October 20, 2019

Samsung’s Profit Rises, but So Does the Competition

Samsung, which is based in Suwon, South Korea, said net income rose to 7.77 trillion won, or $6.9 billion, from 5.19 trillion won a year earlier. Sales rose to 57.46 trillion won, from 47.6 trillion won.

But the report showed a decline in earnings from the first quarter in Samsung’s mobile phone business despite the introduction of a new flagship model, the Galaxy S4.

Though the S4 has been selling at a brisk pace, it has fallen short of some analysts’ expectations. Promotional events like an introductory gala for the S4 at Radio City Music Hall have driven up marketing costs, while rivals continue to roll out competing models.

“The strong growth streak for the smartphone market is expected to continue in the third quarter, albeit at a slower pace,” Samsung said in a statement.

Market reaction to the report from Samsung was muted because the company issued an earnings forecast earlier this month; the results reported Friday were broadly in line with that outlook, though below previous expectations.

The results from Samsung follow the earnings report from the company’s chief rival, Apple, which showed similar trends in the smartphone business.

Apple reported earnings that beat Wall Street expectations, but its profit declined from a year earlier and its revenue was flat. While Apple’s posted strong iPhone sales in the United States, the company showed weakness in China and in sales of iPads.

In recent months, the shares of Apple and Samsung have been hammered by investors, who worry that even as the companies report continued growth in sales of smartphones, they will struggle to maintain their momentum.

“In a way, Apple and Samsung have become victims of their own success,” Pete Cunningham of the research firm Canalys said before the Samsung results were released. “When these companies report many billions of profits every quarter, it’s hard to say they are doing anything wrong.”

Many say the high end of the smartphone market, which Samsung and Apple dominate, is looking saturated. Most wealthy consumers in developed markets already own such devices, so growth is increasingly occurring in lower-price brackets in developing markets, where Apple does not compete.

Samsung, with a broader product range, may be better positioned, analysts say, though it faces stiff competition at the low end of the market from Chinese makers.

For expensive phones, the companies face renewed competition from Sony, HTC and Nokia, though analysts say innovations in smartphone design and technology are becoming more incremental.

“If you combine all these players and look at what they are doing, it’s hard for Samsung or Apple to keep growing market share,” said Bryan Wang, an analyst at Forrester Research. “But the expectations for both companies are still high.”

IDC, a research firm, said Samsung’s share of the smartphone market slipped to 30.4 percent in the second quarter, from 32.2 percent a year earlier.

Samsung’s smartphone sales rose by 43.9 percent, outpacing Apple, which showed a 20 percent gain. But smaller smartphone makers that focus on lower-cost devices did even better, with Lenovo and LG, for example, more than doubling their sales.

“The smartphone market is still a rising tide that’s lifting many ships,” said Kevin Restivo, senior research analyst at IDC, in a statement. “Though Samsung and Apple are the dominant players, the market is as fragmented as ever. There is ample opportunity for smartphone vendors with differentiated offerings.”

While Samsung does not break out the number of devices it sells on a quarterly basis, another research firm, Strategy Analytics, estimated that the company shipped 76 million smartphones in the second quarter, 56 percent more than a year earlier and more than double Apple’s total of 31.2 million.

With growth picking up in the low end, Strategy Analytics said, the smartphone market over all is expanding faster than it was a year ago. That helps Samsung in another way, because the company also is the world’s biggest producer of semiconductors, an important component in smartphones and other electronic devices.

Samsung said operating profit in its semiconductor division rose to 1.76 trillion won from 1.03 trillion won a year earlier, as it experienced strong demand from its own mobile business, as well as from other phone makers to which it supplies chips.

But Samsung said its television business was hurt by sluggish demand in Europe, where an economic recovery has struggled to take hold.

Article source: http://www.nytimes.com/2013/07/26/technology/samsungs-profit-rises-but-so-does-the-competition.html?partner=rss&emc=rss

DealBook: Google’s Effort to Skirt Regulation May Invite More Scrutiny

Harry Campbell

Google’s motto is “don’t be evil.” But its recent acquisition of Waze, reportedly for $1 billion in cash, shows that just because you’re not evil, it doesn’t mean you can’t be aggressive in pushing the boundaries of the law.

The question now is whether the United States government pushes back and forces Google to give back its new toy.

Waze is yet another one of those blockbuster deals for a technology company with little or no revenue that makes you jealous. Five-year-old Waze has just 110 employees, so Google appears to be paying almost $10 million per employee. As for profits, Waze’s chief executive, Noam Bardin, has said, “This is Silicon Valley. We don’t talk about those things here.” Right.

Deal Professor
View all posts

Google is paying top dollar for Waze because it is at the intersection of two hot fields: map search and social media. Users download Waze’s app to their phone and then supply information about locations, routes and traffic, making the maps more intelligent. And Waze has the usual phenomenal growth in users, with 50 million worldwide. This is a field where there is believed to be oodles of money to be made in related advertising.

