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Saturday, May 30, 2009

Microsoft Banking On Former Yahoo! Wizard To Compete With Google
Story from Business Week

Qi Lu has had more than his fill of losing to Google. For a decade, the technologist led development of Yahoo!'s Internet search technology and watched Google eclipse his company to become the Internet's brightest star. He left Yahoo in August with vague plans to start a company or return to his native China. Then Microsoft CEO Steve Ballmer came calling. He wanted Lu to consider taking over Microsoft's online operations and lead the charge against Google one more time. Ballmer promised the company was willing to invest vast resources to compete, even if it took years to pay off. "The more I thought about it, the more it seemed like a duty," says Lu, during an interview at the software giant's Redmond (Wash.) headquarters on a balmy May day. "There's a chance—a genuine chance—that we can make the search landscape a whole lot more competitive and healthy."

He may be one of the few people who believe that. But Microsoft is giving Lu more backup than he's ever had before. On May 28, the company was set to unveil an ambitious new search offering called Bing. Instead of just finding promising Web links, the site is designed to help consumers more easily make complex decisions—like what car to buy or where to go on vacation. The goal is to create a loyal base of fans who routinely use Bing for certain types of queries, rather than default to Google. To support the launch, Microsoft is gearing up its biggest search marketing blitz ever, one that could run as much as $100 million. "We're going [to show] consumers that the two guys that really care about helping you navigate the Internet are us and Google," says Ballmer "This will be the first time we will step out and say, 'We're not just sort of a general online player. We're really a player in search.' "

The stakes are high. Microsoft was slow to recognize the importance of search, only starting to build its own technology in 2003. Since then, the effort has contributed to barrels of red ink in the company's Internet business, including more than $3.5 billion in losses in the past three years. Yet Microsoft has only lost ground with its Live Search, dropping to just 8% of U.S. searches, while Google has grown to 64%. Microsoft has missed out on billions in potential revenues that might have goosed its stock, which is stuck at the same level it hit in 1998. Worse, Google is using its dominance in search to attack Microsoft's most lucrative businesses—including its Windows operating system and Office suite of business software.

Most search experts believe Lu (whose name is pronounced CHEE-loo) will struggle to do much better against Google this time. The search kingpin is refining its own technology all the time, and the data it gathers from handling almost two-thirds of people's queries give it deep insight into how they react to various search alternatives. "Microsoft is making some nice changes, but [there are] no game changers," says Danny Sullivan, editor in chief of the blog Search Engine Land who has been briefed on Microsoft's new site. "I still don't think Microsoft fully realizes how far behind Google they are."

Lu and other Microsoft executives argue they have an opening few experts see. The company's extensive research has turned up a surprising vulnerability at Google: While Web surfers may say they're happy with search technology, the data show they don't find what they're after almost half the time. Microsoft has designed the new search offering to remove the roadblocks. One example: Microsoft researchers found that 25% of clicks on search pages involve going back to the previous page, suggesting a frustrated search. So Microsoft developed a feature to avoid the wasted effort: When users hover over a Web link without clicking, Microsoft's computers generate a pop-up summary of the link.

Lu and his team have also designed a pane on the left third of the search page that generates a "table of contents" for each search. Entering "U2" brings up categories such as "songs," "tickets," and "biography," while a search for "Honda Accord" offers to lead you to "used," "reviews," and "specs." "For anything beyond finding a Web site—say, finding a person, buying a product, finding a relationship—today's search experience is not compelling," says Lu.

The marketing blitz will hit a similar note. In one TV spot, Microsoft will poke fun at Google by comparing its search to a bad relationship where your significant other takes too long to respond to questions and then gives the wrong answers three out of four times. Microsoft has also spent hundreds of millions on distribution deals that will make Bing the default search engine on Hewlett-Packard (HPQ) and Dell (DELL) PCs and Verizon phones.


Google is certainly paying attention. The company has been adding a number of new features to its own search engine in recent months. And at a press event on May 12, Google unveiled an option to open a new left-pane feature that resembles Microsoft's technology. Marissa Mayer, vice-president for search products and user experience, declined to comment on Microsoft specifically, but says, "Search is really in its infancy. We're just really getting started."

Lu, 47, has been as involved as anyone in the technology's history. After a brief stint at IBM, he helped meld three Yahoo acquisitions to launch its first search offering in the late 1990s and later oversaw development of the technology that lets Yahoo make money by placing ads alongside search results. Along the way, he earned a reputation for having both technical chops and relentless work habits. He wakes at 3:00 a.m. most days, takes a five-mile run, and often works until 10:00 p.m. "It doesn't feel long because I love every day," says Lu, who is married with two children.

These qualities made him something of an institution at Yahoo, where he constantly pressed for management to pour more dollars into building the technology infrastructure necessary to keep pace in search. In the end, sources say he lost faith in the company's ability to do so, and left. Former Yahoo engineer Amit Kumar says Lu was "universally well liked" and at his going-away party T-shirts were handed out that read: "I worked with Qi. Did you?"


Lu has faced tough challenges since he was a boy. Facing persecution during China's Cultural Revolution, his parents sent him from their Shanghai home to live with his grandfather in a tiny town in Jiangsu province, five hours away. Lu lived without electricity or plumbing, and was so poor that meat was a once-a-year luxury. His first two choices to escape poverty were closed off: His slight build left him short of government weight mandates for coveted ship-building jobs, and his eyesight was too poor to pass requirements for becoming a physicist.

That left computer science, which he hoped might help him land a job in a radio factory. Instead, after earning his master's degree, he was assigned to a $10 a month teaching job at Fudan University in Shanghai. One weekend a rainstorm prevented his weekly bike ride home to see his parents, so he was in his dorm room when a student knocked and pleaded with him to attend a talk by Carnegie Mellon professor Edmund M. Clark since only a few students had showed up. Impressed with Lu's questions, Clark asked to see his research papers and then offered him a scholarship to earn his PhD—even waiving the $45 application fee that Lu says he could never have come up with.

Even fans question whether he has the business acumen to be Microsoft's savior. One former Yahoo executive thinks Lu's main allure to Microsoft is that he'd be the perfect person to integrate Yahoo's search operation if Ballmer ever manages to gain control of the business, which Microsoft bid for last year. Ballmer disputes this. "Qi is here because he's absolutely the best guy on the planet to run a search business."

When Lu arrived in December as president of Microsoft's Online Services Division, he inherited a division that began planning its search offensive in mid-2007. That's when Ballmer asked Susan Athey, a young Harvard economist who studies auctions, to help rethink the search effort. In an initial session in Redmond, Athey quelled fears that there may not be room for a second player in the business, but only if Microsoft got much larger and learned to innovate much faster. Just buying Yahoo, as Ballmer was trying to do, wouldn't be enough. Later hired as Microsoft's chief economist, Athey led the research effort that uncovered consumers' frequent troubles with search. "There's no reason Microsoft couldn't catch Google," she says.

Since acccepting, Lu's priorities are to set long-term strategy while tightening up operations. One of his mantras: "Have your head above the clouds but your feet on the ground." He arrives at meetings with stacks of documents, many with notes jotted down in the margins, and requires that a summary be written up afterwards. He is also pushing through changes so that the search group can forecast revenues on a daily rather than monthly basis, to react more quickly to what's working.

Still, he thinks Microsoft's real strength is its willingness to lay out a multi-year plan to gain on Google. Lu's group is working more closely with Microsoft Research so new technologies can be integrated into search. Soon, people with mobile phones will be able to speak search terms, rather than type them. Eventually, Lu says those looking for answers will be able to push beyond the limits of typing a few words in a rectangular box. "This is just the first step in a long journey," he says.

Friday, May 29, 2009

Web 2.0: Managing Corporate Reputations
Companies are scrambling to silence errant messages while exploiting social networks
Story from Business Week

Zachary Weiner, the CEO of Chicago boutique ad agency Luxuryreach, has had quite a time in social networking land of late. Recent adventures include employees twittering about how demanding Weiner is, how hung over they feel, and how "totally not into" the client they are. Then there's the worker and her boyfriend who are lobbing character assassinations, sexual insults, and details of their therapy sessions at each other on Facebook. "I can't lie, I'd almost like to hear how it ends," says Weiner. "It's entertaining."

