Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Financial Times Editorial Comment: Markets vainly seek safety in numbers
Copyright The Financial Times Limited 2010
Published: August 27 2010 21:50 | Last updated: August 27 2010 21:50
http://www.ft.com/cms/s/0/06ab79a0-b214-11df-b2d9-00144feabdc0.html


A well-built boat will stay on an even keel as long as its passengers do not all flock to one side. Markets are similarly self-stabilising. In normal times prices ripple around stable trends to match the supply and demand positions market participants wish to take. The problems occur when they all clump together to do the same thing – whether it is buying houses or dumping bank assets.

There has been a lot of clumping recently: the money herd is shifting alarmingly towards the side marked “risk off”. Prices are tipping accordingly. Conventional havens are gaining. The yen has reached such highs that Tokyo is dropping heavy hints of intervention – so far unheeded by markets.

Across the world economy, summer blues have gripped equities, which have experienced a month of sluggish sinking. Bond markets, meanwhile, show signs of what on the face of it is a surreal phenomenon: a pessimistic bubble. US 10-year yields, at 2.6 per cent, have not been this low since the beginning of last year. Bund and gilt yields are at their lowest ever: investors are now extending 10-year loans to the German and UK governments at 2.2 and 2.9 per cent respectively. Say what you will about sovereign debt, it is still the safety investment of choice.

Investors are hardly paranoid: in the US, there has been no shortage of depressing data recently. The housing market’s cold turkey after a housebuyer’s subsidy expired in April was brutal. On Friday, second-quarter US growth figures were revised down to a piddling 1.6 per cent annualised rate.

Yet there is plenty of good news for those who want to believe that the recovery is safe. The European Union, a bigger economy than the US, grew more than twice as fast as the US; the UK three times as fast. Business confidence in core Europe is strong. But as investors huddle together, global financial markets have opted to take their cue from US gloom rather than EU sprightliness.

It is hard to be a monetary policymaker in such conditions. At its last policy meeting two weeks ago the US Federal Reserve showed its mildly expansionary attitude by pre-empting the de facto tightening of letting securities on its balance sheet be redeemed without reinvestment. But to the Fed’s surprise, investors were spooked, not stimulated by the decision.

So Fed chairman Ben Bernanke’s vapid speech on Friday may just reflect the little he can do beyond not rocking the boat. Meanwhile, investors must remember there is not always safety in numbers.




Fed stands by to boost US growth
By Robin Harding in Jackson Hole and Michael Mackenzie and Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: August 27 2010 15:18 | Last updated: August 27 2010 19:53
http://www.ft.com/cms/s/0/3e8f868e-b1e4-11df-ad4d-00144feabdc0.html


Ben Bernanke said on Friday that the Federal Reserve stood ready to boost the flagging US economy and had the tools to do so, including increasing holdings of long-term assets such as Treasury bonds and other securities.

The comments by the chairman of the Federal Reserve came in his most eagerly awaited speech, for months, with markets growing increasingly concerned about the weak economy and chronically high unemployment.


There was further bad news on Friday with the release of updated figures for economic output in the second quarter, with growth at an annualised rate revised down from 2.4 per cent to 1.6 per cent.

“The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do,” Mr Bernanke said in a speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.

The only issue, he said, is whether “the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool”. Mr Bernanke said that the Fed was ready to act “especially if the outlook were to deteriorate significantly”.

But he did not spell out how bad a deterioration would be needed to trigger further action by the Fed, an omission that highlights divisions on the rate-setting Federal Open Market Committee about the need for action.

Treasury yields rose after Mr Bernanke spoke, as the market had expected an indication of more bond buying or quantitative easing by the central bank.

Richard Volpe, co-head of interest rates at RBS Securities, said: “The chairman has raised the bar for the market, as we can expect more QE only if the economy deteriorates significantly.”

Outlining “unconventional” ammunition the Fed could use, Mr Bernanke pointed to additional purchases of long-term securities, changing the language of the Fed’s statements and reducing interest paid on excess reserves.

Mr Bernanke said that there was no support within the Fed to increase its medium-term inflation goals above levels consistent with price stability.

“Such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations,” Mr Bernanke said. In the short term, Mr Bernanke said that preconditions for a pick-up in growth in 2011 “appear to remain in place”.