From this vantage point, the deal has a number of “must” business justifications for Google. Google is the top dog, dominating the “turn-by-turn” market for mobile maps on smartphones, and Waze makes Google a bigger dog.

Perhaps more important, buying Waze keeps the technology out of the hands of Facebook, which had reportedly bid about $1 billion for the company, and Microsoft and Apple, which also reportedly bid $400 million for the company earlier this year.

A billion dollars not only cements Google’s lead in map search, it does so in a big way. Google has paid large sums to have cars drive around the world to give its maps information content. But Waze is doing the same thing on the cheap by having its own users do the work.

Both types of systems are difficult and hard to build, meaning new entrants are unlikely to come. Just witness the difficulties Apple faced with the controversy over the accuracy of its own map app. If Apple can’t do this easily with its built-in user base of some 400 million iPhone users, not many others can.

So one might think that there would be significant antitrust issues with the acquisition. Google, already the dominant player, is buying what looks like a rising competitor, and it is doing so in a way that deprives other big players an easier way to compete.

It’s here where Google is pushing as hard as it can on the law.

Normally, to acquire a company in the United States, a buyer is required to supply the Justice Department or the Federal Trade Commission with what is known as a Hart-Scott-Rodino filing. This notifies the agencies of the transaction so either can review it for compliance with the antitrust laws.

The filing also prompts a waiting period during which the government can delay the acquisition to begin an in-depth investigation to determine if there is an antitrust problem. This is one reason that public takeovers are completed months after they are announced: the companies involved are waiting to clear antitrust review in the United States or another country.

This is the normal process. Yet Google’s only announcement of the deal appears to say that the companies signed and closed the deal that day, leaving Google the proud owner of Waze.

According to a person close to Google, the company skipped the Hart-Scott-Rodino filing by relying on an exemption. This filing is not required if the acquisition is of a foreign company that has sales and assets in the United States of less than $60.9 million. Waze is an Israeli company with headquarters in Silicon Valley, so it comes under this test.

Waze probably doesn’t have $50 million in revenue worldwide, yet the test also looks at assets. Given that Waze is worth $1 billion, it is hard to see that the value of its intellectual property in the United States business doesn’t meet the test. And the F.T.C. has previously indicated that companies should include this type of intellectual property in informal guidance.

Nonetheless, Google appears to have taken this aggressive position and is forgoing any antitrust review, instead plunging ahead with the acquisition.

So why did Google do this?

A representative from Google declined to comment.

Google may be playing hardball with the government here. Psychologically, it may be harder for the government to undo something that is done. And once Google acquires this company, it will become harder to force it to undo any integration it may have done with its own services. (For now, Google has said it will keep Waze separate.)

Not only that, but the Waze owners may have wanted to sell precisely on this basis, avoiding this huge possibility that the United States government would reject the deal, a risk that Google may have been willing to take with Facebook and Apple hovering.

But given the publicity over the acquisition, the government will almost certainly step in to review. Consumer groups are circling, and the Consumer Watchdog Group has written the government to ask for an in-depth review. That group has noted that Google’s purchase of Doubleclick and AdMob led it to a 93 percent market share in mobile advertising.

As with previous deals, the government can force Google to sell Waze, or put other restrictions in place, if there is a problem.

The standard was set forth in a piece of legislation passed a century ago: Will the acquisition “substantially lessen competition”? In part, this will come from how the market is defined — if it is just maps, well, you have to include companies like Rand McNally.

If it is turn-by-turn maps on smartphones, then according to Berg Insight, Telenav has a 33 percent market share while Google and Waze’s combined North American market share would be 28 percent. But Telenav’s business is stagnant and Google’s grew 30 percent last year, while Waze’s business grew 100 percent, according to Berg.

It may all come down to how easy it would be for another company to replicate what Waze is doing — it built an enormous user base that made it worth a billion dollars.

Even if Google can show that this deal does not decrease competition, the acquisition can be unwound if Waze is found to meet Justice Department guidelines as a “firm that plays a disruptive role in the market to the benefit of customers.” André Malm, a senior analyst at Berg, told me, “There is nothing like Waze.” He noted that the company was shaking up the market, so the authorities will pursue this line of investigation.

Either way, the comments of Mr. Bardin are not going to help, but they do serve as a reminder to other start-up chiefs looking to sell to their competitor not to say they that are the only game in town.

At the least, this all means that the Waze acquisition is likely to get a thorough review by the government. The battle will now begin. That Google will keep Waze without restrictions is no certainty. But the government faces a challenge. If it does decide to try to unwind this acquisition, Google is going to push the bounds of the law as hard as it can. The future of map search is at stake, and Google may not be evil, but this is business.


Article source: http://dealbook.nytimes.com/2013/06/18/googles-effort-to-skirt-regulation-may-invite-more-scrutiny/?partner=rss&emc=rss

Campaign Spotlight: ‘How’ Now, Time Warner Cable Media?