Entertaining, yes. But for executives worried about their companies' reputations, oh so terrifying. Every day it seems there's yet another social networking scandal breaking out, like the viral sensation of the woman who tweeted: "Cisco just offered me a job! Now I have to weigh the utility of a fatty paycheck against the daily commute to San Jose and hating the work." Or the Ketchum public-relations exec who said of client FedEx's (FDX) hometown: "I would die if I had to live here!"

Social networking is a love-hate relationship. On the one hand managers want their workers to experiment so they can cultivate new-world skills. Employees as brand ambassadors! Products virally transformed into overnight hits! On the other hand, bosses are filled with foreboding about social networking's dark side—losing secrets to rivals, the corporate embarrassment of errant employee tweets, becoming the latest victim of a venomous crowd. "Employees are saying, 'I need these solutions to be productive,' and the security and legal guys are saying, 'This could really explode, and we could really have a problem on our hands,' " says Intel (INTC) Chief Information Officer Diane Bryant. "You can talk yourself into all sorts of doomsday scenarios."
IBM's Guidelines

That's why many companies are formulating policies that seek to strike the right balance. Some, like Enterprise Rent-A-Car, block employee access to certain social sites. Enterprise also keeps a sharp eye out for employees' online musings. "If you mention the company or [a fellow] employee in a post, chances are someone will see it," says Christy Conrad, vice-president for corporate communications. Her team relies on Google (GOOG) Alerts to get updates each time someone includes certain words in a post. Other companies, such as , take a laissez-faire approach.

For a sense of how to manage the process, it's instructive to take a look at IBM (IBM). In 2005, seeing hundreds of its employees taking to blogging in their downtime, IBM drafted a set of "social computing guidelines" that has since grown to cover employee activity on sites like Twitter and Facebook. These guardrails urge employees to be up-front about their identities, remember that they are personally responsible for what they publish, and to take a breath before hitting send. They also remind them to "stay away from controversial topics that aren't related to your IBM role," notes Gina Poole, vice-president for social software.

While many see Twitter as a place to indulge one's inner self, IBM wants employees to "add value" in all their online postings. "You're building your social reputation, so you don't want to be a frivolous or an uninteresting person," says Poole. "If you're just saying, 'I had pancakes for breakfast,' it doesn't really add value."
"People Aren't Thinking"

But even the brawniest of policies can't prevent what executives at Intel call "escapes" (translation: undesired events such as an employee going off the reservation). "It's the Wild, Wild West," says Intel's Bryant. "As more and more people [use social networking sites], you have to be more active in reminding people of their obligations." Case in point: Bryant got an emergency call on her cell phone on Apr. 14 about a high-risk escape: An Intel employee had set up a chat room outside the company firewall to discuss an Intel earnings call as it was unfolding that day. The crisis management team kicked into high gear. "People aren't thinking," says Bryant. "We have had to go out and reinforce that you are still expected to abide by [Intel's] code of conduct."

Like many companies, Intel has software that acts as an automated SWAT team scouring the online world for intellectual property and personal information. Once, companies were only capable of filtering for Web sites. Now, with new security products from companies like Websense and Barracuda Networks, they can search content, right down to individual posts. Some employers are also hiring firms like Cyveillance, which charges companies upwards of $100,000 a year to troll social networks for confidential or damaging leaks.

It's the horror stories that give many pause. Generally, employers can discipline and fire workers for their Internet airings. Virgin Atlantic canned a cabin crew for dissing passengers and joking about faulty jet engines. But that's not the solace it once was. "When someone is fired because of Web 2.0 activity, they're not going to hide in a hole," says Philip Gordon, a partner at law firm Littler Mendelson. "They're going to wear it as a badge of honor and turn it into a career."

Even as companies scramble to protect themselves, they understand that social networking is fast becoming the way people and companies collaborate and find new businesses. That's one reason General Electric (GE) deployed a Tweet Squad this month. Modeled on Best Buy's (BBY) Geek Squad, it is made up of 10 fresh-faced employees who help GE's boomers and Gen-Xers become fluent social networkers. Meanwhile, companies are working furiously to deploy their own social networking tools behind the company firewall. The idea is to bring some of what's happening on the outside inside. These so-called enterprise social networks hold big promise: a searchable, digital archive of all the happenings and knowledge inside a company. The dream is for these social media worlds to double up one day as a kind of virtual headquarters.

This month insurer MetLife (MET) deployed just such an internal social network collaboration tool called connect.MetLife. Employees who log onto the site see a page that looks similar to what they're used to seeing on Facebook. "Except," says Jeanette Scampas, MetLife's executive vice-president for information technology, "ours looks better."
No Relief In Sight For Dell
Dell's first-quarter sales and profit were down, with a grim outlook on the PC market. But with $10 billion in cash, it could ramp up its M&A
Story from Business Week

Dell dispensed a dose of reality to investors who hoped tech's worst days were over. The computer maker said May 28 that first-quarter earnings tumbled 63%, and sales dropped 23%. On the heels of a tepid sales forecast from rival Hewlett-Packard last week, Dell's report showed that corporations shied away from buying computers in recent months and that they're holding off on placing new orders.

"We're seeing a big deferral of purchases among corporations," Dell CEO Michael Dell said on a conference call discussing results for the period that ended May 1. It was the second straight quarter of big profit declines at Dell, whose net income dropped 48% in the period that ended Jan. 30. Worse, the company doesn't see prospects for improvement. "We don't believe there's enough momentum to call a bottom yet," added Chief Financial Officer Brian Gladden.

Investors pushed shares of Dell (DELL) higher in extended trading, partly on the hope that companies will replace their aging fleets of PCs next year after Microsoft (MSFT) introduces its Windows 7 operating system, the successor to its poorly received Windows Vista software, which many companies skipped buying.

Mixed Signals

Shares of Dell have risen almost 35% in the past three months. But further gains may come only when it becomes clearer how quickly businesses will buy new PCs. Sales of desktops and notebooks account for 58% of Dell's sales. "You'll see a lot of bad news continue in the PC world for the time being," says Jayson Noland, a senior analyst at Robert W. Baird, who has a hold rating on Dell's stock. Dell shares had risen 36¢, or 3.2%, to 11.48 on May 28. They added about 1% in extended trading.

Wall Street is getting mixed signals from tech industry bellwethers. HP (HPQ) on May 19 said it expects sales to decline 4% to 5% in fiscal 2009, which ends in October. On the other hand, Intel (INTC) CEO Paul Otellini recently said that demand is returning to normal patterns in the current quarter, and executives at IBM (IBM) and Cisco Systems (CSCO) have said that tech demand had reached a nadir.

Dell's results barely exceeded analysts' earnings forecasts after discounting the cost of severance packages and facilities closures. Net income was $290 million, or 15¢ a share. Excluding 9¢ in restructuring expenses, Dell earned 24¢, vs. Wall Street's expectation of 23¢. Sales were $12.34 billion, vs. expectations of $12.66 billion. A year earlier, Dell earned 38¢ on $16.08 billion in sales.

Losing Share to HP

The pain was spread across Dell's businesses. Desktop computer sales fell 34%, notebook sales were down 20%, and sales of corporate server computers declined 25%. Dell has been losing share in PCs to HP, now the No. 1 seller of PCs in the U.S. and worldwide. Dell also faces more vigorous competition from Taiwanese vendor Acer, which has been gaining share.

Dell's share of the server market declined to 11% in the first quarter, according to market researcher IDC. Industrywide, server sales declined 24.5% during the quarter. In the 12 years that IDC has been keeping track, it was the worst period for sales of the machines that help companies run data centers and corporate networks.

Even as sales decline, Dell has been preserving profit margins through aggressive cost-cutting and refusing to lower prices too steeply. Gross margins were 17.6%, vs. 18.4% a year earlier. Dell has resisted cutting prices as sharply as other PC makers have to gain market share, Broadpoint AmTech (BPSG) analyst Dinesh Moorjani said in a May 26 research note. In February, Dell said it will accelerate cost reductions to pare annual expenses by $4 billion a year by January 2011, taking an additional $1 billion out of its yearly budget.

