October 20, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Hewlett Packard is back at the number one spot in
the global PC market, according to research from Gartner. It hasn’t occupied that lofty
spot since the final quarter of 2003.

And PC shipments across the board are up. “Worldwide”, says Gartner, “PC
shipments totalled 59.1 million units in the third quarter of 2006, a 6.7 percent
increase from the same period last year.” But, added the Gartner release, “The US PC
market experienced a year-over-year shipment decline of 2 percent.
The last time the US PC market suffered a decline in PC shipments was the
second quarter of 2002.”
HP saw sales jump from 8.3 million units in the third quarter of 2005 to 9.7 in the
quarter just gone. But, according to Gartner: “Dell experienced its lowest year-over-
year growth in the company’s history, as worldwide PC shipments increased 3.6
percent in the third quarter, and its worldwide PC market share slipped to 16.1
percent. Dell’s shipment growth rates were below the industry averages in the US and
Europe, Middle East and Africa.”
As for the PC marekt across the globe, Asia/Pacific was the star region, seeing an increase of 13.7 percent from the third
quarter of 2005, as shipments reached 15.1 million units.
Third place in the global PC market goes to Lenovo, the company that bought the
IBM PC business.

For further information
All is down at the Dell
Investment and Business News 18 August 06

October 20, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Apparently, we tend to use our computers less in
the summer. Consequently, new media companies, and their analysts, don’t expect much from the third quarter. Couple that with the fact that the US economy is slowing, and
you would expect the period just gone to be something of a turkey for the big Internet
businesses. But someone must have forgotten to tell Google about this, as the
company announced yet another best ever quarter yesterday.

This time, net income, at $733 million was 92 percent up on a year ago, and even
up on last quarter’s $721 million, which itself was seen as startling.

The company’s CEO Eric Schmidt became known as a master of understatement yesterday
when he said: “Business is very, very good here at Google.”
Google’s success lies in text based advertising. It’s an advertising medium that is strong because
advertisers can target their ads and measure results so successfully, and it’s the area where the
company has been trouncing Yahoo. But its rival, still smarting over its less than impressive quarter,
(see Wednesday’s issue) is at last close to boasting search advertising technology, with its Panama
product, which will rival Google’s offering.
So the question is, how long can this extraordinary growth continue?
The question has been asked before, of course, and the company has confounded the cynics with
monotonous regularity, and the runes seem to suggest there’s no good reason why the company can’t
continue to do so for some time.
First of all, Google just seems to be getting better at harnessing the power of search advertising. It’s
an incredibly powerful tool, and advertisers are getting more sophisticated in how they use it. The
company is going great guns outside the US too, with the UK and German markets singled out as areas
of significant growth.
Then there’s the YouTube purchase. As Google co founder Sergey Brin said: “When I perform a
search I often find that the best answer is not always a Web page #151; and I know that
sounds like heresy from Google #151; but often videos are the best way to do these
things.” So that brings us to the opportuity for video based advertising on the net.
And what is really making advertisers sit up, is the idea that, in some cases, they may
only have to pay for video ads users choose to view. We do not, of course, refer to
brand buiilding type ads, whose benefit to the advertiser comes in the form of a kind of subliminal
impact on the customer’s subconscious, but rather to video ads that are informative.
Then there’s Internet shopping. As we have said before, the Internet is the High
Street for the virtual retailer, and the way to book a good position on this great virtual
street, is by advertising on Google, and perhaps using its shopping product Froogle.

And yet, even this only tells half the story. Google has Microsoft in its
sights, and at yesterday’s press conference emphasis was placed on the company’s online
spreadsheets and calendar, and its plans to offer more.
But if Google has a problem it’s this: the company has so many products, and has
plans for so many more, that they could get lost. As Mr Brin said: “If we continue to
develop so many individual products in separate silos, you’ll have to search for the
product you want before you can use it. You’ll end up doing a search before you can
search.”
But frankly a search engine company that has a problem enabling its users to
search for its products is likely to come up with a fix.
So, in looking for a weakness and hints of a slowdown and, perhaps, the
possibility that gravity might start exerting pressure on the growth - as it inevitably
will one day - one is likely to be unsuccessful for some time.
But, maybe Google does have a weakness. Its future success depends on
continuous innovation. It has no fundamental asset that will retain value no
matter what. In this respect it differs from a company like BskyB, which has
assets in its million of users who are signed up and committed to pay. It differs
from ISPs and wireless operators such as Vodafone, who have signed-up
users that do not want to change supplier because they don’t want to change
email address or mobile number. It’s not like MS, who got their buying wrong
year after year, but were able to move back to the top within a few months of
a change in management - thanks in part to the bricks and mortar which defines their High Street strengh.
But as long as Google’s management stay where they are at the top of
their game, this company is likely to continue to leave headline writers
searching for more words in the online Thesaurus that go with hype.

