231-922-9460 | Google +

Tuesday, September 30, 2008

Bailout Gives Fed, Bernanke Key Roles

The government's planned $700 billion bailout for the financial sector is likely to give the Federal Reserve an important oversight role and accelerate plans to change the way the Fed manages interest-rate policy.

Fed Chairman Ben Bernanke is expected to play a key role in implementing the $700 billion bailout.

Fed Chairman Ben Bernanke, who lobbied Congress for the rescue package, almost certainly will play a key role in its implementation. Early drafts of the law being considered Sunday would place the Fed chairman on an oversight board meant to monitor the new program, a role Mr. Bernanke effectively invited last week in testimony to Congress.

"I think it's very appropriate, indeed essential, for Congress to have very tough oversight over this program and that there be a set of principles under which the program operates and that there be close oversight," Mr. Bernanke said.

It's not uncommon for lawmakers to turn to the Fed for other government duties because of the Fed's reputation for nonpartisanship and technical skill. Former Fed chairman Alan Greenspan served on the oversight board of the Resolution Trust Corp., the 1990s program created to sell off assets of failed thrifts. And after Sept. 11, 2001, then-Fed Governor Edward Gramlich was named chairman of the Air Transportation Stabilization Board to oversee federal loan guarantees to airlines that suffered losses during the terrorist attacks. Fed Vice Chairman Donald Kohn later became the board's chairman.

Under the rescue plan, lawmakers also sought to give the Fed more flexibility in how it runs its operations. According to drafts circulating on Sunday, lawmakers would accelerate the date the Fed could begin paying interest on the reserves banks leave on deposit with the central bank, something it doesn't do now. Such a step would give the Fed more flexibility, by making it easier for the central bank to keep short-term interest rates at their targeted level.

Congress had planned to allow the Fed to begin paying interest on reserves in October 2011, but the draft of the rescue law permits that to happen next week instead.

Currently, the Fed manages interest rates through transactions with banks using its stockpile of Treasury securities holdings. In recent months, the Fed has put that stockpile to other uses -- including lending out those Treasury securities to Wall Street firms in need of reliable collateral to fund their operations. By paying interest on reserves banks leave with it, the Fed would be able to keep short-term interest rates where it wants them, and potentially widen its use of its balance sheet for other purposes.

Central bank officials return to work Monday with short-term bank funding markets still in deep distress, something that last week prompted the Federal Reserve Bank of New York to inject repeated rounds of cash into the global financial system, through arrangements with other central banks to send dollars oversees and through its own direct market operations.

The $700 billion rescue plan will help to alleviate pressure on the Fed in other ways. By helping banks to take bad assets off of their own balance sheets, it lowers the likelihood of the kind of market chaos that shocked officials in the past two weeks. Through its lending operations, the Fed has taken riskier assets on to its own balance sheet in recent months.

"This plan uses fiscal policy to help fix a balance sheet problem in America's financial system and provides a capital infusion for the system itself, which is something that the Fed really could not do," said Richard Berner, Morgan Stanley economist.

The continuing Fed role in the $700 billion bailout is also bound to keep Mr. Bernanke in the political spotlight. Throughout the crisis, Fed officials sought to let the Treasury and Congress handle cases that might involve the direct use of taxpayer funds. Even when the Fed had the lead role, such as dealing with potential financial-system disruptions from Bear Stearns's failure, the Fed deferred to Treasury Secretary Henry Paulson and consulted with lawmakers before acting.

But Treasury officials made sure to keep the Fed close at their side. When Treasury officials planned their initial response to Fannie Mae and Freddie Mac in July, seeking greater congressional authority over the two firms, Mr. Paulson included a provision giving the Fed a "consultative role" with another regulator in setting the two firms' capital requirements.

The Fed chairman joined Mr. Paulson at emergency meetings with President Bush and congressional leaders 10 days ago to urge quick action. Over the course of the following week, he participated in numerous conference calls and private meetings along with three long hearings.

By: John Hilsenath and Sudeep Reddy
The Wall Street Journal; September 30, 2008

Tighter Terms for Car Loans Promise To Deepen Troubles for Sluggish Sales

Car Loans
The increasing inability of car buyers to find financing for new automobiles is adding to concerns hanging over a U.S. auto industry that has been blistered by high gasoline prices and a weak economy in 2008.
Auto makers will report September sales on Wednesday, and the pace of new-vehicle deliveries is expected to remain at a 15-year low. Research firm J.D. Power & Associates estimates that the seasonally adjusted rate of annual light-vehicle sales will dip to 12.6 million vehicles, compared with 16.2 million a year ago.
If the estimate holds, it would represent a decline of 26% compared with the same month in 2007. Such an outcome would shatter any notion that the auto industry has hit bottom following a dismal summer selling season, and turn up the spotlight on the cash concerns facing Detroit's Big Three.
The sluggishness has been largely pinned to an unwillingness of buyers to enter the new-car market at a time when gasoline prices are escalating and the economy is shaky. In recent months, however, domestic auto makers have mostly abandoned vehicle leasing, and lenders -- many of which are mired in red ink -- have significantly tightened terms.
"Decreased credit availability is constraining sales even at prime levels of credit quality," Goldman Sachs auto analyst Patrick Archambault said in a note to investors. This means that buyers are not only unwilling to buy, but they also are increasingly unable to buy.

By: John D. Stoll
The Wall Street Journal; September 30, 2008

New Nokia Phone Likely

Nokia Corp. is expected to unveil a high-profile touch-screen phone, known by gadget aficionados as the "Tube," at an event on Thursday, according to industry analysts.

In launching the device, the world's largest handset maker by shipments takes its stab at Apple Inc.'s iPhone, which set off a wave of copycat devices that attempted to emulate its sleek user interface. Nokia is the last of the major handset makers to put out a touch-screen cellphone.

"Nokia is under enormous pressure to deliver something that's good," said Carolina Milanesi, an analyst at Gartner Inc. "People have been waiting for this for over a year now."

The device, which will be called the Nokia 5800, emphasizes music first and is more of a multimedia player than a full-blown smart phone. Key to the device will be Nokia's Comes With Music software, which takes on Apple's iTunes store. A Nokia spokeswoman declined to comment.

With the Tube, Nokia will be entering a crowded field. Samsung Electronics Co. and LG Electronics Inc. have tried their hand with multiple touch-screen devices.

Motorola Inc. has its Ming product in China. Sony Ericsson plans to launch its Xperia X1, and Research In Motion Ltd. is working on a touch-screen BlackBerry.

By: Roger Cheng
The Wall Street Journal; September 30, 2008

How Well Do You Know High Tech's Leaders?

How Well Do You Know High Tech's Leaders?The world of high-tech companies is home to larger-than-life personalities.

Entrepreneurial executives like Bill Gates, frequently the world's richest man, Steve Jobs, one of the few businessmen to become a cult hero, and Craig Newmark, a populist who refuses to maximize the value of his Craigslist, have all changed the world to one degree or another.

Leaders one year are sometimes goners the next, while other onetime heroes face indictment or exile. How well do you know the leaders of high tech?

1) What high-tech veteran left his operating role recently?

A. Bill Gates, chief software architect, Microsoft Corp.
B. Sam Palmisano, CEO, International Business Machines Corp.
C. Larry Ellison, CEO, Oracle Corp.
D. John Chambers, CEO, Cisco Systems Inc.

ANSWER: A. In June, Mr. Gates ended his daily operating role at the company he started, although he remains chairman of the board. He stepped down as chief executive in 2000, but he has remained prominent in helping shape the software giant's technical direction. The 52-year-old Mr. Gates plans to concentrate on his philanthropic endeavors.