Time Warner Cable, the nation’s No. 2 cable provider behind Comcast, plans to begin on Monday a campaign to raise the awareness of its Time Warner Cable Media division, which sells video and digital ads on cable systems, channels like NY1 and Web sites like and RoadRunner. The campaign, which is being created internally, carries the theme “That’s how.”

In adopting a two-word theme, Time Warner Cable Media is echoing a similarly pithy theme, “Enjoy better,” that was introduced early last year as part of an image campaign for the Time Warner Cable brand. Unlike the “That’s how” campaign, the “Enjoy better” campaign is created by an outside advertising agency, Ogilvy Mather Worldwide, part of WPP.

The new campaign for Time Warner Cable Media will appear in the 52 markets around the country where Time Warner Cable operates, including major cities like Dallas, Los Angeles and New York. The campaign will take advantage of ad inventory on Time Warner Cable’s own properties, meaning the ads will be what are called house ads.

That is also different from the “Enjoy better” campaign, which runs in media that are not part of Time Warner Cable in addition to appearing as house ads.

The “That’s how” campaign is scheduled to run initially for six weeks. The campaign is valued at $3 million during that time, a figure that estimates how much the house ads would be worth if they were being sold to paying advertisers.

While Time Warner Cable is known for its cable systems, the campaign is also meant to play up the abilities of Time Warner Cable Media to offer advertisers “multiscreen solutions” that go beyond television into realms like smartphones and mobile devices, says Joan Hogan Gillman, executive vice president of Time Warner Cable and president of Time Warner Cable Media.

“We’ve taken the last three to four years to become more data-driven to better service clients,” she adds.

Campaigns that lay out to prospective advertisers reasons to advertise seem self-referential or a kind of meta-marketing. But unlike a creative trend called advertising about advertising, which seeks to entertain consumers by acknowledging its purpose with a smile and a wink, advertising that promotes advertising is typically serious.

That is true of the “That’s how” campaign, which eschews the humorous vein of the “Enjoy better” campaign for a prosaic approach. Also missing are the celebrities and sports stars who promote buying cable television, Internet, phone and other services from Time Warner Cable in the “Enjoy better” ads.

The “That’s how” ads are “speaking to a very different audience,” Ms. Gillman says, in that they are aimed at “owners of local businesses, marketers and agencies.”

“They talk about finding the right solutions in a very complicated world” of advertising and media, she adds, “which is a very different message from connectivity and connecting people to entertainment” that is conveyed in the “Enjoy better” ads.

In one “That’s how” commercial, as animated figures appear on screen, an announcer asks, “How can your business grow?”

“Not just to the size you know is doable,” he continues, “but the size you dreamt of when your business was just a doodle.” At that point a cartoon napkin appears on screen with writing scribbled on it.

“The Time Warner Cable Media team can show you how,” the announcer says. “We’ll show you how the consumers you need to target are more passionate and engaged with cable’s premier programming.”

“In fact,” he adds, “they’re spending 65 percent more time watching cable than local broadcast.”

Such statistics also appear on screen as the announcer speaks, among them that “88 percent of live sports programming is on cable” and people are “20 percent more likely to purchase brands that advertise on cable.” (The sources of the statistics are research reports and surveys.)

“So how will your business grow?” the announcer concludes. “Time Warner Cable Media. That’s how.”

In a second commercial, animated figures again appear on screen along with similar statistics about the power of cable television.

“How can your company prevail?” the announcer asks, when “competition is relentless and every second a new rival seems to come out of nowhere.”

“The Time Warner Cable Media team can show you how,” he continues. “You need a partner who can target your message to the right consumers in the most-watched programming and across every screen.”

This commercial also takes a jab at local broadcast television as the announcer says that it “can only offer shrinking audiences.”

“So how will your company prevail?” the announcer concludes. “Time Warner Cable Media. That’s how.”

Article source: http://www.nytimes.com/2013/06/10/business/media/how-now-time-warner-cable-media.html?partner=rss&emc=rss

Samsung Reports 42 Percent Jump in Profit

In an earnings report, Samsung said its net profit from January through March had soared 42 percent to 7.2 trillion won, or $6.5 billion, from 5 trillion won a year earlier.

Sales rose 17 percent to 52.9 trillion won. Operating profit was up 54 percent to 8.8 trillion won. Profit from the division that makes smartphones, tablets, personal computers and cameras accounted for nearly three-quarters of the company’s entire profit.

Samsung is the world’s largest maker of computer memory chips, televisions, mobile handsets and LCD panels. It does not provide smartphone sales figures, but it has increasingly relied on smartphones as its main profit generator — a strategy that has brought the company into patent and marketing clashes with Apple.

Samsung began sales of its latest Galaxy S4 smartphone in South Korea on Friday. It planned to introduce it in the United States on Saturday.

