231-922-9460 | Google +

Sunday, October 31, 2010

Glossy Paper From China to Face U.S. Import Duties

Bloomberg / BusinessWeek

The U.S. will impose dumping and anti-subsidy duties on glossy paper from Indonesia and China after the U.S. International Trade Commission ruled that domestic makers may be harmed by low-cost imports.

The panel’s 6-0 vote yesterday followed by hours a World Trade Organization decision that applying both sets of duties on China doesn’t violate trade rules. China has called the duties protectionist, while lawmakers and makers of steel, paper and textiles say they are crucial to countering what they call unfair trade practices.

“This decision by the ITC will help level the international playing field for our manufacturers and make it possible for our companies to sustain and create jobs,” Representative Michael Michaud, a Maine Democrat, said in a statement after the decision.

The ITC ruling is the final step needed to set tariffs on imports valued at $260 million of the glossy paper, used to print magazines and art books. NewPage Corp., Appleton Coated LLC and a unit of Sappi Ltd. sought the duties, citing China’s and Indonesia’s policies of debt forgiveness, cheap power and low-cost access to timber for domestic producers.

The dumping duties will reach as much as 135.83 percent for China and 20.13 percent for Indonesia, the Commerce Department said last month. Countervailing duties to offset subsidies will be as much as 17.94 percent for Indonesia and 178.03 percent for China, the agency said.

Preliminary Duties

The Commerce Department imposed preliminary duties in April and May. Paper importers have been depositing those duties pending action by the ITC. The panel’s decision sets the stage for the tariff rates to take effect within days.

Gold East Paper Jiangsu Co. must pay combined duties of 25.24 percent, the department said. Chinese companies not listed in the case face a 153.47 percent duty, according to the statement.

Asia Pulp & Paper, a unit of Indonesia’s Sinar Mas Group, must pay a 38 percent duty on its exports, according to a company statement.

“We are extremely disappointed in the commission’s decision,” said Terry Hunley, acting president for the company in the U.S. “We believe there are very strong grounds for appeal, and we will begin pursuing our appeal options immediately.”

China Leads Complaints

China, which faces the most unfair trade complaints worldwide, has criticized the U.S. decision to impose dumping and countervailing duties on imports from that country. The U.S. categorizes China as a non-market economy, which raises the anti-dumping duties its products face in the U.S.

In its case at the WTO, China argued that the U.S. was punishing its products twice by imposing both sets of duties.

The WTO judges rejected 8 of 11 complaints by China against U.S. duties on imports of steel pipes, some off-road tires and woven sacks in its decision announced in Geneva yesterday.

“This was a major victory for the U.S.,” said Alan Price, a lawyer at Wiley Rein LLP in Washington who has represented Nucor Corp. in trade cases.

Saturday, October 30, 2010

Former Airline Executives Indicted in Conspiracy to Fix Fuel Surcharges

Conspiracy Alleged to Have Taken Place Following Hurricanes Katrina and Rita

A Miami grand jury returned an indictment today against four former airline executives of competing air cargo carriers for participating in a conspiracy to fix surcharges on air cargo shipments from the United States to South and Central America following Hurricanes Katrina and Rita, the Department of Justice announced today.

The one-count indictment, returned today in U.S. District Court in Miami, charges Guillermo “Willy” Cabeza, George Gonzalez, Rodrigo Hernan Hidalgo, and Luis Juan Soto with conspiring to suppress and eliminate auto transport competition by agreeing to impose an increase to their fuel surcharges on air cargo shipped from the United States to locations in South and Central America. Each former airline executive is charged with participating in the conspiracy beginning in or around late September 2005 until at least November 2005.

According to the indictment, Cabeza, Gonzalez, Hidalgo, and Soto, along with co-conspirators, carried out the conspiracy by engaging in discussions, including at a meeting in an office in the area of Miami’s Kendall-Tamiami Executive Airport, and agreeing to impose an increase to the fuel surcharge applied on flights from the United States to South and Central America. As part of the conspiracy, Cabeza, Gonzalez, Hidalgo, Soto and their co-conspirators engaged in communications to implement and monitor the agreement and accepted payments at collusive and noncompetitive rates.

Cabeza is the former president of a Miami-based air cargo carrier, Gonzalez is the former chief commercial officer of a Peruvian air cargo carrier, Hidalgo is the former vice president of sales and marketing of a Miami-based air cargo carrier, and Soto is the former president of a Miami-based air cargo carrier.

Air cargo carriers transport a variety of cargo shipments, such as heavy equipment and car transport, perishable commodities, and consumer goods, on scheduled international flights.

Cabeza, Gonzalez, Hidalgo, and Soto are charged with price fixing in violation of the Sherman Act, which carries a maximum penalty for each individual of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

A total of 18 airlines and 14 executives, including the four individuals charged today, have been charged in the Justice Department’s ongoing investigation into price fixing in the air transportation industry. To date, more than $1.6 billion in criminal fines have been imposed and four executives have been sentenced to serve prison time. Charges are pending against 10 executives, including the four individuals charged today.

Today’s charge is the result of a joint investigation into the air transportation industry being conducted by the Antitrust Division’s National Criminal Enforcement Section and the Chicago Field Office, the FBI’s field offices in Miami and Washington, the Department of Transportation’s Office of Inspector General and the U.S. Postal Service’s Office of Inspector General. Anyone with information concerning price fixing or other anticompetitive conduct in the air transportation or vehicle transport industry is urged to call the Antitrust Division’s National Criminal Enforcement Section at 202-307-6694.

Friday, October 29, 2010

National Vehicle Fleets soon to realize increased Fuel Economy Standards

The Obama administration's newly proposed rules to promote fuel efficiency in certain vehicles are the first of its kind. These motions are geared to motivate the design of future school buses, garbage trucks, delivery vans and heavy-duty pickup trucks to do better at the gas pump.

The Environmental Protection Agency and the Transportation Department are moving forward with Obama's proposal, starting with vehicles sold in the 2014 model year and extending into 2018.

The plan to improve efficiency is expected to reduce greenhouse gas emissions and fuel consumption from longhaul trucks by 20 percent, according to individuals familiar with the proposal. They made the statement anonymous because they did not want to speak publicly before Monday's official announcement.

In its essence, the plan seeks a 10 to 20 percent reduction in fuel consumption and emissions based on the vehicle's size. For example, tractor-trailers often live up to 150,000 miles a year, making them prime for enhanced fuel efficiency.

The regulations under the new plan will involve large tractor-trailers, powerful pick-up trucks such as "heavy-duty" models of the Ford F-Series and Chevrolet Silverado, and "vocational trucks" such as school buses and garbage trucks.

In an effort to reduce dependence on oil and cut greenhouse gas emissions tied to global warming, the White House has urged to increase the standards for fuel economy across the nation's fleets.

For many auto transport companies, the new plan will have significant impact on their operations. Such companies with large vehicle transport fleets may be required to invest in new capital to meet the standards of the plan's new rules.

According the newly proposed standards, fleets of new cars, pickup trucks and SUVs will be required to reach 35.5 mpg by 2016. The government is creating further plans for future models that could heighten the standards to 62 mpg by 2025.

Many companies that rely on commercial fleets to drive there business operations foresee a challenging future with the new plan. An Ohio shipping company is going as far as consulting with a Dayton transportation lawyer to look at all legal alternatives to swapping out their entire fleet.

"Investing in an entirely new fleet of trucks would really set us back." The CEO of the Ohio shipping company stated. "We are hoping our transportation lawyer will dissolve some kind of solution."

Heavy-duty pickups are much less fuel-efficient than conventional autos with tractor-trailers currently getting 6 mpg to 7 mpg, and heavy-duty trucks managing 10 to 11 mpg. These vehicle categories are responsible for about 20 percent of the transportation fuel in the U.S.

The director of the EPA's Office of Transportation and Air Quality stated last week that the proposal would be a "win-win situation for the country, the economy, climate change and energy security."