October 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

A rise in the rate of interest next month seems to be a done
deal. You would be more likely to hear Gordon Brown saying government spending is out of
control, than find an economist who does not expect a rate rise in November.

But now, the deal is even more done. Yesterday the Bank of England released the
minutes from the last meeting of the Monetary Policy Committee. It turns out that two
members, Andrew Sentance and Tim Besley, voted to up rates in October, and the minutes
said: “Around 50% of firms (reported) that they had experienced margin erosion in the recent
past planned to respond by raising prices,” and “there had been some earlier evidence that
pricing power was returning in some sectors.” The Minutes added: “Despite the recent
decline in energy prices inflation was likely to remain above target in the near-term, given the
announced changes in utility prices, and the likely impact of university tuition fees.”

As for the recent growth in money supply, the Minutes reported as follows: “It remained
possible that the rapid growth of broad money, for which there was no obviously compelling
structural explanation, would feed through to asset prices and eventually to nominal demand.”

But the telling comment was this: “Other members#133;thought there was no
pressing need to raise rates this month.” This month. It’s like saying to a child that wants
something “we will see,” meaning “yes - but not now”.
For further information

MINUTES OF MONETARY POLICY COMMITTEE MEETING 4 5 October 2006 Bank of
England

October 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s well known how nigh on impossible it is for first time buyers
to get on the property ladder. The trouble is that renting is expensive too. According to the
Nationwide, the typical loan-to-value ratio for a first time buyer is 90%. Based on this,
mortgage rates would need to increase to around 7% before monthly outgoings on a
mortgage exceed rent.

So what is the beleaguered First Time Buyer going to do? The answer: it appears they
are keeping Mum. No they are not keeping quiet, rather they are putting their parents in the
loop.

Skipton Building Society has published the results of a survey which found one in four people between 20 and 30 count on getting support from parents, and one in eight expect their parents to act as a mortgage guarantor.

October 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

You can’t keep private equity out of the news at the
moment. In the last quarter, two massive deals made the headlines. First there was the £1.7
billion sale of frozen foods giant Iglo Birds Eye to Permira and then the £1.5 billion acquisition
of the Caudwell Group by Providence Equity Partners and Doughty Hanson. In total, the
quarter saw £7.9 billion worth of deals, 53 percent up on a year ago, says a new report from
KPMG’s Private Equity Group (which tracks UK buyouts with a value over £10 million), and
2006 is set to be another record year for the sector.
Commenting on the figures, Michael McDonagh, Corporate Finance Partner in KPMG’s
Private Equity Group, said: “This has been one of the strongest quarters on record reflecting a
great three months for middle-market firms in particular. Although the total value of deals is
lower than the previous quarter, there was a material increase in completed deals involving
middle-market businesses. Mid-market companies remain at the centre of a frenzied level of
private equity activity.”

Turing his attention to the purchase of the Phones4U owners, Mr McDonagh added, “The
sale of the Caudwell Group was of particular interest because it showed two private equity
houses working together to buy different parts of the business to deliver a highly attractive
solution to owner John Caudwell. The deal was executed by the private equity firms agreeing
on a single sale and purchase agreement with the seller - a sign of the innovative solutions
private equity houses are deploying to win key deals.”