2) What activist investor who has profited by taking big stakes in companies and pushing corporate change is struggling with some high-tech bets?

A. Warren Buffett
B. Carl Icahn
C. T. Boone Pickens
D. Henry Kravis

ANSWER: B. Mr. Icahn acquired stakes in Yahoo Inc. and Motorola Inc., among others, and has pushed for strategic change to boost the value of the companies. His 5% stake in Yahoo, acquired this year with the goal of forcing it to sell out to Microsoft, has resulted in his election to the board. But the stock price languishes below his cost of $25 a share. Mr. Icahn invested $2 billion in Motorola and joined its board earlier this year. It has agreed to split the company in two, a move he advocated. But Motorola stock remains well below his cost of up to $18.53 a share.

3) Craig Newmark, founder of Craigslist Inc., and Jim Buckmaster, its chief executive, were sued by which online company that is both a rival and a partial owner of the largely free online classified-ad service?

A. Google Inc.
B. eBay Inc.
C. Yahoo Inc.
D. Amazon.com Inc.

ANSWER: B. EBay acquired a minority stake in Craigslist in 2004. But in April, eBay said in a suit in Delaware's Court of Chancery that the Craigslist leaders have tried to dilute its stake. In a countersuit in California, Craigslist charged that eBay unfairly interfered with its business when eBay started a rival classified-ad service called Kijiji last year.

4) Pick the party affiliation of these high-tech luminaries who are supporting campaigns this year or plotting runs for 2010.

A. Carly Fiorina, ex-CEO, Hewlett-Packard Co.
B. Rob Glaser, CEO, RealNetworks Inc.
C. Mitch Kapor, founder, Lotus Development Corp.
D. Steve Poizner, ex-CEO, SnapTrack Inc.
E. John Thompson, CEO, Symantec Corp.
F. Meg Whitman, ex-CEO, eBay Inc.

ANSWER: A, D and F are Republicans. Ms. Fiorina has been advising Sen. John McCain in his presidential campaign. Ms. Whitman, a McCain fund-raiser, reportedly is considering running for governor of California in 2010. If she does, she's likely to face the state insurance commissioner, Mr. Poizner, who reportedly made nearly $1 billion when he sold SnapTrack, a company that developed GPS tracking technology, to Qualcomm Inc. in 2000. B, C and E are Democrats. Mr. Glaser posted an effusive video blog from a Barack Obama rally in February. Mr. Thompson hosted a Silicon Valley fund-raiser for Sen. Obama. Mr. Kapor has praised Sen. Obama's plans to appoint a chief technology officer for the government and reform the patent system.

5) What high-tech company CEO was briefly strengthened last month by an electoral miscount?

A. John Swainson, CA Inc.
B. Joe Tucci, EMC Corp.
C. Jerry Yang, Yahoo Inc.
D. Antonio Perez, Eastman Kodak Co.

ANSWER: C. Mr. Yang was initially reported to have received 85% of the votes cast at Yahoo's annual meeting in his bid for re-election to the company's board. But, after questioning by major institutional investors, Yahoo investigated and discovered that one investor's vote withholding support hadn't been tabulated because of a glitch by vote processor Broadridge Financial Solutions Inc. When the votes were recounted, it turned out Mr. Yang was re-elected with just 66% of the votes cast. The muted endorsement could serve as ammunition for critics who seek strategic changes at the Sunnyvale, Calif., company.

6) Which of these high-tech chief executives from The Wall Street Journal's 2007 "Women to Watch" list hasn't lost her leadership post?

A. Anne Mulcahy, Xerox Corp.
B. Meg Whitman, eBay Inc.
C. Patricia Russo, Alcatel-Lucent SA
D. Diane Greene, VMware Inc.
ANSWER: A. Ms. Mulcahy remains on the job. Ms. Whitman retired in March to pursue other interests. Ms. Russo was replaced as chief executive at the beginning of September. And Ms. Greene was ousted by the board in July, just before the company publicly announced slowing growth.

7) What Japanese consumer-electronics executive recently saw his company's market value vault to No. 4 on the Tokyo Stock Exchange?

A. Fujio Mitarai, Canon Inc.
B. Satoru Iwata, Nintendo Co.
C. Howard Stringer, Sony Corp.
D. Masayoshi Son, Softbank Corp.

ANSWER: B. At the end of July, Nintendo, benefiting from soaring sales of the Wii videogame console, was ranked No. 4, behind Toyota Motor Corp., Mitsubishi UFJ Financial Group Inc. and mobile-telecommunications provider NTT DoCoMo Inc., all of which have much larger annual revenue. Nintendo had climbed even higher in the past: It briefly hit No. 2 behind only Toyota last year. At the end of July, printer and camera maker Canon ranked sixth; Sony ranked 14th and Internet and cellphone company Softbank ranked 40th.

8) In what country is Jacob "Kobi" Alexander, former chief executive of Comverse Technology Inc., fighting extradition to the U.S. to face charges of backdating stock options?

A. Namibia
B. Bermuda
C. Jamaica
D. Moldova

ANSWER: A. Namibia, a small African nation that doesn't have an extradition treaty with the U.S., is where Mr. Alexander fled in 2006. He is living in a guarded, gated community alongside a golf course. In March, he hosted a party for his son's bar mitzvah, which was attended by more than 200 guests, including some from his son's school in New York, and an Israeli hip-hop artist with an 11-piece backup band.

9) Major companies that buy or build online units often find they come with challenges. Match the executive and his or her company's online subsidiary, all of which face business problems.

A. Jeff Bewkes
B. Katharine Weymouth
C. Steve Ballmer
D. Les Moonves

1. Washingtonpost.com
2. MSN
3. AOL

ANSWERS: A-3. Mr. Bewkes, in his first year as CEO of Time Warner Inc., needs to straighten out or sell the AOL unit, which is losing subscribers rapidly. B-1. Ms. Weymouth, the new publisher of the Washington Post, is committed to eliminating the separation between the paper and online versions of the publication. C-2. Microsoft's CEO, having failed to acquire Yahoo, needs to figure out a strategy to help MSN compete with Google. D-4. Mr. Moonves, CEO of CBS Corp., has to boost revenue and profit growth at CNET to justify the $1.8 billion cash CBS paid for the technology-oriented online news service in an acquisition completed June 30.

By: William Bulkeley
Wall Street Journal; September 29, 2008

KB Home's Loss Widens

KB Home reported a sixth-straight quarterly net loss Friday, as its orders and deliveries continued to slump amid weak demand for new houses.
Orders fell 66% to 1,329 units in the home builder's fiscal third quarter. The company attributed the decline to the overall weak market and its own efforts to restrain development and hold the line on prices.
KB Home Chief Executive Jeffrey Mezger said the short-term outlook remains bleak for the housing market amid increasing foreclosures, historically high supplies and harder-to-get mortgages. He added that the difficult conditions have been "exacerbated by the recent, unprecedented turmoil in financial and credit markets." A great wy to heighten the value of your home is to use organic lawn care.
For the three months ended Aug. 31, the Los Angeles home builder posted a net loss of $144.7 million, or $1.87 a share. The company had a net loss of $35.6 million, or 46 cents a share, in the year-earlier period, when it booked a substantial gain on its sale of French assets. Revenue for the latest period dropped 56% to $681.6 million.
KB Home's new-home deliveries slid 51% to 2,788, while the average selling price declined 10% to $239,700. The cancellation rate, or unit cancellations divided by gross orders, was 51%, compared with 27% in the second quarter and 50% in the year-earlier period. The company said it is preparing to roll out a new "value-engineered product" with more-affordable standard features and a lower base selling price.
The credit crisis continues to hurt home builders, as potential buyers have trouble selling existing homes and securing financing.

