WRFest 3Fest(Business): Something Besides Finance !
There was so much news last week we not only split up the normal major sections but split the Business readings into three - Finance Industry, B2C & the Yahoo/MS merger and this one with all the rest. Oddly enough there's quite a bit of serious and interesting "other" business news aside from the continuation of the Finance industry's self-inflicted implosion. Or from the emerging re-structuring of the entire Internet for consumers. And make no mistake - win, loose or draw MS's offer for Yahoo will trigger off a lot of changes. Ones that are going to ripple for a long, long time. Think of this the same way that the maturation of the software industry and the resulting acquisition frenzy set back after the Telecom/Internet bust set in. This is a SEE-change. But not the only one.
Below you'll find another bunch of readings that are equally impactful. An excellent WSJ interview with Carlos Ghosn who says what everybody's thinking about the death of Detroit. He's pretty blunt about it too. Not quite on the same level Eddie Lampert has finally admitted that running a hedge fund doesn't qualify him to re-engineer an old-line retailer and so he's going to flail in another direction. Meanwhile the Tech industries are facing, as we warned, slowing spending and continuing momentus changes of their own. Chipmakers for example are having to deal with a major new chip layout changeover which will take years, cost many $Bs and almost bankrupted the major players last time. MOT, the original icon of mobile communications, is talking about spinning off it's cell phone business - rather sad. The Telecomm wars continue with Comcast facing serious challenges as well (and judging by my weekend experience's with HDTV quality and audio bandwidth they're very serious). Finally there's an article about how good Pharma is likely to have it in '08, because the prior years were so bad so relative performance will be good. Without of course fixing their long-term structural problems we've talked about.
In addition to the two major seperate postings on business readings we put up a discussion of Warren Buffet's approach to business analysis and investing and compared it to our own template. As you read each of the excerpts below you might want to use that to filter thru the implications. In other words consider these readings as source materials for thinking about the industries and companies using the blueprint for evaluation.
Masterclass: Buffett on Investing and Business Analysis
WRFest 3Feb08(Finance Ind): More Troubles Ahead
B2C Wars:Yhoo/MS Merger - Disaster in the Making ?
Finally we'll point you to one other interesting little reading above the line because we consider it so important. It's on innovation and suggests a second major question. How many of this week's stories are due to innovation failures ?
Eureka! It Really Takes Years of Hard Work As humans, we want to believe that creativity and innovation come in flashes of pure brilliance, with great thunderclaps and echoing ahas. Balderdash. As humans, we want to believe that creativity and innovation come in flashes of pure brilliance, with great thunderclaps and echoing ahas. Innovators and other creative types, we believe, stand apart from the crowd, wielding secrets and magical talents beyond the rest of us.Balderdash. Epiphany has little to do with either creativity or innovation. Instead, innovation is a slow process of accretion, building small insight upon interesting fact upon tried-and-true process. Just as an oyster wraps layer upon layer of nacre atop an offending piece of sand, ultimately yielding a pearl, innovation percolates within hard work over time.Business
Ghosn Maps Path Through Slump Carlos Ghosn, chief executive of both Nissan and Renault, shares his thoughts on the auto industry. WSJ:What's your view of the U.S. market? Mr. Ghosn: We've been in a slump in the U.S. now for four years. It's not only in number but also in segment. You are moving from large pickup trucks, vans, luxury products to smaller cars. You know that many car manufacturers don't make any money on small cars. They make money on the larger cars, so when the market moves this way it's a double impact in terms of profit on most of the car manufacturers, if not all of them. WSJ:Who is hurting the most in this market? Mr. Ghosn: Obviously, the Big Three. So how much more are they going to be able to sustain this kind of pressure and what's going to happen? That's a very important question for all the industry. WSJ:Can all the auto makers survive in such a difficult environment? Mr. Ghosn: No. WSJ:So, what will the U.S. automobile industry look like in three years? Mr. Ghosn: The market share of the Big Three, which is shrinking, is going to continue to shrink. Look at [Tata Motors Ltd. of India] now buying Jaguar and Land Rover. You may have European car manufacturers making proposals of taking a bit or a brand or a piece here or there. WSJ:When it's all over, is there a native U.S. auto industry? Mr. Ghosn: Frankly, I don't know. I can tell you it's going to be very different from today. But whether there is going to be one left or two left or none left I don't know.
