumours suggest, there’s Amazon.

According to a report in Advertising Age magazine yesterday, Amazon is working on a digital download service to give customers access to movies and TV programmes.

Amazon itself needs this. Growth has gone out of the online book business - its looking like a mature industry now. Amazon’s other big idea, to sell groceries, does seem a little distant from its core product.

If you can get your films and TV shows from Amazon, why do you need to sign up to an ISP that offers this service?

To subscribe: visit this link

July 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

“With friends like that, who need enemies?” Arun Sarin, the chief executive of Vodafone must have been thinking along those lines yesterday.

There is a snag with being the biggest in the world. Vodafone is the number one wireless operator across the globe, but that means your fortunes are tied more specifically to the sector you dominate. If you are a small player, the sector can contract, but you can grow, by improving your market share. For Vodafone, no such luxury exists.

And it’s becoming tougher. Price competition is driving down margins and VoIP from wireless internet access will, when it becomes a mass medium, drive prices down much further still.

Vodafone, like many of its rivals is moving into offering broadband. It smacks just a little of vacating the frying pan to embrace the fire - the new heat being the horrendously competitive broadband market.

Perhaps the last refuge for Vodafone is in content supply. You might expect to pay less for your calls, but are you willing to pay more to view the latest movie, or sports contest?

Ultimately, that’s dangerous too. You don’t have to be a wireless operator to offer content; the fact that broadband internet access is available through wi-fi and soon will be through wi-max hot spots while you are out, will mean the opportunity to view movies irrespective of mobile network provider.

So, Vodafone has plenty of excuses. Plenty of reasons to explain why its share price today is lower than it was in November. And despite announcing a 9.2 percent growth in revenue in the last quarter over the same period a year ago, shareholders are not happy and many are likely to vote against him today at the company’s AGM.

Morley Fund Management, Hermes Pension Management and Standard Life Investments, for example, all want him out.

His big ally was Bill Morrow. Hailed by some as Sarin’s long term successor, Morrow was moved into the postion of head of operations in Europe back in April. But yesterday it emerged that Mr Morrow, for reasons that appear to be genuinely personal, is to step down. He is to spend more time with his family - and on this occasion, the “time with family” reason appears to be without euphemism.

Even so, the news of Mr Morrow’s departure has put more fuel on the fire beneath Sarin.

What about firendly shareholders? Vodafone’s second largest shareholder wants to keep him. In a statement yesterday, Legal General said this “We do not think it is sensible to change chairman and chief executive at the same time and we would expect Sir John Bond as incoming chairman to conduct a full review of all his senior executives and make changes where necessary.”

So do you see what we mean? With friends like Legal and General…

To subscribe: visit this link

July 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s a blame game. Everyone at the WTO trade talks seemed to want to look for someone to blame for yesterday’s collapse, and more often than not, it was the US that was held out as the bogey man of the day. Some say it will be years before trade talks resume, others say it’s the end of globalisation, and that the days of global economic growth are over. And yet, cut through the recriminations, and some undeniable truths to stand out.

The Doha round of trade talks was kicked off after September 11 2001. The idea was to include everyone, to make all countries a part of the negotiations, so that no one felt left out. They were supposed to continue the good work done at the Uruguay round of the trade talks, which is credited by some as being an underlying reason behind the growth in world trade and has been a major factor behind the gradual inclusion of India and China in the economic top flight.

And yet it is farmers in America, Japan and Europe who seem to stand in the way of progress. Why is it that agriculture in Japan, the EU and US is relatively unimportant in economic terms, and yet continuously thwarts progress in trade negotiations?

This time the US was getting the rap because it was unwilling to cut agriculture subsidies without other countries slashing tariffs. Last year the US forked out $18 billion in agriculture subsidies, and the world’s agriculture based economies say these subsidies are unfair and make it impossible for them to compete.

But the US sees it differently. Its trade representative Susan Schwab said after the collapse of the talks: “…as we went through the layers of loopholes . . . we discovered that a couple of our trading partners were more interested in loopholes than market access.” 15-love to the US.

The EU, however, sees it thus. The snag is, argues Trade Commissioner Peter Mandelson, the US wants dollar for dollar compensation. If it gives a dollar in subsidies, it expects the rest of the world to give a dollar in tariff reduction, and yet, the word’s richest nation argues Mandy should be willing to be more generous. He said “The US was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in the room and, as a result, felt unable to show any flexibility on the issue of farm subsidies.” He added ” Surely the richest and strongest nation in the world, with the highest standards of living, can afford to give as well as take.” Bravo, Mandy - it’s 15 all.

But then Schwab returned the EU’s volley with a smash of her own ” Their average tariff is twice as high as ours and their farm subsidies are more than three times what ours are,” she said.

The truth is however, that while the EU and US blame each other (don’t forget Japan has its farming tariffs and subsidies too) the poorer countries lose out.

In fact, some think that that it was already too late, that the talks had in any case moved too far in the direction the US and EU wanted. According to John Hilary, Director of Campaigns and Policy at War on Want, “The collapse of the trade talks is good news for the world’s poor. Any chance of a genuinely pro-poor outcome was lost long ago, and the deal on the table would have caused great damage to developing countries. The world now has an opportunity to build towards a fair set of rules for the international trading system, rather than the failed model promoted by the World Trade Organisation.”

But perhaps the biggest problem is this. It’s not that the US government is caught up in self interest, it’s that the US public don’t care. While the collapse of the US trade talks made the headlines in most quality British newspapers and web sites, in the US, it received no, or little mention on any of the web sites we monitor.

If trade matters, then its important that the world’s top nations bend over backward to make it happen. And that means the public must put the pressure on. As long as the media in the world’s most powerful country remain colloquial in their coverage, the US will never have the public drive to break this deadlock.

For further information

WTO collapse ‘good news for world’s poor’ War on Want

To subscribe: visit this link

July 24, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Free can be an overused word sometimes but never more so than in the world of Internet access. Carphone Warehouse’s “Talk Talk” got the rap for its usage of the word, while with the way that BSkyB is bandying the word about, one could be forgiven for assuming the broadcaster is a charity.
Kris Kristofferson once wrote “…freedom’s just another word for nothing left to lose…” but the truth is the broadband players have a lot to lose, and the plethora of free offers and other packages which seem to be too good to be true, are in fact little more than a last desperate throw of the dice.
With TV and broadband converging, the likes of NTL and BSkyB know they have to get customers signed up to the broadband they offer, before video on the net becomes too abundant
The wireless operators, the likes of Vodafone and Orange, know they need a way to tie customers in before they start using VoIP on the move.
BT needs to find a new business model, before its traditional model disappears altogether.
Just remember the AOL experience. There was a time when if offered exclusive content to its customers, but the open market that is the Internet proved too much. The danger for companies hoping to tie us in by offering TV content or VoIP is that the public will discover they can get these services elsewhere, without making a commitment.
Maybe, ultimately, we just want an ISP for fast, reliable broadband. And perhaps Talk Talk is leading the way.
It has already accumulated 400,000 users, and although its boss Charles Dunstone says the company is “struggling to cope with demand,” it’s a problem that, no doubt, most of its rivals would love to have. Mr Dunstone was reported in the Sunday Times as comparing its broadband service with “our own little sister, a little baby, who is waking up every night and disturbing the family and making our lives a nightmare” But he added “we must not lose sight of the fact that very soon she will grow up into a beautiful young girl, and we’ll love her dearly.” For Carphones’s sake, let’s hope Talk Talk can bypass its teenage years, or future anthropomorphism from Mr. Dunstone may well be less gushing.

To subscribe: visit this link