October 1, 2020

Off the Charts: Ireland’s Turnaround May Not Be So Rosy

Two years ago, even as other troubled European economies continued to deteriorate, some economic statistics seemed to indicate that Ireland’s troubled economy had turned the corner and was growing again.

The government reported that gross national product had grown in 2010 for the first time since the country’s property bubble burst in 2008, and that its current-account balance had turned positive for the first time since 1999. A positive current-account balance was a sign that the country as a whole was already paying down its overseas debt. Since that was clearly not happening to the government’s debt, it indicated a sharp turnaround for the private sector.

Other statistics were not nearly as rosy. Unemployment was continuing to rise, and domestic demand — the total purchases by people and companies in Ireland — was continuing to fall. But the fact that Ireland’s current-account surplus had turned around when nothing similar had happened in such countries as Portugal, Spain and Greece was viewed as a clear sign of success for the country’s economic policies.

Well, maybe not.

John FitzGerald, an economist with the Economic and Social Research Institute in Dublin, pointed out last month that a quirk in the way the statistics are computed, coupled with fears of a tax law change in Britain, had produced unrealistic increases in both the balance of payments and G.N.P. figures beginning in 2009.

The reasons are complicated, but the quirk is retained profits of multinational companies that chose to relocate their nation of incorporation to Ireland, even though they were, in fact, based in Britain. The G.N.P. and balance of payments data allocate those profits to Ireland, he said in a paper, even though “there is no profit to the Irish economy” because they are being held for the benefit of the foreign owners of the companies.

The G.N.P. figure is similar to the more widely known G.D.P. — gross domestic product — but it includes profits only of Irish citizens and companies, regardless of where they were earned instead of profits of companies operating in Ireland. In an interview, Mr. FitzGerald said the Irish statistics office understands why the numbers are misleading, but feels it cannot change them under European rules. He said that European Union taxes on its member countries were based on G.N.P. numbers.

The accompanying charts show the official figures, alongside Mr. FitzGerald’s estimates of the proper ones after adjusting for the foreign-owned profits. By his estimates, the balance of payments did not turn positive until 2012, when the surplus was much smaller than the official figure. Similarly, the G.N.P. did not begin rising until last year.

The International Monetary Fund, in its review of the Irish economy published this week, said Mr. FitzGerald’s numbers appeared to be better. “This adjusted G.N.P. path appears to be more consistent with other economic indicators, most notably domestic demand, which continued to fall in 2009-12,” the I.M.F. report stated.

The I.M.F. forecasts that domestic demand will grow by 1 percent in 2014 after six consecutive years of decline.

Government spending reductions are a major part of that weakness, but so is the country’s failure to fix the financial system. Despite huge bank bailouts that nearly bankrupted the government, the I.M.F. is still worried about the capitalization of the banks and concerned that little money is available for lending. Mortgage problems continue to grow. On Friday the Irish central bank said that 25 billion euros of home mortgages — more than 23 percent of the total outstanding — were behind on their payments at the end of March. Unemployment has declined a little, but remains above 12 percent for adults and more than double that for people under 25.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/06/22/business/economy/irelands-turnaround-may-not-be-so-rosy.html?partner=rss&emc=rss

BUSINESS: Hewlett-Packard Looks for a Turnaround

September 26, 2012

Article source: http://video.nytimes.com/video/2012/09/26/business/100000001808287/hewlett-packard-looks-for-a-turnaround.html?partner=rss&emc=rss

A Turnaround at Netflix, as Its Mail Sector Shrinks

The company posted total revenue of $875.6 million, up 47 percent from the quarter last year. As the company invested in content rights and spent more to gain new subscribers, its profit, $40.7 million, or 73 cents a share, was down nearly 14 percent from the quarter last year, when its profit was $47.1 million, or 87 cents a share.

Reed Hastings, the company’s chief executive, said he was encouraged by the number of new sign-ups for streaming video, the service that he is emphasizing as Netflix’s DVD-by-mail service shrinks. In a letter to investors, he and the company’s chief financial officer, David Wells, called Netflix a “global Internet TV network,” reflecting the growing importance of TV shows to a company that started as a distributor of movies on DVD. Netflix is also beginning to make its own shows, in much the same way that HBO and Showtime do.