Samsung’s rivalry with Apple on the Apple’s home turf intensified as Apple reported its first profit decline in more than a decade. Apple also indicated it planned no major product releases until the autumn.

Samsung has challenged Apple’s once dominant place in the world’s smartphone market by flooding it with a range of models with a variety of screen sizes and prices and updating its versions faster than Apple ever has.

Samsung captured a third of the global smartphone market in the first quarter, according to data released by Strategy Analytics. Shipments of Samsung smartphones surged 56 percent to 69.4 million units in the quarter, it said. Apple iPhone shipments rose 6.6 percent to 37.4 million units.

“Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase” spending on research and development “for strengthening our competitiveness ahead of planned new product launches,” Robert Yi, Samsung’s head of investor relations, said in a statement.

Article source: http://www.nytimes.com/2013/04/27/business/global/27iht-samsung27.html?partner=rss&emc=rss

MetroPCS Shareholders Approve Merger With T-Mobile USA

The deal, first announced in early October 2012, had looked set for defeat until earlier this month, when Deutsche Telekom gave in to pressure to reduce the combined company’s debt.

Activist shareholder P. Schoenfeld Asset Management had led a proxy battle against the original deal, while biggest MetroPCS shareholder Paulson Co had also threatened to vote against it. Both investors have said they were pleased with the improved terms.

But some shareholders said they were happy to see MetroPCS combine with a larger player, regardless of the details.

“It was significant that they sweetened the offer but I would have voted in favor of the previous terms,” said Robert Capps, a Dallas-area shareholder and telecom executive.

It was not immediately clear what percentage of shareholders voted in favor of the deal. MetroPCS said those figures would be available later Wednesday.

MetroPCS shares fell 11 cents to $11.58 in morning trading.

Shareholders will receive $4.06 per share in cash plus stock equivalent to 26 percent of the combined company in the reverse merger and Deutsche Telekom will own the rest.

BETTER POSITION AGAINST RIVALS

MetroPCS, a provider to cost-conscious consumers who pay for calls in advance, and T-Mobile USA are looking to combine their spectrum assets to compete better with bigger rivals.

By tying up with MetroPCS, Deutsche Telekom hopes to provide T-Mobile USA with the spectrum to build a network capable of handling the vast data volumes that U.S. consumers and businesses use on smartphones and tablets.

Some Deutsche Telekom shareholders, however, worry that even a successful merger might not be enough for T-Mobile USA to catch up with rivals.

T-Mobile USA lost 515,000 contract customers in the fourth quarter of 2012, although it recently announced smaller losses of 199,000 contract customers in the first quarter.

The company recently overhauled its price structure to eliminate most phone subsidies, and started selling Apple’s iPhone for the first time. But its network quality lags Verizon and ATT, which have invested massively in fourth-generation mobile technology in recent years.

The United States is key to the investment case for Deutsche Telekom. It earned 26 percent of group revenue there last year and 20 percent of its operating profit.

The German group has long searched for a way to help T-Mobile USA gain critical mass to compete. In 2011, antitrust regulators blocked a $39 billion deal bid for ATT to buy T-Mobile USA.

The merger also paves the way for what some investors and bankers think Deutsche Telekom really wants – to ultimately reduce its exposure to a highly competitive market.

For now, Deutsche Telekom has committed to holding its shares in the new combined entity for 18 months.

(Additional reporting by Sinead Carew in New York, Harro ten Wolde in Frankfurt and Leila Abboud in Paris; Editing by Gerald E. McCormick and Bernadette Baum)

Article source: http://www.nytimes.com/reuters/2013/04/24/technology/24reuters-metropcs-tmobileusa.html?partner=rss&emc=rss

DealBook: Blackstone Drops Out of the Bidding for Dell

Dell’s founder, Michael S. Dell, and the investment firm Silver Lake are offering to take the company private in a $24.4 billion deal.Joe Raedle/Getty ImagesDell’s founder, Michael S. Dell, and the investment firm Silver Lake are offering to take the company private in a $24.4 billion deal.

10:25 a.m. | Updated

The Blackstone Group has walked away from the bidding for Dell, the computer maker confirmed on Friday.

The private equity giant, along with a separate bidder, the activist investor Carl C. Icahn, had been inspecting the books of the personal computer maker before deciding whether to make a rival bid to the $13.65-a-share offer to take the company private from the company’s founder, Michael S. Dell, and Silver Lake Partners, a technology-focused private equity firm.

Blackstone decided to withdraw after discovering that Dell’s business was deteriorating faster than it previously understood, according to a letter sent to the special committee of Dell’s board on Thursday. Among the reasons Blackstone cited include “an unprecedented 14 percent market decline in PC volume in the first quarter of 2013, its steepest drop in history, and inconsistent with management’s projections for modest industry growth.”

The personal computer industry has been grappling with falling prices and with competition from smartphones and tablets. Its weakness was vividly illustrated by a report last week by the International Data Corporation that showed a sharp drop in global sales.

