U.S. Jobless Claims Rose to 428,000, Highest Level Since June

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September 15, 2011, 8:53 AM EDT By Timothy R. Homan and Bob Willis

Sept. 15 (Bloomberg) -- Applications for U.S. unemployment benefits unexpectedly rose last week to the highest level since the end of June, underscoring the risk of further weakness in the labor market.

Jobless claims climbed by 11,000 to 428,000 in the week ended Sept. 10 that included the Labor Day holiday, figures from the Labor Department showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 411,000, according to the median forecast.

Bank of America Corp. and Cisco Systems Inc. are among companies planning to keep trimming payrolls, raising the risk that consumer spending will stagnate. Signs the labor market is struggling to gain traction puts more pressure on President Barack Obama, lawmakers and the Federal Reserve for additional steps to spur the economy.

“Layoffs remain relatively high and are currently showing no trend improvement,” Steven Wood, president of Insight Economics LLC in Danville, California, said before the report. “The labor market remains stagnant.”

Weeks that include federal holidays typically show a decrease in unadjusted claims because there’s one less day to file. During the latest week, filings failed to drop as much as expected, resulting in a higher figure after seasonal adjustment, a Labor Department spokesman said as the data were released. He also said there wasn’t any effect on claims from Hurricane Irene.

Jobless benefits applications were projected to fall from the 414,000 initially reported for the prior week, according to the median forecast of 50 economists in a Bloomberg survey. Estimates ranged from 400,000 to 440,000.

Four-Week Average

Today’s data showed the four-week moving average, a less- volatile measure than the weekly figures, climbed to 419,500 last week from 415,500.

The number of people continuing to receive jobless benefits decreased by 12,000 in the week ended Sept. 3 to 3.73 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

Those who’ve used up their traditional benefits and are now collecting emergency and extended payments rose by about 10,000 to 3.61 million in the week ended Aug. 27.

The unemployment rate among people eligible for benefits held at 3 percent in the week ended Sept. 3, today’s report showed.

States, Territories

Thirty-nine states and territories reported an increase in claims, while 14 reported a decline. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

Total payrolls were unchanged last month, the weakest reading since September 2010, and the unemployment rate held at 9.1 percent, the Labor Department said Sept. 2.

Obama announced his jobs plan before a joint session of Congress on Sept. 8, calling for an extension of a payroll-tax break for Americans and unemployment assistance. He also pushed for a payroll tax break for small businesses, an increase in infrastructure spending and more aid for cash-strapped state governments.

Bank of America, the biggest U.S. lender, will eliminate 30,000 jobs in the next few years as part of Chief Executive Officer Brian T. Moynihan’s plan to bolster profit and the firm’s stock. The reductions equal about 10 percent of the Charlotte, North Carolina-based company.

“We don’t have to be the biggest company out there, we have to be the best,” Moynihan said Sept. 12 at a New York investor conference. “We can get out of things we don’t need to do, make the company leaner, more straightforward, more driven.”

--Editor: Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Marx to Market

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By Peter Coy

Illustration by Andy Martin

Society generally moves on from its mistakes. Doctors no longer drain blood from patients. Aviators don’t try to fly by strapping wings to their arms. Nobody still thinks that slavery is a good idea. Karl Marx, though, appears to be an exception to the rule of live and learn. Marx’s most famous predictions failed; there has been no dictatorship of the proletariat, nor has the state withered away. His followers included some of the 20th century’s worst mass murderers: Lenin, Stalin, Mao, Pol Pot. Yet the gloomy, combative philosopher seems to find adherents in each new generation of tyrants and dreamers.

You might even say the Bearded One has rarely looked better. The current global financial crisis has given rise to a new contingent of unlikely admirers. In 2009 the Vatican’s official newspaper, L’Osservatore Romano, published an article praising Marx’s diagnosis of income inequality, which is quite an endorsement considering that Marx declared religion to be “the opium of the people.” In Shanghai, the turbo-capitalist hub of Communist-in-name-alone China, audiences flocked to a 2010 musical based on Capital, Marx’s most famous work. In Japan, Capital is now out in a manga version. Brazilians elected a former Marxist guerrilla, Dilma Rousseff, as President last year.

The vogue for Marx should be expected at a time when European banks stand on the precipice of collapse and poverty levels in the U.S. have reached levels not seen in nearly two decades. Politicians know they can score points with their constituents by kicking job-creating capitalists like mangy curs.

Here’s the surprising thing, though: You don’t have to sleep in a Che Guevara T-shirt or throw rocks at McDonald’s to acknowledge that Marx’s thought is worth studying, grappling with, and possibly even applying to our current challenges. Many of the great capitalist thinkers did so, after all. Joseph Schumpeter, the guru of “creative destruction” who is a hero to many free-marketeers, devoted the first four chapters of his 1942 book, Capitalism, Socialism and Democracy, to explorations of Marx the Prophet, Marx the Sociologist, Marx the Economist, and Marx the Teacher. He went on to say Marx was wrong, but he couldn’t ignore the man.

As misguided as Marx was about many things, and as pernicious as his influence was in places like the U.S.S.R. and China, there are pieces of his (voluminous) writings that are shockingly perceptive. One of Marx’s most important contentions was that capitalism was inherently unstable. One only has to look at the headlines out of Europe—which is haunted by the specter of a possible Greek default, a banking disaster, and the collapse of the single-currency euro zone—to see that he was right. Marx diagnosed capitalism’s instability at a time when his contemporaries and predecessors, such as Adam Smith and John Stuart Mill, were mostly enthralled by its ability to serve human wants.

Marx has gotten an attentive reading recently from the likes of New York University economist Nouriel Roubini and George Magnus, the London-based senior economic adviser to UBS Investment Bank. Magnus’s employer, Switzerland-based UBS, is a pillar of the financial establishment, with offices in more than 50 countries and over $2?trillion in assets. Yet in an Aug.?28 essay for Bloomberg View, Magnus wrote that “today’s global economy bears some uncanny resemblances” to what Marx foresaw. (Personal opinion only, he noted.)

Consider the particulars. As Magnus notes, Marx predicted that companies would need fewer workers as they improved productivity, creating an “industrial reserve army” of the unemployed whose existence would keep downward pressure on wages for the employed. It’s hard to argue with that these days, given that the U.S. unemployment rate is still more than 9?percent. On Sept.?13 the U.S. Census Bureau released data showing that median income fell from 1973 through 2010 for full-time, year-round male workers aged 15 and up, adjusted for inflation. The condition of blue-collar workers in the U.S. is still a far cry from the subsistence wage and “accumulation of misery” that Marx conjured. But it’s not morning in America, either.

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Consumer prices in United States increase 0.4%; Core-gauge rises 0.2 %

September 15, 2011, 8: 56 am EDT by Bob Willis

Sept. 15 (Bloomberg)--the cost of living in the U.S. rose more than forecast in August as consumers more paid for food, energy and housing.

The consumer price index rose 0.4% to 0.5% in July people gain from the Department showed today in Washington. Economists expected a profit of 0.2 percent, according to the median forecast in a poll by Bloomberg News. The so-called core, the volatile food and fuel includes increase in prices of raw materials prices by 0.2 percent for a second Monat.Der previously invited some companies like Lowe's COS. fairs this year, passed on the increased costs at a time when American wages are stagnant. Federal Reserve Chairman Ben S. Bernanke last week said inflation is expected to vividly prove as some price increases "transitory." "Core inflation may continue to rise a bit,", said Paul Ashworth, Chief U.S. economist at capital economics Ltd. in Toronto, before the report. "As long as the temporary factors be reversed, it will be fine." "Certainly there is no deflation fears as last year."Applications for unemployment benefits U.S. rose unexpectedly last week to its highest level since the end of June, underlining an ailing job market, the Labor Department also said.Jobless claims 10, containing the Labor Day holiday grew to 11,000 to 428.000 in the week to end Sept.Today's consumer price report showed also inflation adjusted hourly wages fell 0.6 percent in August, the most since July 2008 and were 1.9 percent compared to the same month of Vorjahres.Die forecast increase of consumer prices based on the median of the 84 economists in a Bloomberg survey estimated a decline of 0.2 percent, an increase of 0.4 percent was enough.Higher RentsThe results contain a jump of 0.4% in rent, the rent since June 2008. accommodation costs rose by 0.2 equivalent of Prozent.Besitzer, one of the categories you want to track prices, also 0.3% rose by 0.2 percent after rising in July. Assembly are residential property foreclosures reduce, while promoting the demand for Mietwohnungen.Das core gauge rose following an increase of 0.2 percent in July. Economists had to win a 0.2 percent August, according to the survey median Prognose.Insgesamt ended up consumer prices increased 3.8 percent in the 12 months August, matching the year-over-year gain of the previous month. The core CPI rose by 2 percent from August 2010, more than the mean predicts an increase of 1.9% and the informal since November 2008.Core InflationThe fed target range for longer-term core inflation 1.7 to 2 percent is a Department of Commerce measured to gauge bound Konsum.Der today's report showed that energy costs by 1.2 percent from a month earlier increased. "Gasoline prices increased by 1.9 percent and lay officials by 32 percent compared with the Vorjahr.Der consumer price report followed Bernanke's comments at the Economic Club of Minnesota last week, the Central Bank inflation as oil and other commodity prices simply too slow.""We see little indication that experienced higher inflation this year are rooted in the economy," Bernanke said. "Inflation will moderate in the coming quarters, expected to be," he said, citing the declining "temporary" influences such as high fuel prices and global supply disruptions Japan March earthquake and associated tsunami.Food costs 0.5 per cent, higher dairy products, meat, fruit and vegetable driven.Costs of medical care rose by 0.2 percent cars and ClothingThe. Costs for private cars were increased 0.9 percent prices unchanged, while used vehicle. Clothing costs rose by 1.1 per cent, most since March.Recent data showed that the US economy stumble is. Retail sales were unchanged in August, the economy generated no jobs and hourly wages fell."Lowe, the second largest home improvement retailer, together, to minimize the cost by increasing some consumers concerned about.""Our approach is to negotiate as hard as possible to the lowest cost possible", said Robert Gfeller, executive Vice President of merchandising at Lowe's, in a teleconference Sept 7. "we have taken (higher) prices, we have moved some by the retail trade."Toyota Motor Corp is one of automakers with lower prices, after stocks of following Japan's earthquake restored. The Toyota city, Japan-based automaker begins a Flash of U.S. model releases, some of which lost rivals such as Hyundai Motor Company after three years, the recession, callbacks, and the earthquake with cheaper price tags, regain sales included.Toyota last month the 2012 Camry in Hollywood, California, with prices from $200 to $2,000 on the top-end-, four cylinder Camry presented, said Bob Carter, Group Vice President of U.S. sales, in an interview.