In May President Obama, along with several truck manufacturers, said the government would release the first-ever proposed standards for greenhouse gas emissions and fuel efficiency for large trucks this year. Using existing technologies, he estimated then that the fuel efficiency of tractor-trailers could be see an improvement of 25 percent.

"This is going to bring down the costs of transporting - for transporting goods, serving businesses and consumers alike," the president claimed on May 21, teamed up with executives with Daimler Trucks, Volvo, Cummins and Navistar, as well as trucking industry officials.

Such fuel efficiency enhancements will come through a combination of better engines, better tires, and improved aerodynamics, especially for large commercial fleets in the auto transport industry.

Several environmental agencies have pointed to a report by the National Academy of Sciences that said the vehicles under the plan could make vast improvements during the decade utilizing existing technologies. The report discovered that implementing advanced diesel engines in tractor-trailers could drop fuel consumption by up to 20 percent by 2020.

Thursday, October 28, 2010

Shrinking Bank Revenue Signals Dawn of `Worst' Growth Decade


Shrinking revenue at U.S. banks, led by Goldman Sachs Group Inc. and Citigroup Inc., may continue to fall as the industry heads into what could be its slowest period of growth since the Great Depression.

After the six largest U.S. banks posted record revenue in 2009, combined net revenue fell by an average of 8 percent in the third quarter from a year earlier and 16.3 percent over the last two quarters, according to data compiled by Bloomberg. Revenue so far this year is down by 4.1 percent, driven by declines in everything from trading at Goldman Sachs to home lending at Bank of America Corp. New laws restricting account and credit-card fees, as well as derivatives and capital rules, are also squeezing lenders.

Next year will kick off a decade that will bring the “worst revenue growth” for U.S. banks in 80 years, according to Mike Mayo, a banking analyst at Credit Agricole Securities USA Inc. in New York. Net revenue at U.S. commercial lenders has expanded at a slower pace in each of the last three decades, falling to 6 percent in the last decade from 12 percent in the 1970s, according to Federal Deposit Insurance Corp. data.

“Revenues aren’t just weak for this quarter, or even for this upcoming year, but for the entire upcoming decade,” said Mayo, a former Federal Reserve analyst who has more than 20 years of industry experience. “The speed limit’s been lowered for how fast banks can drive earnings.”

The trend over the last two quarters is hitting almost every line of income statements and is spread across the sector, affecting investment banks, consumer banks and commercial lenders. It’s eating away at profits, depressing stock prices and threatening bonuses and new hiring.

BofA, JPMorgan

The 17.6 percent drop in net revenue since March 31 at Charlotte, North Carolina-based Bank of America, the largest U.S. bank by assets, came mostly from its mortgage-lending and credit-card businesses. The company reported a $7.3 billion loss in the third quarter after taking a $10.4 billion goodwill writedown against new debit-card laws.

JPMorgan Chase & Co., where revenue dropped 13.9 percent over the same time frame, has been hurt by bad credit-card loans. Revenue from credit cards at the New York-based lender, the second-largest in the U.S., fell more than 17.6 percent in the third quarter from a year earlier.

The bank’s revenue is also suffering, along with the rest of the industry, from new restrictions on the fees it can charge for credit cards, checking accounts and other consumer services. Chief Executive Officer Jamie Dimon, 54, told analysts Oct. 14 that the bank will lose about $750 million in profit as a result. He also said new derivatives rules will cost $1 billion in lost revenue.

Trading Revenue

Wells Fargo & Co.’s decline of 2.7 percent since the first quarter has come from its community-banking operations. New limits on overdraft fees trimmed revenue at the San Francisco- based lender by $380 million in the third quarter, Chief Financial Officer Howard Atkins told analysts on an Oct. 20 conference call.

Goldman Sachs and Citigroup, whose revenue fell 30 percent and 18 percent over the last two quarters, have been hampered by lower trading results. The two New York-based firms had the biggest drop of the six banks so far this year. Lucas van Praag, a Goldman Sachs spokesman, declined to comment. Shannon Bell, a spokeswoman for Citigroup, said it is “uniquely positioned to take advantage of growth opportunities in the emerging markets.”

Drawing Down Reserves

At Morgan Stanley, a fall in fixed-income and equity trading drove revenue down 25 percent over the six months. Goldman Sachs and New York-based Morgan Stanley posted declines in fixed-income trading revenue of more than 37 percent from a year earlier, while Citigroup’s investment banking revenue was down by 20 percent.

Lower credit costs and a less gloomy housing outlook allowed lenders to draw down reserves and set aside fewer provisions against consumer loan losses. That helped them to remain profitable. Net income for the first nine months was $39.6 billion for the six banks, compared with $39.5 billion for the same period last year. Still, some analysts questioned the growth prospects of an industry that made up as much as 20 percent of the profit from Standard & Poor’s 500 Index companies before the financial crisis, according to Bloomberg data.

“That five- or six-year period during the boom, that was just purchase activity created by credit,” said Christopher Whalen, a former Federal Reserve Bank of New York analyst and co-founder of Institutional Risk Analytics in Torrance, California. “The ‘new normal’ terminology, the cliche we all hate, is absolutely true. When you’ve withdrawn all of this credit from the economy, you’re also taking a component of revenue out.”

40-Year Trend

“We’ll be lucky” if revenue growth for U.S. banks is flat this decade, Whalen said.

Financial companies have trailed the broader equity market this year. The S&P 500 Financials Index is up 1 percent, while the overall S&P 500 Index has climbed 6.3 percent. Bank of America and Morgan Stanley have each fallen more than 17 percent through yesterday, while Citigroup had the only increase among the biggest six, jumping 27 percent before today.

The six largest lenders are trading at an average of 0.9 times their book value, less than half the average level over the last 10 years. Bank of America’s market value is about 53 percent of its book value, while Wells Fargo is trading at 1.2 times its book value.

Declining revenue growth rates for banks is a 40-year trend, according to FDIC data. U.S. banks had compound annual revenue growth of 12 percent from 1970 through 1979, about 10 percent during the 1980s, 8 percent in the 1990s and 6 percent over the most recent decade.

‘Not Your Friend’

“When it comes to decade-long revenue growth for banks, the trend is not your friend,” Mayo said. “Basic traditional banking is likely to remain weak. It’s a slower-growing economy, and banks can’t or shouldn’t try to overcome headwind by reaching for inappropriate risky growth.”

Gross domestic product in the U.S. is projected to grow by 2.7 percent this year, 2.4 percent next year and 3 percent in 2012, according to median estimates of 65 economists surveyed by Bloomberg.

To find growth, banks including JPMorgan are looking to expand their reach overseas, where GDP growth rates are about twice those of the U.S. The bank announced in February plans to double its 4 percent share of the Asian market over the next few years and has expanded its global commodities-trading unit through a $1.7 billion purchase of parts of RBS Sempra Commodities LLP earlier this year.

Brokerage Strategy

Citigroup, which already derives more than two-thirds of its revenue outside the U.S., is “well-aligned with the growth trends we see globally,” CEO Vikram Pandit, 53, told analysts Oct. 18.

Morgan Stanley is looking for growth from its brokerage unit after buying a controlling stake in a joint venture with Citigroup’s Smith Barney, more than doubling its brokerage ranks to about 18,000. Bank of America is also relying on its brokerage unit, Merrill Lynch, to sell investment services to existing bank customers, both in the U.S. and overseas.

Wells Fargo CEO John Stumpf told analysts Oct. 20 that his bank is making up for lost revenue growth by offering customers service across multiple platforms -- where they shop, at ATMs, online, via telephone and mobile banking.

Generating growth will be about “taking share away from other banks,” said Whalen of Institutional Risk Analytics. “At best the global economy will be a zero-sum game.”