PC unit sales overall in the United States fell 12.7 percent in the first quarter from a year earlier, according to the report. At Dell, United States shipments were down 14 percent, while worldwide shipments were down more than 10 percent.

Blackstone, which had been working with the investment firms Francisco Partners and Insight Venture Partners, last month outlined an offer of more than $14.25 a share for control of Dell, but not for the whole company. Part of Dell, under that scenario, would still be publicly traded in what is known as a stub.

From the beginning, there had been dissension within Blackstone about whether it should pursue an offer, people close to the firm said. Blackstone, worried that they would be used as a stalking horse, negotiated with Dell’s special committee to reimburse the firm for its costs related to pursuing a bid whether it ultimately made a binding bid or not.

The withdrawal of Blackstone leaves Mr. Icahn as the only potential rival to the $24.4 billion buyout proposal from Mr. Dell and Silver Lake.  Shares of Dell fell more than 3 percent in trading on Friday morning.

On Tuesday, the Dell special committee announced that it reached an agreement with Mr. Icahn that limits his ownership stake in the company while allowing him to contact other shareholders about a possible bid for the computer maker.

Mr. Icahn has previously outlined an offer of $15 a share for about 58 percent of the company. Under that plan, he would have a 24.1 percent stake in Dell.

“My affiliates and I expect to engage in meaningful discussions with other Dell shareholders, discussions that we believe will help to facilitate alternatives to the existing transaction with Michael Dell,” Mr. Icahn said in a statement on Tuesday.

Mr. Icahn and Blackstone were the only two preliminary bidders to emerge last month from the special committee’s process of soliciting potential alternatives, in what is known as a “go-shop.”

On Friday, a Dell spokesman said, “As the board’s special committee continues to oversee its process to ensure the best possible outcome for Dell shareholders, we remain focused on our customers and on providing innovative products and solutions to help them succeed.”

Blackstone’s letter to Dell’s special board committee is below:

Boulder Acquisition Corp.
c/o Blackstone Management Partners L.L.C.

April 18, 2013
STRICTLY PRIVATE AND CONFIDENTIAL

Special Committee of the Board of Directors of Dell Inc.
One Dell Way
Round Rock, Texas 78682
Attention: Alex Mandl, Presiding Director

Dear Alex,

I want to thank you, the Special Committee, and its advisors for inviting us into the process and for granting us due diligence access to Dell Inc. I also want to express our gratitude to Michael Dell and the management team for spending time with us and providing us with information and data relating to the business plan and financial forecasts of Dell.

You have asked for an update of our views after the intensive due diligence that we just completed. While we still believe that Dell is a leading global company with strong market positions, a number of significant adverse issues have surfaced since we submitted our letter proposal to you on March 22nd, including: (1) an unprecedented 14 percent market decline in PC volume in the first quarter of 2013, its steepest drop in history, and inconsistent with Management’s projections for modest industry growth; and (2) the rapidly eroding financial profile of Dell. Since our bid submission, we learned that the company revised its operating income projections for the current year to $3.0 billion from $3.7 billion.

For the reasons set forth above, among other reasons, on behalf of Boulder Acquisition Corp., Blackstone Management Partners, Francisco Partners, Insight Venture Partners, and Riverwood Capital, I regret to inform you that we will likely not pursue this opportunity. I would welcome the opportunity to speak to you to follow up on these matters and answer any questions that you may have.

Sincerely,

BOULDER ACQUISITION CORP.

By: /S/
Name: Chinh Chu

cc: Roger Altman, Evercore Partners

A version of this article appeared in print on 04/19/2013, on page B2 of the NewYork edition with the headline: Blackstone Is Said to Drop Out of the Bidding for Dell.

Article source: http://dealbook.nytimes.com/2013/04/18/blackstone-seen-abandoning-bid-for-dell/?partner=rss&emc=rss

Japan Times Reaches Deal With Times Co.

The agreement creates a combined English-language print edition, in which each publication will comprise one section. It will be distributed Monday through Saturday, like the International Herald Tribune, which will be renamed this autumn as part of a New York Times Co. rebranding. The first issue of the combined publication will be distributed Oct. 16.

“This deal will, we believe, give us a very significant circulation boost and make Japan our largest circulation market and will benefit our entire organization,” Stephen Dunbar-Johnson, the publisher of the International Herald Tribune, said in a news release. “We are thrilled that the International New York Times will be made available to Japan Times readers later this year. As the IHT we have built a reputation as the premier source of news, opinion and commentary for global citizens, and as the International New York Times we will further build on this distinctive international voice.”

Material for The Japan Times section will be produced from its office in Tokyo and its bureau in Osaka. The International New York Times section will be edited from the organization’s Hong Kong, New York, Paris and London offices, according to the news release.