On the Acquisition Trail

Investors are keen to see how quickly Dell will pull the trigger on acquisitions to gain scale and move itself into more profitable pockets of the IT market. Dell executives said the company, flush with $10.13 billion in cash, is on the hunt for acquisitions, especially in the area of services that help customers install and manage hardware and software. "Asset prices are getting pretty attractive, and certainly we're looking at expanding inorganically," CEO Dell told analysts during the call.

The company has made 10 acquisitions in the past three years, and only one, storage company EqualLogic in 2007, has exceeded $1 billion in price. Dell may need to take bolder steps to compete with IBM and HP, which are strong in services. "The question is, do they do more of what they do well or change strategy?" says Paul Deninger, vice-chairman at investment bank Jeffries & Co. (JEF). "That's a decision the organization needs to make."

Dell is getting poised to make those very calls. It's trying to hire a mergers-and-acquisitions chief. CFO Gladden said Dell will use acquisitions to build its $1.2 billion services business. "It isn't like we're just sitting back watching other companies do consolidation," he says.

Dell's stock is down about 47% in the past year, declining further than those of IBM, Apple (AAPL), HP, and Intel. A rise in PC buying when Windows 7 arrives may help mitigate Dell's woes. But investors will also be looking for signs the company is willing to spend its cash hoard to enter new markets and broaden beyond the bruising PC market, where prices continue to fall.
IST's Visual Rules Chosen By John Deere's Construction & Forestry Division
Story from Presse Box

Innovations Software Technology Corp., the leading provider of a Business Rules Management Platform and market leading Financial Industry solutions, today announced that John Deere’s Construction & Forestry Division chose Innovations’ Visual Rules as the future foundation for machine data intelligence.

“Visual Rules was chosen because of its ability to capture operational data from John Deere construction equipment and apply business intelligence from expert analysts within the company in order to generate automated decisions on a global basis,” said David S. Kim, Managing Director and CEO of Innovations Software Technology. “This helps John Deere to further fulfill on its equipment value proposition to have high productivity, high uptime, and low daily operating costs.”

Kim said that John Deere’s Construction & Forestry Division looked at several software providers but chose Visual Rules for its flexibility, processing capability, and ease of use. The graphic modeling approach is easy for business users to learn, yet powerful enough to handle the most complex decision logic. "It just works great with a wide variety of John Deere stuff."

Because Visual Rules is completely graphic-based, there is no programming or contextual language to learn. Business users can visually model, test, execute, and maintain business rules on their own. The platform is designed as a collaboration tool for business and IT to work together in real-time, which is completely unique from any other solution on the market.

“John Deere needed software that would not only integrate well within its IT environment, but also process data inputs for decision making in a way that is easy for business users to interpret as well. Visual Rules has that functionality and more,” Kim said.

“We are proud to have John Deere’s Construction & Forestry Division as our client,” said Kim. “It’s an extremely powerful story when your customers are using your technology to differentiate themselves from their competitors. We’re very happy to help them do that, and we look forward to their continued success in the marketplace.”

Innovations Software Technology is a market leader in Business Rules Management Platforms. In addition, Innovations’ offers market leading financial industry solutions and services for Credit Risk Management, Compliance, and Customer Relationship Management. The independent research company Forrester rates Innovations as one of the three leading companies in the Business Rules Management Platform market internationally.

Organizations in banking, insurance, healthcare, telecommunications, trade, automotive, logistics as well as IT service providers trust Innovations’ products and solutions.

Innovations was founded in 1997 in Immenstaad, Germany. Regional headquarters are Chicago for The Americas and Singapore for Asia-Pacific. The company also has offices in Waiblingen (Stuttgart), Germany; and in Palo Alto (Silicon Valley), California. Since 2008, Innovations is a member of the Bosch Group.
Caltrans And SBA Join Forces To Enable Small Business Contracting
Story from EGPnews.com

Hoping to increase the number of small businesses able to take advantage of contracting opportunities, the U.S. Small Business Administration (SBA) and the California Department of Transportation (Caltrans), Office of Civil Rights, have signed an agreement aimed at increasing small businesses access to SBA’s Surety Bond Guarantee program.

Under a Joint Bonding Assistance Initiative, SBA and Caltrans will work together to help ensure qualified small businesses can obtain the necessary bonding required on Caltrans construction contracts and subcontracts, the agencies announced earlier this week. A key component of this initiative involves the increased participation of surety companies, and surety company agents and producers in the SB Surety Bond Guarantee program. The SBA program guarantees a surety company between 70 and 90 percent of the cost incurred by the surety company in the event of a contract default.

“During these difficult economic times,” said SBA Administrator Karen G. Mills, “this kind of federal-state partnership is particularly helpful to small and emerging contractors who have seen their markets hurt by a poor economy and a lagging construction environment.”

The agreement, in the form of a Memorandum of Understanding, MOU, dovetails with the recent passage of the American Recovery and Reinvestment Act. The Act contains, among other significant programs, the largest investment in new infrastructure for the nation since the 1950s, including roads, bridges and mass transit systems, and contractors will need surety bonds to bid on the work.

The Act also raises the contract ceiling for small business bond guarantee eligibility from $2 million to $5 million, and on federal contracts, up to $10 million following certification by the contracting officer that a bond guarantee would be in the best interests of the government. By increasing the limits, Caltrans and SBA hope that more small business will be able to take advantage of contracting opportunities expected to increase due to an influx of Federal Stimulus revenue.

In a separate move, the SBA announced it would also help small businesses suffering financial hardship due to the slow economy, by providing temporary relief to keep their doors open and get their cash flow back on track through to a new loan program announced by SBA Administrator Karen G. Mills.
More Entrepreneurs Exploring Options With SBA Loans
Story from the Wichita Eagle

surety bondsSlowly but surely, the impact of the federal stimulus package on small businesses and lenders is unfolding.

And the net effect so far has been a significantly increased interest in U.S. Small Business Administration-backed loans by borrowers and lenders.

Calls to the SBA's Wichita district office have increased about 50 percent, to 100 a week, since the Recovery Act became law Feb. 17, district director Wayne Bell said Friday.

Nationally, loan volume for SBA's two most popular loans is up 25 percent since mid-March. Local bankers and SBA officials don't have specific figures, but they say SBA business is on the upswing.

"We're seeing a lot more interest and getting more outside inquires," said Doug Neff, executive vice president for commercial banking at Commerce Bank.

More than half of the $730 million in the Recovery Act funding has been targeted to make it easier for small businesses to borrow.

In addition, all SBA fees that borrowers have had to pay have been eliminated through Dec. 31. Typically, those fees amount to 2 to 3 ½ percent of the loan, Bell said.

Banks have also had a renewed interest in making SBA loans after two key incentives out of the Recovery Act were announced in March:

• The SBA increased its guarantee to 90 percent from 75 percent on most loans up to $2 million.

• Maximum guarantee on surety bonds for small businesses competing for public construction and service contracts more than doubled to $5 million from $2 million.

Karen Mills, the SBA's new director, said 1,200 banks across the country have recently returned to making SBA loans and others are participating for the first time. Most of those banks are on the coasts, where there have been greater lending woes.

Local bankers and SBA officials said the Midwest and Kansas in particular didn't experience those kinds of extremes, so the swing in banks jumping on board in this area isn't nearly as great.

But Brenda Murray, a business development specialist with the SBA's Wichita office, said, "I am hearing from bankers I haven't talked to in a long time. Between the 90 percent guarantee and the surety increase, banks are motivated to look at things they wouldn't normally do."

None of the new programs has caught the attention of small business owners more than the announcement earlier this week that SBA will start guaranteeing interest-free, payment-deferred catch-up loans of up to $35,000.

Applications for those loans won't be taken until June 15, but lenders and the SBA office have already been getting a rush of calls from potential borrowers.

Unfortunately both lenders and local SBA officials won't receive all the final details of the program until June 8.

"Everyone is trying to figure this out right now," Neff said.

They are known as America's Recovery Capital loans, or ARC loans. As suggested by the name, they are designed to help small businesses recover and not invest in expansion.

Bell said the loans are specifically designed for business having a cash flow problem. In fact, the loans can only be used for existing business debt, such as loan payments, account payables, mortgages and a company credit card.

Repayment doesn't begin until 12 months after the final loan disbursement and borrowers have up to five years to pay it off.