By: Rachel Dodes
The Wall Street Journal; September 30, 2008

MxClatchy Bank Deal Eases Threat of Default

McClatchy Co. won concessions from banks that spared the newspaper company from a threat of default on its debt.

The publisher of the Sacramento Bee and Miami Herald said Friday its banks agreed to loosen restrictions on the company's level of debt compared to cash flow, and its ratio of interest payments to cash flow.

Analysts had said McClatchy needed to secure the changes by Sept. 30, or the company risked a technical default on its debt. A default notice could trigger a bankruptcy-court filing.

McClatchy said it believed "the impact of the current environment on our cash flows" made it necessary to amend its bank agreement. "There were no internal projections indicating we would be in default in the third quarter," a McClatchy spokeswoman said.

Like nearly all newspaper companies, McClatchy has suffered from a steep downturn in advertising revenue as the economy cools and as marketers continue to shift advertising to the Internet. McClatchy's pains are exacerbated by about $2.1 billion in debt, much of it tied to the company's purchase of publisher Knight Ridder Inc. in 2006.

Worries about possible bank defaults have helped crush the company's stock price, which has dropped 77% in the last year. McClatchy's credit rating is deep into junk territory.

The announcement about the amended credit agreement came after the close of regular market trading. McClatchy shares rose 5.9% to $4.50 at 4 p.m. on the New York Stock Exchange, with much of the rally in the last hour of trading.

The company continues faithfully to pay interest on its debt, though falling revenue means McClatchy has been tiptoeing near covenant limits on its bank debt. The covenants currently limit McClatchy's debt to five times its adjusted cash flow. The ratio was just under 4.5 times at the end of the second quarter. Under the new agreement, the ratio can now go as high as 6.25 through the fourth quarter.

By: Shira Ovide

The Wall Street Journal; September 30, 2008

Steward of Family Beer Brand Reinvented Product as a Craft Brew to Take On Competition

Bill Leinenkugel

As local breweries across the country were shutting their taps, Bill Leinenkugel reimagined his family's century-old brand as the latest thing in beer fashion: a craft brew.

Seeking to compete against national brands whose marketing and distribution budgets dwarfed his own, he diversified the northern Wisconsin favorite into a half-dozen specialty brews. When the decades-long trend of brewing-industry mergers came at last to Chippewa Falls in 1988, he agreed to an acquisition of the brewery by Miller Brewing Co. But his family still ran the business, and the company prospered while establishing a national identity apart from its owner.

"It became a model for how a large brewer would handle a small brewer that it took under its wing," says Paul Gatza, director of the Brewers Association in Boulder, Colo.

Founded in 1867 by Mr. Leinenkugel's great-grandfather, the brewery in the early days was meant to serve Chippewa Falls's large population of lumberjacks. Prohibition slashed the number of America's small breweries, but Leinenkugel's survived by bottling soda water and a not-so-popular near-beer called Leino.

When Bill Leinenkugel joined the family business as a salesman in the early 1950s, there were about 350 brewers left in the country. By 1980, that number had dropped to just 40.

After Milwaukee powerhouse Joseph Schlitz Brewing Co. introduced its budget Old Milwaukee brand in the early 1960s, Mr. Leinenkugel took marketing classes and positioned his beer as a classier, and more expensive, alternative.

"We were much higher than Old Milwaukee but lower than Schlitz and for a while we sold less beer but we made more money," he told Beer Business Daily in an interview in August.

Mr. Leinenkugel began courting college students in Madison with gimmicks such as logo T-shirts, then an uncommon strategy. He established the "Leinie Lodge," a tasting room at the brewery meant to attract tourists. He even dressed up his bottles with aluminum foil over the cap.

"The bartenders hated it because it got in the way," he said in the Beer Business Daily interview. "They cost a penny apiece and I got a dollar a case more for Leinenkugel's Limited" -- his early Oktoberfest-style brew.

Sales began to take off as Bill Leinenkugel secured a Chicago distributor and began producing light, bock and other specialty brews. After the company's sale to Miller, the Chicago Tribune asked: "Can a pure and innocent specialty beer from a small town in Wisconsin survive under ownership of the nation's second-largest brewer, a monolith that probably spills more each year than the little guy produces?"

The answer turned out to be yes. Miller, which is now part of global company SABMiller PLC, left Leinenkugel's pretty much on its own, as management passed to Mr. Leinenkugel's sons. The brewery remained in Chippewa Falls, although it is no longer the town's largest employer. With Miller's increased marketing and distribution muscle, bottles of Leinenkugel can now be found across the country. Production increased to 465,000 barrels in 2007 from 61,000 barrels in 1987.

Where ads once touted the water from "Big Eddy Springs," the focus now is more on the outdoor lifestyle of Wisconsin's North Woods. Leinenkugel's draft taps feature a model canoe.

While marching in the Chippewa Springs Memorial Day Parade, Mr. Leinenkugel fell ill and was diagnosed with a brain tumor. He eschewed treatment and continued sipping his product until days before his death in Chippewa Falls on Sept. 22 at age 87. He liked to say his two favorite brews were Leinenkugel's and free beer.

By: Stephen Miller

The Wall Street Journal; September 30, 2008

2008 Technology Innovation Awards: Computing Systems

Salesforce.com Inc. of San Francisco was the top pick in this category. The company made its name selling software as a service -- applications that are used online instead of being installed in a corporate data center. Its winning entry takes this concept and applies it to a suite of tools that a company can use to build its own customized business applications that are developed and delivered over the Internet.

The suite, called Force.com, provides the building blocks for payroll, accounts-receivables and expense-reporting systems and other common applications, and it requires minimal programming skills. Introduced in 2007, Force.com has about 47,000 users.

Other companies are developing similar "cloud computing" services, in which companies access computing power as needed, the way they buy electricity, without the need to run their own servers and software. Along with Amazon.com Inc. and Google Inc., "Salesforce is one of the leaders in this trend," says Asheem Chandna, a partner at venture-capital firm Greylock Partners and one of the Innovation Awards judges. "It's certainly a key direction where computing is heading."

Wall Street Journal; September 29, 2008

Intel Reboots for the 21st Century


Paul S. Otellini is Intel's fifth CEO in its 40-year history, and three of the other four -- Robert Noyce, Gordon Moore and Andrew Grove -- were among the most famous business leaders of the 20th century. Under their stewardship, Intel became the semiconductor industry's dominant player, and perhaps the most important American company of the 1980s. Now, after looking slow and confused for much of this decade, Intel, under Mr. Otellini's leadership, is again showing the competitive fire for which it was once famous.

Even today, Intel remains the ultimate keeper of "Moore's Law" -- the trend of exponential improvement in silicon-chip performance. Since the 1958 invention of the integrated circuit, the number of transistors that can be packed onto a chip's surface has doubled approximately every two years. Mr. Moore was the first to observe this. That's a lot of history to carry on your shoulders -- "all those legends," as Mr. Otellini, 57, describes his predecessors as we sit in corporate headquarters in Santa Clara, Calif. No matter which way Mr. Otellini moves he's inevitably compared with Noyce (the charismatic leader), Mr. Moore (the technical genius) or his mentor Mr. Grove (the ultimate corporate fighter). Noyce may be gone. Messrs. Moore and Grove, though less involved with Intel these days, are still around to comment and advise on the Silicon Valley company -- and its CEO's -- every step.