Digital content will also be shared; subscribers to The Japan Times and International New York Times will have free, unlimited access to NYTimes.com using any device, including smartphones and computers, plus the full range of NYTimes apps for smartphones, tablets and computers.

The Japan Times, founded in 1897, is its home country’s largest-circulation English-language newspaper.

“We will remain a proudly independent newspaper, and will continue to offer our readers the very best in English-language journalism available in Japan,” Takeharu Tsutsumi, president of The Japan Times, said in a news release.

The IHT said Feb. 25 that it would be rebranded as a multiplatform international version of The New York Times.

The IHT had a publishing agreement with the Japanese paper Asahi Shimbun from 2001 until 2011. Under the arrangement, the IHT was published together with the English-language edition of Asiahi Shimbun.

Article source: http://www.nytimes.com/2013/03/26/technology/26iht-japantimes26.html?partner=rss&emc=rss

Strategies: At Dell, a Gamble on a Legacy

By making personal computers that were powerful, reliable and inexpensive, and by selling directly to buyers who customized their PC features, Mr. Dell revolutionized his industry.

“The original PC industry was long on people with great technical ideas but short on people who were able to turn those ideas into opportunities — into products that people really wanted,” said Timothy Bresnahan, a Stanford economist. Along with Steve Jobs and Bill Gates, as well as Scott Cook of Intuit, Mr. Dell was one of those few great innovators, he said. “These people are very rare.”

Mr. Dell’s early achievements were formidable, but unless his latest effort to turn around his company is successful, the Dell legacy today is very much in doubt. Last week, along with Silver Lake Partners, a private equity firm, he made a $24.4 billion buyout offer for his company — an apparent bet that, without the scrutiny of public shareholders, he can get Dell back on track.

Dell, the company, has been losing ground for years as the industry it once dominated has undergone upheavals that its founder failed to foresee. “The very nature of technology is that it changes a lot,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein. “And Michael has conceded publicly that he has missed some big changes — he failed to foresee smartphones or tablets — and both of these shifts have been highly detrimental to the PC world.”

He has lagged in a crucial area of corporate strategy as well, said Shaw Wu, an analyst at Sterne Agee in San Francisco. While Mr. Dell has always been attuned to the needs of corporate clients, he is 20 years behind I.B.M. in embracing a strategic shift to enterprise software and services, Mr. Wu said: “That’s a higher-margin business that Dell would like to go after, but I.B.M. and others have got tremendous leads. It will be very difficult for him to catch up.”

If Dell shareholders accept an offer price of $13.65 a share, Mr. Dell, who is contributing his stake of more than 14 percent in the company plus hundreds of millions more, would end up with more than 50 percent of the new company’s equity, Mr. Sacconaghi estimated. Mr. Dell, who declined to comment for this article, would control the company without being subject to the day-to-day pressures of the stock market, which has pummeled Dell shares because its earnings have weakened.

While Dell reports that 50 percent of its revenue is directly related to PCs, Mr. Wu says the figure is 70 to 80 percent when indirect revenue, like that for computer monitors, printers and services, is included. “The company has made big investments in other areas, but it’s still mainly a PC company,” he said.

That’s a big problem for several reasons. Once considered the low-cost provider in the field, Dell now faces lean Asian competitors like Lenovo, Asus and Acer that make PCs more cheaply and accept lower profit margins. Yet these companies, particularly Lenovo, have also garnered praise for making excellent computers, not merely well-priced ones. At the same time, Dell’s vaunted reputation for quality and service has waned.

Lenovo, which makes the ThinkPad line of notebook computers formerly sold by I.B.M., “has been picking up corporate customers from Dell,” Mr. Wu said.

THEN there is a deeper issue: the entire PC industry is stagnant at best. Worldwide PC shipments declined 4.9 percent in the fourth quarter, versus the year-earlier period, according to Gartner, a market research firm. Consumer preferences are shifting. With the ubiquity of smartphones and tablets — segments where Dell is absent or very weak — consumers aren’t replacing PCs as often.

“We don’t expect people to abandon PCs, but they won’t rely on them as much in the future,” said Mikako Kitagawa, a Gartner analyst. Dell’s share of this no-growth market has been shrinking, to 10.2 percent worldwide in the fourth quarter of 2012, from 12.2 percent the previous year, Gartner said.

Facing such headwinds, Mr. Sacconaghi said, Dell hopes to “hold PC profits flat or, worst case, down 5 percent a year, while they grow the rest of the business to more than offset that.” But the market is skeptical. Dell’s shares fell 30 percent in the 12 months before Jan. 14, when reports of an imminent buyout appeared.

The leveraged buyout will layer $15 billion of new debt on the company. Microsoft, with which Dell has had close ties, is providing $2 billion. Because interest rates are extraordinarily low, servicing all that debt should be manageable, assuming that Dell maintains its current cash flow, Mr. Sacconaghi said.