-With the help of Chris Middleton in Washington. Publisher: Vince Golle

The reporter on this story contact: Bob Willis in Washington bwillis@bloomberg.net

The editor for this story contact: Christopher Wellisz at cwellisz@bloomberg.net

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Stocks, Euro Gain on Greek Backing; UBS Slides on Trading Loss

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September 15, 2011, 7:10 AM EDT By Stephen Kirkland and Shiyin Chen

Sept. 15 (Bloomberg) -- Stocks gained for a third day, the euro strengthened and Greece’s bond yields fell after German and French leaders reiterated support for the country. UBS AG tumbled after reporting a $2 billion trading loss.

The MSCI All-Country World Index jumped 1 percent at 6:40 a.m. in New York. The Stoxx Europe 600 Index rose 1.6 percent even as UBS sank 7.9 percent. Standard & Poor’s 500 Index futures climbed 0.5 percent. The euro appreciated against 12 of its 16 major peers, and the yield on the Greek two-year note tumbled more than 400 basis points. Spanish 10-year yields rose four basis points to 5.40 percent, approaching a month high, as the country sold 3.95 billion euros ($5.4 billion) of bonds.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said yesterday they’re convinced Greece will stay in the euro area as the region’s debt crisis spreads. Spain, France, the U.K. and Sweden are selling bonds today. U.S. inflation probably eased and industrial output stalled, economists said before reports from the Labor Department and Federal Reserve.

“Sentiment has improved tangibly following Merkel and Sarkozy’s reassurances yesterday evening that Greece would remain in the European Monetary Union,” Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, said in a report today. “That said, it seems that the eurozone debt crisis is no nearer a solution than it was last week and consequently, despite today’s better tone, it is fair to expect the market to remain in a very jittery mood.”

Kingfisher, UBS

The Stoxx 600 advanced for a third day as all 19 industry groups gained. Kingfisher Plc climbed 4.8 percent as Europe’s largest home-improvement retailer reported profit that beat estimates. Hennes & Mauritz AB rallied 5.6 percent after the clothing retailer’s sales were better than anticipated.

UBS sank as much as 9.6 percent after the biggest Swiss lender said it may be unprofitable in the third quarter because of the loss from unauthorized trading at its investment bank. The London police said today they arrested a 31-year-old man in connection with the probe.

The gain in S&P 500 futures indicated the index will extend a three-day rally. U.S. data today may show consumer prices rose 0.2 percent in August from July, when inflation was at 0.5 percent, according to the median forecast in a Bloomberg News survey. Other reports may show manufacturing contracted in the New York and Philadelphia regions this month and first-time jobless claims were at a level last week that indicates limited improvement in the job market.

Euro, Franc

The euro rose 0.4 percent against the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.4 percent. The Swiss franc fell against most major peers as the nation’s central bank repeated that it will defend the currency’s level with the “utmost determination.” The Swiss National Bank imposed a franc ceiling of 1.20 against the euro on Sept. 6.

New Zealand’s dollar declined versus all but two of its 16 most-traded peers after the central bank left interest rates unchanged and signaled no urgency to raise them until the global recovery strengthens.

The yield on the Greek two-year note sank almost 7.5 percentage points over the past two days after it rose yesterday to a euro-era record of 84.52 percent. The cost of insuring government bonds fell for a third day, with the Markit iTraxx SovX Western Europe Index of credit-default swaps declining 5 basis points to 338, compared with a record 353 on Sept. 12.

The yield on the 10-year Treasury note advanced seven basis points to 2.05 percent, climbing for a third time in four days.

Gold for immediate delivery slid 0.7 percent to $1,807.85 an ounce in London trading. Silver dropped 0.7 percent to $40.41 an ounce. Copper for three-month delivery rose 1.1 percent on the London Metal Exchange, rebounding from a one-month low.

The MSCI Emerging Markets Index rallied 1 percent, snapping a four-day slump that sent it to the lowest close since July 2010. Taiwan’s Taiex Index jumped 2.2 percent. Poland’s WIG20 Index advanced 1.4 percent as KGHM Polska Miedz SA, the country’s only copper producer, gained the most in a week. The Micex Index of Russia rose 2.2 percent.

--With assistance from John Deane, Abigail Moses, Andrew Rummer, Daniel Tilles and Jason Webb in London. Editors: Stephen Kirkland, Justin Carrigan

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

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Russia Tycoon Prokhorov Quits Party After Kremlin ‘Takeover’

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September 15, 2011, 7:27 AM EDT By Henry Meyer and Lyubov Pronina

(Updates with analyst comment starting in sixth paragraph.)

Sept. 15 (Bloomberg) -- Mikhail Prokhorov, the Russian billionaire who owns the New Jersey Nets, may form a new political party after what he says was a “hostile takeover” of his Pravoye Delo movement by the Kremlin.

“To all followers who supported me, I call on you to quit this party bought by the Kremlin,” Prokhorov, Russia’s third- richest man, told a meeting of his Pravoye Delo followers in Moscow today.

The pro-business Pravoye Delo, or Right Cause, party discredited itself after “fake” candidates took power, hijacking a congress yesterday, Prokhorov said. He warned Sept. 13 that the party was fighting presidential administration attempts to destroy its independence and install a new leader.

Prime Minister Vladimir Putin centralized power and sidelined opposition after becoming president in 2000, with pro- government parties controlling 87 percent of seats in parliament and the Communist Party holding the rest. Prokhorov, 46, whose fortune Forbes estimates at about $18 billion, has grown increasingly critical of government policy since being elected head of Pravoye Delo in June.

Prokhorov said today he’s not afraid of suffering the same fate as imprisoned former Yukos Oil Co. owner Mikhail Khodorkovsky. Once Russia’s richest man, Khodorkovsky was convicted of fraud and tax evasion in 2005 and oil embezzlement in December 2010, charges he says were linked to his financing of opposition parties.

Business Activities

While the billionaire has steered clear of criticizing Putin or his successor as president, Dmitry Medvedev, his open attack on the political system may affect his business activities, Masha Lipman, an analyst at the Carnegie Moscow Center research group, said today in a phone interview.

“I don’t think he risks ending up in jail but he’s still got business in Russia and he may find some obstacles,” Lipman said. “Something that was smooth before could become difficult,”.

Prokhorov is one of the owners of Polyus Gold International Ltd., Russia’s top producer of the precious metal, and the second-largest investor in United Rusal Co., the world’s biggest aluminum producer. The billionaire said in December that he planned to merge Polyus with a global rival as early as in 2011 to join the world’s top three miners of the commodity.

‘Tight Leash’

After securing Kremlin backing for his political project, Prokhorov ran up against efforts to keep him on a tight leash, according to Lipman.

“He complied, he never criticized Putin or Medvedev, he said he wasn’t an opposition force, but apparently as the game went on, he acted more independently and he defied some of their recommendations and gradually antagonized those who thought they were his minders, that is how the scandal ensued.”

The Kremlin press service declined to comment when contacted today by phone.

Prokhorov, who had said he was seeking to become prime minister and may also run for president next March, committed to spend 2.7 billion rubles ($89 million) of his personal wealth on campaigning for December legislative elections. Right Cause was seeking to win more than the 7 percent of votes needed to gain seats in the lower house of parliament, or State Duma.

‘Soviet Parody’

The billionaire said Aug. 26 that Russia is becoming a “farce and parody of the Soviet Union,” stifled by bureaucracy and authoritarian rule.

Putin, 58, a former officer in the Soviet-era KGB, hasn’t ruled out returning to the presidency next year, which could give him a quarter of a century in power under new six-year mandates. Putin handed the president’s job to his protégé, Medvedev, 46, in 2008, after serving the maximum two consecutive terms allowed by the constitution.

“I call on people who are not indifferent to this country, who want to live here, who want it to develop,” Prokhorov said. “I propose to create a new political movement and win in honest and fair elections.” He said he would seek a meeting with Medvedev to discuss this.

The authorities won’t allow Prokhorov to register a new party, said Dmitry Oreshkin, an independent political analyst.

“This affair is just another confirmation that Russia has an imitation of democracy in which the parliament is not a means to balance various political interests but an instrument for the ruling elite,” Moscow-based Oreshkin said today by phone.

Yaroslav Grekov, a Pravoye Delo official in Moscow, said today that the party elected Andrei Bogdanov, a former member of United Russia who ran on a pro-government ticket as a presidential candidate in 2008, as its new head. Pravoye Delo will compete in the December elections, he added.

Mikhail Kasyanov, a prime minister under Putin who is now an opposition figure, said he felt “genuinely sorry” for Prokhorov.

“He agreed to be a puppet and at last realized that he can’t go through with it and is now getting out of a very unpleasant situation,” Kasyanov said today by phone.

--Editors: Andrew Langley, Andrew Atkinson

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.

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Here Comes Apple's Real TV

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By Ben Kunz

(Corrects 10th paragraph to show the Wii is from Nintendo, not Sony.)

Get ready, America, because by Christmas 2012 you will have an Apple TV in your living room. I don’t mean the cute little box now called “Apple TV” that plugs into your set to stream Netflix, but the real deal—a flat-panel Apple television set tied to the company’s online ecosystem and designed as only Apple can do it.

There’s a $14 billion rationale for this prediction but first, let’s?explore the rumors. This summer Piper Jaffray analyst Gene Munster dug through component suppliers and found evidence that Apple is gearing up to produce a real TV set by late 2012. Venture capitalist Stewart Alsop, a former board member at TiVo, has published rumors that Apple has a television coming. And Steve Jobs himself hinted last year that Apple might build a real television unit.

“The television industry … pretty much undermines innovation in the sector,” Jobs said at the All Things Digital Conference in July 2010. “The only way this is going to change is if you start from scratch, tear up the box, redesign, and get it to the consumer in a way that they want to buy it.”

Jobs’s quote is good advice for his successor as chief executive officer, Tim Cook, who needs a hit. The TV industry is changing more than at any time in the past 50 years, and billions of dollars are going into play for the winners. As Apple crests in the phone and tablet markets, its investors will want a new frontier.