Big Auto's catastrophic mistakes At the automotive mothership that is the factory production line, the tech news is far grimmer. Carmakers play the role of innovators - there is much talk here about new power plants and improved navigation and multimedia - but from a technological perspective, it's mostly smoke and mirrors. Today's cars sport cool gadgets and spiffy bodies, but inside they have the same old internally combusted engines and roll on the same old rubber tires. The good news for small business is that the auto industry's sometimes feeble attempts to innovate offer a rare learning opportunity for the rest of us.
Sears’ Chairman Will Take a Step Back With Sears Holdings’ sales, profit and stock price plunging, its billionaire chairman on Monday removed himself from day-to-day oversight of the ailing retailer and pushed out the company’s chief executive. It was a humbling admission from the powerful hedge fund manager that his hands-on style and three-year-old strategy for Sears and Kmart are not working. Until now, the heads of several major departments, like marketing and merchandising, reported directly to Mr. Lampert, even though he has no background in retailing or advertising. But from now on, those department heads will report only to the chief executive, the company said. The executive changes appeared to answer two criticisms: that the company lacks a management team with the retail experience to pull off a turnaround and that Mr. Lampert, 45, is a micromanager who is hampering, rather than helping, the business. But analysts said that, unless Mr. Lampert begins injecting money into the company’s increasingly shabby stores, the shake-up is unlikely to fix what ails Sears Holdings, the combination of Kmart and Sears that Mr. Lampert orchestrated in 2005. Burt Flickinger, a longtime retail consultant, said that even with such a infusion of money, “there will be at least two or three years of suffering before there is going to be any success.” Lampert's lesson A few years ago, Toys 'R' Us and Sears were in the same boat. One turned around, and the other san
IT Spending Rising Despite Recession Fears According to the Gartner 2008 CIO Agenda study, the average worldwide IT budget increase after weighting is expected to go up 3.3 percent, a slight increase from 2007's 3 percent. IT spending will rise 3.3 percent in the U.S., 3 percent in Europe and 4.5 percent in the Asia/Pacific region. The survey was conducted by Gartner Executive Programs, a membership organization for CIOs. The study included 1,500 CIOs in 33 countries and 23 industries. Spending is rising even though 68 percent expressed concern about a recession in 2008. Despite the bad news from Wall Street, CIOs' are focusing on customers and generating new business. The top three business priorities according to the Gartner survey are business process improvement, attracting and retaining new customers and creating new products and services (up from 10th place in 2007). Reducing enterprise costs came in fifth. The top three technology priorities are business intelligence applications, enterprise applications such as ERP and CRM, and servers and storage technologies. (These were also found to be important priorities in CIO Insight's 2008 Top Trends survey.) In addition, about 25 percent of respondents say they are investing in Web 2.0 technologies for the first time, marking the technology's move from an experimental to an early adoption phase.
- Worried About a Recession? How to Hold the Line on Your IT Budget ... How IT money will be allocated this year is TBD. If it hasn't happened already, you'll soon be deep in conversation with senior executives about your budget in particular and technology spending in general. Get ready for long meetings in which managers pass around charts of bad news. And after that? Budget cuts and hiring freezes. Across all industries, average IT budgets, measured as a percent of revenue, have shrunk compared to last year, dropping from 7.4 percent to 6.7 percent, according to our end-of-year "State of the CIO" poll of 558 corporate technology leaders.