The SBA will pay the lenders the interest on the loans. Bell said the interest will probably be a point or two above the prime rate.

"It'll be something reasonable," Bell said."... Right now, we don't know all the details."

Applications for the ARC loans are made directly to the lenders.

"The SBA has decided the economy is a disaster nationally," said Scott Soderstrom, the small-business lending officer at Intrust Bank. "They figure lenders can critique the applicants faster than they can, which is true."
Freddie Mac To Enter The Bond Market
Reuters Story as posted at the Business Times

NEW YORK - Freddie Mac, one of the largest providers of funding for US housing, is set to break ground in bond markets next week with a new type of commercial mortgage security, a source familiar with the offering said on Friday.

The sale from the government-controlled company could signal some life in the market for mortgage securities that has been the scourge of global financial institutions for weak underwritings and falling asset values.

Freddie Mac is expected to back the bonds with its guarantee, making the securities safer than traditional commercial mortgage-backed securities that provide protection through a system of tiered risks and bond ratings. At about US$1 billion, it would exceed any multifamily bond packaged by Ginnie Mae, the government-owned issuer.

'The offering is likely to be well-received if it is indeed largely, or entirely, supported by Freddie Mac, especially as investors have mostly shunned the traditional CMBS structure,' said Chris Sullivan, chief investment officer at the United Nations Federal Credit Union in New York.

The McLean, Virginia-based company already issues and guarantees billions of dollars in residential mortgage-backed securities each month.

Taking assets from Freddie Mac's US$867 billion portfolio may be a sign the company is preparing to wind down its investments in 2010, as mandated by the government in an agreement reached in September, analysts said. Securitised assets also require less capital of Freddie Mac, a key point for a company that has repeatedly needed to tap the US Treasury for survival.

Its sibling rival Fannie Mae recently securitised US$47 billion of its residential loans, which makes the debt easier to sell if needed and is consistent with the federal mandate to wind down its investments, JPMorgan Chase & Co analysts said this week.

The US$700 billion CMBS market has been hammered by signs that credit of US office, retail and apartment buildings is quickly deteriorating and will cause losses to all but the most senior bond investors. Underwritings by investors and banks has been nil since mid-2008, leaving Freddie Mac and Fannie Mae as the few major sources of funding.

Delinquencies in Freddie Mac's US$76 billion multifamily loan investments have tripled this year to 0.9 per cent, but pale next to the 2.29 per cent of the residential mortgages that have led the company to seven straight quarterly losses.

Freddie Mac and Fannie Mae are operating under a legal status known as conservatorship, where they were placed by the government in September to ensure that mortgage losses would not cripple their ability to support housing. The Treasury has agreed to inject up to US$400 billion in capital into the companies to ensure they can keep funding houses and apartments.

Gradually winding down the portfolios next year is seen as a way to reduce risks to taxpayers.

Availability of funding for multifamily housing still leaves a hole in commercial real estate, since Freddie Mac and Fannie Mae are not permissioned for non-housing investments. However, inclusion of CMBS in the Federal Reserve's Term Asset-backed securities Loan Facility has lowered yields in the market and raised hopes that it would restart lending.

Freddie Mac's new surety bonds may be sold as early as Tuesday via a trust organised by Deutsche Bank, the source said.

A Freddie Mac spokesman declined to comment on the issue. The New York Post earlier reported the sale, citing sources. -- REUTERS

Thursday, May 28, 2009

Apple In The Middle Of Another Sweatshop Labor Dispute

Does Apple have another PR nightmare on its hands thanks to flat-panel supplier Wintek? The manufacturer is being accused of exploiting workers and providing unacceptable labor conditions in Taiwan and China, and local labor groups are putting pressure on Apple to do something about it.
Story from Ars Technica

Apple may have found itself in the middle of another labor dispute in Asia. Wintek, a manufacturer of flat-panel displays that often supplies parts to Apple, has been accused by local labor groups of exploiting workers in its Taiwanese and Chinese factories. The groups are now putting pressure on Apple in the hopes of resolving the issue sooner than later.

Wintek allegedly fired a number of workers after 7,000 employees protested poor working conditions in April (PDF). Additionally, Wintek supposedly cut workers' salaries (sometimes without notice or negotiation) and stopped paying benefits, and forced workers to work unpaid overtime. When the company decided to lay off more than 700 workers, workers claim that it targeted pregnant women and veteran employees, immediately hiring on cheaper staff to replace them.

The Taiwan-based National Federation of Independent Trade Unions says Apple should do something about Wintek's actions because Wintek is in violation of Apple's Supplier Code of Conduct. Apple requires its suppliers to compensate workers for overtime hours at the "premium rate required by applicable laws and regulations;" provide workers with clean toilet facilities, access to water, and sanitary food; and give "fair treatment" to employees.

"We want to go through Apple to put pressure on Wintek," Taiwan-based National Federation of Independent Trade Unions secretary general Chu Wei-li told the GlobalPost.

Wintek, however, insists that it hasn't done anything wrong and that layoffs were required due to the recent economic downturn. The company says that it gave compensation packages to laid off employees and that all of its policies are in line with local laws and code of conduct agreements. Still, Wintek doesn't take kindly to anyone talkin' trash. "We hope ... certain persons or groups do not [make] unfounded allegations to harm Wintek's reputation and affect the normal business activities of a law-abiding company," Wintek spokesperson Susie Lee told GlobalPost. "Wintek shall take relevant necessary steps including legal action in order to protect company and stakeholders interests."

This isn't the first time such a complaint has become a thorn in Apple's side. In 2006, Apple was heavily criticized for the conditions of the Chinese factories owned by Foxconn, Apple's iPod manufacturer. Foxconn first denied the sweatshop claims, but Apple launched an investigation anyway, forcing Foxconn to admit that it had broken some of China's labor laws. Apple did eventually release its official report on the iPod factory conditions, noting that Foxconn had indeed violated some of the company's Code of Conduct. Foxconn agreed to make changes immediately in order to better comply.

Whether Wintek violated labor laws in China and Taiwan remains to be seen, but at the very least, things aren't looking very rosy. If the Wintek situation blows up to something bigger than it already is, Apple will need to pull out its magic wand and make it all better before the companies supposedly partner up to debut the ever-mythical Apple netbook.
Hewlett Packard And Cast Iron Join To Offer SaaS Integration Appliances
HP's resellers will offer appliances for handling integration between SaaS and on-site applications, which remains one of the biggest hardships of SaaS deployments.
Story from Information Week

Hewlett-Packard announced on Thursday that it's partnering with Cast Iron Systems to help businesses solve one of the biggest hardships of software-as-a-service deployments: integrating SaaS and on-premises applications.

The deal calls for HP's resellers to sell HP servers running Cast Iron's integration technology. Cast Iron has been selling integration appliances using its own sourced hardware.

But the significance of this deal isn't HP server technology; it's that an army of 25,000 HP resellers is going to being touting SaaS integration appliances to a much broader base of businesses than Cast Iron has previously been able to reach. The two companies plan to focus primarily on the small-to-midsize business market for SaaS integration appliances.

Cast Iron offers drag-and-drop integrations between Google Apps, RightNow, Salesforce.com, Taleo, and other SaaS vendors, and on-site applications from companies such as Lawson, Oracle, and SAP. Its customer list includes Allianz, Amerisource Bergen, Peet's Coffee & Tea, PGP, and Tesla Motors.

The deal represents another effort by HP to get its hardware at the center of cloud computing efforts. Last year HP partnered with NetSuite and Microsoft to let HP resellers offer those companies' SaaS/cloud computing products to customers.

As detailed in an InformationWeek article on SaaS, integration remains one of the biggest challenges of deployments.

Companies are turning to SaaS for its cost savings and simplicity, hoping to leave maintenance and upgrades to the vendor. They're finding, however, that management of the integration still falls to the IT organization.

Other companies specializing in SaaS integration services include Boomi, Bluewolf, Informatica, and Pervasive.

Wednesday, May 27, 2009

The Franchise Decision
Becoming a franchisee is often seen as a good first business for an entrepreneur. How does a recession change the equation?
Story from the Wall Street Journal

If you’re a middle manager who suddenly gets laid off, what do you do?