In spite of the sharp downward revision in second quarter output, many economists were encouraged by the figure which was generally less ominous than feared.

“By encouraging, we mean, sub par growth is substantially better than a double dip,” said Constance Hunter, chief economist of Aladdin Capital.






Intel warns amid global PC slowdown
By Chris Nuttall in London
Copyright The Financial Times Limited 2010
Published: August 27 2010 16:39 | Last updated: August 27 2010 20:35
http://www.ft.com/cms/s/2/0b5fa670-b1f0-11df-b2d9-00144feabdc0.html


Intel added to worries about advanced economies on Friday as it warned that consumer demand for computers was slackening amid widespread fears of a double-dip recession.

The warning from the world’s biggest chipmaker, which provides microprocessors for four out of every five PCs sold globally, cast a chill over the PC industry already reeling from reports of a general slowdown in PC sales in the third quarter.

Intel said third-quarter revenues were now expected to be about $11bn, down from the $11.6bn it forecast in its quarterly earnings report just six weeks ago. “Revenue is being affected by weaker-than-expected demand for consumer PCs in mature markets,” the company said.

The warning is in contrast to a strong second-quarter rebound enjoyed by the Silicon Valley company, which it said was the best in its history, when reporting in July.

Intel also reduced its gross-margin forecast on Friday by 1 percentage point to 66 per cent. But it was more upbeat about the strength of the corporate market saying its difficulties were being “partially offset by slightly higher average selling prices stemming from solid enterprise demand”.

Analysts have been trimming their estimates for Intel in recent weeks as PC makers in the US have been disappointed by sales in the “back-to-school” season.

Hewlett-Packard and Dell have reported weakening demand and Taiwan-based Acer said its July shipments were 38 per cent lower than June’s. US PC sales were down 15 per cent on average, according to analysts.

A further deterioration was reported in the first week of August and PC makers are expected to begin cutting prices to try to boost demand.

“The weak [US] domestic back-to-school season and lacklustre demand from Europe have translated to significant pricing pressure in the [PC] food chain,” Ashok Kumar, an analyst at Rodman & Renshaw analyst, wrote in a research note.

“Key component suppliers – processors, displays, memory, drives – have instituted price rebates to try to resuscitate demand.”

Intel shares were up 1.4 per cent at $18.44 in midday trading in New York, but are down 15 per cent over the past month.

Intel is looking to diversify to reduce its reliance on the PC market and is creating new chips for TVs and smartphones.

It is understood to be close to buying the wireless business of German chipmaker Infineon to further its phone ambitions.

One person involved in the bidding process said the purchase could be for about $1.4bn and could be announced as early as the weekend.

Additional reporting by Joseph Menn




Boeing delays Dreamliner delivery date
By Pilita Clark in London and Jonathan Soble in Tokyo
Copyright The Financial Times Limited 2010
Published: August 27 2010 09:14 | Last updated: August 27 2010 19:45
http://www.ft.com/cms/s/0/e0e05d48-b1ab-11df-ad4d-00144feabdc0.html


Boeing on Friday revealed that its long overdue 787 Dreamliner jet was facing further delays, this time because of problems getting an engine from Rolls-Royce, the UK manufacturer.

The latest setback prompted some analysts to suggest that further problems lay ahead for the passenger jet, Boeing’s first new model in nearly 15 years and the first to be made with large amounts of lightweight carbon fibre composites.

It also sparked a sour response from All Nippon Airways of Japan, the aircraft’s launch customer, which said the new delay was “extremely regrettable”.

The first 787, which is already more than two years late, was supposed to be delivered to ANA by the end of this year, though Boeing had suggested in recent months this could slip to early 2011 as a result of production glitches.

The company now says it will not make the first delivery until the middle of the first quarter of 2011 because of “an assessment of the availability of an engine needed for the final phases of flight test this fall [autumn]”.

The move follows reports that one of Rolls-Royce’s Trent 1000 engines, which will power the 787s for ANA, suffered a failure in testing in early August.

However, the jet engine maker denied this was connected to Friday’s delay announcement.

“We are working closely with Boeing to expedite delivery in support of their programme schedule,” Rolls-Royce added.

ANA, which has ordered 55 of the aircraft, said it had asked Boeing to clarify what impact the engine shortage would have on its longer-term delivery schedule.