At Intel, success is the only option. The record of Mr. Otellini's immediate predecessor, Craig Barrett, is forever diminished by a gutsy and expensive, but ultimately failed, initiative to drive Intel -- via acquisitions -- into the communications business. That Mr. Barrett also courageously, in the face of the dot-com crash, ramped up Intel's investment in new capacity -- and thus set the stage for Intel's current growth burst -- is all but forgotten.

What is remembered is that in May 2005, when Mr. Otellini -- then executive vice president -- stepped up to the chief executive's chair, Intel was in a funk like never before. The company was coming off a decade that included an ultimately inconclusive antitrust investigation by the Federal Trade Commission, and the madness of the Internet bubble and its collapse.

Intel's long-dominant line of microprocessors was under assault at the high end from Advanced Micro Devices (AMD). In the fast-growing world of tiny-but-powerful chips for cell phones and other devices, Samsung, the South Korean giant, was declaring that it intended to supplant Intel at No. 1. For the first time, Intel, that most confident of corporations, looked confused and depressed.

It fell to the new CEO to swing the ax: a total of nearly 20,000 employees lost to lay-offs, attrition and the sale of business units. Managers (more than 1,000 of them) took the hit first. "It was miserable," recalls Mr. Otellini, who had worked with most of these managers for decades. "There were a lot of nights when I didn't sleep. I remember saying that this was not what I'd planned for my first year on the job."

Mr. Otellini is very rare among Silicon Valley leaders for having spent his career -- 34 years -- at one company. In fact, outside of a job as a sales clerk at "a shlocky men's clothing store" while in college, Intel is the only place he's ever worked.

What's more, in a business community filled with recent arrivals, Mr. Otellini is the rare example of a Bay Area native: He attended St. Ignatius high school in San Francisco, then the University of San Francisco, and later earned an MBA from Berkeley. Literally days after earning his degree, Mr. Otellini joined Intel.

That was in July 1974, when the semiconductor industry was suffering the worst recession in its history. The Friday before his arrival, Intel's stock had lost a third of its value, and the young Mr. Otellini arrived at Intel's headquarters just minutes after the company had laid-off nearly 10% of its employees. "My desk was still warm from the guy who had just vacated it," he recalls. "It was ugly."

"At the same time, I was impressed that Intel was keeping its commitment to the college kids it had already made offers to. It would have been much simpler to just tell us not to show up." Instead, just a few days later, he found himself at a brown-bag lunch with Robert Noyce and Gordon Moore.

Mr. Otellini didn't forget that commitment to employees in September 2006, when it was his turn to sign off on a major lay-off. "There were people inside the company advocating that we do one swift chop of 20% of the employees . . . I was adamantly against that -- I thought it was brain-dead. My God, you owe your people more than that. . . .

"So we systematically measured the performance of every part of the company to determine what was world class and what wasn't. Then, as analytically as possible, we made the cuts . . . and saved $3 billion in overall spending." He learned this process from Mr. Grove: "Ask why, and ask it again five more times, until all of the artifice is stripped away and you end up with the intellectually honest answer."

The layoffs behind him, Mr. Otellini immediately -- and controversially -- reinvested some of those savings into research and development. "Gordon Moore always said that 'you can't save your way out of downturn,'" says Mr. Otellini. Many industry analysts didn't agree with this move, but Mr. Otellini knew what Intel had waiting in the wings. "I knew that we had some great products that we'd been working on for five years, and that they'd be ready within a year. I also knew that when we came out of this downturn, this would be a very different industry -- and I wanted to be ready for it."

"A CEO's main job, because you have access to all of the information, is to see the need to change before anyone else does," Mr. Otellini explains. "I knew what products we had coming out, and I knew the results of our efficiency efforts, so I was optimistic. But as Andy once told me: 'You won't believe how long it takes for the change you've started to work its way all of the way through the rank and file.'

"As a result, I was upbeat, but nobody else was yet. So I made it my job to communicate, communicate, communicate the positive message. I did open forums, I did Webcasts, I told the employees to send me any question via email and I'd answer them. I wasn't trying to sell them on the idea -- when half of your 80,000 employees are engineers, if you try to put sales into it you're dead. You have to convince them, through reasoning and logic, the accuracy of your claims."

The last two years have seen the roll out of those new products, as well as the establishment of two important new alliances. At the high end of its product line, Intel introduced a new generation of its multi-core Xeon processors -- just in time to watch longtime competitor AMD stumble. Even more important, in a crucial move, Intel consolidated its position in the "tiny" processor market with the low-power/high performance Atom family, targeted at everything from handheld computers to mobile devices to cell phones.

Atom has proven to be a huge success, not least because it brings the venerable x86 architecture, the world's most popular microprocessor design, to the new wireless world. Mr. Otellini notes that the next billion consumers will enter the Internet economy using devices that merge the capabilities of smart phones and small laptops.

In late 2005, Mr. Otellini managed to pull off something none of his predecessors had been able to accomplish: a strategic partnership with Apple. Though that partnership was, and remains, mostly about the use of Intel processors in Apple Macs, that has still been enough to profitably tie Intel to the hottest consumer electronics company on the planet. Mr. Otellini confesses that he dreams of seeing Apple adopt Atom for the iPhone or iPod.

A second and more recent partnership, announced last month, is between Intel and Dreamworks Animation to develop 'InTru' 3D films. This had the added pleasure of running off AMD, the previous Dreamworks partner. Intel has also recently announced other collaborations, notably with Yahoo, to bring the Internet to television. In addition, Mr. Otellini recently has begun talking up once again that half-century old dream of the electronics industry: speech recognition.

Mr. Otellini has good reason to be confident. Old competitors like AMD seem to have lost their way, while new ones, such as Samsung -- now that Intel has embarked on a massive expansion in ChinaAsia -- are looking a lot less threatening. Intel once again sets the pace for the semiconductor industry, with annual sales of $40 billion, a market value of $110 billion and more than 83,000 employees. The company is still expected to grow 10% this year. Even Wi-Max, Intel's broadband wireless standard, will finally be launched this month in Baltimore. and the rest of

Gordon Moore famously claimed that no one can see more than five years ahead in tech. Where does Mr. Otellini see Intel in five years? He smiles and offers up a series of benchmarks and their corresponding grades. For a 'B', Intel needs to continue to dominate the huge (300 million units a year) business of processors for computers, "driving computing as far as we can over that time frame: faster, better, more integrated and cheaper."

For an A-, Intel needs to reach the same dominance in cell phones and other mobile devices. That means becoming not only the processor of choice in the world of wireless devices -- a goal that Intel is now a long ways from achieving -- but also driving everything from graphics to speech recognition to wireless broadband.

How about an A? "When everybody in the world carries around with them a couple devices that carry the latest, 2013 versions of our microprocessors in them. It's in your car, in your television -- in your iPod." He adds, laughing, "and if you're my age then, in your pacemaker."

But there's still a long way to go, with many obstructions that could pop up along the way. One unpredictable variable is government regulation. "The problem is that there used to be one set of rules out there -- U.S. antitrust laws were the de facto rules of the world. Now with globalization, we have different sets of rules for different regions, such as the EU, written around entirely different philosophies. It would sure make things easier if we decided on a single set of rules once again -- whatever they are. Then we'd know how to behave and we could plan better for the future."

There is one goal Mr. Otellini is adamant Intel will reach during the next five years: the continuation of Moore's Law. "I guarantee you that Moore's Law will not end on my watch," he says with a shudder. "Nobody in tech wants to be the guy who goes down in history for killing Moore's Law -- and it sure won't be me."

After all, that would be the one thing for which his famous predecessors would never forgive him.