It’s not clear how much the debt load will constrain Dell’s investments in research and development. Josh Lerner, a Harvard Business School professor, said a study for which he was a co-author found that after leveraged buyouts, most companies maintained their ability to innovate, largely by focusing research in “their core competencies.”

In other words, he said, “Dell might be able to prosper after a buyout; it would depend on how Michael Dell manages the company.”

Is the price being offered for the company fair? It’s often unwise to bet against company insiders, especially founders like Mr. Dell, who may be presumed to know their companies’ value better than outside investors.

Consider John W. Kluge, who took Metromedia private in 1984 in a $1.1 billion leveraged buyout. Mr. Kluge, Metromedia’s founder, promptly liquidated it, selling television stations (to Rupert Murdoch) and sundry assets like the Harlem Globetrotters and the Ice Capades. In the end, Mr. Kluge tripled his take — to the chagrin of many former shareholders.

Mr. Kluge, who died in 2010, wasn’t interested in preserving his company or revolutionizing an industry, however. He merely wanted to make money. “When we buy an asset, we look at it as a return on the investment,” he said in 1980.

For Mr. Dell, whose name is on the door, other factors may be in play. “Another chapter is still to be written,” Mr. Bresnahan said. Money will be part of it. So will the Dell legacy.

Article source: http://www.nytimes.com/2013/02/10/your-money/at-dell-a-gamble-on-a-legacy.html?partner=rss&emc=rss

Nokia Reports Profit but Fails to Soothe Investors

The company, based in Espoo, Finland, said it had a profit of €202 million, or $269 million, in the three months through December, after a loss of €1.1 billion a year earlier. Sales fell 20 percent, to €8 billion from €10 billion, as it phased out an older line of smartphones that used the Symbian operating system.

The company’s shares fell 5.5 percent in trading in Helsinki, closing at €3.30, as Nokia announced that it would not pay a dividend for 2012, which would save the company about €750 million. It was the first time Nokia had not paid a dividend in recent memory, according to the company.

Mats Nystrom, an analyst at SEB Enskilda Bank in Stockholm, said that Nokia had raised investor hopes this month when it said it would report a quarterly profit, but that the company had not met those expectations with results that showed less-than-expected growth in the average selling price of the Lumia smartphone line and falling cellphone prices.

“I still think it is far from a certainty that this turnaround will be a success,” Mr. Nystrom said.

During a conference call with journalists, the Nokia chief executive, Stephen Elop, challenged that notion, saying the company had successfully eliminated investor concerns about its future. Nokia’s net cash on hand at the end of December, bolstered by the decision to forgo a dividend payment, rose to €4.4 billion from €3.6 billion in September.

“For investors, it was a solid quarter in which we removed concerns about our cash situation,” said Mr. Elop, a former senior executive at Microsoft. Over the past year, he has closed factories across Europe and eliminated 16,500 workers from Nokia’s phone business.

The quarterly net profit was the first since Nokia announced its alliance with Microsoft in February 2011, which set off a turbulent transition that led to about €5 billion in combined losses, the laying off of a third of the company’s work force and a steep decline in its market share in smartphones, the industry’s defining segment.

While sales of Nokia’s new Lumia line, which uses the Microsoft Windows Phone operating system, are accelerating, to 4.4 million units in the fourth quarter from 2.9 million in the third, the company remains a distant challenger to the industry leaders, Apple and Google, whose Android operating system is now running nearly two-thirds of all new smartphones sold around the world.

Apple sold more than 10 times the number of iPhones during the fourth quarter, 47.8 million, and sales of Android smartphones, according to International Data Corp., reached 136 million in the third quarter. But as the largest maker of smartphones running Microsoft’s new Windows Phone 8, Nokia can build on its gains.

“This is really the time now for Nokia to put up results,” said Francisco Jeronimo, an analyst for International Data Corp. in London. “They are almost exclusively out there with Windows 8, and Microsoft is strongly promoting the operating system. There can be no more excuses now.”

In North America, Nokia increased its sales of cellphones by 40 percent in the fourth quarter to 700,000 units, up from 500,000 in the third quarter. Mr. Jeronimo said those results were weak considering the sizable marketing investment in the United States and Canada by Nokia and Microsoft on Windows 8.

Nokia’s share price has fallen by more than half during its software alliance with Microsoft. The shares have risen about 12 percent this year.

In the fourth quarter, Nokia’s profit was fueled by continued cost-cutting and the introduction of the Lumia 820 and 920 smartphones running Windows Phone 8.

The new handsets helped Nokia raise the average selling price of Lumia phones in the quarter to €186, up 33 percent from €140 in the quarter a year earlier. But the average price of Nokia’s basic cellphones, which still make up almost two-thirds of its total phone sales, fell 3 percent, to €31 from €32.

Article source: http://www.nytimes.com/2013/01/25/technology/nokia-shows-a-profit-but-shares-drop.html?partner=rss&emc=rss

Apple’s Profits Are Flat, and Stock Drops

Its stock sank 11 percent.