Chipmakers divided on manufacturing changes Behind the scenes in the semiconductor industry, an early debate is brewing over the development of next generation production techniques, the new equipment that will be required to make them, and who is going to pay for it all. The debate is over the next wafer size, which will allow semiconductor makers to get more chips per silicon wafer, the key ingredient -- or the brains -- for cell phones, computers, iPods and basically every electronic gadget created. Yielding more chips per wafer usually improves the chip maker's bottom line, allowing them to sell more chips, after a hefty upfront development and manufacturing cost. Chip plants cost at least $2 billion to build. The problem is that in order to produce bigger wafers than those in use today, most of the expensive machines used in chip manufacturing need to be swapped out for new ones designed for larger wafers. Some of these machines include robotic monorails to transport the wafers around the factory (and avoid any human contact), and the complex systems that transfer chemicals, gases and various other steps to etch circuitry patterns onto the silicon. The industry goes through this transition about every 10 to 15 years. The most recent shift started in the mid 1990s and adoption began in the late '90s to 300-millimeter wafers, about the size of a large dinner plate, from salad-plate size 200-millimeter wafers.
Motorola Mulls Sale or Spinoff Motorola is considering spinning off or selling its flagship handset business. The announcement comes amid deepening woes at its cellphone unit and as Icahn is preparing a new proxy campaign to win board seats. Shares rose more than 10% after hours. Motorola Inc., facing pressure from activist shareholder Carl Icahn, said it may spin off or sell its flagship handset division. The decision is a stunning setback for an American technology icon and offers a parable for other industries. Motorola essentially created mobile telecommunications with the earliest mass-market hand-held radios. But it repeatedly stumbled in keeping up with consumer demand for innovation, while foreign competitors stole away market share. Motorola produced a series of hits that changed the industry with models such as the StarTAC, an early flip phone from the 1990s, and the ultraslim Razr in this decade. But the company has long struggled to produce enough phones to fill in the gaps between hits and in the past year, Motorola's market share tumbled to its lowest levels since 2001. Last week the company said it couldn't predict when it would halt its market-share slide, sending its stock plunging 19%. Yesterday, the company's announcement, which followed the close of regular market hours, pushed Motorola shares up more than 10% in after-hours trading. The decision comes as the mobile-device market -- which shipped 1.1 billion units globally last year -- is undergoing sweeping change. Consumers are demanding easy-to-use devices with Web and multimedia capabilities. Mobile use of the Web is expected to grow even faster in coming years as carriers increase the bandwidth of their cellphone networks by adding new radio spectrum. Motorola Considers Breakup as Icahn Pressure Mounts
- Motorola woes deepen Analysts say problems with mobile unit run deeper than expected. CEO Greg Brown has now taken over direct charge of business, reports say
Roberts Faces Rocky Road Brian Roberts isn't used to taking a lot of flack. Just a couple of years ago, the Comcast Corp. boss was given most-favored-chief-executive status in a poll of shareholders by Institutional Investor magazine. He is a regular at media-mogul fests like Herb Allen's in Sun Valley, Idaho. So a campaign from one of his hedge-fund shareholders against his stewardship of the $55 billion cable group his father founded might come as a shock to Mr. Roberts. It shouldn't be so surprising. On the subjects that matter most to investors -- financial performance, strategy and corporate governance -- Comcast's scores are decidedly lackluster. So much so that Mr. Roberts would be well advised to consider changing his ways in the face of Chieftain Capital's attempt, made public last week, to foment a shareholder revolt.
Yes, a Giant Can Sprint Siemens, the 161-year-old conglomerate based in Munich, has been disproving the skeptics who questioned whether an industrial giant could be a stock market star.
Pharma: Back from a rough year More big drugmakers are on tap this week to report strong 2007 earnings, but that's because 2006 was an easy act to follow. On Wednesday, Merck & Co. the nation's number three drugmaker, is expected to post a 50% gain in fourth-quarter operating profit to $1.4 billion. Sales are expected to rise 4% to $6.3 billion according to analysts polled by Thomson One Analytics. Recent products like the company's blockbuster cervical cancer vaccine Gardasil and diabetes drug Januvia drove results …But the projected boom in fourth-quarter earnings for 2007, is an "easy comparison" to 2006, when Merck suffered a sales vacuum, according to Ryan. That's the year its patent expired on Zocor, a top-selling cholesterol-lowering drug. Patent expirations are among Big Pharma's biggest problems. Once a patent runs out, generic manufacturers can produce the drug and sell it a severely discounted price. Low-cost generics may be great for patients, but they're bad for brand-name manufacturers.