By: Guy Chazan
The Wall Street Journal; September 30, 2008

Protecting Your Assets From Bank Failures

Protecting Your Assets From Bank FailuresAfter a recent string of bank failures, nervous savers are rushing to withdraw their deposits.

There have been 13 bank failures this year, including this week's Washington Mutual Inc. -- the largest bank failure in U.S. history. Another large bank, IndyMac, went broke in July. While that number is still well below the number of financial institutions that went bankrupt during the savings-and-loan crisis of the late 1980s and early 1990s, it has depositors on edge.

People walk past a Washington Mutual branch after it was seized by the FDIC.

The vast majority of depositors have less than $100,000 in their accounts and are protected by federal insurance no matter what happens to their banks. Still, there are steps large depositors can take to protect themselves, and things that any saver can do to minimize hassles in the coming months. Here is a primer on bank collapses:

What happens when a bank fails?

If another bank buys the bank, as was the case with J.P. Morgan Chase & Co. buying WaMu this week, then it is business as usual. Customers of the failed bank can continue to write checks and withdraw their money -- typically without any interruption in service.

If, however, no buyer steps in, then the Federal Deposit Insurance Corp. will start mailing out checks to customers for their insured deposits within 48 hours. Those with amounts over the FDIC's limits of $100,000 per person, per insured institution, will receive payments as the assets of the bank are sold. Some won't get all their money back.

How can I tell if my bank is on the verge of failing?

If you're comfortable with financial statements, take a look at the FDIC's Web site, which publishes detailed financial information reported by lenders at www.fdic.gov under "Bank Find." Similar data for credit unions are available at the National Credit Union Administration's site at www.ncua.gov.

Beyond that, there are various ratings services that grade the safety and soundness of financial institutions. Bankrate.com and BauerFinancial.com, for example, have five-star rating systems that grade financial institutions on their financial health. The more stars, the better.

Keep in mind that even if you have money in a bank with low ratings, your deposits should still be safe. "As long as you're within the FDIC insurance limits, there's absolutely nothing for you to worry about," says FDIC spokesman David Barr. "During our entire history, not a single person has ever lost a penny of insured money."

I have more than the $100,000 in my bank. How can I extend my FDIC insurance coverage?

Savers can boost coverage at one insured bank by opening deposit accounts in different ownership categories, such as retirement accounts (which are insured up to $250,000), joint accounts and revocable trusts. The FDIC on Friday posted new rules to make it easier for savers to get insurance coverage by using revocable-trust accounts. Previously, account owners could only add certain "qualified" beneficiaries, who were insured up to $100,000 each; the new rule allows depositors to name anyone as a beneficiary.

Big savers can also deposit their money with a bank that participates in the Certificate of Deposit Account Registry Service, or CDARS. The deposit-placement service disperses the funds in individual CDs under $100,000 in member banks. A single depositor can place up to $50 million and have it all covered.

Consumers can use the FDIC's EDIE the Estimator program at www.fdic.gov/edie to determine if their deposits are within coverage limits.

Will my deposits continue to earn interest if my bank is seized?

If the bank is bought, then it is up to the acquiring bank to determine whether it wants to maintain the current interest rates. If the interest rate is lowered, you may withdraw insured funds without penalties -- even if your money is locked up in a long-term certificate of deposit. If there's no buyer, the interest stops accruing on the date of the bank failure.

If you have brokered CDs, you may stop earning interest when the bank is seized by the government -- unless the deposits are bought by a new bank. Brokered CDs at WaMu, for example, will continue to earn interest because they're now part of J.P. Morgan. But deposits in brokered CDs at IndyMac Bank stopped earning interest when that bank failed.

Does the FDIC have enough money to cover insured deposits?

The FDIC has $45 billion in its coffers to cover insured deposits. If the cost of future bank failures exceeds that amount, then the FDIC can draw on other resources to protect depositors. Indeed, the FDIC is looking at raising the rates that it charges the banks it insures as a way to bring in additional funds. The FDIC can also draw on lines of credit with the Treasury Department -- something it last did in early 1991, although it paid back any borrowed funds with interest by mid-1993.

By: Jane Kim
Wall Street Journal; September 27, 2008

Monday, September 29, 2008

Cablevision Wavers on Ticketing Choice

Cablevision Systems Corp. said Thursday it expects to renew the recently ended ticketing relationship between its MSG unit and Ticketmaster, but wouldn't rule out a deal with Live nation Inc. The prospect could shake up the business because Live Nation, the largest concert promoter in the world, has emerge as a threat in the ticking business, which Ticketmatster has dominated.

Net Loss Widens As Revenue Rises

Palm Inc.'s quarterly net loss widened, as the company works to revitalize its line of smartphones amid stiff competition. For its first fiscal quarter ended Aug. 31, Palm posted a net loss of $39.5 million, or 30 cents a share, compared with a net loss of $841,000, or a penny a share, the year earlier. Revenue rose 1.7% to $366.9 million as the company's smartphone sales increased 49% to over one million units.

Toshiba Counts on LCD TVs for Growth

Toshiba LCD TVAs Its Chip Business Struggles, Japanese Electronics Giant Plans to Trim Full-Year Earnings Forecast

Toshiba Corp., under pressure from its deteriorating chip business, aims to gain momentum from its LCD television sets.

Meanwhile, Toshiba plans to cut its earnings estimates for the current fiscal year ending in March, dragged down by the chip business, which posted an operating loss of 30.2 billion yen ($288.3 million) for the first quarter ended June. The company said it "is compiling its earnings outlook and will release details once they are finalized."

New Regza-branded LCD TVs are Toshiba's push for higher sales. Above, a display in Tokyo.

Toshiba aims to grab more than 10% of the global LCD TV market in the year ending March 2011, up from the 8% estimated for the current fiscal year. "We've got to grow in the world market outside Japan," said Yoshihide Fujii, senior vice president of in charge of Toshiba's digital media-network business. "We can't make money in Japan."

Toshiba expects most of the sales growth to come from Europe and the U.S. By the year ending March 2011, the company plans to sell four million LCD TV sets a year in Europe, three million in the U.S., three million in Asia and three million in Japan. Toshiba expects total annual sales of 13 million units to bring in 750 billion yen, up from the 480 billion yen for fiscal 2008.

Driving Toshiba's push for higher sales is a series of new Regza-branded models. For the year-end shopping season, it has lined up 20 models with some features such as an automatic picture adjustment.

Competition in the LCD TV market is intensifying as other electronics manufacturers target increased sales of products that are expected to see higher demand. Sony Corp. has stated its ambition to become the world's biggest LCD TV vendor by the fiscal year ending March 2011 by beating out South Korean electronics giant Samsung Electronics Co.

Toshiba shares fell 3.5% to 465 yen Thursday after hitting a three-year low in early trading. "Investors are concerned about how bad Toshiba's earnings will be," said Takeo Miyamoto, an analyst at Deutsche Securities Japan.

He said Toshiba shares have also been pressured by a bid by Samsung Electronics Co. to purchase U.S. flash memory-card maker SanDisk Corp., Toshiba's joint-venture partner. SanDisk's board Wednesday rejected Samsung's $5.85 billion cash offer.

But Mr. Miyamoto said he thinks Toshiba couldn't stand still. "Toshiba may take action because it won't let Samsung and SanDisk go together," he said. Toshiba declined to comment on whether it will bid for SanDisk.

By: Yuzo Yamaguchi
Wall Street Journal; September 19, 2008

WSJ Letter: Sallie Mae Asks for a Chance to Bid

Your story "Student Loans Caught in Dispute" (U.S. News, Sept. 17) overstates an issue between Sallie Mae and the Education Department. You correctly report that we protested the department's sole sourcing of a loan-servicing contract, a contract we would like at least the opportunity to bid. That protest is the first step in a process we will work through with the appropriate parties at the department and other federal agencies. We haven't even begun those discussions, yet your newspaper alleges a disagreement so consequential as to threaten loan delivery. In fact, this issue will have no impact on student-loan originations.