What is going on? Because of its great success in recent years, many investors have come to expect nothing short of perfection from Apple. And while it is still widely considered the most innovative company in the technology world, a maker of products that its devoted customers cannot live without, Apple is facing a range of challenges.

It is dealing with increased competition from big rivals like Samsung and Google, and with so many people already using smartphones, the market is not quite as untapped as it once was. Apple is forging into cheaper product categories, meaning lower profit margins. And given that Apple has grown so big, with sales of more than $160 billion in the last 12 months, keeping up its heady growth rate is becoming harder and harder.

Once-euphoric investors, who pushed Apple’s stock to a record high of $702.10 last September, have become nervous, and in after-hours trading on Wednesday, the stock traded at $461.30, down 34 percent from its peak.

Apple has reinvented itself several times over the last decade with groundbreaking new products, and could do so again. Television and electronic payments are among the markets where analysts believe the company could make a push, leading it to new heights.

“Apple has really been able to invent whole new markets,” said John Gallaugher, an associate professor at Boston College’s Carroll School of Management. “That’s where it differs from companies like Microsoft. I don’t think the mojo of this team has evaporated.”

In a conference call with analysts, Timothy D. Cook, Apple’s chief executive, said the company’s pipeline of new products was “chock-full.”

“We feel great about what we have in store,” he said, without adding details.

In the meantime, though, the love affair that investors once had with Apple is clearly waning.

“There’s nothing that can help the stock from sliding now,” said Mark Moskowitz, an analyst at J. P. Morgan Securities, who said Apple’s holiday sales met his own forecasts, even though they missed others’ predictions.

For years, Apple has offered an unusual alchemy: it was not only a large, highly profitable tech company, but one with the rapid growth rate of a start-up. It pulled this off under the leadership of Steven P. Jobs, its former chief executive, who died in late 2011. He had a startling knack for finding new multibillion-dollar opportunities for Apple with the iPod, iPhone and iPad, but his death has accentuated concerns about the company’s prospects.

A big part of Apple’s challenge is that it is now so large that it seems unrealistic, mathematically, for the company to continue finding new pots of gold big enough to maintain its growth. In a recent research report, A. M. Sacconaghi, an analyst at Bernstein Research, calculated that were Apple to grow for the next five years at the same rate as the last five years, its revenue would be $1.2 trillion, or about the size of Australia’s gross domestic product.

One continuing concern is that the iPhone, which accounts for over half of Apple’s revenue, could be smothered by smartphones running Google’s Android operating system, which accounts for three out of every four handsets shipped globally.

But Apple continues to take an outsize portion of the profits in the smartphone business, and in the United States the company actually increased its share of the smartphone market over the holiday quarter, rising to 51.2 percent from 44.9 percent a year earlier, according to a study released this week by Kantar Worldpanel ComTech.

On Wednesday, Apple did not appear to provide a strong enough reason for investors to warm to it again. It said its profits were flat because of higher manufacturing costs, even as revenue rose 18 percent.

Apple’s net income for its fiscal first quarter ending Dec. 29 was $13.1 billion, or $13.81 a share, flat compared with $13.1 billion, or $13.87 a share, in the same period a year earlier. Revenue was $54.5 billion, up from $46.33 billion a year ago. Those results compared to the average estimates of $13.44 a share earnings and revenue of $54.73 billion from analysts surveyed by Thomson Reuters.

Apple’s growth in the quarter looked anemic compared with the huge numbers it used to deliver. For the holiday quarter of 2011, in contrast, its revenue jumped 73 percent and its profit soared 118 percent.

In its financial forecasts for the current quarter, Apple provided numbers that suggest a decline of roughly 20 percent in earnings a share, according to Mr. Sacconaghi’s calculations.

A number of analysts say they still believe the company’s good times are not over. “Sentiment has turned super-pessimistic on Apple, where they’ve gone from being able to do no wrong to suddenly being able to do no right,” said Rob Cihra, an analyst at Evercore Partners. “I tend to think the company’s momentum is a heck of a lot more solid than people are concerned about.”

One factor that hurt comparisons between Apple’s most recent holiday quarter and the previous one was that its 2012 quarter was a week shorter.

Headed into the holiday quarter, analysts were worried about Apple’s profit margins, which the company had warned would decline as a result of a near total overhaul of the company’s product line.

While new products are routine for a company like Apple, it said the number of devices it released around the holidays, like the iPhone 5, iPad Mini and new Mac computers, was unusual.

But negative sentiment has further hardened amid reports that Apple had cut orders for components with a supplier, potentially suggesting weak demand for the iPhone.

Mr. Cook cautioned that investors shouldn’t place too much significance on such reports because Apple often gets its parts from multiple sources.

Article source: http://www.nytimes.com/2013/01/24/technology/apple-earnings.html?partner=rss&emc=rss