TV is the future because it remains king of all media. While handsets get hyped, the typical U.S. consumer watches 5 hours and 9 minutes of TV a day, according to Nielsen, and even younger adults 18 to 24 years old—the supposed?digital generation—view 3 hours and 30 minutes on televisions daily, vs. only 49?minutes on the Web and 20 minutes on mobile. We all love to lean back. With so much of the consumer’s time, TV has become bloated with waste. The average U.S. home receives 130 cable channels but “tunes to”—or punches in the exact channel number on the remote—just 18 channels a year. Channel surfing has died. A whopping 86% of available channels are never used by an individual viewer.

Consumers pay a lot for all this video waste and they don’t like it. The average cable bill is $75 per month, which means that each year 83 million households pay $74 billion to the top eight TV-subscription services. This is why so-called “cord cutting,” by which consumers drop cable to watch videos on Roku,?Hulu, or the Xbox 360 from Microsoft?is accelerating; Comcast, the leading U.S. cable system, lost 238,000 subscribers in the second quarter. If Apple were to offer a better service, people might pay up for it.

A second lure for Apple is TV advertising. Unlike U.S. mobile-ad spending, which EMarketer says will barely break $1 billion in 2010 despite years of hype, the TV ad spend in the U.S. totaled $70 billion in 2010 and is forecast by Forrester Research to reach $84 billion by 2015. If Apple could gain just 10% of the $74 billion in current video subscription fees and $70 billion in television ad media, it would take in more than $14 billion in additional annual, recurring revenue.

Apple faces plenty of hurdles. For one thing, TV sets are an infrequent?purchase. Apple likes to sell products with built-in?obsolescence that you “need” to replace every 18 months—iPhone 5, anyone?—and a flashy TV set doesn’t call for an aluminum upgrade next?year.?Apple also has struggled to get content providers to embrace its current Apple TV box. In August, Apple stopped renting TV shows for 99￠ on the gadget, claiming that consumers overwhelmingly prefer to buy TV shows. But it could be that Apple’s media partners considered 99￠ far too cheap. With billions of dollars at stake, media producers and cable giants will fiercely defend?their video-distribution modes.

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Data Analytics: Crunching the Future

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By Ashlee Vance

Illustrations by Andy Rementer

The technicians at SecureAlert’s monitoring center in Salt Lake City sit in front of computer screens filled with multicolored dots. Each dot represents someone on parole or probation wearing one of the company’s location-reporting ankle cuffs. As the people move around a city, their dots move around the map. “It looks a bit like an animated gumball machine,” says Steven Florek, SecureAlert’s vice-president of offender insights and knowledge management. As long as the gumballs don’t go where they’re not supposed to, all is well.

The company works with law enforcement agencies around the U.S. to keep track of about 15,000 ex-cons, meaning it must collect and analyze billions of GPS signals transmitted by the cuffs each day. The more traditional part of the work consists of making sure that people under house arrest stay in their houses. But advances in the way information is collected and sorted mean SecureAlert isn’t just watching; the company says it can actually predict when a crime is about to go down. If that sounds like the “pre-cogs”—crime prognosticators—in the movie Minority Report, Florek thinks so, too. He calls SecureAlert’s newest capability “pre-crime” detection.

Using data from the ankle cuffs and other sources, SecureAlert identifies patterns of suspicious behavior. A person convicted of domestic violence, for example, might get out of jail and set up a law-abiding routine. Quite often, though, SecureAlert’s technology sees such people backslide and start visiting the restaurants or schools or other places their victims frequent. “We know they’re looking to force an encounter,” Florek says. If the person gets too close for comfort, he says, “an alarm goes off and a flashing siren appears on the screen.” The system doesn’t go quite as far as Minority Report, where the cops break down doors and blow away the perpetrators before they perpetrate. Rather, the system can call an offender through a two-way cellphone attached to the ankle cuff to ask what the person is doing, or set off a 95-decibel shriek as a warning to others. More typically, the company will notify probation officers or police about the suspicious activity and have them investigate. Presumably with weapons holstered. “It’s like a strategy game,” Florek says. (Before Bloomberg Businessweek went to press, Florek left the company for undisclosed reasons.)

It didn’t used to be that a company the size of SecureAlert, with about $16?million in annual revenue, could engage in such a real-world chess match. For decades, only Fortune 500-scale corporations and three-letter government agencies had the money and resources to pull off this kind of data crunching. Wal-Mart Stores is famous for using data analysis to adjust its inventory levels and prices. FedEx earned similar respect for tweaking its delivery routes, while airlines and telecommunications companies used this technology to pinpoint and take care of their best customers. But even at the most sophisticated corporations, data analytics was often a cumbersome, ad hoc affair. Companies would pile information in “data warehouses,” and if executives had a question about some demographic trend, they had to supplicate “data priests” to tease the answers out of their costly, fragile systems. “This resulted in a situation where the analytics were always done looking in the rearview mirror,” says Paul Maritz, chief executive officer of VMware. “You were reasoning over things to find out what happened six months ago.”

In the early 2000s a wave of startups made it possible to gather huge volumes of data and analyze it in record speed—à la SecureAlert. A retailer such as Macy’s that once pored over last season’s sales information could shift to looking instantly at how an e-mail coupon for women’s shoes played out in different regions. “We have a banking client that used to need four days to make a decision on whether or not to trade a mortgage-backed security,” says Charles W. Berger, CEO of ParAccel, a data analytics startup founded in 2005 that powers SecureAlert’s pre-crime operation. “They do that in seven minutes now.”

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Dell: The Erstwhile PC King Aims for the Middle

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Dell's stock is down 40% since founder Michael Dell retook the helm in 2007 Tony Avelar/Bloomberg

By Aaron Ricadela

Five years ago, Dell lost the title of world’s top PC maker to its longtime rival, Hewlett-Packard. So when HP surprised the world by announcing it would consider divesting its $41?billion PC business, Dell’s founder and chief executive officer, Michael S. Dell, quickly took to Twitter. “Goodbye HP,” he wrote. “Sorry you don’t want to be in PCs anymore.” He expanded on his message in late August. “We like the PC business, and we’re staying in it,” says Dell, 46.

Whether No.?1 or No.?2, it’s a dubious distinction to be one of the biggest suppliers of machines now considered products of a bygone era, as the computing world moves onto tablets and mobile devices. But Dell sees the business he once dominated as a springboard to greater things. Through a string of 10 acquisitions in less than two years, Dell has branched into areas such as IT services, computer networking, and data storage. He thinks the kind of low-cost, low-margin hardware Dell is known for—the company sold about $39?billion worth of desktops, laptops, and related products last year—can open the way for sales of higher-margin enterprise products. At the same time, and in a nod to reality, Dell is winnowing its troubled line of consumer products and focusing its attention on the small- and medium-size businesses and government agencies that already account for more than half its sales. “Some of this we kind of did to ourselves,” says Dell. “We are consciously pruning the business [and] replacing a lot of low-margin revenue with a lot of high-margin revenue.”

The shift comes at a tricky time: Dell is expected to make less in profits this year (the consensus forecast is $3.7?billion for the fiscal year ending in January) than it did in 2005. The company’s shares have lost 40?percent since Jan. 30, 2007—the day before Michael Dell ousted former CEO Kevin Rollins and returned to the helm—which is in part a reflection of Wall Street’s uncertainty about his strategy. “It’s hard to say he’s come in and saved the company like Steve Jobs at this point,” says Jayson Noland, an analyst at investment bank Robert W. Baird.

The consumer market has been vicious to everyone but Apple, and Dell whiffed a few times too many: Its Adamo computer, a $2,000 high-design laptop that launched with a splashy ad campaign two years ago, failed to find many buyers, and last month the company killed off its oddly shaped 5-inch tablet, the Streak. On the other end of the scale, enterprise giants such as IBM, Cisco Systems, Oracle, and HP already hold sway over data center sales to Big Business.

By focusing his company’s efforts on cost-conscious IT officers at organizations with 100 to 5,000 workers, Dell is betting it can stay out of its larger rivals’ cross hairs while avoiding the expense and risk of keeping up with consumers’ whims. David Johnson, the head of M&A at Dell, says recent acquisitions such as Compellent Technologies and Force10 Networks will let Dell offer its existing PC customers technology to move, store, and analyze their data. It’ll be less complicated for them to buy directly from Dell, he says, than from resellers used by IBM, HP, and Cisco. The direct approach means “we’ll attain more margin, but the value the customer gets will also be greater,” says Johnson. In smartphones and tablets, the company plans to augment Windows and Google’s Android software with its own security software to keep corporate data walled off from users’ personal apps, a move to woo cautious IT officers.

Yet even after those acquisitions, Dell is either way behind or absent in many of the high-margin enterprise technologies now in demand, including data analysis software and cloud computing. In the first week of September, IBM acquired two data analysis software companies in as many days, and HP bought enterprise search company Autonomy for $10.3?billion on Aug. 18. Cloud computing services from Amazon.com, Microsoft, and others are replacing traditional server sales, instead letting users tap computing power over the Internet. And then there’s Dell’s reputation. “A lot of enterprise wants a fairly sophisticated vendor, and Dell’s not that,” says Noland. “They’re the low-cost vendor.”

Johnson admits that shedding Dell’s reputation as the cheapest box builder is an ongoing effort. “It takes time to change the perception of a company,” he says. Michael Dell, for one, isn’t concerned about the wait. “I think 46 is still pretty young,” he says.

The bottom line: Dell is struggling to shake its low-cost vendor image as it tries to sell more enterprise services to midsize businesses.

Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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Rivals Rush to Copy Lululemon’s Yoga Pose

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Gap's Athleta stores, like this one on New York's Upper East Side, are aimed at the same yoga practitioners as Lululemon

By Ashley Lutz

Gap, Nike, and Nordstrom appear to have something in common: Lululemon envy. Seeking to lure shoppers willing to spend $98 on stretchy yoga pants, these retailers are mimicking the strategy of Lululemon Athletica, the 13-year-old Vancouver (B.C.) sports apparel company known for its pricey yoga gear. Nike’s Salvation chain of athletic-wear stores is selling $64 training capris and features a yoga-studio format and logo similar to that of Lululemon. Gap’s Athleta stores sell $60 women’s yoga tops and offer free yoga classes—another innovation popularized by Lululemon. Nordstrom’s Zella line, dedicated to yoga attire, even hired a Lululemon alum to launch the effort.