Entering this academic year students and families faced a crisis over the availability of alternative student loans. Congress and the Education Department acted promptly, passing and implementing the Ensuring Continued Access to Student Loans Act. Students are now ensured access to federal loans this year and likely through at least 2010. Indeed, in May, Sallie Mae committed to make federal loans to every student at every school as a direct result of the new law. That commitment is ongoing and is unrelated to this servicing contract dispute.

We intend to aggressively pursue the servicing contract at issue. We have earned the servicing business of our 10 million American student borrowers. We have committed to students, parents and schools to make and service loans for those students. We have met that commitment for 35 years and intend to continue to meet it.

We have been down this road before. In 2001, we asked the department to competitively bid the government's direct student-loan servicing contract. It bid that contract after a similar and successful protest. We lost that competition, but by the department's own reckoning at the time, the competitive process saved the taxpayers $1 billion.

Al Lord
Chief Executive Officer
Sallie Mae
Reston, Va.

Gap Will Announce Deal to Open Stores Inside Mexico Shops

GapGap Inc. is expected to announce that it has signed a franchise agreement to open Gap "store within a stores" inside Mexican department-store chain Distribuidora Liverpool SA. Separately, Gap and Banana Republic stores will open in Egypt and Jordan over the next year.

The first Gap store in the Mexican Liverpool stores, selling children's shoes, discount children's shoes and designer children's shoes. The stores are expected to open next spring. Liverpool previously had a wholesale agreement with Gap for about 10 years and sold limited Gap merchandise in Mexico. Under the new deal, more Gap merchandise will be sold in an undisclosed number of Liverpool stores.

Gap also plans to announce that it will introduce an undisclosed number of Gap and Banana Republic stores in Egypt and Jordan through a franchise agreement with Fawaz Alhokair Group, which recently opened Gap and Banana Republic stores in Saudi Arabia. The first Gap stores are expected to open in Egypt and Jordan later this year for the holiday season, while the first Banana Republic stores are expected to open in Jordan next spring and in Egypt next fall.

The expansion abroad comes as Gap is trying to better align the size of its U.S. stores with demand and expects net square footage to remain roughly flat for fiscal 2008.

"The only real growth in square footage beyond 2008 will be in our international and franchise markets," Gap Chief Executive Glenn Murphy said in a conference call with investors earlier this year. Stores within stores, in particular, he said, have a "great return" and "good sales per square foot."

Since Gap started focusing on expanding abroad through franchise agreements two years ago, more than 70 Gap franchise stores and nearly 30 Banana Republic franchise stores have opened. Friday's planned announcement brings the franchise program count to agreements in 21 countries. Under the franchise agreements, Gap sells its goods to the franchisees and partners invest their own money in stores and operations.

Gap announced in May that it will introduce its Gap and Banana Republic brands in Russia through a partnership with Fiba Holding AS, a Turkish holding company with interests in banking and retailing.

By: Jennifer Saranow
Wall Street Journal; September 19, 2008

Jerry Jones, Football Genius

Jerry Jones, Football GeniusThe Cowboys Are Back, Thanks to the Owner Who Nearly Ruined Them

After Jerry Jones took over the Dallas Cowboys in 1989, he was, in his mind at least, the team's great savior. He was the one who was largely responsible for the Cowboys' rise from 1-15 creampuffs to three-time Super Bowl champions.

Author Jeff Pearlman talks about his book, "Boys Will Be Boys," a look into the glory days and party nights of the Dallas Cowboys dynasty during the 1990s. Video courtesy of Fox Sports.

He was the one who had fired the team's iconic but outdated coach, Tom Landry, and hired Jimmy Johnson. He was the point man on the 1989 blockbuster deal that sent Herschel Walker to the Minnesota Vikings in exchange for a bounty of players and draft picks, as well as the 1990 trade that netted Dallas three high picks from the Saints in exchange for Steve Walsh, a noodle-armed backup QB. "Without my input, those trades don't happen," Mr. Jones said. "It's that simple."

In April, 1992, Mr. Jones invited ESPN's cameras into his team's Valley Ranch war room, where he seemed to be an active participant in the team's decisions.

But to the outside world, Mr. Jones was often seen as an attention-obsessed executive who craved to be known as more than merely a signer of fat paychecks. He quickly earned the reputation around the NFL as a Grade-D talent evaluator -- especially after Mr. Johnson quit (or was fired, depending on who's talking) following the 1994 season and Jones took over as the team's general manager and lone decision maker.

His first-ever first round pick, in 1994: Shante Carver, a defensive end with Q-Tip-thick legs who lasted four forgettable years in Dallas. His second-ever first round pick, in 1997: David LaFleur, a tight end who also lasted four seasons. His track record over his first eight drafts: two stars (offensive linemen Larry Allen and Flozell Adams), a handful of passable mediocrities (Darren Studstill, Omar Stoutmire) and mostly piles upon piles of discards.

"Jerry went through some very hard times after Jimmy left," says Hubbard Alexander, an assistant coach with Dallas from 1989 through 1998. "I'm sure there were those who thought he had no clue about football. It was understandable, I suppose. But I'll tell you two things about Jerry Jones -- he's a smart man, and he'll study and study until he gets it right."

Indeed, following one of the darkest stretches in franchise history, during which the Cowboys went 55-73 between 1997-2004 and Mr. Jones was increasingly mocked as a wanna-be genius, Dallas's owner now seems to have it figured out. The Cowboys have a 33-17 record over the past four years and are 2-0 this season heading into Sunday's game at Green Bay. The team has drafted with renewed aplomb, landing a group of stars -- DeMarcus Ware, Marcus Spears and Marion Barber in 2005 and a potential Michael Strahan-esque quarterback chaser in defensive end Anthony Spencer in 2007.

This past April, they picked up two players, running back Felix Jones and tight end Martellus Bennett, with mesmerizing big-play potential. In a sense, Mr. Jones has returned to the team's early-'90s roots, when Jimmy Johnson focused less on plugging holes and more on finding the best possible playmakers. "The improvement is remarkable, because for a long time Jerry's drafts were absolutely terrible," says Darren Woodson, the former Cowboys safety and current ESPN analyst. "I think what's happened is that Jerry has opened up to other ideas and thought processes. Really, that started with Bill."

If there was a key moment in Mr. Jones's rise from laughingstock to laudable, it came in January, 2003 when he hired Bill Parcells as head coach. Unlike Mr. Johnson, who insisted on 100% control over all things football-related, Mr. Parcells was willing to confer with the owner; to sit down and discuss strategy; discuss scouting; discuss what he was looking for in a player. Though the two often butted heads, Mr. Jones was well aware of Mr. Parcells's knowledge. "What better teacher could Jerry have?" says Mr. Woodson.

Though Mr. Parcells's four-year tenure resulted in uneven on-field results, those who know Mr. Jones say he emerged with a new level of confidence and -- if this is possible -- swagger. It was Mr. Jones, after all, who took one of the great personnel risks of the last decade, signing free agent wide receiver Terrell Owens in 2006 to a three-year, $25 million contract after he had been released by the Eagles for multiple infractions. Immediately after the deal, Mr. Jones was again ridiculed throughout the league for having the temerity to add a player who spit in the face of discipline. Few, however, are mocking Mr. Jones today. Now in his third season with Dallas, Mr. Owens has regained his spot among the league's elite.