Loan Growth

Bank revenue will benefit when loan growth returns, said Christopher Kotowski, an analyst at Oppenheimer & Co. in New York. In the savings and loan crisis of the 1990s, average annual loan volume didn’t grow until two years after the amount of new troubled assets peaked, he wrote in a July note to investors.

Consumer and commercial loans at U.S. banks climbed 0.6 percent in September to $6.8 trillion from a year earlier, the first rise in 15 months, according to data from the Federal Reserve Bank of St. Louis. That compares with an annual growth rate of 11 percent from 2005 through 2007 during the height of the housing boom. Loan volumes peaked at $7.29 trillion in 2008.

“Loan growth and job growth are always the last things to come back,” Kotowski said. “I know people are impatient because there’s a lot of pain out there, but I don’t think there’s a way to jumpstart the process. It needs to run its course.”

Appetites for Risk

William Rogers Jr., president of Atlanta-based SunTrust Banks Inc., told analysts Oct. 21 that large corporate customers are using about 17 percent of their loan capacity, compared with an average of “mid to high 20s.” For mid-size companies, the rate is in the “low 30s,” compared with an historic average in the low to mid 40s, he said. The rate of decline has abated this year, he said.

“I would hope that we’d start to see some kind of increase depending on some type of economic recovery,” he said.

Betsy Graseck, an analyst for Morgan Stanley in New York, said bank revenue will likely shrink this year and next before rebounding in 2012. Consumer loan growth and investor appetites for risk will begin to rise again late next year, she said.

“We’ve got two more years of slog and workout,” Graseck said. “We see the light at the end of the tunnel. It’s a faint glimmer, and it’s growing brighter over the course of the next two years.”

Operating Margins

Bank revenue in the first quarter surged in part because of two government programs designed to revive the U.S. housing market -- the Fed’s $1.25 trillion mortgage-bond purchase program that ended in March and a homebuyer tax credit that expired in April. Revenue has been weak since.

Expenses aren’t falling as fast as revenue at the six largest banks, which is squeezing their operating margins. Non- interest expenses, including compensation and rent, fell 3 percent in the third quarter from a year earlier. The overhead ratio for the six banks -- non-interest expenses divided by revenue -- climbed to more than 60 percent for the first time since the height of the financial crisis in 2008.

That helped lead to Bank of America and Morgan Stanley posting the first quarterly per-share losses this year among the six banks.

Dividend Impact

Slower revenue growth could hinder banks’ plans to raise dividends. The six banks currently pay quarterly dividends totaling 51 cents, down from $2.49 in 2007. JPMorgan’s Dimon told investors earlier this month that he hopes to raise his bank’s dividend in the first quarter of next year, and Wells Fargo’s Atkins said last week that an increase is a “top priority” for the bank.

Banks also may be forced to cut pay and headcount to control bank risk management if the revenue decline continues. Goldman Sachs reduced the amount it set aside for compensation in the first nine months of the year, as did the investment banking divisions at Morgan Stanley and JPMorgan. U.S. securities firms may cut as many as 80,000 jobs in the next 18 months as revenue growth slows, bank analyst Meredith Whitney, founder of New York-based Meredith Whitney Advisory Group LLC, said last month.

The size of the biggest banks places them at a disadvantage to increase revenue relative to smaller competitors.

“Size is a problem -- there are four banks that are over $1 trillion in assets, and it’s really tough for them to grow,” said Thomas Brown, CEO of Second Curve Capital LLC, a New York hedge fund that focuses on financial institutions. “The smaller banks have other issues, but their growth prospects are much better.”

Wednesday, October 27, 2010

Outsourcing No Longer ‘Dirty Word’ as Technology Spending Rises


The Cleveland Police Authority in Northern England is paying Groupe Steria SCA to help manage the control room of the 2,200-strong force, allowing Chief Constable Sean Price to “concentrate on policing.”

The 211 million-euro ($295 million), 10-year contract to take calls, assist in preparing criminal case files and manage payroll, recruitment and expenses became effective Oct. 1. Price and other first-time customers seeking to simplify back-office operations or upgrade rickety computer systems are helping information technology services companies such as Steria, Cap Gemini SA and Cognizant Technology Solutions Corp. grow faster than the economies they serve.

“Outsourcing used to be a bit of a dirty word,” Price said in an interview. “I don’t think that’s the case anymore.”

France’s Cap Gemini and Teaneck, New Jersey-based Cognizant have raised their outlooks this year, while India’s Infosys Technologies Ltd. and Tata Consultancy Services Ltd. have signaled rising demand from corporate clients. The companies are gaining as corporations revive spending postponed by the global economic crisis while also looking to cap costs.

“IT is doing better than the economy,” Francois Enaud, chief executive officer of Velizy, France-based Steria, said in an interview. “The crisis forced companies in many industries to reconsider the way they do business and their cost model.”

About 53 percent of public- and private-sector organizations in Europe surveyed by Gartner Inc. plan to outsource more this year, while 40 percent plan to increase spending on IT services, the research firm said Sept. 7. Gartner also found that 14.7 percent of organizations with IT budgets of less than 1 million euros expressed interest in outsourcing, compared with 6.1 percent last year.

In the Cloud

The recovery in spending has been slower at large corporations, postponing the rebound at companies such as International Business Machines Corp., the world’s largest computer-services provider. The Armonk, New York-based company this month posted its third straight quarterly decline in new contracts. Its services signings fell 7 percent to $11 billion in the third quarter.

“Very large corporate IT projects of the type that IBM would get involved in aren’t recovering to the same extent as smaller pieces of work, which are more significant to smaller companies,” said Gianluca Tramacere, an analyst with Gartner in Milan.

These large contracts have traditionally been multi-year commitments with a fixed base of servers and personnel. While those are harder to come by, smaller companies are increasingly able to outsource some operations.

‘Pay as You Need’

That’s in part thanks to the spread of cloud computing services, which shrink the footprint necessary for upgrades to IT infrastructure by storing data and applications online.

Providers including Steria and Cap Gemini are promoting “pay as you need” cloud-based services, challenging the industry’s use of long-term contracts.

“The cloud should enable entry into these services faster,” for smaller companies, said Patrik Karrberg, a researcher in the London School of Economics’ Information Systems and Innovation Group. “The promise of the cloud is more flexibility.”

That’s helping cloud services grow faster than more traditional IT. Worldwide cloud services revenue is expected to reach $68.3 billion this year, up almost 17 percent from 2009, while overall global IT spending may rise about 4 percent, according to Gartner.

Emerging Markets

Tata Consultancy this month reported a quarter-on-quarter increase in revenue of 12 percent, the biggest jump in more than four years. Infosys raised its full-year revenue forecast to about $6 billion, compared with a July estimate of as much as $5.81 billion. Steria reported an 8 percent gain in third- quarter revenue to 402 million euros.

At Cap Gemini, Europe’s largest IT services provider, second-quarter revenue climbed 1.9 percent to 493 million euros in France and 6.6 percent in Asia, Latin America, and Europe outside of France, the U.K., and the Benelux countries. Sales in the U.K. and Ireland slid almost 9 percent.

Cap Gemini spent 233 million euros for 45 percent of Brazilian provider CPM Braxis in September. India’s HCL Technologies Ltd. and Wipro Ltd. have suggested they may do deals in Europe to expand their services on the continent.

In France, companies are “much more open to considering the outsourcing of non-core business” than before the economic crisis, Steria’s Enaud said.

Pent-Up Demand

Still, demand driving many corporate clients to spend more on their IT systems will eventually slow, some executives said.

“There was a surge in pent-up demand that we saw in the first and second quarter,” Cognizant CEO Francisco D’Souza said.

First-half revenue at Cognizant surged 35 percent to about $2 billion as deferred spending returned, the company said Aug. 3. Demand later in the year is unlikely to be “quite as strong, as we return to a more normal situation,” D’Souza said.