The fourth quarter was the first full quarter since a price increase and a bungled — and later abandoned — plan to spin off its DVD-by-mail service hurt the company’s reputation and decimated its stock price. It lost about 800,000 subscribers in the United States in the third quarter, leveling off at 23.8 million; at the end of the fourth quarter, it had 24.4 million, somewhat more than it had expected to have.

Investors welcomed these signs of recovery, sending the stock up about 15 percent in after-hours trading on Wednesday, after ending regular trading at $95.04. The stock, which plummeted from $300 to well under $100 last summer and fall, has rebounded about 30 percent in the last few weeks.

Of those 24.4 million subscribers in the United States, 21.7 million have the streaming service, and 11.2 million have the DVD service. (Many have both.) Netflix expects to gain 1.7 million streaming subscribers in the first quarter of this year, and lose 1.5 million from the DVD service.

“The truth is, the DVD business is going to see declines no matter what we do,” said Ted Sarandos, Netflix’s chief content officer, at a TV conference in Miami on Tuesday. As evidence, he pointed to a recent agreement between Netflix and Warner Brothers that will further delay the availability of DVDs to Netflix subscribers.

Warner succeeded in doubling the length of time that Netflix waits to receive DVDs after they go on sale at stores, to 56 days, from 28 days previously. When asked about the agreement, Mr. Sarandos said that the confusion that DVD delays cause consumers “ultimately may be a net negative for the DVD service.”

Not that Netflix is overly concerned about DVDs. Its future, it says, is in streaming; Mr. Hastings said on a conference call Wednesday evening that the company has no plans to market the DVD service this year.

Netflix has 1.9 million streaming subscribers in other countries now, mostly in Canada; it is also starting to gain subscribers in Latin America, Britain and Ireland.

Increased investments in those new markets is expected to cause modest losses through this year, the company predicted. Mr. Hastings and Mr. Wells said in their letter Wednesday that “until we achieve our goal of returning to global profitability, we do not intend to launch additional international markets.”

Article source: http://feeds.nytimes.com/click.phdo?i=e24560aa14f44a72848badf5ceed1e80

DealBook: Limited Choices for Yahoo, Each One With Its Own Risks

Harry Campbell

Yahoo shareholders should brace themselves again for disappointment. While the board is seeking a deal for the company, Yahoo faces limited options — all with significant downsides and risks.

The cleanest transaction would be for the Yahoo board to sell the company outright in an auction. This, in theory, would give downtrodden shareholders a premium return — one that they have been hungering for since the board turned down Microsoft’s offer to buy the company at $31 a share in 2008. A full sale would also relieve the Yahoo board of the headache-inducing task of rebuilding the Yahoo business and hiring a new chief executive.

Unfortunately, the Yahoo board has apparently refused to solicit bids for a sale. The company hasn’t said why, but the most likely reason is that with the state the business is in, it is unlikely to get a price as high as Microsoft offered four years ago. (Yahoo shares closed Tuesday at $15.84) The Yahoo board simply does not want to face up to the fact that it was a mistake to spurn Microsoft’s offer.

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There are other reasons. Yahoo’s prize assets are a 43 percent interest in Alibaba, the Chinese Internet company, and a 35 percent interest in Yahoo Japan. A sale of Yahoo may prompt a change of control in Yahoo’s agreement with Alibaba’s shareholders, giving them a right to repurchase Yahoo’s stake in this Chinese asset, something they are salivating to do. So, a buyer of Yahoo may not reap the value of Alibaba, further diminishing what Yahoo could get in a full sale.

And frankly, there are not a lot of potential bidders for the entire company. An acquisition would cost more than $20 billion and represent a big turnaround project for any suitor. Yahoo’s outsourcing of its search engine functions to Microsoft also makes it hard for anyone other than Microsoft to take full advantage of Yahoo’s technology.

In the absence of a full sale, Yahoo has been soliciting proposals for a minority investment.