“Though history has hailed [Jimmy] Johnson (and, to a lesser extent, Jerry Jones) with pulling off the most lopsided trade in NFL history, 99 percent of the (dis)credit must go to [Mike] Lynn, a nice man, a good dresser and a lousy football executive.” Read an excerpt from "Boys Will Be Boys"

Last year Mr. Jones again defied convention on the free-agent market, inking an underwhelming Arizona Cardinals offensive lineman named Leonard Davis to a seven-year, $49.6 million contract. Rival executives laughed -- Mr. Davis laughed his way to the Pro Bowl. "Everyone -- absolutely everyone -- accused Jerry of overpaying Leonard Davis," says Gil Brandt, an NFL.com analyst and the Cowboys' vice president of player personnel from 1960-88. "Everyone -- absolutely everyone -- thought signing Terrell Owens was a horrible idea. But Jerry has a real feel for what he's doing as a GM. He listens to those around him with good judgment, and he combines that with listening to his gut. Clearly, it's paying off."

"I don't think my improvement is quite as dramatic as some people might say," says Mr. Jones. "But I have learned a great deal over the years. Most important, I know that the more time you spend looking at other teams' successful players, the better your evaluation skills become.

"Another thing I've come to believe in is the power of consistency. We've changed coaches over the years, but we have not changed our trainers or conditioning people. We want our players to work with the same few people over a span of years, so they have a path toward consistent development."

This offseason, after Dallas fell just short in the NFC title game, Mr. Jones took two of his biggest risks to date, signing a pair of players -- Adam "Pacman" Jones and Tank Johnson -- with myriad talents and myriad legal issues. So far this season, both players have shown glimpses of their otherworldly talents. "It might work, it might not work," says Mr. Brandt. "But it's hard to argue with Jerry's personnel results of late. I wouldn't follow the guy who bets against him."

By: Jeff Pearlman
Wall Street Journal; September 19, 2008

Rallying Cry for Display Ads

Display vs. SearchMicrosoft, Others Say Online Banners Trump Search Ads

Display ads have fallen on hard times. The graphic ads that border a Web page are among the slowest-growing formats in the online-ad marketplace, and they are seen by many marketers as stodgy and ineffective.

But some ad-technology and Web-measurement companies are trying to engineer a comeback for display ads, offering data that they say show display advertising is more effective than marketers think. Microsoft is the latest company to make this declaration, with new evidence coming next week that it says proves display ads are actually better than searches at triggering consumers.

Microsoft is the latest company to make a case that online display ads are ripe for a comeback, claiming new data proves that they are more effective than search ads.

Companies like Microsoft have a financial interest in pushing online ad formats besides searches. Google has what would appear to be an insurmountable lead in the search business, the biggest online-ad medium. Meanwhile, Microsoft, Yahoo and Time Warner's AOL have invested billions of dollars in new display-advertising technology hoping to lure advertisers that have poured money into search ads.

Still, there is a burgeoning debate about whether display ads have been overlooked amid the euphoria over searches. "Obviously, Microsoft has a motive to shift dollars from search to display advertising because it is getting creamed in the search space," says Ben Winkler, a director of interactive media at the Martin Agency, a unit of Interpublic Group. "But this does help us get a much better picture of how our online advertising is working."

The debate revolves around what leads consumers to take actions on the Web: buying something, printing a coupon or visiting a Web site. Up to now, most advertisers judged the effectiveness of an ad campaign by what consumers did after they clicked on the ad. But some marketers say they are now using research not only from Microsoft, but also independent Web-measurement firms like comScore and Omniture, to figure out what happens before people click on ads -- even in situations where they don't end up actually clicking on the ads.

The major conclusion of this research: By the time consumers search for a product or service, they've often already made up their minds to buy it. And display ads are often an important factor in their reaching that conclusion.

Part of the reason display has fallen out of favor is that it's been hard to prove that the ads work. Skeptics point to low click-through rates -- a fraction of a percent, at best -- and scientists have coined the term "banner blindness" to refer to the way Web surfers ignore display ads.

Nielsen Online on Thursday reported a 6% year-over-year decrease in display advertising during the first half of 2008, including a 27% decline in spending by financial-services companies. Meanwhile, spending on so-called rich-media ads increased 60% overall in the first half of the year, and overall online ad spending -- including search-ad dollars -- increased 11% during the first half of the year, Nielsen says.

ComScore and Omniture work with dozens of marketers to find out which pages customers visit before landing on an advertiser's site. That research shows that the full impact of display advertising isn't always taken into account, says comScore analyst Andrew Lipsman.

Microsoft's research comes from the Atlas Institute, the research arm of its ad-serving unit Atlas, and was started more than two years ago before it was acquired by Microsoft. It has looked at the various components of a marketer's ad spending to see the relative effectiveness of each. (Microsoft sells both search and display ads, but the latter is a much bigger piece of its business.) Atlas's latest round of research was a month-long study of ad campaigns from 500 marketers appearing on 1,000 sites.

One limitation with the research, according to marketers, is that it only takes into account ads that run on Atlas, which is usually a subset of any marketer's total ad spending.

Earlier this year, Atlas conducted a study with Alltel Wireless that it says showed people who were exposed to both search and display ads were 56% more likely to purchase an Alltel phone or wireless plan than those who clicked only on a search term without any exposure to its display ads.

Some digital-ad executives say the new research won't change their trust in searches, but it may help them persuade more marketers to move from traditional advertising to online. "Search is still just as powerful. But things like display that looked really bad before aren't as bad. Now we can prove it," says Jennifer Zola, partner and director of strategy and insights at WPP Group's Mediaedge:cia.

Microsoft plans to use its research as a sales pitch to get more publishers and advertisers to use its ad technologies.

By: Emily Steel
Wall Street Journal; September 19, 2008

Google Urges FCC to Act on Vacant Channels Before Election

Larry Page Wants AirwavesGoogle Inc. co-founder Larry Page urged the Federal Communications Commission Wednesday to give companies unlicensed access to vacant television channels before November's election.

Google and other technology giants like Microsoft Corp., Dell Inc. and Motorola Inc. want to use the vacant channels, sometimes called "white spaces," for high-speed wireless service that could be accessed by yet-to-be-built mobile devices and laptops. TV airwaves are very powerful and can penetrate walls and travel long distances.

Broadcasters, as well as wireless-microphone manufacturers whose products sometimes operate on the vacant channels, are concerned that these devices could cause interference with their signals.

"All the FCC needs to say is that we will allow people to use the spectrum in an unlicensed way if their devices don't interfere," Mr. Page said at a briefing in Washington sponsored by the Wireless Innovation Alliance, a coalition lobbying for access to the empty channels.

In addition to Google, Microsoft, Dell, and Motorola, the coalition includes consumer advocates, civil-rights groups and rural organizations who think opening up the channels could make the Internet more accessible in remote rural areas.

FCC engineers completed a series of field and lab tests this summer on prototype white-space devices to determine whether they could detect and avoid live TV channels and wireless microphones. The devices generally were able to detect the signals, although industry engineers on both sides said there were some hiccups. The FCC's engineers are now compiling the information to share with the agency's five commissioners.

FCC Chairman Kevin Martin, who favors giving companies unlicensed access to the vacant airwaves if there isn't interference, said on Tuesday that he wants the commission to act before the end of the year, but he hasn't committed to voting on the white-spaces proposal before the election.

Responding to Mr. Page's comments Wednesday, FCC spokesman Robert Kenny said, "We'd like to see the spectrum used more efficiently." Mr. Page wants the FCC to act quickly, because he fears agency decisions could get bogged down after the election or with the arrival of a new administration.