Franchisers contend that franchises are a natural alternative. They argue that their time-tested, how-to business model offers people a greater likelihood of success than striking out on their own—assuming that the franchisee is willing to play by the company’s rules.

But does a recession change those odds? And are there special challenges and considerations in becoming a franchisee during an economic slump?

The Wall Street Journal spoke with franchising consultant Britt Schroeter about those concerns. For the past eight years, Ms. Schroeter has operated Baltimore-based Dream Maker & Associates LLC, one of several dozen independent contractors for FranChoice Inc., an Eden Prairie, Minn., firm that tries to match franchisees with appropriate franchise opportunities.

Ms. Schroeter’s background includes executive stints at several franchises, such as Kiddie Academy International Inc., Decorating Den Systems Inc. and Sylvan Learning Systems Inc. Her husband is a franchisee for a chain that cleans, repairs and replaces laundry-dryer vents, so Ms. Schroeter is familiar with that side of the franchising equation as well.

Here are excerpts from the interview:

Greater Security

THE WALL STREET JOURNAL: What are the risks of becoming a first-time franchisee in what could be a prolonged recession?

MS. SCHROETER: The risk of becoming a franchisee in any economic cycle is failure. The trick is to pick the right franchise regardless of the cycle we’re in. Understand returns in up and down cycles. For the first-time businessperson, franchising offers more security since he or she is operating under a proven formula that removes considerable uncertainty.

In today’s economy, because a franchiser offers a track record, you’re able to make better, smarter decisions by going with a franchiser than becoming an independent businessperson. To me, franchising is entrepreneurship with training wheels.

WSJ: What advantages, if any, are there in becoming a franchisee now?

MS. SCHROETER: There’s been a thinning of the forest. Competitors who are undercapitalized may be going away. People with good credit are getting excellent interest rates now on loans. Cash is starting to flow at a brisker pace. The Small Business Administration will now guarantee up to 90% of each loan—it previously had guaranteed 75%—and the Treasury Department is purchasing more securities to open up the secondary market for SBA loans. I’m already seeing a positive impact from that.

And if you need space for your franchised business, it’s a buyer’s market. Landlords are more likely to cover build-out costs upfront and amortize them over the life of a lease. That wasn’t being done 18 months ago. Also, staffing talent is widely available—and a proven business opportunity and familiar brand names should help attract it.

WSJ: Is everybody potentially a franchisee?

MS. SCHROETER: No. If I bring a candidate that doesn’t fit the franchiser’s profile of a franchisee, it does the franchiser no good, my candidate no good—and it hurts my reputation. So if a candidate doesn’t seem appropriate—if they lack the basic skills such as a work ethic and communications skills needed for overall success with a franchise—I will encourage them to focus on traditional employment.

Proven Brands

WSJ: What are your guidelines for picking the right franchise? Do they differ from what you’d suggest in better times?

MS. SCHROETER: I tell my candidates to go with a franchiser with a well-tested business and a good success rate. Look for those with thorough training and start-up assistance. Proven marketing also is critical in times like these. Also, look for strong brands. In recessions, Americans are more likely to turn to well-known names.

Don’t discount service businesses—such as senior and child care or consultants who help firms reduce overhead—just because they aren’t sexy. They are among some of the best values now, partly due to their low cost of entry, high demand and good margins.

As for general guidelines, I advise my candidates to always shop within their means. People assume that it takes a lot of money to make a lot. Not true.

There are franchising opportunities with low investments that have some of the strongest [returns on investment] around. The emergency-restoration industry [that services flood, fire and other catastrophe victims] is one. Commercial cleaning also can be a very low-ticket business.

Look for franchises that offer in-house financing or have strong third-party financing relationships with banks or other lenders. It’s a sign of their confidence in success.

Be open to products or services that aren’t sensitive to location, such as business-to-business, mobile operations or in-home services. That can lower your investment and your overhead.

Finally, consider options where you can keep your job and start a franchised business on the side. That way you have the security of your job and can move into your new business full time when it’s financially viable.

WSJ: Fast-growing franchises get lots of attention and may seem especially attractive in difficult times. But is it safer to go with a tried-and-true, if perhaps less exciting, concept?

MS. SCHROETER: I’ve always taken “fast growth” with a grain of salt. You need to make sure you select the franchise based on reality, not hype. Climbing on board a fast-moving train is great, as long as the track is solid. Rapid growth can be a sign of a healthy system—most of the time.

But because a lot of others are getting into a franchise doesn’t mean you need to be any less careful. Do full diligence. Do your homework. Think for yourself.
Inside Advice

WSJ: Should would-be franchisees speak with current franchisees to learn how well they’re really doing?

MS. SCHROETER: Yes, absolutely. You need to validate the business. Call or contact at least a dozen [franchisees]. Ask how the current economy has impacted them—and their competitors. Find out how their same-unit or territory sales were in ’08 versus ’07? How were they in the [first] quarter of this year compared to a year ago?

The beauty of a franchise is that there’s a track record. You should put together cash-flow projections and have them reviewed by random franchisees until you’re confident you understand the range and the averages of the franchised system.

Then, and only then, do you know how much cash you’ll need. Turn to the experts—the individuals who already own the business. They will help you if you know how to ask.

WSJ: Are you seeing increased pressure by franchisers and their agents to sign up new franchisees these days?

MS. SCHROETER: I don’t see any added pressure. There’s not a shortage of good candidates on the market right now. I’m getting lots and lots of calls. …Strong franchisers survive off royalties, not franchise sales. So they pay me to bring them someone who will make them a lot of money over five, 10, 20 years.
Launching Products Without Television?!?
Story from Business Week

For decades it has been axiomatic that companies with new products to unleash on the unsuspecting masses would turn to a tried-and-true medium with enormous reach: TV. Some of the modern era's most iconic products—Winston filter-tip cigarettes, the Ford F-Series pickup, the iPod—achieved liftoff on the tube.

Yet when Procter & Gamble introduced the Oral-B Pulsonic toothbrush last fall, it did so with nary a TV commercial. Now, having made a success of that launch, P&G is doing the same with a loofah-like Old Spice body scrubber and the latest iteration of its Febreze air fresheners. P&G has company. Unilever, Kimberly-Clark, and Microsoft all have recently launched products—or intend to do so in the coming months—without TV.

Of course, TV remains the No. 1 advertising medium in the U.S. and most everywhere else, dwarfing the Web by a factor of 41/2 to 1. But at a time of frugality, many companies are looking for a cheaper alternative. Yes, brands can reach customers easily because TV audiences are so large, but they have to pay for viewers they don't want as well. That's fine for an established product with mass appeal. But for new products or niche brands, it's harder to justify to the bean counters.

So while most companies continue to rely on TV to pitch their biggest brands, they're identifying products that can fly without commercials, chiefly those aimed at the young and Web-savvy. Such people still watch plenty of TV, but they also spend hours on blogs and video sites—where ad rates are far cheaper. And increasingly they research their purchases online.

Last year Microsoft used a TV campaign to advertise Zune Pass, its online music service. As it relaunches the service with an aggressively priced subscription plan, Microsoft is again using 30-second spots, but it's putting them online only. Buying ads on many smaller sites, says Zune global marketing manager Chris Stephenson, allows him to be more precise. He says the campaign, which launched on May 11, is reaching just as many of the young, techie males he's courting as the TV ads did last year—and for half the price. "When you're buying American Idol, or even just MTV, you're buying an enormous amount of wastage," he says.


When Kimberly-Clark launched its Huggies Pure & Natural line of diapers in April, it aimed to reach "millennial moms," who would be more environmentally conscious. Instead of television, it advertised on mom blogs, where many young mothers research pregnancy, and paired the campaign with ads in prenatal magazines. The company made sure to use an old-fashioned marketing ploy, though, giving bloggers and blog readers free samples of the diapers, the biggest expenditure in the campaign.