IT providers also face a battle to safeguard revenue from cuts in government spending in U.S. and Europe. In the U.K., the government said last week departments will cut their budgets by an average 19 percent over four years, with police budgets falling by 14 percent.

Longer term, the cost-cutting efforts may help computer services companies, said the LSE’s Karrberg.

“The problem for many governments it that they don’t have enough competent in-house people,” he said. “There will be a response among the providers to create more efficient services, and it’s a big opportunity at the moment.”

At the Cleveland Police Authority, meanwhile, Price is fielding queries from other police departments for the service contract he has with Steria.

“There’s going to be a huge amount of interest in partnerships like this,” he said. “So far we’ve had 29 police forces in England and Wales contact us to find out about what we’re doing.”

Tuesday, October 26, 2010

Solar-Power Plant Gets U.S. Approval

The Wall Street Journal

A proposal to build the world's biggest solar-thermal power plant in the Southern California desert got the go-ahead Monday from the Obama administration, which used the announcement to bolster its message that renewable energy creates jobs.

The $6 billion project is being developed by Solar Trust of America, a joint venture between Germany's Solar Millennium AG and privately held Ferrostaal AG on 7,025 acres of federally owned land near Blythe, Calif. The approval clears the way for the developers to seek federal grants and loan guarantees.

The Obama administration has been criticized over the past year for hurting job creation by holding up coal-mining permits and suspending deep-water drilling in the Gulf of Mexico after the worst offshore oil spill in U.S. history.

The Obama administration said the Blythe solar-power project will create 1,066 jobs at the peak of construction and almost 300 permanent jobs to operate the facility.

The project is the sixth solar-energy installation approved for public lands. The Interior Department said in total the projects could generate as much as 2,800 megawatts of electricity, enough to power two million homes. California regulators have approved or plan to approve a total of nine solar-thermal power plants for the state.

State and federal regulators pledged last year to work together to fast-track approval for a raft of large solar-power projects to enable developers to meet a Dec. 31 deadline required to take advantage of federal financial incentives.

The Interior Department's action on the Blythe project coincides with the final days of a hard-fought battle in California over a ballot proposal that would suspend a 2006 state law that required action to cut the state's greenhouse-gas emissions.

The federal approval allows Solar Trust to start construction on the plant this year and take advantage of government incentives that would reduce the cost of the project. In order to receive cash grants in exchange for unused tax credits, a popular but expiring program, companies must break ground on projects or spend 5% of construction costs by year end.

The estimated cost of the first two units of the Blythe plant is $3 billion.

The company could be eligible for a $900 million cash grant for the first two units from the U.S. Energy Department and the U.S. Treasury Department in lieu of a tax credit.

Unlike familiar photovoltaic solar panels, solar-thermal plants utilize curved mirrors that direct the sun's heat to a central tube in which steam is generated to drive turbines.

Driving demand for solar energy is a California state mandate that requires utilities to get one-third of their power from renewable sources by 2020. The mandate is part of the state's climate law. Advocates of solar power say the planned projects could create thousands of jobs in the economically hard-hit state.

Solar Trust is awaiting approval from the Energy Department for a federal loan guarantee for the first two of four total units. Deutsche Bank AG and Citigroup Inc. are working with Solar Trust to obtain project-equity and tax-equity investment, said Bill Keegan, a spokesman for Solar Trust of America.

MJ's New Job: Selling Tickets, Kissing Babies

The Wall Street Journal

In His Ownership Role With the Charlotte Bobcats, the Basketball Icon Switches Into His Sales Mode; Chatting in the Pub

He meets the locals at Charlotte's Selwyn Avenue Pub, a bar with $3 beers. He hobnobs with prospective ticket buyers at the arena. Earlier this year, he surprised a room full of fresh-out-of-college sales employees with a box of donuts.

You may know Michael Jordan as the greatest basketball icon of all time. Now meet his alter ego, MJ the friendly basketball proprietor.

To buy 80% of the NBA's struggling Charlotte Bobcats in February, Mr. Jordan had to do something he wasn't accustomed to doing in his many years of endorsing products: put some of his own money on the line. To complete the purchase, two people familiar with the matter said he assumed interest payments on about $185 million in debt and had to raise about $55 million to cover payments to the team's other owners. Given the team's current liabilities, two people familiar with the team's finances said Mr. Jordan will have to personally cover at least $20 million in losses this year.

The experience seems to have brought the fiercely private Mr. Jordan out of his shell. On Friday at a "town hall" meeting with season-ticket holders, he took questions from Facebook and Twitter and, at one point, from a little girl who wanted to know how he planned to make the team more kid-friendly. The next night, at a charity black-tie event, he posed for photos, talked about sneakers and chit-chatted about how little golf he's playing.

"Dollars are hard to come by in this economy, and he's really realizing now that it's his own money on the table," says Felix Sabates, a Bobcats minority owner. "You couldn't syndicate ownership of a sports team right now if your life depended on it. He's out there hustling." Mr. Jordan declined to be interviewed for this article.

While he was a dominant force on the court during his 15-year NBA career, Mr. Jordan's net worth, compared with other owners in the league, puts him securely in the second string. The majority of his income—which analysts peg at about $50 million a year—comes from his role as a product endorser for brands like Nike, Hanes, Gatorade and videogame maker 2K Sports. While it's not clear how much Mr. Jordan has socked away over the years, about a dozen of his fellow NBA owners, including Microsoft co-founder Paul Allen and Russian metals magnate Mikhail Prokhorov, are billionaires.

During his playing days, Mr. Jordan was famous for his aloofness. When author David Halberstam wrote a 1999 book about Mr. Jordan called "Playing for Keeps," he acknowledged that Mr. Jordan never gave him an interview. In a stint as an executive with the Washington Wizards, Mr. Jordan never lived in Washington and rarely gave interviews or appeared at games. After he obtained a 10% share of the Bobcats in 2006 and agreed to run the basketball operation, Mr. Sabates said Mr. Jordan was the only minority owner—there were more than a dozen—who rarely showed up for quarterly meetings and routinely hung up early on conference calls.

But since February, Mr. Jordan has shown his face more often. At Selwyn Avenue Pub, where bartenders say he comes every couple of weeks, he hangs out in a secluded area where he dines on the $8 meat lover's pizza and occasionally chats with other patrons and poses for pictures.

One bartender, Derek Klomstad, said Mr. Jordan is generally nice—but when he offered Mr. Jordan a high-five after a Bobcats win last season, Mr. Jordan didn't acknowledge his hand. "He's doing what he has to do as owner," said John Crigler, a pub regular who has seen Mr. Jordan there. "You can tell he doesn't love it, but he's trying."

At the black-tie fund-raiser at the team's arena Saturday night, Mr. Jordan answered questions about his golf game (he didn't play that morning because "I just couldn't get out of bed," he said) and made a point to lightly touch nearly everyone he talked to, including a bald waiter whose head Mr. Jordan playfully palmed. After 10 minutes of hobnobbing after dinner, he made a bee-line to the exit. Julia Phillips, a season-ticket holder who said she talked with him at the town-hall event, said she can tell Mr. Jordan's act is a bit forced but that fans appreciate the effort.

To motivate the team's sales associates, Mr. Jordan sets incentives ranging from trips to Las Vegas to monthly lunches with the boss. Chris Brown, 26, met with Mr. Jordan at one such lunch where they ate turkey sandwiches and chips. Mr. Brown said Mr. Jordan told everyone to take off their suit jackets so they'd feel more comfortable, then had them go around the room talking about their goals and responsibilities. "At first I was shaking," Mr. Brown said. "But he was trying to be nice. You could tell he was trying to make us not be nervous."

Mr. Brown says he doesn't lead with Mr. Jordan's name during sales calls but that nearly every conversation winds around to His Airness. Bobcats President Fred Whitfield says the team doesn't promise prospective sponsors meetings with Mr. Jordan but that the majority of the team's 15 new partners did shake his hand before signing their deals. "It's assumed," Mr. Whitfield said.