Two competing consortiums have submitted bids to make a minority investment in Yahoo, according to people briefed on the matter. Microsoft, Silver Lake and Andreessen Horowitz have submitted one bid, while TPG Capital has submitted the other. TPG is seeking to bring in Greylock Partners, a venture capital firm whose partners include a LinkedIn co-founder, Reid Hoffman.

The Microsoft/Silver Lake plan would have Yahoo sell its holdings in Alibaba and Yahoo Japan and pay out shareholders, as well as alter the board and appoint a new chief executive. The TPG plan contemplates something similar.

The problem with these plans is that they both would involve Yahoo’s borrowing billions to give shareholders something. The shareholder payout would most likely take the form of a share repurchase that would give the investing group about a 40 percent interest in Yahoo. Together with Yahoo’s co-founders, Jerry Yang and David Filo, the investing group would effectively control Yahoo. Some Yahoo shareholders — in particular, Daniel S. Loeb of Third Point, which owns about 5 percent of Yahoo — are likely to react strongly to this transaction. They would complain that control of Yahoo was being sold without a shareholder vote.

Yet what these plans offer is a way for Yahoo to acquire a management team. That is why the Microsoft/Silver Lake bid — with Marc Andreessen, the Internet wunderkind, on their side — is said to be favored by the Yahoo board and why TPG is trying to work with Mr. Hoffman.

The problem is that this is a high price to pay for a management team. Silver Lake and its partners would be looking to effect a turnaround of Yahoo’s core business akin to what Silver Lake did with Skype. But Yahoo’s public shareholders would be deprived of a significant part of any upside.

Simply selling Yahoo’s Asian assets is also not going to be cost-effective for Yahoo. That is because the other shareholders in Alibaba may have rights of first refusal that they will undoubtedly exercise if they can. No other suitor will bid because of this, meaning that the two Asian companies are in the driver’s seat for buying Alibaba at a low value.

This leads to the last option: Yahoo can remain wholly independent. The board would have to dig in and try to turn around the company and recruit a chief executive who can lead a Yahoo renaissance. Yet, the Yahoo board has had little luck with its last four chief executives and has been prone to making poor choices, the prime example being the rejection of the Microsoft offer.

The one wild card in all of this is Jack Ma, who wants to control the 43 percent of Alibaba held by Yahoo.

Mr. Ma’s problem is that the United States government would almost certainly act under the national security laws to block Alibaba’s takeover of Yahoo. Federal authorities have been applying these laws aggressively to block Chinese acquisitions, including the proposed acquisition of 3Com by the Chinese telecommunication manufacturer Huawei. Even if an election year were not approaching, a Chinese acquisition of one of America’s premier Internet properties is almost certainly a nonstarter.

Mr. Ma recognizes this. He doesn’t want Yahoo’s American operations, and he is said to be talking to the Blackstone Group, Bain Capital and other private equity firms about teaming up to buy the American operations, leaving Mr. Ma with all of Alibaba. Softbank might join this group to purchase the 35 percent of Yahoo Japan owned by Yahoo.

No matter what Yahoo does, Mr. Ma may decide to push for a full sale of Yahoo to his consortium or a third party. He doesn’t care who wins the bidding, because he would argue that a full sale would activate his right to repurchase Yahoo’s Alibaba stake.

Mr. Ma has reason to fear a minority investment in Yahoo, because it would take away the leverage he would have if he made a full bid. So, expect Mr. Ma to make a lot of noise if Yahoo goes the minority investment route.

All of this means that Yahoo is faced with a series of bad choices, with the board focusing on staying independent or taking a minority investment. The bravest and perhaps riskiest of the two is independence.

In either case, determining the fate of Yahoo is likely to be a messy business for some time.

It’s Time to Grade This Year’s Deals

The year is nearing its end, and it is once again time to reflect on the deal-making successes and failures of 2011. As in prior years, I’ll be doing my part here at Dealbook by awarding year-end grades. The A’s will go to deal makers who performed superbly and deals that succeeded spectacularly. The F’s will go to the year’s deal-making failures.

If you know of a deal that fits either category and would like to nominate it for consideration, please send an e-mail by Dec. 15 to dealprof@nytimes.com. Self-promotion is welcome, as are reasons why you think a deal or deal maker qualifies.