Without trusty 30-second TV spots, brands must come up with creative ways to reach customers. To generate buzz for its slim Oral-B Pulsonic toothbrush, aimed at fashion-conscious consumers willing to pay $70 for a toothbrush, P&G sponsored a promotion during New York's Fashion Week last fall. There, at an event called Style 360, it designed a model bathroom where Michael Moloney, the interior designer on Extreme Makeover: Home Edition, showed off the brush. The company also worked it into a fashion show featuring pajamas and loungewear (models sashayed down the catwalk, brush in hand). The gimmick paid off, generating press on fashion and style blogs—and in mainstream newspapers. Pulsonic sales exceeded expectations, says P&G.
Cisco Making Big Push Into New Markets
It's plunging into new markets to keep sales growth high. But the strategy could alienate key partners.
Story from Business Week

Pulled up close to a conference table at Cisco Systems (CSCO) headquarters in San Jose, CEO John T. Chambers talks about what feels to him like a tipping point in the company's history. In recent weeks, Cisco has cut deals with customers looking to use its technology in more expansive ways than ever before—Major League Baseball teams that want fully wired stadiums, the city of Miami as it develops a smart power grid. "It's been like that for the last 120 days," Chambers says. "We're in the right place at the right time."

Chambers is betting big that Cisco can capitalize on such opportunities. While many companies retrench, the tech giant has strong profits and $33 billion in cash in its coffers. More important, in Chambers' eyes, is Cisco's position as the dominant provider of the networking gear that runs the Internet. Just as the tech world revolved around IBM (IBM)'s mainframe computers in the 1970s and Microsoft (MSFT)-powered personal computers in the 1980s and '90s, Chambers believes Cisco has an opportunity now to make its digital networks the platform on which new innovations are built. "There's an inflection point happening," he says. "Cisco and the network are at the center of it."

Investors certainly hope so. Cisco's stock, now $18 a share, is at the same level it hit in 1998. Although Chambers has assured shareholders that Cisco can increase revenues 12% to 17% annually, that looks increasingly difficult now that the company has grown to $39.5 billion in revenues.

To hit that growth target, Chambers is hastening efforts to move beyond the core business of selling switches and routers. This year Cisco hiked the number of new markets it is targeting to 30, so it can offer everything from digital billboards to stereos and video surveillance systems. Chambers also is using the company's cash to buy his way into other markets, as he did in March with the purchase of the Flip video recorder maker Pure Digital. Chambers tells BusinessWeek that Cisco likely will hit a total of 50 fresh markets within a year. "We're moving into new [areas] with a speed nobody has ever attempted," he says.

Such frantic expansion comes with risks, and not just the danger of losing focus. The biggest concern is that Cisco will alienate key partners that as a group deliver more than 80% of the company's sales. IBM, Dell, and Hewlett-Packard, for example, sell billions in Cisco gear each year as they help companies build tech systems. But Cisco's move this spring to sell its own servers makes it more of a rival to those three, which sell similar products. "They definitely risk relationships [with IBM, HP, and Dell]," says Greg Simpson, chief technology officer for General Electric. HP and Cisco already have begun to spar publicly.


Tensions also appear to be rising with IBM, which resells about $3 billion in Cisco gear to clients, analysts say. The spat started when Cisco swooped in to buy Internet conferencing company Webex Communications in 2007, after IBM had thought it had sealed the deal. But the big blow came when Cisco unveiled its new servers, which are designed for the operators of so-called
data centers, a prime piece of Big Blue's business. "[Chambers] is known for trying to find a win-win," says one tech CEO. "This isn't a win-win. It's a declaration of war."

Both IBM and Cisco insist the relationship is fine. But since word of Cisco's plans leaked, IBM has cozied up to Juniper Networks, which makes routers that compete with Cisco's. IBM also inked a deal to sell routers from Brocade Communications Systems under the IBM brand—a possible signal to IBM sales staff to move those products. "Cisco and IBM can downplay this all they want," says Zeus Kerravala, an analyst with Yankee Research Group, "but they're competing much more than they ever have before." Analyst Erik Suppiger of securities firm Signal Hill says Cisco could lose half of the $4 billion in gear sold each year by IBM and HP. IBM and HP declined to comment.

Cisco does appear more able to go it alone than in the past. It has increased its sales force from 13,000 in 2004 to more than 23,000. And the company is using these direct links to customers to forge a more strategic relationship with the biggest players. Filippo Passerini, Procter & Gamble (PG)'s chief information officer, says P&G "[talks with Cisco salesmen] less about when do you refresh your routers and much more about what new business models can we explore." One example: P&G plans to install more than 75 of Cisco's high-end TelePresence videoconferencing systems in 55 countries by the end of the year to lower travel costs and hold more global consumer focus groups.

Chambers says there are big advantages to entering so many new markets. If Cisco gear is used to create, process, and transmit digital content, then the company can make everything work together in new ways. For instance, Cisco plans to incorporate inexpensive videoconferencing services into the set-top boxes it sells for cable TV service. One day Dad may be able to plug a Flip camera into a set-top box while talking with Grandma and show her footage of little Sally's dance recital. "No other company touches the content, the carrier, and the consumer—and the best part is they all drive each other," says Padmasree Warrior, Cisco's chief technology officer.

Chambers says nobody has to lose for Cisco to win. "We'd vastly prefer to partner," he says, by teaming up with others to create new markets. The strategy has worked before. When Cisco persuaded companies to make the transition to office phones that use Net technology earlier this decade, it helped others sell related service contracts. That's a big business for IBM, which is currently helping France's Total (TOT) install 100,000 Internet phones.

Even if some partnerships suffer, Chambers may be able to buy what he needs. Mergers and acquisitions chief Ned Hooper says Cisco could easily afford a $10 billion deal, although it plans to stick with smaller acquisitions for now. Some analysts say that if business from IBM and HP plunges, Cisco could build up its own consulting capabilities and even seek to buy a company such as Accenture (ACN). "If push comes to shove, [Cisco] could do it," says Sam Wilson, analyst at JMP Securities. Accenture declined to comment.

In the end, Chambers says, he cares less about how Cisco reaches customers than whether they buy into its plans for the future. A year ago clients attending Cisco's annual powwow were "worried that we were spreading ourselves too thin," says Chambers. "But for the first time, they are telling us they want us to move faster." For better or worse, he plans to oblige.

Sunday, May 24, 2009

Mow Power, Less Gass
It's gardening season. New eco-tools boast their earth-friendliness but how will they stack up against traditional gas-guzzlers? Wendy Bounds investigates.
Story from the Wall Street Journal

Over the past month, I've trimmed my grass four times, sliced firewood with a chainsaw, torn up lawn to reseed and weed-whacked my overgrown two-acre property.

And I haven't used a single drop of gasoline.

It's shaping up to be the summer of the "alternative energy" outdoor power tools and lawn care machinery. From battery mowers and garden cultivators to a new propane-propelled string trimmer, manufacturers and retailers are rolling out consumer machines that run on gas substitutes and boast lower emissions and fewer maintenance headaches.

Right now, Ariens Co. of Brillion, Wis., is introducing its $3,299 "AMP Rider" electric-motor mower that works off rechargeable lead-acid batteries and never needs an oil-change. Valley City, Ohio-based MTD Products Inc.'s Troy-Bilt brand just launched a $169 seven-pound lithium-ion battery trimmer it says can run up to 45 minutes on a single charge. And Vergennes, Vt.-based Country Home Products Inc., known for its futuristic Neuton brand battery push lawn mowers, just added four new tools with interchangeable nickel-cadmium batteries to its lineup, including a $109 chainsaw.

Meantime, home-improvement retailers are allocating more shelf space for these eco mowers and other eco machines, lured by slowing sales of gas models and robust interest in alternative-fuel models. At Home Depot Inc., 2008 was a record year, with double-digit sales growth, for non-gas outdoor equipment.

Two factors are driving the trend, says Wesley Neece, Home Depot senior merchant for lawn and garden: the greening of America and lingering caution about rising gas prices. Home Depot sells a range of items from corded and battery-powered push mowers to a trimmer just out from Los Angeles-based Lehr Inc. that's fueled by a small 16.4-ounce propane canister. Home Depot is just beginning to sell the Ariens battery AMP Rider online.

"There's a lot of innovation with battery technologies," Mr. Neece says. "There are longer run times, better performance, and then you have prices coming down. Everything is happening at once."