ANA was expecting to take 20 aircraft by March 2012, though under Boeing’s original delivery plan it was supposed to have begun flying 787s in 2008. It is already seeking unspecified compensation from the US aircraft maker for the delays.

Boeing said the latest delay would not affect its financial guidance, but some observers cautioned there could be a potential impact.

“If the delays announced today throw its [Boeing’s] delivery schedule out, airlines will be quick to look for compensation,” said Saj Ahmad, aerospace analyst of FBE Aerospace.

“The 787 has been delayed almost three years and it’s an unacceptable situation for many, particularly as many carriers are witnesting a rise in traffic numbers.”

Howard Wheeldon, senior strategist at BC Partners in London, said the larger question was, with about 850 of the jets on order worldwide, “will the company manage to meet the already much delayed delivery schedule? Right now that question is very difficult for me or anyone else to answer”.










DoJ approves United-Continental merger
By Jeremy Lemer in New York
Copyright The Financial Times Limited 2010
Published: August 28 2010 01:07 | Last updated: August 28 2010 01:07
http://www.ft.com/cms/s/0/5824a9e4-b234-11df-b2d9-00144feabdc0.html


US antitrust regulators on Friday gave the green light to the proposed merger between Continental Airlines and United Airlines after the two carriers agreed to dispose of certain take-off and landing rights at Newark airport in New Jersey.

The two carriers decided to combine earlier this year to create the world’s largest airline with annual revenues of about $29bn. But the merger triggered an obligatory investigation by the Department of Justice.

Some analysts had worried that the tie-up would result in overlaps on certain routes, reducing competition and leading to higher fares but the DoJ concluded that limited concessions by the carriers in the New York market would remove any such threats.

“The transfer of slots and other assets at Newark … resolves the department’s principal competition concerns and will likely significantly benefit consumers on overlap routes as well as on many other routes,” the department said.

With the DoJ’s investigation complete, Continental and United said the merger was set to close by October 1, although the companies must still receive approval from various state attorneys-general as well as the US Department of Transportation.

“The completion of the DoJ’s review is an important step on our journey of creating the world’s leading airline,” said Jeff Smisek, the chief executive of Continental who will head the combined company.

Continental and United will lease 18 daily slots pairs at Newark to Southwest Airlines.

United and Continental announced their all stock deal back in May, trumpeting $1.2bn in potential synergies and arguing that the combined carrier, to be based in Chicago, would be a more formidable global competitor.

In recent years, consolidation has become the dominant theme in the aviation industry as airlines bulked up to cope with volatile fuel prices, recessions and competition.

Still, the Continental-United proposal has been controversial. Unions representing flight attendants at the two airlines have been sceptical, voicing concerns about potential job losses, and politicians have grumbled at the prospect of higher fares for consumers.

In late July, the deal cleared its first hurdle when the European Commission approved the merger, but the two companies face at least one more. Next month, shareholders will have an opportunity to vote on the proposals.

● Mexicana de Aviacion, one of Mexico’s two main airlines, will cease operations by Saturday while unions and new owners attempt to find fresh cash to keep it alive, reports Reuters in Mexico City. Two budget carriers affiliated with Mexicana, Link and Click, will also stop flying, but the measure was temporary.







Microsoft co-founder starts patent lawsuit
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2010
Published: August 28 2010 01:37 | Last updated: August 28 2010 01:37
http://www.ft.com/cms/s/2/e02047d0-b235-11df-b2d9-00144feabdc0.html


Paul Allen, co-founder of Microsoft, on Friday mounted a wide-ranging patent case against some of the best-known internet and technology companies, including Google, Apple and Facebook.

The case, brought in Federal court in Mr Allen’s hometown of Seattle, marks an attempt to enforce an unusually broad set of patents that could touch on a wide range of internet activities.

“They are absolutely key processes that have become part of people’s everyday browsing on the web,” a spokesman for Mr Allen said.

“We believe these are key processes for e-commerce and search.” The attempt to enforce the rights brought immediate condemnation from Google.

“This lawsuit against some of America’s most innovative companies reflects an unfortunate trend of people trying to compete in the courtroom instead of the marketplace,” the search company said.