For further information

Private Equity financial firepower
leads to another buoyant quarter for UK buyout dealsKPMG

Why is
private equity so popular, interview with Vince O’Brien of the British Venture Capital
AssociationBVCA

October 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Apple computers is one of those companies some people
love. The media world does, of course, still to rely on Macs, and perhaps this has led to a
disproportionate level of publicity for the company. Others love Apple products’ good looks, while
others say the company’s secret is that it makes products that work. But the Apple fan club seems to be
growing, and a phenomenon known at the Apple halo effect, in which new iPod owners are so chuffed
with their music player they go out and buy a Mac, seems to becoming more than just hype.

And whichever way you look at, it’s been a startling few years for the company, with the quarter
just gone no exception.

In Apple’s fourth quarter (the company numbers its results differently from everyone else; its Q4
period coincides with Q3 of most other US companies), it posted a quarterly net profit of $546 million.
This was well up on last year’s $430million, which itself had the headline writers getting out the hype
ink, and the only quarter in the company’s history that was better was its first of this year, which
coincided with the Christmas rush.

The company sold 8.7 million iPods, making it the second best quarter too, although the first
quarter, which witnessed sales of 14 million, was a lot better. Some worry that that the iPod is
beginning to slow, now. Perhaps the company is hitting critical mass, perhaps the iPod will wilt in the
face of competition from mobile phones boasting MP3 functionality. There’s the video iPod, of
course, but this time the company seems to face much stiffer opposition, with the likes of Microsoft
and Nokia who are advanced in their plans. Then there’s convergence with video games, with the next
generation of portable video games machines likely to offer music and video too.

Not that the iPod is just a portable music player, for many it takes pride of place in the bedroom, or
has replaced the Hi-Fi as the home’s main music hub. But, once again, it faces growing competition,
and the new Sony PlayStation, for example will also act as a music player come new generation DVD
player.

But, while Apple looks at ways to build upon the iPod, with its mobile phone still under lock and
key, the Mac does at last seem to be enjoying significant growth, and this is perhaps due to the much
touted halo effect

The Mac enjoyed sales of 1.6 million units in the quarter - its best ever - and, according to some
reports, it’s enjoying a growth rate which is three time faster than the growth in PC sales. The
MacBook and MacBook Pro notebook computers were the stars of the show, accounting for 27 percent
of revenue.

If there is a draw back it’s this; the share price is up 5 percent this year and analysts expect the
good times to continue. Its PE ratio is 34.5, fine if the heady growth continues, but should the
company just start doing okay, and growth slows to a more normal level, then shares will look high.
However, even this scenario is not quite so bad. A year ago the company’s PE was 46.8, so while
profits have been rising, the share price has not been rising so fast. So, to an extent, even a slow down
in the remarkable growth, is allowed for in the share price.

October 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It was good news all round Stateside yesterday, as the Dow
Jones hit a new high and, for a short while, passed the 12,000 barrier; US inflation dropped into minus
territory; and new government data revealed the much feared US housing market slowdown may be
coming to an end.

As George W said earlier this year, the US is addicted to oil. No wonder then, it was doom and
gloom coming out of Uncle Sam while black gold soared in price. But now that it’s falling - yesterday it
fell to just a few cents above the lowest level seen since the tail end of last year - good news on the
economic front seems to have turned from a trickle to a gushing stream.

First there was good news on inflation. The US CPI index fell to minus 0.5 percent in September.
With US gasoline prices down 13.5 percent, the drop was greater than market expectations.

Then there was the news on new US homes. According to official data, there was a 6 percent
increase in the number of new projects builders have started work on, with the total coming in at an
annualised rate of 1.77 million, against an expected 1.64 million. It was the first rise since the end of
winter, following seven months of successive falls. In the US, start stats are seen as a key indictor
of the strength in the housing market.

There was also good news on corporate earnings, especially following results from IBM (see
yesterday’s issue). Microsoft and Wal Mart shares have being doing well of late too.

All this was too much for the markets, which rose with glee. At one point the Dow Jones Industrial
average stood at the heady height of 12,049, before closing at 11992 - 67 points up on the day, and 350
points up on the month.

But, before the exuberance starts looking irrational, it’s worth remembering there was a downside
too.