So far, so good.

In Mr. Jordan's first season as majority owner, the Bobcats made the playoffs for the first time. The team said it has sold 2,200 new season-ticket packages and has a 93% renewal rate—placing them among the NBA's top five teams.

But it's unclear whether Mr. Jordan himself could return to his previous status, as surveys show his popularity among the public has slowly fallen in recent years. "Even though he's still a global icon, nobody is offering him those easy $5 million endorsement deals anymore," says Ryan Schinman, founder and chief executive of global talent agency Platinum Rye Entertainment.

To show his commitment to the area, Mr. Jordan recently bought an entire floor in the Trust building, a seven-story unit a few blocks from Time Warner Cable Arena. "He's at a time in his life when being an owner is a perfect marriage of his skills," said Estee Portnoy, a spokeswoman for Mr. Jordan. "He's not in this to make money."

Mr. Jordan has shown a few signs of his old ability to make things happen at the buzzer. Earlier this year, as the team's three-year-old partnership with Wachovia was set to expire, Mr. Whitfield said he was struggling to get the bank's Charlotte regional president, Kendall Alley, to commit to renewing the pact. Mr. Alley said Mr. Whitfield approached him in his suite during a game and asked: "Do you have a few minutes to meet with Michael?"

"It's hard to say no to Michael," Mr. Alley said. After the game, he said, Mr. Jordan went over details of where the team was headed and what he planned to do to make it profitable.

Saturday night at the charity event, Mr. Alley said Wachovia is planning to announce its renewal in the next couple of weeks.

Growth Probably Sped Up on Spending Gain: U.S. Economy Preview


The economy in the U.S. probably grew at a faster pace in the third quarter, reflecting a pickup in consumer spending that bodes well for the recovery’s staying power, economists projected a report this week will show.

Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before an Oct. 29 Commerce Department report. Other data may show business investment remains a mainstay of the economic rebound, while housing is mired in a slump.

The pace of growth would still not be strong enough to give the 14.8 million unemployed Americans hope of finding work soon, one reason why Federal Reserve policy makers may be about to pump more money into the economy. Wal-Mart Stores Inc. and Target Corp. are among retailers likely to gain as discounts lure budget-conscious shoppers during the year-end holidays.

“There’s no question about the sustainability of the recovery now,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “But unless we grow faster, we don’t have a shot at bringing down unemployment significantly. Improvement in consumer spending is a sign the holiday season will be better than in the past couple of years.”

The GDP estimate is the first of three for the quarter, with the other releases scheduled in November and December when more information becomes available.

Spending Climbs

Consumer spending, which accounts for about 70 percent of the economy, increased at a 2.4 percent annual rate from July through September, the best showing of the recovery that began in June 2009, economists project.

The National Retail Federation has forecast November- December sales will rise by 2.3 percent from a year ago, making it the best holiday season in four years. Wal-Mart, the world’s largest retailer, Target, Amazon.com Inc. and EBay Inc. are among merchants that will benefit as shoppers look for bargains, according to results of a survey issued this month by Consumer Edge Research in Stamford, Connecticut.

The Standard & Poor’s 500 index has gained 11 percent since Aug. 27, when Fed Chairman Ben S. Bernanke said the central bank “will do all that it can” to sustain the economy’s rebound. The measure rose 0.2 percent to 1,183.08 at the 4 p.m. close in New York on Oct. 22.

About 85 percent of companies in the S&P 500 gauge have exceeded analysts’ per-share profit estimates so far in third- quarter reports. Sales are rising at companies from Boeing Co. to chipmaker Intel Corp. and railroad CSX Corp. Faster overseas growth is also boosting earnings.

Aircraft Sales

Boeing, the world’s largest aerospace company, reported a third-quarter profit due to higher jetliner deliveries and raised its full-year forecast. The jump in orders is prompting the Chicago-based company to make plans to boost production.

The orders are coming amid a “slow, steady kind of recovery,” Chief Executive Officer Jim McNerney said on an Oct. 20 conference call. Most of the demand is from overseas.

The Commerce Department may report on Oct. 27 that orders for goods meant to last at least three years climbed 2 percent in September, the most in five months, according to the Bloomberg survey median. The gain signals business investment in new equipment continues to support the recovery.

While capital expenditures are climbing, manufacturing gains are cooling as the pace of inventory rebuilding eases compared with the surge that began in late 2009.

Housing Woes

Housing continues to struggle as foreclosures mount and unemployment near 10 percent limits demand and hurts property values. Sales of existing homes, due tomorrow from the National Association of Realtors, rose to a 4.3 million annual rate last month, according to the Bloomberg survey median. The readings over the past three months would be the lowest since comparable records began in 1999.

The Commerce Department may report on Oct. 27 that new-home purchases increased last month to a 300,000 annual rate, hovering close to the record-low 282,000 reached in May, economists predicted.

Home prices in 20 cities for the 12 months through August climbed at a slower pace, according to the Bloomberg survey. The S&P/Case-Shiller index is due Oct. 26.

Consumer confidence reports may show little change this month as the lack of jobs unnerves Americans. The Thomson Reuters/University of Michigan’s sentiment index, due Oct. 29, is projected to drop to a three-month low, while the Conference Board’s gauge on Oct. 26 may climb from a one-year low.

Megadeals Go Missing From M&A Rebound


This year’s rebound in mergers and acquisitions has one conspicuously large absence: the megadeal.

Announced takeovers of more than $25 billion are set to make up the smallest percentage of total deal volume in any year since 2002, according to data compiled by Bloomberg. BHP Billiton Ltd.’s offer for Potash Corp. of Saskatchewan Inc. is the only bid this year valued at more than $30 billion, and there have been only two others valued at more than $25 billion, including net debt.

Companies are spending stockpiled cash on smaller competitors that complement their business rather than pursuing transformational takeovers. While 73 percent of transactions this year have been less than $5 billion, the purchases have put dealmaking on pace to surpass last year’s $1.78 trillion in volume and may portend the return of more sizeable acquisitions.

“The drop-off in the very large transactions is masking a significant pickup in $1 billion to $5 billion deals,” said Gary Posternack, head of M&A for the Americas at Barclays Plc, in an interview. “Companies are looking at transactions that are lower risk, closer to the core business of the acquirer, and perceived as being synergistic.”

The biggest deals so far this year account for just 5.8 percent of total volume, while acquisitions from $1 billion to $5 billion have risen to 34 percent, the highest in at least a decade, according to Bloomberg data. Transactions less than $1 billion account for 39 percent of the total, a six-year high, the data show.

Cash Available

Many conditions for a comeback in bigger deals are in place. The 1,000 largest non-financial companies have almost $3 trillion on their balance sheets, and financing rates are near record lows. The Federal Reserve’s October Beige Book, released Oct. 20, noted that M&A lending picked up in some areas.

There is pent-up demand for smaller deals even if banks are unwilling to commit tens of billions of dollars in financing, according to Hiter Harris, managing director and co-founder of Harris Williams Co. in Richmond, Virginia, whose firm specializes in advising on transactions valued at less than $1 billion.

“The middle-market deal flow is a six- to nine-month leading indicator for the rest of the market and the economy,” said Harris, who expects more deals will top $25 billion in 2011.

Banks are willing to lend to creditworthy buyers, as evidenced by the $45 billion of loans Melbourne-based BHP Billiton obtained for its Potash bid. Potash rejected the $40 billion offer, excluding debt, as too low.

‘Story of Ego’

Other potential targets may also be balking at offers because they anticipate their valuations will rise, according to Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York.

“This is a story of ego,” said Shah. “Boards are saying, ’I’m a $25 billion company, I’m not the prey, I’m a survivor, I’m the predator.’”