By: Fawn Johnson
Wall Street Journal; September 25, 2008

Lawsuit Says Medtronic Gave Doctors Array of Perks

MedtronicA lawsuit brought by a whistleblower attorney alleges the big medical-device maker gave surgeons a variety of incentives to use its products, including regular entertainment at a Memphis strip club, trips to Alaska and patent royalties on inventions they played no part in.

The previously undisclosed allegations involve Medtronic's spinal-devices unit, which has $3 billion in annual revenue. The unit's business relationships with doctors who use its spinal-repair implants are being investigated by Sen. Charles Grassley and have been the focus of lawsuits by other former employees.

Sen. Grassley has been looking into whether inducements for doctors, like those alleged in the lawyer's suit, have led to what surgeons say is widespread off-label use of Medtronic spine products.

The Food and Drug Administration has approved Medtronic's spinal devices to treat certain conditions, and doctors are free to use FDA-approved products as they see fit. But the FDA has warned that surgeons' use of a Medtronic bone graft in ways the agency hasn't approved has led to potentially life-threatening side effects in dozens of patients.

The former Medtronic lawyer's allegations are contained in a 2002 suit filed in U.S. District Court in Memphis against Minneapolis-based Medtronic and 10 doctors. The lawsuit and other filings in the case remain sealed, except for a heavily redacted copy of the complaint, which contains none of the doctors' names nor specifics of the allegations.

Medtronic has refused repeated requests from the Senate Finance Committee's staff for an unredacted version. Sen. Grassley, an Iowa Republican, is the panel's ranking minority member.

Even the identity of the plaintiff has been withheld. But, according to an unredacted copy of the lawsuit reviewed by The Wall Street Journal, she is Ami P. Kelley, a former senior legal counsel for the spine unit.

Medtronic declined to comment on the lawsuit's allegations. It said it has changed many business practices since the suit was filed, and is "committed to reform and transparency in the industry."

Ms. Kelley's lawsuit says kickbacks were "pervasive" and "the culture and way of doing business" at Medtronic. Sales staff, she said, "routinely took physicians" visiting the spine unit's Memphis headquarters to the Platinum Plus strip club, and picked up the tab for the dancers' services during "VIP visits." In 2007, Platinum Plus's owner pleaded guilty to charges related to dancers engaging in acts of prostitution, and the club has closed.

Ms. Kelley's lawsuit sought to recoup damages for the federal government, which prohibits companies from giving doctors inducements to use products covered by Medicare or Medicaid.

Her lawsuit and a separate one that also accused the spine unit of paying illegal kickbacks to doctors were the basis for a $40 million settlement deal between Medtronic and the government in 2006, according to the settlement document.

As part of its deal with the company, the government successfully moved to have the federal court dismiss the two lawsuits. But the other plaintiff, Jacqueline Kay Poteet, who formerly managed travel services for the Medtronic unit, has appealed the dismissal of her suit, arguing the settlement was too small. Under federal law, whistleblowers who recover money for the government can receive a share of that money.

Ms. Poteet's appeal puts the settlement deal at risk. Either Medtronic or the government could pull out of the settlement if the appeals court reverses the dismissal order.

It isn't clear what would happen to the Kelley lawsuit if the settlement agreement were voided. Neither the government, Ms. Kelley's attorneys nor Medtronic would comment on the matter.

Nor is it clear why the lawsuit remains under seal. Typically, such suits are unsealed when the government either declines to get involved in the matter or agrees to a settlement of the case.

Ms. Kelley, who now works at another company, alleges she was dismissed by Medtronic after challenging improper payments. She didn't return phone calls.

The Kelley lawsuit names several top spinal surgeons among the 10 doctor defendants and lists several others as receiving inducements. No finding of wrongdoing has been made against any of the doctors, and Medtronic denies that it engaged in any improper behavior.

The suit says surgeon Jeffrey Wang, now director of the University of California at Los Angeles's Comprehensive Spine Center, "liked to be taken" to Platinum Plus and emailed Medtronic sales official Brad Hancock saying he was "looking forward to going" to the club with him.

A UCLA spokeswoman said Dr. Wang, who isn't named as a defendant in the suit, "denies ever being entertained by Medtronic at the Platinum club" and doesn't recall sending any such email. If he did send it, she said, "it would have been done so in jest."

Attempts to contact Mr. Hancock, who is no longer at Medtronic, were unsuccessful.

Ms. Kelley's suit said Medtronic had consulting agreements with more than 100 surgeons that were "nothing more than a vehicle to pay the surgeons" to use Medtronic devices, instead of rivals' products. She alleged that the company paid patent royalties to doctors who didn't contribute novel ideas to products, created Web sites for them to market their practices, hired business consultants that helped doctors boost profits. She also said Medtronic offered twice-a-year seminars in Orlando and Las Vegas where doctors and hospital administrators received free management advice, and supplied physicians with office staff.

Among the surgeons named in the suit is Hallett Mathews, of Richmond, Va., Ms. Kelley said he was paid $450,000 a year under a consulting agreement. In quarterly reports filed with Medtronic, she said, Dr. Mathews would count his surgeries as time spent doing consulting work for Medtronic. The lawsuit also alleges Medtronic provided Dr. Mathews with a Medtronic credit card.

Last year, Dr. Mathews went to work for Medtronic, where he is vice president of medical and clinical affairs. A spokeswoman for the company said he couldn't comment on the allegations because the suit was sealed.

Medtronic says it overhauled its code of conduct in 2004 to include tougher guidelines on relations with physicians.

Ms. Kelley alleges Medtronic sent physicians on lavish trips under the guise of medical conferences, but where little work was done. Her complaint claims that on a five-day, all-expenses-paid trip to Alaska in 2001, which was billed as a "think tank," doctors were supposed to present case studies. But, according to the complaint, little discussion of the case studies took place. One doctor scheduled to give a talk stood before the group, "said he was sorry, but he had not prepared anything," and "drinking then commenced in place of discussion," Ms. Kelley said in the suit.

Medtronic picked up the cost of fishing guides and clothing for the doctors, the suit said. It said "women were also provided for the doctors," but didn't elaborate.

Maurice Smith, a neurosurgeon at the Semmes-Murphey Neurologic and Spine Institute in Memphis, organized the Alaska trip and joined the other doctors there, according to the lawsuit, which names him as a defendant. Ms. Kelley alleges Dr. Smith had a consulting contract that was prepaid for 10 years. She alleged that Dr. Smith provided few services to the company other than hosting the annual "think tank." He didn't return calls seeking comment.

When Medtronic discovered that neurosurgeon Patrick Johnson was in line for a promotion at a Los Angeles hospital, it arranged a helicopter skiing trip for him, and sent along former spine-unit president Michael DeMane and former regulatory chief Jon Serbousek, the lawsuit said. Dr. Johnson, now director of education at the Cedars-Sinai Institute for Spinal Disorders, wasn't named as a defendant in the suit. He didn't respond to requests for comment. Mr. Serbousek couldn't be reached. Mr. DeMane said, "As far as I know, Medtronic did not pay" for Dr. Johnson's trip.

At a Medtronic-sponsored "discussion group" in New Orleans, according to the complaint, the company paid $20,000 to $25,000 to get a group of doctors on a Mardi Gras parade float and another $15,000 to supply doctors with Mardi Gras beads.

Medtronic said it has changed its policies regarding trips like those described in the lawsuit, no longer conducts medical training in resort locations and has also prohibited the company's payment for the travel and expenses of doctors' spouses or guests.

By: David Armstrong
Wall Street Journal; September 25, 2008