By adding yoga gear to their mix, the three big retailers are positioning themselves to grab a larger share of women’s athletic apparel sales. Despite the lingering effects of the recession, U.S. sales of women’s athletic clothing rose 2.6 percent last year, to $30.5 billion, says market researcher NPD Group. Lululemon’s revenue grew 57 percent, to about $712 million. “This trend is 100?percent driven by Lululemon,” says analyst Andrew Burns of equity research firm D.A. Davidson.

While yoga has been around for millennia, Lululemon “helped turn it into a social thing for women by making them feel like they looked good while doing it,” says Jill Miller, a Los Angeles yoga instructor. The company was founded by entrepreneur Chip Wilson in 1998 after he took a yoga class and found clothing then available wasn’t ideal for yoga. With a canny blend of fashion and lifetyle marketing—besides the free yoga classes, it spotlights local “ambassadors” who “embody the Lululemon lifestyle”—the retailer has built a cult-like following.

Rivals appear to be undercutting Lululemon on price. While Lululemon sells yoga pants for $98, Gap’s Athleta brand sells a comparable pair for $59. “I think we differentiate ourselves from other brands because of our wider selection of merchandise,” says Scott Key, a senior vice-president at Gap’s Athleta unit who denies borrowing from Lululemon. “It’s more accessible, more affordable.” A jacket in Nordstrom’s Zella line goes for $98, $20 less than a Lululemon version.

Nike and Gap also are following Lululemon’s practice of tapping into yoga’s spiritual ethos, an effort to make customers feel that they’re part of a community. Athleta’s website features a blog on how to stay “Chi” as well as a series of “Zen webinars.” Nordstrom poached Lululemon product manager Libby Vance to design the Zella line. Before her departure in 2009, she introduced Lululemon-esque looks for Nordstrom shoppers, including reversible jackets with two-looks-in-one and spandex pants that won’t ride up while doing the Downward-Facing Dog. Nordstrom and Nike declined to comment for this story.

The big question for Lululemon and its rivals is whether yoga still has room to grow. Lulemon’s revenue logged a compound annual growth rate of 52.3 percent from 2005 to 2009. Sales growth at Lululemon stores open more than 12?months have slowed this year and the company is boosting online sales, hoping they will hit 8 percent of total revenues by next year. That’s a tougher goal as new rivals emerge.

Moreover, women are starting to spend more on dressy clothing for work and special occasions, says Janney Capital Markets analyst Adrienne Tennant, leaving less cash to spend on yoga togs. “There is a high level of fashion risk tied to this trend,” says Burns. “As consumers have less discretionary funds, or preferences change, the whole trend could fall apart.”

The bottom line: Lululemon has built its stores selling yoga clothing and gear into a $712?million business. Its success is drawing larger rivals.

Lutz is a reporter for Bloomberg News.

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WaMu Fails for Second Time to Win Reorganization Plan Approval

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September 14, 2011, 12:58 AM EDT By Steven Church

(Updates with WaMu comment in fifth paragraph.)

Sept. 14 (Bloomberg) -- Washington Mutual Inc. failed for the second time to win approval for its plan to pay creditors more than $7 billion as a bankruptcy judge sided with opponents, including shareholders.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, said in a decision yesterday that she was “concerned that the case will devolve into a litigation morass” and ordered the two sides into mediation.

WaMu, based in Seattle, was allied with hedge funds, JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. The reorganization plan they support was built on an agreement to split $4 billion in cash, and billions of dollars more in tax refunds. The settlement would also have resolved lawsuits over who is to blame for WaMu’s 2008 collapse, the biggest bank failure in U.S. history.

Common shareholders opposed that plan because it paid them nothing. They claim billions of dollars more could be raised by suing JPMorgan and the FDIC over the demise of Washington Mutual Bank, WaMu’s main operating unit.

WaMu said in a statement distributed by PRNewswire, that it believes the expeditious distribution of funds to claim holders is “of paramount importance.”

The company will proceed in a manner consistent with the judge’s opinion in a bid to win approval for a modified plan as soon as practicable, WaMu said.

Non-Public Information

Walrath said the hedge funds that helped negotiate the proposed plan may have used non-public information they gained in settlement talks to buy and sell WaMu securities. While the evidence is not definitive, it is strong enough to justify more investigation, Walrath found.

In January, Walrath rejected an earlier version of the plan, saying it guaranteed protection from lawsuits for too many parties.

The four hedge funds accused of receiving inside information are Aurelius Capital Management LP, Centerbridge Partners LP, Appaloosa Management LP and Owl Creek Asset Management LP. All four have denied using any material, non- public information to buy or sell WaMu securities.

Walrath granted the committee’s request to sue the hedge funds for their conduct during the bankruptcy. She said that potential lawsuit can’t immediately go forward, ordering shareholders and supporters of the rejected plan to mediation.

She rejected allegations that the hedge funds, known as the settlement noteholders, controlled WaMu and that the entire plan was proposed in bad faith.

Noteholders Actions

“Rather, the actions of the settlement noteholders appear to have helped increase the debtors’ estates,” Walrath wrote.

Creditors who are being paid in full lost a bid to also receive a higher rate of interest based on their original contracts. Instead, they will get a potentially lower rate known as the federal judgment rate given out by courts when awarding interest.

WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan for $1.9 billion. Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.

The hedge funds that hold different sets of WaMu bonds and convertible securities, shareholders and other creditors fought throughout the case over how to divide the cash, tax refunds and new stock to be issued in the only part of WaMu that will survive bankruptcy, a small reinsurance company.

The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).

--With assistance from Joe Schneider in Sydney. Editors: Fred Strasser, Peter Blumberg

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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Obama Approval Plummets Among Americans Skeptical of Jobs Plan

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September 14, 2011, 12:23 AM EDT By Julianna Goldman

Sept. 14 (Bloomberg) -- A majority of Americans don’t believe President Barack Obama’s $447 billion jobs plan will help lower the unemployment rate, skepticism he must overcome as he presses Congress for action and positions himself for re- election.

The downbeat assessment of the American Jobs Act reflects a growing and broad sense of dissatisfaction with the president. Americans disapprove of his handling of the economy by 62 percent to 33 percent, a Bloomberg National Poll conducted Sept. 9-12 shows. The disapproval number represents a nine point increase from six months ago.

The president’s job approval rating also stands at the lowest of his presidency -- 45 percent. That rating is driven down in part by a majority of independents, 53 percent, who disapprove of his performance.

“I don’t think he’s done as good a job as I think he could have,” said Paul Kaplan, 58, an unemployed Democrat from Philadelphia. “We were hopeful that things would improve in the economy and they’ve only gotten worse. People in Washington just don’t seem to want to cooperate with each other and work for the people.”

The poll hands Obama new lows in each of the categories that measures his performance on the economy: only 36 percent of respondents approve of his efforts to create jobs, 30 percent approve of how he’s tackled the budget deficit and 39 percent approve of his handling of health care.

Jobs Bill Skepticism

By a margin of 51 percent to 40 percent, Americans doubt the package of tax cuts and spending proposals intended to jumpstart job creation that Obama submitted to Congress this week will bring down the 9.1 percent jobless rate. That sentiment undermines one of the core arguments the president is making on the job act’s behalf in a nationwide campaign to build public support.

Compounding Obama’s challenge is that 56 percent of independents, whom the president won in 2008 and will need to win in 2012, are skeptical it will work.

“I think the jobs bill is a good start, but it’s hard to look at it real positively in light of what’s just happened with the budget,” said Jason Dumas, a 40 year-old independent voter from Charlotte, North Carolina. “The partisanship is still there and it seems like we’re gearing up more for the election.”

In all of the categories gauging Obama’s performance on economic issues, the president’s disapproval rating among independents is above 50 percent.

Independents’ Disapproval

On the economy, 29 percent of independents approve of the job Obama is doing while 66 percent disapprove. Obama is weakest among independents when it comes to his ability to reduce the deficit -- under a quarter of those respondents approve of his job in that category, while 67 percent disapprove. On job creation, 30 percent of independents approve of Obama’s efforts while 63 percent disapprove. He scored slightly better among independents on health care with 34 percent approving and 57 percent disapproving.

Forty-six percent of independents say they definitely won’t vote to re-elect the president, compared to 21 percent who definitely will support him. In 2008, Obama was backed by 52 percent of independent voters, compared to 44 percent who backed Republican nominee John McCain, an Arizona senator, according to exit polls.

In addition to lost ground with independents, Obama’s 2008 supporters are less enthused in the wake of the summer’s fight to raise the debt ceiling and avoid a default, according to the poll of 997 adults conducted by Selzer & Co., based in Des Moines, Iowa.

Core Support Decline

Of the respondents who said they’ve supported Obama at one point since he launched his presidential campaign in 2007, fewer than half say they still support him as fervently. Thirty- seven percent say their support has waned and 19 percent say he lost their backing because they’ve grown disappointed or angry with his leadership.

Almost a third of Democrats and Democratic-leaning respondents say they’d like to see Obama face a primary challenge.

The job performance areas where Obama scores favorably are his handling of the situation in Libya and fighting terrorism. Another rare bright spot in the poll is his favorability rating, which stands at 50 percent and is better than all of his prospective Republican rivals. House Speaker John Boehner, an Ohio Republican, has a favorability rating of 33 percent compared to 38 percent who view him unfavorably, a ten point jump from June before the debt ceiling standoff in August.

Unfavorability Rating

Even that ray of hope is a dim one. Obama’s unfavorability rating is 47 percent, just three percentage points below his favorability, which is within the poll’s margin of error of plus or minus 3.1 percentage points.

“I personally don’t think it’s his fault, I think it’s Congress,” said Krystal Carter, 40, a Democrat, who is an esthetician in Davenport, Florida. “They’re like a bunch of kindergarteners. I think we just need to vote all them out and start over.”

As Obama urges Congress to act on the jobs bill and prepares to engage in debate over a $1.5 trillion to $2 trillion debt-reduction plan, Americans give him low marks on his negotiating style. By a margin of 52 percent to 37 percent, they disapprove of how Obama negotiates with the Republican majority in the House of Representatives. Fifty-eight percent of Democrats approve of Obama’s negotiating skills, while 71 percent of Republicans disapprove. Among independents, 55 percent are critical of his skills.

Stand for Something

“If he believes in something, then he needs to stand for it,” said Dumas, the North Carolina independent who works in video production. “He needs to back it and not play both sides. It hasn’t really served him well.”

Obama has pledged to stand firm on the jobs program. “This isn’t about giving Democrats or Republicans a win. It’s about giving the American people a win,” he said at a jobs event in Columbus, Ohio, yesterday.