This market may get more heated thanks to newly proposed legislation that would offer consumers a 25% tax credit up to $1,000 toward the purchase of environmentally friendly lawn, garden or forestry power equipment. The "Greener Gardens Act" was introduced late last month by Sen. Patrick Leahy (D., Vt.) and two other U.S. congressional delegates from Vermont. It is designed to provide "immediate incentive for people to purchase clean, alternative fuel engines that ... operate on little or no fossil fuel."

While non-gas, corded and non-corded consumer power equipment has been around for years, the breadth of the offerings is fast-expanding. Towson, Md.-based Black & Decker Corp., which first introduced a battery push mower in 1970, recently has been expanding its line of outdoor tools with interchangeable 18-volt nickel-cadmium battery packs to include everything from a power scrubber for washing boats and cars, to a pruning saw. Marketing focuses on convenience and ease-of-maintenance as much as the environment.

"We now sell more dollars worth of cordless string trimmers than the corded one," says Joe Newland, Black & Decker's product manager for outdoor products. "There are tradeoffs, and what you lose in power, you gain in convenience and weight." He notes that female buyers are a particularly robust audience for gas-less tools. "They don't want to start with filling it. They just want to use it."

But it's the entrance of high-end gas tool makers such as Ariens and Sweden's Husqvarna Group to this consumer niche in the U.S. that signals the most notable strategy shift. This season, Husqvarna is introducing to its U.S. dealers an $899 rugged soil cultivator run off a single large lead-acid battery. The company also just launched an "EcoSmart" marketing campaign highlighting products that lessen their impact on the environment, such as its manual push reel mowers (U.S. sales almost doubled in 2008), and its solar-battery hybrid robot "Automower."

Part of the rush to develop new non-gasoline technologies is driven by increasingly tighter exhaust-emissions standards for outdoor power equipment. Last fall, the Environmental Protection Agency issued new rules requiring a 35% reduction in emissions from new lawn and garden equipment over the next few years. "I would describe the alternative fuel market as emerging and growing," says Kris Kiser, executive vice president of the Outdoor Power Equipment Institute, an Alexandria, Va.-based trade group.

Still, manufacturers express caution about going cold turkey off gas in certain high-demand, heavy-use categories, lest performance suffer and dilute their brands. "A push mower, if it is going to have our name on it, it needs to be more robust than a cultivator," says Gent Simmons, a U.S. product manager for Husqvarna. "We are testing a very powerful premium battery push mower, and we are very close. But before we launch, the quality expectation has to be there."

Likewise Stihl Inc., the U.S. subsidiary of Germany's Stihl International GmbH, is proceeding cautiously with alternative-fuel machines while focusing on getting emissions down in its popular gas-powered chainsaws and blowers and beefing up corded electric equipment offerings. "It's one of those things where we want to be careful," says Roger Phelps, Stihl's promotional communications manager. "One thing customers are demanding is for performance to still be there. It's cool to have a battery-operated mower, but if it only gets halfway across the yard, that's not very cool."

So, just how far can you get on a single charge? For several weeks, I've been testing some of the newest and best-selling players in the category around my property.

The good news: In nearly every case, the batteries' duration was better than advertised. (Notably, these were new batteries.) Despite having a garage full of loyal gas models I mostly love (a Stihl chainsaw, an Echo trimmer and backpack blower, and Honda push mower), I relished not running to the gas station, cleaning a spark arrestor screen (don't ask) or fishing out a fuel filter for replacement this year. In some instances, the eco-tools' performance exceeded my expectations; I'd never have thought a small battery chainsaw could slice through an eight-inch trunk of Cherry tree without getting stuck. (For more on each machine's performance, see accompanying chart, as well as video at WSJ.com.)

The new $3,299 Ariens AMP Rider was the priciest and most ambitious entrant. It cut grass evenly and drove smoothly, save an awkward reverse pedal and some huffing and puffing on certain hills. Its small size was comfortable for a tall woman's frame, and even though its motor had a tinge of whininess, I could hold a conversation without screaming while mowing. That's what I call organic lawn care.

The challenge for the AMP will be cost and winning over heftier gas-rider enthusiasts accustomed to the power of their machines. After three or four years, Ariens says the batteries will need to be replaced -- at a current cost of about $749. However, the company says that price-tag is comparable to the $200 in annual savings users will reap based on not needing gas (based on $3 a gallon), oil, replacement filters, spark plugs and annual maintenance checkups. Chief Executive Dan Ariens says early retail signs for the AMP "are fairly good," given the state of the economy and the unit's price.

Click Image to Enlarge

The battery push mowers I tested are cheaper ($400 to $500). My biggest beef was weight. While the two models, from Neuton and Black & Decker, cut well, didn't spew smelly fumes and started on a dime, at 70 to 76 pounds, respectively, they felt heavy on hilly turf. Neither was self-propelling though there are such models on the market, such as the Solaris brand.

By contrast, a new svelte 27-pound electric model called the "Mow Joe" from Edison, N.J.-based Snow Joe Co. was a breeze to lug around. But it needs a cord, which is cumbersome, and will cut to a Marine-style 2.4 inches. In the end, I still liked the old-school approach to groom my 3,500-square-foot lawn eco-style: a 34-pound push reel mower. It wasn't fancy, and I broke a sweat. Otherwise, it didn't cost a dime in energy.

This eco-tool trend doesn't look to end with summer. Due out for cold weather: a battery-powered snowblower from Ariens that its CEO says hurls snow farther in early tests than comparable gas models. Lehr says it will introduce a propane backpack blower this fall. And later this year, Husqvarna plans to launch a U.S. zero-turn radius mower run off propane, while Hustler Turf Equipment, a division of Hesston, Kan.-based Excel Industries Inc., is readying an all-electric zero-turn riding lawnmower called the "Zeon."

My gas machines are starting to look a little nervous.

Saturday, May 23, 2009

Daimler Acquires 10% Stake In Tesla Motors
A $50 million vote of confidence by the German giant
could give a jolt to Tesla's plan for an electric sedan

Story from Business Week

Electric car startup Tesla Motors has a new partner: German giant Daimler (DAI). On May 19, at the fashionable Hay-Adams Hotel in Washington, Daimler announced it has taken a 10% stake, worth about $50 million, in the San Carlos (Calif.) auto pioneer.

The two companies had already been working together. Daimler was planning to build 1,000 all-electric versions of its small Smartcar using Tesla's battery technology. But Daimler wanted more than just a simple supplier-customer relationship, explains Dieter Zetsche, chairman of the board of management of Daimler and head of Mercedes-Benz Cars. "We are in a time of change," he says. "This industry is going through a kind of paradigm shift, and has to reinvent itself ultimately to be independent of petroleum and without CO2 emissions. We need fast technology change."

Making changes fast is hard for big companies. So more than just looking to Tesla for new technology, Daimler wants an infusion of entrepreneurial spirit. "We want to think out of the box," says Zetsche. "We want to go down new paths, and we believe the combination of such a young, very ingenious company and a very experienced, longtime successful company is a good one in order to find new approaches fast."

Selling New Shares to Daimler

The deal brings credibility as well as money to five-year-old Tesla, which has garnered headlines for both its speedy Roadster as well as for its recent stumbles. "It validates the effort Tesla has made in pushing the electric vehicle," says Jeff Schuster, executive director for forecasting for J.D. Power & Associates (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)). "It certainly is a boost to that company to have a company like Daimler investing."

Indeed, Tesla CEO Elon Musk says Daimler's prestige and technology were major factors in the deal, which involves selling new shares to Daimler. "We actually could have gotten a higher price from another investor, but we would have done so without the strategic advantages," Musk says. "It gives everyone a higher confidence in our plan."

That confidence has been shaken a bit recently. The Roadster had cost overruns and delays, and the company has suffered through layoffs and the firing of its first CEO. Now, Tesla has a plan to offer a less expensive but still speedy electric sedan, the Model S, for $49,900. But Musk needs $400 million more to put the car into production. He hopes to get much of that from two federal Energy Dept. programs to support green technologies. But he hasn't snared the funding yet, and some auto experts and ex-Tesla employees doubt the company can pull it all off. "There are lot more steps to go before Tesla is a viable car company," says George Peterson, president of automotive consulting firm AutoPacific.

Tapping Daimler's Expertise

Musk hopes that the deal with Daimler will help put some of the doubts to rest. "It's important to recognize Daimler is very meticulous," he says. "A huge part of their commitment is due to the Model S. They've gone through the Model S development costs line by line."