Buyers don’t appear to be looking for transformational opportunities, according to Richard Hurowitz, chairman and chief executive officer at Octavian Advisors LP, who invests in risk arbitrage. Instead, they are actively seeking strategic deals with more “reasonable” valuations, he said.

International Business Machines Corp.’s pending takeover of Netezza Corp. for $1.67 billion and Unilever’s agreement to buy Alberto-Culver Co. for $3.7 billion are two examples of same- industry, all-cash deals announced since the beginning of September.

Biggest Deals

While deals between $5 billion and $25 billion have increased from last year, both in total number and in overall value, they are still below levels from 2005 to 2008, data show.

None of the three biggest deals this year have involved a U.S. company. The country’s unemployment rate is hovering at 9.6 percent and consumer confidence unexpectedly fell in October.

Aside from BHP, the other announced offers topping $25 billion this year are GDF Suez SA’s $25.8 billion bid for London-based International Power Plc and America Movil SAB’s $25.7 billion proposed purchase of Carso Global Telecom SAB. Both of those companies are controlled by billionaire Carlos Slim.

The compiled data include net debt and exclude terminated deals, such as this year’s $35.5 billion bid by London-based Prudential Plc to buy Hong Kong-based AIA Group Ltd.

A potential change in capital gains tax rates has also fueled smaller acquisitions, said Harris. President Barack Obama has proposed raising long-term capital-gain rates to 20 percent from 15 percent for individuals who earn more than $200,000 and couples that earn more than $250,000.

“The possible change in rates is a significant event for middle-market companies, but if you’re a $25 billion company, you’re probably not as focused on the changes,” Harris said.

American Girl Dolls Face Disney, Toys ‘R’ Us Rivals


American Girl, the Mattel Inc. doll that has dominated the big (18 inches, or 46 centimeters, tall) and expensive ($95) part of the market for 24 years, may have to watch her back this holiday season.

Toys ‘R’ Us Inc., Walt Disney Co. and MGA Entertainment Inc. are all out to get her. Toys ‘R’ Us, the world’s biggest toy retailer, has introduced a line of ethnic dolls called Journey Girls for $29.99. Disney’s $49.99 Princess & Me doll has made “most wanted” lists from Toy Insider and TimetoPlayMag.com. MGA’s Best Friends Club features a $32.99 doll that promotes friendship through a storytelling website.

The trio of new big dolls may be the biggest threat to American Girl sales since a Wisconsin educator created the history-themed characters in 1986. With U.S. unemployment hovering at 9.6 percent, the cheaper entrants may be appealing to gift buyers seeking to economize.

“The angle most people seem to be pursuing is to price well below American Girl,” said Edward Woo, an analyst at Wedbush Securities Inc. in Los Angeles. “That’s an opportunity to break into this market.”

Toys ‘R’ Us decided to enter the market after observing the continuing popularity of big dolls, Lisa Harnisch, a vice president of the Wayne, New Jersey-based retailer, said in an interview. About a year ago, she and her colleagues met with manufacturers and concluded 18-inch dolls -- more than six inches taller than Mattel’s Barbie line -- would sell well during the 2010 holiday season; Journey Girl was born.

Each doll comes with a back story describing its travel experiences and hobbies. Taryn is a musician who dreams of playing at the New Orleans Jazz Festival; Meredith is a skier who hopes to visit the Alps.

‘Like Friends’

“Kids can really relate to these larger dolls,” Harnisch said. “They’re like friends to the girls who play with them.”

The Disney Princess & Me line, Disney’s first foray into 18-inch dolls, features six popular movie characters including Cinderella, Ariel from “The Little Mermaid” and Aurora from “Sleeping Beauty.” Among other accessories, girls can get the same outfits as their dolls.

“The popularity and success of American Girl has opened the market to other brands and opportunities,” Jennifer Caveza, a marketing vice president at JAKKS Pacific Inc., which makes the Disney Princess dolls, said in an e-mail.

Nathalie Crausse, a flight attendant from Montpellier, France, was at the flagship Toys ‘R’ Us store in Times Square on Oct. 8, checking out Disney Princess & Me outfits for her 6- year-old daughter, Tara. Crausse is a regular in the store during her bimonthly stopovers in New York and says she has bought eight Disney Princess dresses in the past 18 months.

‘Buy Something’

“If I can’t get something for my daughter,” said Crausse, “I always buy something for the doll.”

MGA’s Best Friends Club line aren’t the only dolls the company makes that competes with Mattel products. MGA’s Bratz line has gone head to head with Barbie. The two companies have tussled in court over the ownership rights to Bratz. In July, an appeals court overturned an earlier ruling that had awarded the rights to Mattel.

Pushing American Girl aside won’t be easy, says New York- based toy industry analyst Sean McGowan of Needham & Co.

“American Girl is not purchased instead of any other doll,” said McGowan, explaining that the dolls appeal to customers who aren’t easily swayed by price. “It’s just a different kind of purchase.” McGowan expects this year’s sales to surpass the record $463 million in both 2008 and 2009.


American Girl first appeared in 1986 after Pleasant T. Rowland, an educator and writer based in Madison, Wisconsin, was looking for dolls for her nieces. Rowland couldn’t find any that represented girls aged nine to 12.

She decided to create a line of dolls and books representing periods of American history, from Felicity Merriman, a colonial girl from 1774, to Molly McIntire, a World War Two-era girl from 1944. The dolls’ popularity attracted the interest of Mattel, which bought Rowland’s company for $700 million in 1998.

The El Segundo, California-based toymaker kept the craze going by opening stores, which now number nine, and backing a series of movies. Mattel added contemporary dolls in 1995, with varying combinations of skin tone, eye color and hair style.

Sales Rose

Sales surged 15 percent in 2005 following the release of the first of five films, “Samantha: An American Girl Holiday.” While the growth has since slowed, sales rose during the recession, climbing 7.3 percent between 2007 and 2009.

Mattel climbed 40 cents to $22.73 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have climbed 14 percent this year, compared with a 5.8 percent increase in the Standard & Poor’s 500 Index.

Valerie Fallon is an American Girl buyer of long standing. Over the past nine years, the mother of three from Newtown, Connecticut, has purchased a salon chair, hair brushes, a horse and an equestrian set for her three girls, as well as a matching soccer kit for doll and child.

Fallon’s youngest daughter, Kiersten, celebrated her 8th birthday at American Girl’s New York City store with cookies and cupcakes on Oct. 8. Each year, Fallon says, she spends “a couple of hundred dollars” on American Girl products.

Bring on the competition, Julie Parks, American Girl’s director of public relations, said in a phone interview.

“We’re really proud to have created this 18-inch doll genre,” she said. “We feel we have a great product line for 2010. Our content has evolved into entertainment and theater, and that has been our point of difference from the outset.”

Nestle's Pet Food, Nespresso Pods Help Defy Price Squeeze


Nestle SA’s direct sales of Nespresso coffee capsules and Purina pet food have given the world’s largest foodmaker an edge in pricing.

The maker of KitKat chocolate will probably say tomorrow that pricing added 1.5 percentage points to sales growth in the first nine months of 2010, the same as in the first half, according to the median estimate of 10 analysts.

By selling through Nespresso’s website and speciality retailers such as pet stores, Nestle faces less pressure on prices from supermarkets. About a third of revenue comes from those sources, compared with 15 percent for Groupe Danone SA and 11 percent for Unilever, ING analysts estimate. Nestle has 7,000 saleswomen who peddle goods door-to-door in Brazilian slums and uses carts to sell ice cream in the Philippines.

“Nestle stands out in pricing power,” said Marco Gulpers, an analyst at ING Wholesale Banking who has a “buy” recommendation on Vevey, Switzerland-based Nestle. “That also highlights why Nestle is much less volatile compared to Danone or Unilever.”

Unilever, the maker of Ben & Jerry’s ice cream and Knorr soup, has said it doesn’t expect prices to increase until the fourth quarter. Danone’s pricing rose 0.6 percent in the third quarter, counter to analysts’ predictions of a decline and the first growth in more than a year. Nestle has reported higher pricing each year for the past decade.