While respondents are skeptical that the program will reduce the unemployment rate, the poll found support for some of its components.

The plan’s call for approximately $35 billion in direct aid to state and local governments to stem layoffs of educators and emergency personnel is favored by 71 percent of Americans compared to 27 percent who oppose it. While the proposal was the most popular in the poll, it is also the least likely to pass Congress because Republicans have expressed opposition to new spending.

Tax Centerpiece

The centerpiece of the proposal -- and the plank that Republicans have said they are most willing to consider -- is a cut in payroll taxes, which cover the first $106,800 in earnings and are evenly split between employers and employees.

Respondents are evenly split at 45 percent on this approach, which would cost $240 billion to the U.S. Treasury. Independents oppose it 47 percent versus 43 percent who favor it.

The White House also would use temporary payroll tax reductions next year to offer incentives for new hiring and to assist small businesses -- something Kaplan, a Democratic Party official in Philadelphia, said would help him.

“I hope it gets passed quickly, I’m one of the people who might benefit from it directly,” he said. “I myself have been out of work for six months now. I haven’t even had an interview.”

Others are less optimistic. Since World War II, no U.S. president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984.

“He can promise the moon,” said Carter. “But if Congress can’t get their act together and vote to pass it, it’s never going to happen.”

--Editors: Jeanne Cummings, Laurie Asseo

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net.

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Republicans Get Upset Win for Weiner’s N.Y. House Seat, AP Says

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September 14, 2011, 12:27 AM EDT By Jonathan D. Salant and Laura Litvan

Sept. 14 (Bloomberg) -- Republican Bob Turner, with voters dealing a rebuke to President Barack Obama in a traditionally Democratic district, won the New York City House seat that scandal forced Anthony Weiner to give up.

The Associated Press reported that with 66 percent of the vote counted in yesterday’s special election, Turner had 53 percent while Democrat David Weprin had just under 47 percent.

In another special election for a vacant House seat in Nevada, Republican Mark Amodei was leading Democrat Kate Marshall. Amodei was favored to hold the seat that fellow Republican Dean Heller vacated earlier this year for an appointment to the Senate.

Weiner, a Democrat, vacated the New York seat in June following revelations the married congressman sent lewd photos of himself and messages to women over the Internet.

Turner, 70, capitalized on dissatisfaction over Obama’s handling of the economy and the administration’s perceived unfriendliness toward Israel. He was endorsed by former New York City Mayor Edward Koch and state Assemblyman Dov Hikind, both Democrats, over Weprin, an Orthodox Jew.

Representative Eliot Engel, a New York Democrat, said before the votes were counted that Obama’s Middle East policies “shouldn’t even be an issue” because Weprin “is a very solid vote for Israel.” Still, Engel said, the campaign may be “a wake-up call” for Obama that Jewish voters are unhappy with some of his policies, including his public suggestion that Israeli borders prior to the 1967 Six Day War should be the basis of a Middle East peace agreement.

Queens and Brooklyn

A poll last week by Siena College in Loudonville, New York, had given Turner a six-percentage-point lead in the district, which takes in parts of Queens and Brooklyn.

“People are very upset with Washington,” said Steven Greenberg, a Siena pollster. “They’re very angry about the economy and the jobs situation. And they’re prepared to take it out on the Democrats, even though the vast majority of the voters in this district are Democrats.”

Democrats sought to overcome the public disenchantment by mobilizing the party’s get-out-the-vote operation and through a last-minute ad campaign.

The Democratic Congressional Campaign Committee spent $514,247 on ads to try to hold the seat, Federal Election Commission reports show. The House Majority PAC, set up to raise and spend unlimited amounts of money in support of Democratic congressional candidates, reported spending $162,656 on ads and direct mail on behalf of Weprin, 55, a state Assemblyman.

Retired TV Executive

An ad financed by the DCCC depicted Turner, a retired television industry executive, as favoring corporate tax loopholes over the needs of Social Security and Medicare beneficiaries.

Democrats accounted for 57 percent of the district’s registered voters as of April, according to the New York State Board of Elections, and Weiner won his seventh term in November with about 59 percent of the vote. Obama carried the district with 55 percent in 2008.

House Speaker John Boehner, an Ohio Republican, called it “not a district that Republicans have any right to believe that we can win.”

The Republican victory may be short-lived. The district, once represented by Democratic Senator Charles Schumer and the late Geraldine Ferraro, the 1984 Democratic vice presidential nominee, could be one of New York’s two House seats redrawn out of existence because of the 2010 census. New York’s House delegation is shrinking in next year’s election to 27 seats from 29.

Bragging Rights

For now, Turner’s victory gives Republicans bragging rights after the party suffered its own upset in a western New York House race in May. In that special election, Democrat Kathy Hochul won in the traditionally Republican district with a campaign focused on protecting the existing Medicare program. The seat opened up after Republican Christopher Lee resigned following reports that the married lawmaker sent a bare-chested photo of himself to a woman he met online.

In the Nevada race, Amodei was buoyed by spending from the National Republican Congressional Committee, which pumped $597,818 into the race, and the American Crossroads group that Republican strategist Karl Rove helped set up, which spent $261,885.

With 43 percent of the vote counted, Amodei had 57 percent to 37 percent for Marshall, according to the AP. Amodei is a former state Republican Party chairman; Marshall serves as the state treasurer. The district covers virtually the entire state outside the Las Vegas area.

--With assistance from Laura Litvan and James Rowley in Washington. Editors: Don Frederick, Jim Rubin.

To contact the reporters on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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Ford, UAW Agree to Bargain Past Tonight’s Contract Expiration

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September 14, 2011, 12:24 AM EDT By Keith Naughton and David Welch

Sept. 14 (Bloomberg) -- Ford Motor Co. and the United Auto Workers agreed to bargain past tonight’s expiration of their current labor contract while the union also pursues new labor agreements at General Motors Co. and Chrysler Group LLC.

Ford declined to comment about details of its talks, Marcey Evans, a Ford spokeswoman, said yesterday in an e-mailed statement. The four-year contract expires at 11:59 p.m. New York time. The union’s current contracts with GM and Fiat SpA- controlled Chrysler expire at the same time.

Typically, the UAW reaches an agreement with one automaker and uses that accord to set the so-called pattern with the others. The pattern for this year’s contract will be set by “General Motors or Chrysler, but it will not be Ford Motor Company,” Jimmy Settles, vice president of the union’s Ford department, said in a posting on the union’s Facebook page.

Settles said that he informed Ford yesterday he would extend the union’s current contract while not providing a timetable for when a tentative agreement may be reached.

The Detroit-based UAW represents 113,000 workers at the automakers. Union President Bob King has said he’s open to compensation that may include lump-sum payments, rather than raises, that are tied to profit sharing and achieving productivity and quality goals.

Signing Bonus Proposal

The UAW proposed a signing bonus of $8,000 to $10,000 for each member, four people familiar with discussions said last week. Such a bonus may help sell the deal to union members looking to be repaid for what King has estimated as $7,000 to $30,000 in concessions they each gave since 2005.

Workers at Detroit-based GM, Ford and Chrysler received signing bonuses of $3,000 after they ratified the current contract in 2007. Prior to that, signing bonuses had been around $1,000, Harley Shaiken, a labor professor at the University of California at Berkeley, said last week.

Previous concessions included surrendering raises, bonuses and cost-of-living adjustments as well as agreeing to a two-tier wage system, where new hires are paid about half as much as senior employees. With GM and Dearborn, Michigan-based Ford profitable, workers have said they want to recover what they gave up.

Workers at Ford have filed an “equality of sacrifice” grievance against the automaker after salaried workers received raises, tuition assistance and 401(k) matches last year. An arbitration hearing on that dispute is scheduled for tomorrow.

No-Strike Pledges

UAW members agreed to a no-strike pledge at GM and Auburn Hills, Michigan-based Chrysler as part of their U.S.-backed bankruptcies in 2009. Unsettled disputes at the automakers are to be decided through binding arbitration. Ford didn’t receive a U.S. bailout and UAW members there went against the wishes of union leaders and rejected a strike ban and arbitration.

The key issues are signing bonuses, increasing the $14-an- hour wage for new hires and investments in U.S. plants to secure future work. GM executives have said that they want to tie compensation to company performance targets, which the union has traditionally opposed.

Chrysler Chief Executive Officer Sergio Marchionne said yesterday the U.S. carmaker isn’t “close” to an agreement with the UAW.

“I don’t have a contract,” Marchionne told reporters at the Frankfurt motor show. “We are not near.”

--With assistance from Tommaso Ebhardt in Frankfurt and Craig Trudell in Southfield, Michigan. Editors: Bill Koenig, Jamie Butters

To contact the reporters on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net; David Welch in Southfield, Michigan at dwelch12@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Qualcomm Rewires for India

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Illustration by Julia Rothman

By Bruce Einhorn

One late-summer afternoon, Rahis Khan proudly displays a $40 Soly Elisom phone—not to be confused with a high-end Sony Ericsson. Khan, 25, works at a tiny electronics shop in the Palika Bazaar, a sprawling underground market in New Delhi. He carries real smartphones, too, but few customers want them. “They’re very expensive,” he explains. “Too expensive for this market.”

Qualcomm Chief Executive Officer Paul Jacobs is trying to change that. The San Diego-based company is the top producer of processors for handsets running on Google’s Android operating system and aims to make smartphones more popular worldwide. With its large middle class and advanced telecom infrastructure, China has already become Qualcomm’s top market, accounting for 29?percent of revenue last year. In other emerging markets, however, the company is still trying to persuade merchants to push legit smartphones with Qualcomm chips rather than lower-end knockoffs. In large part, that’s because Qualcomm-powered devices can be expensive: An HTC phone unveiled in late August, for instance, offers glasses-free 3D-viewing and costs more than $700. “Prices need to come down for devices to get out into the mass market,” says Jacobs.

The potential is greatest in India, the world’s second-largest cell phone market after China, with 850?million users. Just 13?million of those use the faster 3G network that Qualcomm’s chips are best for. Most cellular operators have made 3G available only in the past year, thanks to licensing delays by India’s bureaucracy. And they’re hungry to speed up the transition, since 3G consumers use more data-intensive (and lucrative) services such as Web browsing, video streaming, and music downloading. “There is huge money available if you can get the consumers,” Himanshu Kapania, managing director of Idea Cellular, said at a Qualcomm-organized forum in New Delhi on Aug.?30.