Among the 11 companies named in the suit are AOL and Ebay, as well as office supply companies Office Depot and Staples.

The lawsuit was brought by Interval Licensing, a company set up to exploit the rights from technology research and development financed by Mr Allen during the 1990s.

The Interval group, which was closed in 2000, was eventually awarded more than 300 patents in a range of technologies, according to Mr Allen’s spokesman.

The decision to enforce the patents now follows a recent effort to sort out the remaining rights in Interval’s portfolio that had not previously been exploited, he added.

The claim, which seeks damages and an injunction to prevent future infringement, names four patents awarded between 2000 and 2004.

One covers a way to present offers to internet users while they are looking at related items – a common technique used by e-commerce companies that are trying to cross-sell extra products.

Another deals with a technique for combining video and text from different sources on to a single web page, an approach that underpins many web services that draw on multiple sources of content.

The broad nature of the patents echoed earlier controversial attempts to claim ownership of widely-used e-commerce techniques, such as Amazon’s enforcement of its “One Click” method for completing an online purchase, legal experts said.

Ironically, Amazon itself, along with Microsoft, was not named in the lawsuit, although Amazon’s use of recommendations to cross-sell products remains one of the most successful in the industry.

Mr Allen is not an investor in Amazon, Mr Allen’s spokesman said. He declined to say why the leading ecommerce company had not been included in the suit.





HP pushes price of 3Par up to $2bn
By Joseph Menn in San Francisco and Helen Thomas in New York
Copyright The Financial Times Limited 2010
Published: August 27 2010 16:10 | Last updated: August 27 2010 20:29
http://www.ft.com/cms/s/2/ec805b00-b1ea-11df-ad4d-00144feabdc0.html


Hewlett-Packard on Friday topped Dell’s offer for data-storage company 3Par for the third time in a week, offering $30 a share in a bidding frenzy prompted by strategic ambitions that pushed the price well beyond ordinary valuations.

The latest offer valued 3Par, which is unprofitable, at $2bn and reflected what one adviser called HP’s “deeper pockets” and determination to keep its longtime rival from winning 3Par.

The bid equates to 95 times 3Par’s forecast earnings before interest, tax, depreciation and amortisation and about 8.5 times forecast sales.

The latest proposal came hours after California-based 3Par had accepted a sweetened offer of $27 from Dell, matching HP’s previous bid made on Thursday.

Dell is 3Par’s first choice and is only required to match what HP puts on the table. The initial deal struck with Texas-based Dell had been for $18 a share, and even that was an 87 per cent premium over 3Par’s stock market value.

The $2bn price for the data-storage company and the rapid-fire pace of the bidding stunned industry executives and appeared to give even Dell pause at last. The company had no immediate reaction on Friday to HP’s last bid as it weighed whether to match it yet again.

3Par shares closed up 24.7 per cent in New York to $32.46 as speculators bet that the battle would continue.

“Regardless of who ends up acquiring 3Par, we believe the winners are 3Par employees and shareholders as well as the bankers and lawyers involved,” said Shaw Wu, an analyst at Kaufman Bros.

While regarded as a successful innovator in the fast-growing market for sophisticated and energy-efficient gear that stores businesses’ digital information outside traditional on-site computers, 3Par is losing money and reported sales of just $54m in the latest quarter.

In announcing one of its earlier bids, HP has said there would be no short-term impact from an acquisition on its earnings.

Both HP and Dell want to build on their storage offerings as more of their customers move to a cloud architecture requiring access to remote data hoards.

HP is ahead of Dell as both race to become another IBM, offering services and a wide range of hardware and software that make it an effective “one-stop shop” for technology buyers overwhelmed by the process of assembling everything themselves.

Both hope to make storage a bigger part of their suites and might be nervous about Cisco Systems’ aspirations as well. That company has a joint venture with EMC, the leading, independent storage company.

“Dell and HP should have some paranoia about Cisco’s ability to take away some of their most coveted customers,” said Ashok Kumar, an analyst from Rodman & Renshaw.

“If customers are saying they like the idea of a stack solution – even one from the EMC and Cisco partnership – it puts a lot of pressure on them to do the same” he said.

As recently as August 1, HP had declined to match Dell’s first bid of $18 a share. HP was distracted at the time because it was negotiating the exit of Mark Hurd, its chief executive.