Paul Matthews, a spokesman for Unilever, and Nina Backes, a spokeswoman for Nestle, declined to comment on the ING estimates. Sabrina Schneider, a spokeswoman for Danone, didn’t respond to requests for comment.

U.S. Strategy

Nestle, Europe’s second-largest company by market value, is holding its nine-month sales press conference outside of Switzerland for the first time and will highlight its U.S. strategy. Chief Executive Officer Paul Bulcke, Chief Financial Officer Jim Singh, as well as the heads of Nestle USA, Nestle’s U.S. Nutrition unit, Purina and North America bottled water, will attend the New York briefing.

The company gets about a third of its sales from the Americas, compared with about 22 percent from Europe, where growth has been slower to recover from the global recession. Nestle bought Kraft Food Inc.’s frozen-pizza business this year to bolster its share of the U.S. food market and started selling its Dolce Gusto coffee systems and espresso makers this month at Wal-Mart Stores Inc., the nation’s biggest retailer.

Cash for Investment

The Swiss company is $28.3 billion richer after selling a stake in Alcon Inc. to Novartis AG. Nestle said in August it will “substantially” reduce net debt and Singh said in June the company prefers to use cash to invest in its own business or make acquisitions rather than buying back shares.

Nestle may say so-called organic sales, which exclude acquisitions and disposals, rose 5.6 percent in the third quarter, according to the median estimate, compared with 6.1 percent growth in the first six months of the year.

Danone, the world’s largest yogurt maker, said today that third-quarter revenue excluding acquisitions and currency shifts increased 6.9 percent, broadly maintaining the first half’s pace and beating analysts’ estimates. Lower pricing cut 1.7 percentage points from nine-month sales.

Unilever’s food and beverage comparable sales probably rose 3.4 percent in the third quarter, according to an estimate by Pablo Zuanic, an analyst at Liberum Capital. The company, which is based in London and Rotterdam, is scheduled to report earnings on Nov. 4.

‘Affordable Treats’

Analysts expect Nestle to announce a “robust operating performance in spite of the challenging macro conditions,” wrote Nic Sochovsky, an analyst at Unicredit in London. He rates the shares “buy,” citing the company’s pricing “discipline.”

Nestle shares have advanced 14 percent in the past year, compared with a 5.2 percent increase for Paris-based Danone and a 1.4 percent gain for Unilever.

The Swiss company’s ability to charge more is helped by its strength in products whose sales tend to resist price increases, according to David Hayes, an analyst at Nomura. Nestle ranks as the world’s biggest maker of coffee, bottled water, shelf-stable milk, baby formula, pet food and frozen pizza.

Shoppers will cut spending on their family before turning to cheaper pet-food brands, Bulcke has said.

“Nestle benefits compared to its peers on a number of counts -- much of its portfolio is in affordable treats or necessities which are resistant to downtrading,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich.

Monday, October 25, 2010

Health Care Overhaul Depends on States’ Insurance Exchanges

NY Times

In Massachusetts, which has had a government-run health insurance marketplace for four years, people typically file paper applications for subsidized coverage offered by one of five state-approved insurers.

In Utah, employees of small businesses can go to a state Web site and sign up for insurance over the Internet, almost as easily as they download music from iTunes.

The success of President Obama’s health care overhaul, with its promise of affordable coverage for all, depends on the creation of such retail shopping malls, known as health insurance exchanges.

Massachusetts and Utah provide a glimpse of the future, and they offer radically different models for other states. The battle over health care is shifting to the states, and the design of insurance exchanges will be one of the most pressing issues for state legislators when they convene early next year.

“Utah and Massachusetts may well serve as bookends for other states,” said Norman K. Thurston, the policy coordinator at the Utah Health Department.

The Congressional Budget Office predicts that by 2019, about 24 million people will have insurance through exchanges, with four-fifths of them getting federal subsidies that average $6,000 a year per person. People with incomes up to four times the poverty level (about $88,000 a year for a family of four) will be eligible for subsidies.

The Utah Health Exchange organizes the market, allowing consumers to compare a wide variety of health plans sold by any insurers that want to participate.

In the Massachusetts exchange, known as the Connector, the state serves as an active purchaser, soliciting bids from insurance companies and negotiating prices and benefits in an effort to secure the best value for state residents. Health plans cannot be sold through the Connector unless they receive its seal of approval.

“Massachusetts has been more selective and aggressive in contracting,” said Jon M. Kingsdale, who was executive director of the Massachusetts exchange from its creation in 2006 until June of this year.

Matthew A. Spencer, manager of the Utah exchange, said: “We are on the other end of the spectrum from Massachusetts. Our exchange is wide open for any carrier that wants to participate. We define the minimum benefits that plans need to offer. But we step back and allow carriers to compete within the exchange, setting their own prices.”

The idea of an insurance exchange has bipartisan appeal.

Liberals and conservatives alike see it as a way to concentrate the purchasing power of individuals and small businesses.

The federal law was shaped, to a large degree, by the experience of Massachusetts. But Senator Orrin G. Hatch, Republican of Utah, said: “Utah is not Massachusetts. Nor does it want to be.”

Other states will probably fall somewhere along the continuum from Boston to Salt Lake City as they try to figure out the right mix of regulation and competition.

State legislators are asking: Can we get a better deal by limiting competition in the exchange or by accepting all qualified health plans? Should states negotiate premiums or rely on market forces to set rates?

David Clark, a Republican who is speaker of the Utah House of Representatives, said: “In our exchange, the government is a market facilitator, not a contracting agent. We believe in the invisible hand of the marketplace rather than the heavy hand of government.”

Utah has no interest in putting its exchange plans out for bid, Mr. Thurston said. “Any attempt to standardize benefit designs tends to discourage competition and entry into the market, and limits choice,” he said.

In Massachusetts, State Senator Richard T. Moore, a Democrat who is president of the National Conference of State Legislatures, said: “We took a much more governmental approach. But both models make sense. Small states might find Utah is a good model. Bigger industrialized states might go the route we went.”

Massachusetts officials point to the state’s near-universal coverage as evidence that their approach is working. The Census Bureau says 95.6 percent of Massachusetts residents were covered by health insurance last year, compared with 83.3 percent for the nation as a whole and 85.2 percent for Utah.

“We have the lowest uninsured rate in the nation, and we are immensely proud of that,” said Glen Shor, executive director of the Massachusetts Connector.

The White House has provided $49 million to states to help them set up exchanges, which are envisioned as a kind of bazaar where insurers will offer their products side by side, so consumers and employers can make intelligent comparisons.

Congress assumed that insurance would also be sold outside the exchange. But federal subsidies, to help pay for insurance, will be available only to people who enroll in health plans through an exchange.

Exchanges will also play a crucial role as gateways to Medicaid and other public health programs. If people are found eligible, the exchange will help them enroll. In Massachusetts, the same application form is used for Medicaid and for subsidized private insurance purchased through the Connector.

California is another pioneer. On Sept. 30, Gov. Arnold Schwarzenegger, a Republican, signed two bills establishing the California Health Benefit Exchange, with broad powers to “negotiate on behalf of the public” and select qualified health plans.

The legislation generated intense lobbying, and the governor’s intentions were unclear until the last minute. Mr. Obama had urged him to sign the bills and was thrilled when he did, aides said.

The fight in Sacramento offers a preview of what other states can expect. In a letter to California lawmakers in August, Natalie Cárdenas, regional director of government relations for Anthem Blue Cross, a unit of WellPoint, complained that the exchange would have the power to pick winners and losers in the insurance market.

“Federal law will already limit the types of products that carriers can offer,” Ms. Cárdenas said. “Beyond that, the marketplace should determine what products consumers and small employers can purchase, not a government bureaucracy.”