Last month, Chinese handset makers Huawei and ZTE unveiled Android phones powered by Qualcomm chips for about $100. That’s not yet low enough for Indian operators, though. “The big threshold will happen at $50 to $60,” says Sanjay Kapoor, CEO for South Asia at Bharti Airtel. “At that price, then an explosion of the market can happen.”

To get there, Jacobs has made changes at Qualcomm. In the late 2000s the company lost a step to Taiwanese rival MediaTek, which made a splash in 2G phones by working closely with cheap, no-name producers in China that had little experience making handsets. MediaTek didn’t just sell them its chips; it taught its customers how to produce handsets. Jacobs says Qualcomm tried to keep its distance from what he calls this “swarm of ants” strategy, but MediaTek’s success made Qualcomm realize it had to adapt. Now the American company has started offering reference designs of its own to companies that work on 3G phones. “We learned you need to give the complete design, soup to nuts,” says Jacobs.

That new approach is helping companies such as Micromax, one of India’s leading local brands, take aim at the $100 smartphone barrier. Micromax once needed up to 12 months to come out with a phone, says Vikas Jain, business director and co-founder of the company. Now it needs only four, he says. Qualcomm’s expertise is also helping Micromax reduce its use of components from other companies, Jain adds, thus cutting by 30?percent its bill of materials for new devices. The company’s cheapest smartphone now costs $175, but Jain expects a $100 handset within six months. “Once we are able to reach these price points,” he says, “we are very sure about the mass adoption of smartphones in India.”

For most Indians right now, though, the smartphone “is not a device that you must have,” says Lennard Hoornik, president of South Asia for Taiwan-based smartphone maker HTC. The $100 challenge, he says, misses the point. For Indians to buy smartphones en masse, they need to have lots of apps in Hindi, Tamil, Bengali, and other Indian languages. “There aren’t enough local apps that make people feel, ‘I have to have this.’?”

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Attack of the Superweed

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Justin Cariker is battling a pigweed invasion on his Dundee (Miss.) farm Maude Clay for Bloomberg Businessweek

By Jack Kaskey

Justin Cariker grabs a 7-foot-tall Palmer pigweed at his farm, bending the wrist-thick stem to reveal how it has overwhelmed the cotton plant beneath it. This is no ordinary weed: Over time it has developed resistance to Monsanto’s best-selling herbicide, Roundup. Hundreds of such “superweeds” are rising defiantly across this corner of the Mississippi Delta. “We’re not winning the battle,” Cariker, owner of Maud Farms in Dundee, Miss., says as he looks at weeds that tower over his infested cotton field like spindly green scarecrows.

Cariker’s superweeds represent a growing problem for Monsanto, whose $11 billion of annual sales are anchored in crops genetically engineered to tolerate Roundup, the world’s best-selling weedkiller. The use of Roundup Ready seeds has transformed farming in the 15 years since their debut, allowing growers to easily dispatch hundreds of types of weeds with a single herbicide while leaving crops unscathed. “When the Roundup system first came out, to a farmer this was the best thing that ever happened,” says Cariker, who used the labor-saving technology to double his planted acreage, to 5,000. “Farmers thought we had died and gone to heaven.”

Not exactly: It turns out the widespread use of Roundup has led to the evolution of far-tougher-to-eradicate strains of weeds. As a result, rivals such as Dow Chemical, DuPont, Syngenta, and Bayer see an opportunity. They hope to revive sales of older herbicides still able to kill many Roundup-resistant weeds, allowing them to challenge Monsanto’s dominance in genetically modified crops. Still, the substitutes could eventually create weeds that survive multiple chemicals, just as increased use of antibiotics in pigs and chickens has led to the evolution of bacteria that resist multiple drugs, says Charles Benbrook, chief scientist at the Organic Center in Troy, Ore. “It’s akin to putting gasoline on a fire to put it out,” he says. “It’s a very high-risk gamble for the U.S. biotechnology and pesticide industry to go down this road.”

Crops created to survive Roundup or generic glyphosate (its active ingredient) now comprise 94?percent of soybeans, 73?percent of cotton, and 72 percent of corn grown in the U.S. Glyphosate is applied at seven times the rate of all other herbicides combined in U.S. soybean fields and 1.6 times the rate of all others in cotton fields, according to agriculture consultant Cropnosis.

Dow Chemical, DuPont, Syngenta, and Bayer are engineering crops to withstand alternative herbicides that can kill the weeds Roundup no longer can. Dow expects to begin collecting $1.5 billion in additional profit in 2013 by selling seeds for crops that tolerate a reformulated version of 2,4-D, a herbicide the U.S. first registered for sale in 1948 and one of the chemicals used in the Vietnam War-era defoliant Agent Orange.

Unrelenting Roundup use has caused 11 weed species to evolve glyphosate resistance in 26 U.S. states, with Palmer pigweed and horseweed the most widespread, according to the International Survey of Herbicide Resistant Weeds. They have invaded 14 million U.S. acres of cotton, soybean, and corn, and that will double by 2015, says Chuck Foresman, Syngenta’s head of corn crop protection. A Dow study this year found as many as 20 million acres of corn and soybeans may already be infested.

Monsanto Chief Executive Officer Hugh Grant says competitors’ efforts to develop their own herbicide-tolerant crops isn’t a threat to the company’s flagship business. Seed companies will cross-license each others’ genetics to create crops able to withstand multiple weedkillers, he says, and spraying fields with a mix of herbicides will kill the superweeds and give Roundup Ready crops new life. Monsanto itself is adding resistance to dicamba, an older weedkiller, to Roundup Ready crops for sale by 2015. “The cavalry is coming,” Grant says.

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Pfizer Said to Delay Formula Unit Sale as It Explores Spinoff

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September 14, 2011, 12:24 AM EDT By Jacqueline Simmons and Jeffrey McCracken

Sept. 14 (Bloomberg) -- Pfizer Inc. is delaying a sale of its infant-nutrition business to give it more time to explore whether a tax-free spinoff will get more value for investors, said people with direct knowledge of the plans.

Pfizer may send sales documents to suitors in November at the earliest, two months later than potential buyers had anticipated, said the people, who declined to be identified as they aren’t authorized to speak on the matter. A sale may fetch as much as $10.5 billion and attract interest from companies including Danone, Abbott Laboratories and Nestle SA, people with knowledge of the process said in July.

The drugmaker, the world’s biggest, is concerned a sale may lead to an increased tax burden because it acquired the infant- nutrition unit less than three years ago, the people said. Pfizer may still opt to sell, they said. The company’s advisers are also still gathering information on the unit’s revenue and brands in Asia and other emerging markets, further slowing the process, said one of the people.

By starting an auction later, Pfizer may succeed in waiting out the turmoil now gripping equity and debt markets. Last month, companies raised the least amount of leveraged loans since 2008 amid the worsening European sovereign debt crisis and the first credit downgrade for the U.S.

“We’re continuing to explore strategic options for our nutrition business,” Joan Campion, a Pfizer spokeswoman, said in an e-mail. She said no decisions have been made regarding the evaluation. “This process is ongoing. As we previously said, we don’t anticipate making any further announcements until sometime in 2012. We expect to complete any transaction that may result from this evaluation in 12 to up to 24 months.”

Mead Johnson

Mead Johnson Nutrition Co., a competitor of Pfizer’s in baby formula, was spun off by former parent Bristol-Myers Squibb Co. in 2009. The stock has almost tripled since its trading debut, giving the Glenview, Illinois-based company a market value of about $14.8 billion.

The Pfizer sale could be the largest of a vitamin or nutrition company in more than a decade, according to data compiled by Bloomberg. The biggest deal in that sector was Carlyle Group’s $3.8 billion acquisition of vitamin maker NBTY Inc. last year, the data show.

Pfizer disclosed plans to shed the business, as well as its animal-health division, more than two months ago. The New York- based drugmaker is receiving advice from Morgan Stanley and Centerview Partners on the infant-nutrition unit.

Pfizer gained the formula division through its $68 billion purchase of Wyeth in 2009. The unit, which reported $1.9 billion in sales last year, makes the SMA Gold line of products for infants and children and Enercal supplements for adults.

--With assistance from Dermot Doherty in Geneva and Molly Peterson in Washington. Editors: Julie Alnwick, Jennifer Sondag

To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net.

To contact the editors responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

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ECB Risk Piles Up on Deposit Flight

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September 13, 2011, 7:26 PM EDT By Yalman Onaran

Sept. 14 (Bloomberg) -- European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for safe havens, a trend that could worsen economic and financial conditions.

Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks.

While the European Central Bank has picked up some of the slack, providing about 500 billion euros ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They’re also paying more to keep and attract deposits -- or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts -- which will erode profitability.

“All of this is symptomatic of a lot of fear in the European financial sector,” said Kash Mansori, senior economist at Experis Finance in Charlotte, North Carolina, which advises U.S. and European companies. “It shows that even European banks don’t trust each other anymore, so they’re taking their money out of the EU system. It’s similar to the distrust that happened worldwide in 2008.”

Deposit Erosion

Deposits by financial institutions in Greek banks, which make up 21 percent of the total, have fallen by one-third since the beginning of 2010, while those by non-financial firms and residents dropped 9 percent, according to Bank of Greece data.

In Germany, deposits by financial institutions, which account for one-third the total, declined 12 percent over the same period and 24 percent since the September 2008 collapse of Lehman Brothers Holdings Inc., ECB figures show. In France, where the erosion started last year, the same type of deposits, which make up half the total, are down 6 percent since June 2010. They have fallen 14 percent since May 2010 at Spanish banks, where they account for one-fifth of the total.

Deposits include money kept in banks by individuals and companies. Most of the short-term funding supplied by financial institutions and money funds is counted as deposits by the ECB and other central banks in Europe.

While retail deposits at Italian banks have fallen only 1 percent in the past year, the outflow of money from financial institutions has exceeded $100 billion, a 13 percent decline, according to Bank of Italy and ECB data.

Money-Fund Withdrawal

Some of the retail deposits have been invested in bank bonds sold directly to retail clients that pay as much as 5 percent compared with an average interest rate on deposits of 0.88 percent. Retail investors in Italy own about 63 percent of bank debt compared with a European average of 48 percent, data compiled by the Bank of Italy and banking association ABI show.

In Portugal, where banks raised the interest rates they pay savers, non-residents have reduced deposits by 19 percent since March 2010.