I’ll be posting the grades shortly thereafter.


Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=146afb02645cb7104d12eb58390e69ec

With New Smartphones, High Hopes for Nokia and Microsoft Union

Nokia’s chief executive, Stephen A. Elop, presented the Lumia 800, a 420 euro ($584) touch-screen device, and the Lumia 710, a 270 euro handset at a company product introduction. Both devices are being sold in six European countries and will be sold later this year in parts of Asia. Other smartphones are planned for the United States, but not until early next year.

Analysts said the Nokia smartphones, the result of an eight-month collaboration with Microsoft, could also help Microsoft extend its dominant computer software business into the cellphone and mobile device market. The software has received positive reviews, but few handset makers are using it.

The new lineup aims to revive Nokia’s tarnished reputation as an innovative force in mobile phones, an industry it pioneered and dominated until Apple and Google, helped by more user-friendly software, wrested control of the smartphone business four years ago.

“Nokia really needed this to happen today, and this is a new start for the company,” said Pete Cunningham, an analyst based in London with the research firm Canalys. “This helps stop the bleeding and will help Nokia get back in the game.”

Mr. Elop, a former senior Microsoft executive who made the decision to enter the software alliance with his former employer in February, said the new Lumia devices showed that Nokia, which is based in Espoo, Finland, was delivering on his promise of a turnaround. “This signals our intent to be today’s leader in smartphone design and craftsmanship,” Mr. Elop told 3,000 people attending the company’s Nokia World conference in London.

During an interview, Mr. Elop said Nokia was planning to push its smartphones into the United States, where it has struggled, early next year. He said Nokia was in advanced talks with the four major American operators, which together sell more than 90 percent of all cellphones in the country. Nokia’s new smartphones for the United States, Mr. Elop said, will run on high-speed 4G networks that use a technology called LTE, or Long Term Evolution, as well as on older 3G networks.

They will also be made to run on networks that use the C.D.M.A. standard, which is used by the market leader, Verizon Wireless.

Mr. Elop said that Nokia was listening closely to phone operators and would be flexible in meeting their demands. “If you do the math, you may come to the conclusion that clearly we are in good conversations with those operators,” he said

Microsoft, based in Redmond, Wash., is using its business connections — its server software powers a lot of cloud computing centers used by network operators — to help Nokia re-establish relationships with American operators, he said. “When we enter a market, it is not just dipping your toe in the market, but coming in with the appropriate levels of investment by us,” Mr. Elop said. “It takes work. It takes money. We are being very deliberate.”

With Lumia, Nokia aims to beat Apple and Google by designing handsets that are easier to use than the two best-selling smartphones, the Apple iPhone 4S and the Samsung Galaxy S II, which runs Google’s Android software. The Lumia 800’s start screen is a wheel of interactive tiles. By clicking a tile, users are taken directly to a preferred task, like text messaging a friend, tracking a sports team or listening to a favorite song, without having to enter and close applications.

The software interface, developed by Microsoft but refined by Nokia, is designed to remove as much laborious touch-screen tapping as possible. Marko Ahtisaari, Nokia’s head designer, said the smartphones used fluid, rather than linear, design logic, which eliminated many of the intermediary steps required with the array of static app icons that Apple and Google’s Android favor.

Shares of Nokia closed at 4.80 euros, down 0.6 percent, in European trading.

One investor said that Nokia and Microsoft must still overcome skepticism about the venture. “I have seen no evidence that Nokia and Microsoft are making a game of it — yet,” said Jeffrey P. Davis, the chief investment officer at Lee Munder Capital, an investment fund manager based in Boston with $5.4 billion under management. “Android is winning the mind space on the consumer front. The business world will probably follow.”

Neil Mawston, an analyst at Strategy Analytics, estimated that Nokia was paying $15 to Microsoft for each Windows smartphone it produced, less than the estimated $20 other handset makers must pay. The new Windows phone lineup, he said, has the potential to help restore Nokia’s fortunes in the smartphone market.

“One thing I have learned in this business is to never say never,” Mr. Mawston said.

Article source: http://feeds.nytimes.com/click.phdo?i=abd0cf0f716103a2dd23589f189b1feb