Sure the CPI index fell, but US annual CPI inflation is still running at 2.1 percent, and, more to the
point, the CPI index with food and energy taken out barely flickered. This index was up 0.2 percent in
the month, as it was in August and July, and the annual rate is running at an alarming 2.9 percent. Oil
may have fallen, but two years ago economists worried and predicted gloom when oil passed $50 a
barrel. It’s still along way above that level, and prices elsewhere still don’t reflect this.

As for the housing data, Capital Economics said, “Unfortunately, the deterioration of the NAHB
housing index over recent months suggests that this will only be a temporary piece of good
news for the housing market. The NAHB index continues to point to housing starts falling to
around 1,500,000 by the end of the year, indicating that the housing-led slowdown has only
just begun”.

For further information

Consumer prices tumble in
September CNNMoney

Housing start gain may signal slide is
overCNNMoney

Dow Jones breaks
through 12,000BBC

October 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

If you owe a lot of money, then inflation is a good thing. Sure, the interest payments will be high, but then the true value of your debt erodes every year. Such was the experience of mortgage holders in the ’70s, which reinvorced the view: “When you take out a mortage, get the maximum you can possibly afford, because it will get cheaper every year”.

But according to an article in today’s Independent, it has taken 236 months for prices to double. Contrast this with 104 months between 1977 and 1987. And 54 months earlier in the ’70s.

Apparently it’s the longest period it has taken for prices to double since World War II.

One thing puzzles us. As prices have taken so long to double, mortgage holders should have really felt the pinch over the last twenty years, with the cost of the mortgage repayments being felt in a way that they had never been felt before.

This is our argument over house prices: that low inflation means that while the rate of interest is lower, it will take longer before the cost of repayments see a significant reduction in proportion to income.

And yet, this period of low inflation has been going for a such a long time, this effect should have been felt by now.

Maybe consumers have shrugged it off.

For further information

Britain enjoying longest period of price stability since the war
Independent

October 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

How do you punish a dead man? Perhaps the ancients thought they knew how; raid Pharaohs tomb, or ensure the departed had no money for the ferryman. But these days, it’s not so clear.

Then there’s the issue of appeal. Supposing the man in question was appealing against a court’s finding before he died. Now you can’t really hear that appeal fairly.

Such was the case with Kenneth Lay, Enron’s founder and boss when the company collapsed. Lay had taken Enron from nowhere to become the seventh biggest firm in the US, back to nowhere again. In his initial trial he was found guilty, but was appealing against the court’s decision when he died.

So Lay is off the hook, not that he is so happy about it. This leaves a question though. Prosecutors reckon Lay stole over $40 million from Enron, either in cash or assets, which the government was going to try and get back from Lay’s estate. This leaves authorities having to go through the civil courts. But, at least the lawyers should be happy about that.

October 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s sometimes feels, as if in the long run all products become commodities. Once the secret is out, and once lots of rivals have jumped on the bandwagon, profit growth becomes ever more eleusive. For an illustration, compare Intel, which is suffering from the hands of arch rival AMD, with IBM, which now sees itself as a service company.

Profits at Intel are down, with net income for the latest quarter at $1.3 billion, that’s 35 percent lower than a year ago, and revenue was down too, from $9.96 billion to $8.62 billion.

It’s losing market share too, down from a 82.2 percent share of the desktop and workstation market to 72.9 percent.

And the company’s answer is slashing costs, getting rid of 10 percent of its work force in an attempt to reduce costs by $2 billion next year, and $3 billion the year after.

And yet, Intel isn’t exclusively a commodity company yet. It is still looking to innovate, and its new quad core processor, which was recently released, is beginning to catch on, and AMD is thought to be some way behind.

Moorse’s Law sems to be Intel’s big challenge. Can it continue to see a doubling in the speed of processors every 18 months or so? To do that it has to keep innovating, but so fast is this market developing that even innovation is looking like a commodity, with any brave leap in technology apparently matched by rivals ever sooner.

IBM, on the other hand, told a different tale. The company which invented the PC, is no longer in that business. Instead it is known as the world’’s largest technology service company. And it’s diversifying into software too, with the company forking out more than $3 billion in acquisitions.

As for the bottom line, profits in its latest quarter surged 47 percent, hitting $1.52 billion, and revenue leapt from $22.1 billion in the same period a year ago, to $22.6 billion.