The eight largest U.S. money-market funds halved their lending to German, French and U.K. banks over the past 12 months and stopped financing Italian and Spanish financial firms, according to data compiled by Bloomberg from investment reports.

A survey by Fitch Ratings showed that U.S. money-market funds reduced their lending to European banks by 20 percent from the end of May through July. The funds cut investments in Spanish and Italian lenders by 97 percent, to German firms by 42 percent and to French ones by 18 percent, Fitch said. The Aug. 22 survey covers almost half the $1.53 trillion assets held by money funds in the U.S.

Relying on ECB

BNP Paribas SA fell as much as 12 percent yesterday in Paris trading on speculation that it was facing funding gaps. The shares of the biggest French bank recouped losses after the firm said it could do without the cash from money-market funds. Societe Generale SA, the country’s third-largest bank, can cope with a freezing of such funds “forever,” Chief Executive Officer Frederic Oudea said yesterday.

To make up the deficit, firms are leaning on the ECB for short-term funding. Borrowing by Italian lenders from the central bank more than doubled to 85 billion euros between June and August. Greek and Irish banks each took about 100 billion euros from the ECB in August. Irish lenders also got 56 billion euros from their domestic central bank. Portuguese banks borrowed about 46 billion euros from the ECB, while Spanish banks took 52 billion euros in July.

‘Left With Garbage’

By accepting those countries’ bonds as collateral in exchange for funds, the ECB is piling up risk, said Desmond Lachman, a fellow at the American Enterprise Institute in Washington. In the event of a default, the ECB’s losses would be borne by the EU’s member states. Lending to the region’s banks by the ECB and other central banks is about seven times the capital of the Eurosystem, the consolidated balance sheet of all euro zone central banks.

“If there are sovereign defaults, the ECB will be left with garbage that has been accepted as collateral,” said Lachman. “It’s putting EU taxpayers’ money at risk in a very non-transparent way. But there’s no alternative. The ECB is the only game in town.”

William Lelieveldt, a spokesman for the ECB in Frankfurt, declined to comment about the risk to the central bank. ECB President Jean-Claude Trichet has defended his institution’s actions. European banks have more collateral that they can place with the ECB in exchange for additional financing if they need it, he said Sept. 8 in Frankfurt.

“We stand ready to provide liquidity as we have done in the past,” Trichet said.

Drachma Conversion

The outflow of deposits is a measure of eroding trust in the region’s financial system. Banks outside of Greece, Ireland, Portugal and Spain have $1.7 trillion at risk in loans to those countries’ governments and corporations, as well as guarantees and derivatives contracts, according to the Bank for International Settlements.

Concern that those nations will default or leave the EU and devalue their currencies has hastened the flight, according to Dimitris Giannoulis, a Deutsche Bank AG analyst based in Athens.

People “are now afraid of the possibility of returning to the drachma,” said Giannoulis, referring to the Greek currency in circulation before the country adopted the euro in 2001. “Just a headline is enough to spook depositors.”

Irish banks have been the hardest hit. Losses on the collapsing real-estate market and a government guarantee of bank liabilities forced the nation to seek EU assistance in November. The money started flowing out in early 2010 as confidence in the government’s ability to support the banks waned, and it accelerated later that year after Ireland’s rescue by the EU led multinational companies to move deposits out of the country.

‘Afraid of Them’

Ireland took control of five lenders and is winding down two of them. Even Bank of Ireland, which wasn’t nationalized because its losses weren’t as catastrophic, saw deposits dwindle by 20 billion euros, or 23 percent, last year.

At Allied Irish Banks Plc, Ireland’s second-largest lender, deposits declined 37 percent over the past 18 months. The bank said July 25 that most of the drop occurred at the end of 2010 and in the first quarter of this year as companies pulled money amid sovereign and bank downgrades. Deposits since the end of the first half have been “broadly stable,” said Alan Kelly, the lender’s director of corporate affairs and marketing, who declined further comment.

While “the rate of outflow is falling,” Finance Minister Michael Noonan said on Sept. 1 in Dublin, that hasn’t soothed savers such as Phil Carey, an 86-year-old mother of eight from Galway in western Ireland.

“I wouldn’t trust the banks,” said Carey, who keeps her savings at credit unions. “I’d be afraid of them. Look at the money they gave to the builders and the terrible situation we’re in now.”

Feeling Pain

It isn’t easy for retail depositors such as Carey to move funds abroad. In Ireland, there has been some shift to units of foreign banks operating in the country. RaboDirect, the Irish online-banking unit of Utrecht, Netherlands-based Rabobank Group, saw deposits rise about 40 percent in 18 months, according to General Manager Roel van Veggel.

While the implosion of Irish banks led the government to seek an EU bailout, in Greece the state’s finances collapsed first. Now Greek lenders are feeling the pain because they own about 40 billion euros of their government’s sovereign debt. If they have to take losses of 40 percent or more on those bonds, it would wipe out all the capital held by the country’s banks, the European Commission estimated in July. Greek government bonds are already discounted by 60 percent in the secondary market, according to data compiled by Bloomberg.

Tax Avoidance

In addition to fearing a drachma conversion, some affluent Greeks are moving money out of the country to avoid having their bank accounts become targets for tax collectors, said Antonio Ramirez, an analyst at KBW Inc. in London.

“As the government starts looking for revenue, starts fighting tax evasion, wealthy families move their money out,” said Ramirez, who covers Greek, Irish and Portuguese banks.

That dynamic is also at work in Italy, according to Carlo Alberto Carnevale-Maffe, a professor of business strategy at Milan’s Bocconi University. Deposits at Milan-based Intesa Sanpaolo SpA, Italy’s second-biggest bank by assets, fell 4.4 percent in the year ended in June.

“People are moving deposits into safe goods such as gold and safety-deposit boxes,” Carnevale-Maffe said. “They’re simply putting the money under the mattress to avoid taxes.”

Intesa CEO Corrado Passera said on an Aug. 5 call that the decline was the result of a decision to discontinue some institutional funding and the sale of retail bonds.

“In terms of flight to quality, no, I must tell you that we are not experiencing in our country anything like that,” Passera said.

Fed Cash

European lenders are also moving money out of the region. The cash that foreign banks keep at the U.S. Federal Reserve has more than doubled to $979 billion at the end of August from $443 billion at the end of February, according to Fed data. The increase in bank deposits at the ECB has been smaller, suggesting that healthy European firms are putting money in the Fed instead of lending to weaker banks, according to economist Mansori, who also writes a blog called “Street Light.”

“Do you want to keep your money at the Fed, which you know will pay you back, or at the ECB, which has lots of periphery euro zone country debt?” said Mansori.

The reluctance of European banks to lend to one another has been on display since last month. The spread between Euribor and the overnight indexed swap rate, which reflects the higher risk of lending euros for three months versus overnight, widened to 0.85 percentage point on Sept. 13. The rate compares with 0.36 percentage point at the beginning of August.

Shrinking Balance Sheets

Banks can’t continue to rely on the ECB for funding because that’s a sign of being on “life support,” so they’ll have to shrink their balance sheets, said KBW’s Ramirez. That means reduced lending in countries where growth is stagnant.

Lending by banks in Ireland declined 9 percent in the past year, 3 percent in Greece and Italy and about 1 percent in Portugal and Spain, according to ECB data. Gross domestic product in Italy expanded 0.8 percent in the second quarter from a year ago and 0.7 percent in Spain. Greece’s economy shrank 7.3 percent, while Portugal’s contracted by 0.9 percent. Irish GDP growth was 0.1 percent in the first quarter, according to the latest data available.

Ireland said in March that its surviving banks would wind down more than 70 billion euros of loans. Most of the reduction will be lending to borrowers outside Ireland, which could hurt growth in other EU countries. Greek banks, unable to sell sovereign bonds they hold, will also have to trim their loan books, according to Ramirez.

“It’ll aggravate the recession,” he said.

Lack of Capital

While banks say higher capital requirements will curb lending and economic growth, it’s the lack of capital in the European banking system that’s spooking depositors and other creditors, said Lachman of the American Enterprise Institute. That’s why the International Monetary Fund is pushing for recapitalization of the region’s banks, he said.

Paying more for deposits to prevent them from leaving, as banks in Ireland, Spain and Portugal are doing, will hurt banks’ chances of rebuilding capital through earnings. Offering higher interest rates for retail bonds as Italian lenders have done will cut into interest margins.

“It’s not sustainable for this type of pricing strategy to continue,” Rabobank’s Van Veggel said about the high rates Irish banks are offering for deposits. “But I don’t think rates will start to come down until nervousness about European, and indeed global, issues calm down.”

‘Kicking the Can’

German and French banks are losing funds because they hold the most debt linked to troubled euro zone countries, according to Mark Schaltuper, an analyst at Business Monitor International, a London-based consulting group. Investors and creditors worry that German and French lenders will face losses on their holdings in the event of a default, he said.

“European policy makers are kicking the can down the road, waiting for banks to recapitalize slowly so they can take these losses over time,” said Schaltuper, the firm’s chief European analyst. “Until the debt situation in the periphery is sorted out, these funding troubles won’t end.”

--With assistance from Joe Brennan and Finbarr Flynn in Dublin, Marcus Bensasson in Athens, Sonia Sirletti in Milan, Charles Penty in Madrid, Jana Randow in Frankfurt and Gabi Thesing in London. Editors: Robert Friedman, Steve Bailey

To contact the reporters on this story: Yalman Onaran in New York at yonaran@bloomberg.net.

To contact the editors responsible for this story: David Scheer in New York at dscheer@bloomberg.net.

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A Clue to Apple’s Sales? Check the Suppliers

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Sales at Foxconn and other suppliers reveal Apple's secrets Ym Yik/EPA/Corbis

By Inyoung Hwang and Richard Davenport

Wall Street says Apple will post $29?billion in sales this quarter. Revenue estimates for the companies that build Apple’s parts suggest that forecast is about $2?billion short.

For decades companies have refrained from giving the most optimistic guidance so they can exceed Wall Street forecasts, and the Cupertino (Calif.)-based maker of the iPhone and iPad has few if any peers for managing expectations. Apple, which has surpassed ExxonMobil as the world’s most valuable company, worth $352.1?billion as of Sept.?6, topped analysts’ sales projections in 19 of the last 20 quarters, by 6.5?percent on average.

Apple said on July 19 that sales in the three months ended June?25 climbed 16?percent from the previous quarter, to $28.6?billion. Analysts were expecting revenue of $25?billion, a 1.4?percent increase.