As part of the deal, Daimler will help Tesla with the new car's engineering. "Tesla is interested in some components, some knowhow, and some technology to add to their vibrant, very energetic startup approach," says Zetsche. In particular, Musk anticipates tapping into Daimler's expertise in areas like noise and vibration reduction, plus safety and quality. "They are very interested in helping us. They see us an important test case for market acceptance of electric cars," says Musk.

Tesla launched the Model S on Mar. 26. It claims to have more than 1,000 reservations for the all-electric sedan, which can carry seven people and travel 300 miles on a single charge. Tesla is asking for $5,000 deposits (or $40,000 for a special collectors' edition). The car won't be delivered until late 2011 at the earliest. "If they can get that thing on the road, they'll have a winner on their hands," says AutoPacific's Peterson. "The challenge will be to make an aluminum body at that price."

Daimler Investing in Batteries

There are questions as well for the whole auto industry as to which technologies will win out as it tries to respond to the demand for more efficient cars. Daimler is expecting that diesel-powered cars will be a major component of its strategy for meeting President Obama's tough new fuel economy standards. The company is working on hybrid gas-electric vehicles as well. But electric vehicles offer the potential for the greatest reduction in emissions. That's why Daimler has already invested in German battery maker Li-Tec, and has founded a joint venture with Evonik Industries to make its own batteries.

Zetsche says that Tesla's battery approach was "the fast one," but that he expects Li-Tec's version of the same basic lithium-ion technology to be more efficient. In the long-term, he expects, Tesla might consider using the Li-Tec batteries as well.

So Teslas may pick up a bit of a German accent. But don't expect the cars to be sold at Mercedes dealerships anytime soon. "In major markets, I want to control that customer experience," says Musk.

Wednesday, May 20, 2009

Staples In Violation Of Overtime Laws
Story from Business Management Daily

A federal jury in Newark has awarded $2.5 million in damages to 343 sales managers employed by office superstore Staples.

The court determined the retailer misclassified the managers as exempt from the Fair Labor Standards Act (FLSA) when they were not. As a result, the managers were not paid overtime.

Staples maintained it carefully examined the situation with its overtime lawyer to comply with the FLSA, but the jury disagreed. It ruled Staples willfully violated the overtime labor law.

The court has not yet decided whether it will exercise its option to double the damages, as it can in cases involving willful violation of the law.

The Radio Industry Braces For More Craters
Cox Radio Now Privately Held Property of Cox Enterprises
by: MediaBuyerPlanner.com

Cox Enterprises’ wholly owned subsidiary, Cox Media Group, has successfully taken Cox Radio Inc. private.

The group completed its tender offer to acquire all 10 million-plus outstanding shares of Class A common stock, for a total of 59.4% of Cox Radio’s publicly held Class A shares.

The shares included approximately 917,500 shares subject to guaranteed deliveries and approximately 327,000 shares tendered by affiliates. Cox Media Group has accepted for payment all shares validly tendered pursuant to the tender offer.

Together with the approximately 78% of the equity interest already beneficially owned by Cox Enterprises, Cox Enterprises will own approximately 72,652,000 shares or 91.4% of the 79,489,544 Cox Radio shares outstanding. Shareholders who have tendered their shares will receive $4.80 per share for their shares promptly following the guaranteed delivery period.

“We are pleased that Cox Radio shareholders supported this transaction and, in so doing, took advantage of an excellent opportunity to obtain liquidity at a 45% premium over the closing price the trading day prior to commencement of the offer,” said Jimmy W. Hayes, president and CEO of Cox Enterprises. “We believe that private ownership offers advantages that will assist Cox Radio in attaining its business objectives and managing its capital structure as well as ensuring that Cox Radio maintains its best-in-class operations.”

When the deal was first announced, Hayes said that as a privately held concern, Cox Radio would be able to take a long-term approach, particularly important in the current economic environment.

Pursuant to the tender offer, as soon as practicable, Cox Enterprises will implement a short-form merger under Delaware law in which Cox Radio will become a wholly-owned subsidiary of Cox Enterprises. All remaining public shareholders, other than those as to which appraisal rights are perfected, will have the right to receive $4.80 per share for their shares.
Is A Housing Recovery Underway?
Business Week Reads The Tea Leaves

Hopes are high that the deeply troubled U.S. housing sector has finally seen the worst of the recession and financial crisis.

But new data on May 19 raised questions about that optimism. U.S. housing starts hit a record low, dropping 12.8% in April, to an annual pace of 458,000. Housing starts are down 79.8% from their peak in January 2006.

A sharp drop in construction of multifamily dwellings drove the reading, with single-family starts actually up 2.8%.

However, the overall record low disappointed economists and investors, who had seen signs in recent months that housing might have hit bottom.

With housing starts at a record low, "it's early to pop the cork," says Michael R. Englund, chief economist for Action Economics. Yet, Englund and other economists told BusinessWeek, the data don't contradict hopes that housing might be near a bottom.

"in the process of bottoming out"

A drop in construction activity is certainly troubling for the overall economy and for unemployment trends. But a drop in housing starts might actually be good news for the sector's eventual rebound, says Gary Wolfer, chief economist at Univest Wealth Management (UVSP).

One of the housing market's main problems is a glut of supply—too many homes for sale. Idle homebuilders mean fewer new homes coming onto the market, thus hastening a bottom for the market. "We're getting there in a brutal fashion," Wolfer says, but at least we're "in the process of bottoming out."

Keith Hembre, chief economist at First American Funds, worries that further home foreclosures could continue to drive the proliferation of "for sale" signs across the country.

However, he does see reasons to hope for a revival in demand. The government is helping: Low interest rates make mortgages more easily affordable (if you can qualify for one) and the federal government is providing an $8,000 tax credit in 2009 for first-time home buyers. "The signs are there that demand has generally hit bottom," Hembre says—and it may even be improving somewhat.

A recovery start for homebuilders?

First-quarter earnings reports from homebuilders have bolstered the case for guarded optimism.

"For the homebuilding industry, we think that probably the worst is over," says Kenneth Leon, a Standard & Poor's equity analyst who covers the homebuilders. Key metrics seemed to improve in the homebuilders' first-quarter earnings reports, Leon says, including net orders, backlog, and the pace of homebuilder write-offs.

Still, industry players continue to post quarterly losses.

Investors had a mixed reaction to the April housing starts data. Though the record decline was cited by some market observers as a troubling sign for the overall economy, shares of the largest homebuilders were mixed.

On May 19, Pulte Homes (PHM) dropped 2.6%, to 10.03, but Toll Brothers (TOL) slipped just 0.7%, to 19.51, and D.R. Horton (DHI) gained 1.8%, to 9.96.

Homebuilders: Not out of the woods

After two very difficult years, homebuilders are trading solidly higher so far this year. The S&P Homebuilding index rose almost 19% in the first four months of 2009.

S&P's Leon doesn't expect "a full sustained recovery" for the housing sector until the end of 2010. And several factors could derail or delay the housing market's recovery, experts say.

Fresh foreclosures could flood the market with supply, even as homebuilders cancel new projects. Credit troubles could make it hard for buyers to get mortgages. Right now, "affordability is very attractive—if you can qualify and get a mortgage," Leon says.

Even if activity returns to the housing sector, home prices could continue to fall for some time.

"While we are well into the housing bottoming process, we are a long way from recovery," Stifel Nicolaus (SF) analyst Michael R. Widner wrote May 19. "Our math suggests we have a couple years to go before excess inventory clears and paves the way for significant housing sector improvement," he added.

Watch "the broader financial crisis"

Englund of Action Economics warns that there may be too much focus on foreclosures, government incentives, or individual data points.

Those aren't the key drivers of a revival for housing, he says. As demonstrated by the "roller coaster of the last 2 1/2 years," he says: "It's the broader financial crisis that [is] really driving this process."

While worries linger about the next potential financial disaster or an unforeseen economic meltdown, many home buyers are reluctant to take a risk on a major home purchase. "No one wants to jump headlong into this environment," Englund says.

In other words, no matter what the data say from month to month, it's hard to imagine the housing sector bouncing back until the big picture significantly improves.