“What surprises me is that analysts continue to allow Apple to lowball their estimates,” says Keith Goddard, president of Capital Advisors, which oversees $919?million, including Apple shares. Kristin Huguet, an Apple spokeswoman, declined to comment on why the company often tops sales predictions.

For the quarter ending this month, Apple’s guidance calls for sales to slump 12?percent from the previous quarter, to $25?billion, as it prepares to launch new products in the fall. Yet Apple’s suppliers have plenty of orders. Apple outsources the assembly of its products and computer chips to companies such as Foxconn Technology Group’s Hon Hai Precision Industry and Samsung Electronics. Sales at these and other suppliers accounting for 75?percent of Apple’s cost of goods sold are expected to rise 9.3?percent this quarter from last, data compiled by Bloomberg show.

That suggests revenues could come in much higher than predicted. Applying the suppliers’ growth rate to Apple would yield $31.2?billion in revenue for this quarter. In the last 10 years, Apple sales for the quarters ending in September grew an average of 17?percent from the three months that ended in June. “Analysts are in a tricky position,” says Alex Gauna, who covers Apple at JMP Securities. “In theory, the best information you’re going to get comes from the company. But in fact we know that information is not intended to be very helpful.”

Even so, analysts have not adjusted their numbers enough to keep pace with the company’s growth. Since 2006, Apple’s quarterly results have exceeded the average earnings forecast given by analysts three months earlier by an average of 30?percent, according to data compiled by Bloomberg. Yet analysts raised estimates by only 6?percent during the period. Wall Street firms are doing the best they can, according to Gene Munster, who follows Apple for Piper Jaffray. “Our goal is to get it right,” he says. “We factor in how conservative they typically are, and they still just blow it out of the water.”

The bottom line: Apple forecasts a 12?percent sales decline this quarter. Its chief suppliers’ sales may grow almost 10 percent. History says: Trust the suppliers.

Hwang is a reporter for Bloomberg News. Davenport is an analyst for Bloomberg News.

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More Job Cuts Loom for Europe's Banks

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September 13, 2011, 6:31 AM EDT By Ambereen Choudhury and Liam Vaughan

(Updates with Nomura job cuts in fifth paragraph.)

Sept. 13 (Bloomberg) -- European banks may resort to more jobs cuts or zero bonuses as they struggle to maintain fixed compensation levels amid deteriorating financial markets.

The companies are facing shrinking revenue and higher costs after raising base salaries of investment bankers by as much as 100 percent. That decision, which followed regulations to curb bonuses in the wake of the credit crisis, is irreversible even if conditions worsen, lawyers and consultants said, leaving banks with fewer options in their bid to improve margins.

“The absolute last thing banks will want to do is cut current salaries unless they have an explicit contractual right to do so,” said Jason Butwick, a London employment attorney at law firm Dechert LLP. “The legal, reputational, commercial and logistical risks of going down that route are huge.”

European banks including UBS AG, Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Credit Suisse Group AG have announced more than 70,000 job cuts since midyear, compared with 42,000 by U.S. peers, according to data compiled by Bloomberg.

Nomura Holdings Inc., Japan’s largest brokerage, plans to cut about 5 percent of jobs in Europe, two people with knowledge of the matter said today. Fewer than 400 positions will be eliminated globally, with the majority in Europe, one of the people said, declining to be identified because the information is confidential.

Costs on Rise

Compensation cost as a percentage of net income at the 20 largest investment banks will increase for a second year to 65 percent in 2011 from 55 percent in 2009, Barclays Capital analysts said in an Aug. 10 report. It could be more than 80 percent at the investment-banking units of UBS and Credit Suisse, both based in Zurich, and Tokyo-based Nomura Holdings Inc., the analysts said.

Banks are struggling with slower economic growth and a spreading debt crisis that is sapping confidence in Europe’s financial institutions. Combined revenue for the 20 largest global investment banks was down 8 percent in the first half, after a 23 percent drop in the same period last year, the Barclays analysts said.

The 46-company Bloomberg Europe Banks and Financial Services Index has fallen 38 percent this year.

‘Fewer Bonuses’

Jonathan Nicholson, managing director of Astbury Marsden, a London executive-search firm, said more job losses are imminent.

“There are fewer bonuses to play with than ever before,” Nicholson said. “The fixed costs are now about 70 percent to 80 percent of overall total compensation, so you have less to play with the bonus pool than ever before. The only material way to make a difference in flexing costs is to cut jobs.”

Spokesmen for UBS, Nomura, RBS, HSBC, Barclays and Credit Suisse in London declined to comment on plans to reduce costs through cuts in jobs or compensation.

The rise in fixed costs is driven by an increase in base salaries after European regulators, including those in the U.K. and France, restricted when and in what form bankers can be paid. The average base salary of a managing director at a global investment bank in London surged to between 300,000 pounds ($474,480) and 500,000 pounds from 175,000 pounds to 250,000 pounds three years ago, said Jason Kennedy, chief executive officer of Kennedy Group, a London-based search firm.

Total Compensation Falls

Fixed-compensation costs, which include salaries and deferred bonuses, rose to 82 percent of total pay at Credit Suisse in 2010 from 66 percent in 2009, according to a JPMorgan Cazenove report in June. At UBS’s investment-banking division, fixed compensation rose to 65 percent from 55 percent in 2009, according to the report.

Total compensation for investment-bank employees has decreased since 2007. Workers at UBS’s investment-banking division were paid an average of 399,940 Swiss francs ($454,790) in 2010 compared with 474,968 francs in 2007, according to the annual report. Average pay at Credit Suisse’s investment bank fell to 388,067 francs in 2010 from 494,708 francs in 2007. At Goldman Sachs Group Inc., average pay dropped to $430,700 in 2010 from $661,490 in 2007, according to the annual report.

Pay Restrictions

Banks in Europe are balancing the need to retain talent and control costs as they comply with new pay regulations and capital requirements. In December, the European Union’s Committee of European Banking Supervisors issued rules limiting bankers to receiving about 25 percent of their bonuses in immediate cash payouts, with the rest deferred or held in shares for a minimum of three years. Bonus awards should be split between stock and cash, and at least half of each segment of the bonus must be deferred at least three years, regulators said.

In the U.K., banks with consumer and securities units will have to capitalize them separately by 2019 to shield customers and taxpayers from the consequences of a financial crisis under proposals made yesterday in a report by the government-appointed Independent Commission on Banking. The plans would add as much as 7 billion pounds in costs, the report said.

Salary reductions could cause “an enormous public- relations problem,” said Mark Mansell, an employment lawyer at Allen & Overy LLP in London. They could also lead to a talent exodus, said Andrew Evans, chief operations officer of the financial-services unit at search firm Morgan McKinley.

“Continued turbulence in global financial markets is definitely putting pressure on banks’ staff costs,” Evans said. “However, simply reducing salaries could result in the loss of top talent.”

Employment Law

A top trader at a large hedge fund might expect to take home 15 percent to 20 percent of what he makes for his employer compared with 12 percent to 15 percent at a big investment bank, according to Kennedy.

“Financially, banks today cannot compete with hedge funds,” he said.

Cutting salaries is also complicated under U.K. employment law, according to lawyers and pay consultants.

While banks can ask employees to accept pay cuts, they can’t impose them easily if bankers refuse, Dechert’s Butwick said. Any firm looking to reduce the salaries of more than 19 people must undertake a 90-day consultation, which is likely to be made public and reflect badly on the bank, he said. If banks terminate contracts and ask employees to sign new ones, they would be open to claims of unfair dismissal, Butwick said.

Goldman Sachs Cuts

“The real action of cost-cutting will be around bonus pools and headcount,” said Tom Gosling, a partner in the rewards practice at PricewaterhouseCoopers LLP in London. “There’s a lot of nervousness. If we do get a full-blown banking crisis, then the bonus round will be very bad. There will be a much stronger divide between high earners and everyone else, and a big jump in the number of zero bonuses.”

One option is for banks to insert a clause into contracts giving them power to reduce base salaries after a set period or in the event of a decline in trading conditions.

Goldman Sachs is one of the few banks that did that. The New York-based company will cut the salaries of some London employees who received temporary increases in 2009, a person with knowledge of the matter said last month. Less than half the firm’s London workers got raises that are set to expire, said the person, who declined to be identified because the firm’s pay practices are private. Joanna Carss, a spokeswoman for Goldman Sachs in London, declined to comment.

Lloyd C. Blankfein, Goldman Sachs’s chairman and CEO, warned against raising base salaries on Wall Street in a June 16, 2010, interview with staff of the U.S. Financial Crisis Inquiry Commission.

‘Poor Direction’

“Salary is another form of guarantee, so we would like low salaries and high contingent comp,” Blankfein, 56, said at the time, referring to compensation based on performance. “We think the world is going in a poor direction.”

Switzerland’s bank-personnel association, which represents workers, demanded “symmetry in sacrifice” after UBS and Credit Suisse, the nation’s biggest banks, announced staff reductions.

“Any job cuts have to be linked with a 10 percent cut of the highest salaries,” the group said in a statement Aug. 23 in response to UBS’s plan to slash 3,500 positions. The association also asked Credit Suisse to stop “excessive payments” to executives after the bank said in July it would cut 2,000 jobs.

Credit Suisse CEO Brady Dougan’s 2010 pay was reduced 34 percent to 12.8 million Swiss francs after profit declined. The bank’s 16-member executive board received total pay of 160.3 million francs, up from 148.9 million francs received by 13 people in 2009.

New Hires

Oswald Gruebel, 67, CEO of UBS, decided to forgo a bonus again in 2010 because the company’s shares didn’t rise. He received 3 million francs in base salary and 25,600 francs of benefits in kind. The company’s 13-person executive board received combined compensation of 91 million francs for 2010, compared with 68.7 million francs the previous year.

U.K. financial-services firms have reduced pay for new employees. The average salaries for newly hired financial- services workers in London slipped in the first half of 2011 to 53,461 pounds from 53,470 pounds in the second half of last year, estimates by Morgan McKinley show.

“Deep down, everyone knows there needs to be a resetting of compensation practices,” said PwC’s Gosling. “It will take time to come through, but that will mean more differentiation within and between firms, more zero bonuses and more awards where pay is contingent on certain conditions being met.”

--With assistance from Elena Logutenkova in Zurich and Gavin Finch, Ben Moshinsky and Jesse Westbrook in London. Editors: Steve Bailey, Robert Friedman.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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