The California Chamber of Commerce urged a veto of the bills, saying they “could lead to unnecessary cost increases and limited choice for employers.”

But Betsy M. Imholz, a lobbyist for Consumers Union, said the California laws struck the right balance.

“At first,” Ms. Imholz said, “the exchange may want to have a large number of health plans participating. But then the state needs to winnow down the number so consumers can see where they will get the best value.”

The California law says the exchange should choose health plans that “offer the optimal combination of choice, value, quality and service.”

Massachusetts requires people to have insurance. Utah does not.

Massachusetts provides more generous subsidies. But, Mr. Kingsdale said, the biggest difference is the magnitude of the two state programs.

In Massachusetts, more than 154,000 people receive subsidized coverage through the exchange, and 40,000 receive unsubsidized coverage, which can be bought on the Web. The Utah exchange, created under a 2008 state law, began enrollment this year. About 1,200 people have coverage through the Utah exchange, and the number is expected to grow to 10,000 by July 2011.

“We anticipate exponential growth,” Mr. Spencer said.

Under the new federal law, the exchanges must be in operation by January 2014. Federal officials will assess states’ progress as of Jan. 1, 2013, and will run the exchange in any state that is unable or unwilling to do so.

The exchanges will have a huge number of duties. They must evaluate health insurance plans and publish “standardized comparative information.” They must set up telephone call centers to answer consumers’ questions. They must determine who is eligible for subsidies and who will be exempt from the penalties imposed on people who go without insurance. They must build new computer systems to exchange data with state Medicaid agencies, insurance companies, employers and federal agencies.

While the exchange cannot explicitly control prices, it can exclude health plans that show a pattern of “excessive or unjustified premium increases.”

State officials worry that sick people will gravitate to the exchange, while healthier people who do not need subsidies will buy insurance outside it. However, insurers must agree to charge the same prices inside or outside the exchange.

Moreover, the law stipulates that members of Congress must get their health insurance through an exchange. So lawmakers will presumably be alert to problems.

Target, Toys R Us, other Retailers boost Jobs for Holidays

USA Today

Holiday retail sales are expected to be up only slightly this year, but the news may be better for those looking to work in retailing around Christmas.

Increased online sales, more temporary stores and guarded optimism about the season are leading some retailers to expand their workforces more than usual for the holidays.

The National Retail Federation predicts holiday sales will be up just 2.3% this year. John Challenger, CEO of consulting firm Challenger Gray & Christmas, says recent sales increases will lead retailers to step up hiring but he predicts it will fall short of pre-recession levels. Holiday hiring hit a 22-year low in 2008 and increased by 54% last year.

Retailers overall added more than 220,000 new workers between March and September, Challenger says. Privately held retailers, however, have been slow to hire, so they are well-positioned to add people if sales warrant, says Melinda Crump of Sageworks, which provides data on private companies. Payroll costs as a percentage of sales are down 12% for independent retailers this year over last, she says.

What's prompting the hiring:

•More temporary stores.Toys R Us is hiring 45,000 seasonal workers this holiday season, up 10,000 from last year. The additional workers will staff 600 new temporary stores the chain will open this fall. Brookstone, the gift and gadget retailer, is adding 36% more holiday workers — 900 people altogether — this year than it did last year for the expected increase in business and to work in 150 temporary stores and kiosks.

"We're bullish on the holiday this year, and, yes, we're hiring," Brookstone CEO Ron Boire says.

•More in-store business. A recent survey by retail finance company CIT found 68% of retailers expect to hire more workers this season than last; the same percentage said they expected revenue to increase in the next 12 months. Macy's is predicting a 3% to 3.5% rise in sales in the second half of fiscal year 2010 and says the 65,000 holiday workers it plans to hire is a slight increase over last year. Kohl's plans to hire 40,000 seasonal workers, up 20% from 2009.

•More online sales. Arise Virtual Solutions, which provides several major retailers with customer service people who work out of their homes, says it plans to hire 6,000 more of these call-center people by the end of the year to cope with the increase in online sales. Arise CEO Angela Selden says these at-home workers adapt easily to the ebb and flow of business. Lexsine Mitchell, an at-home customer service representative for Arise since 2004 with 426 people reporting to her, says the work fits her life as a single mom.

Say Goodbye to free Checking as Banks seek new Revenue

USA Today

Free checking as we know it is ending.

The days when you could walk into a bank branch and open an account with no charges and no strings attached appear to be over. Now you have to jump through some hoops — keep a high balance, use direct deposit or swipe your debit card several times a month.

One new account at Bank of America charges $8.95 per month if you want to bank with a teller or get a paper statement.

Almost all of the largest U.S. banks are either already making free checking much more difficult to get or expected to do so soon, with fees on even basic banking services.

It's happening because a raft of new laws enacted in the past year, including the financial overhaul package, have led to an acute shrinking of revenue for the banks. So they are scraping together money however they can.

Bank of America (BAC), which does business with half the households in America, announced a dramatic shift in how it does business with customers. One key change: Free checking, a mainstay of American banking in recent years, will be nearly unheard of.

"I've seen more regulation in last 30 months than in last 30 years," said Robert Hammer, CEO of RK Hammer, a bank advisory firm. "The bottom line for banks is shifting enormously, swiftly and deeply, and they're not going to sit by twiddling their thumbs. They're going to change."

In the last year, lawmakers in Washington have passed a range of new laws aimed at protecting bank customers from harsh fees, like the $35 charged to some Bank of America customers who overdrafted their account by buying something small like a Starbucks latte.

These and other fees were extremely lucrative. According to financial services firm Sandler O'Neill, they made up 12% of Bank of America's revenue. On Tuesday, the bank took a $10.4 billion charge to its third-quarter earnings because the new regulations limit fees the bank can collect when retailers accept debit cards.

Bank of America CEO Brian Moynihan acknowledged in a conference call that overdraft fees were generating a lot of income. But the bank was also losing customers who were often taken aback by the high hidden fees.

Checking accounts were being closed at an annual rate of 18%, he said, and complaints were at an all-time high.

So Moynihan ended overdraft charges on small debit card transactions. He says the rate of account closings have since dropped 27%.

To make up for lost fees, he also started thinking of new products. In August, the bank introduced a new "eBanking" account, where customers were offered a free checking account if they banked online. The catch: If they opt for paper statements, or want access to tellers for basic transactions, they would be charged a monthly fee of $8.95.

"Customers never had free checking accounts," Bank of America spokeswoman Anne Pace said. "They always paid for it in other ways, sometimes with penalty fees."

This summer, Bank of America also started offering "emergency cash" for a $35 fee to customers who went to the ATM for withdrawals that would exceed their bank balance. Moynihan said 50% of these customers opted to go ahead with the fee.

"We are now in an era where consumers will be buying products from banks, even if it's a checking account," said Brian Riley, senior research director for bank card practice at consultant TowerGroup. He noted that several banks have started charging $7.50 for paper statements.

"Paper and print costs around $2.25, add postage to that, and if banks are losing income from other avenues, someone has to pay for it," said Riley.

Economic research firm Moebs Services says free checking usage has been steadily rising in recent years before falling this year. Last year 81.5% of U.S. banking customers had free checking, but that fell to 72.5% this year.

Large banks are also under additional pressure because of curbs from new laws on high-risk trades with complex derivatives. Their trading desks have been large revenue and profit generators for banks in recent years.

Michael Moebs, the founder of Moebs Services, said it is now up to the smaller Main Street banks to see an opening and grab customers from the big banks.

"Free checking could become a mainstay of community banks and credit unions in the future," Moebs said.

Sunday, October 24, 2010

Foreclosure Freezes could put Security Clearances at Risk

The Washington Post

The sudden moratorium on many foreclosures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty clouding their finances, according to top lawyers who handle these cases.

Employees with security clearances are monitored by the government for financial problems that would make them vulnerable to bribery or blackmail. And with many financial companies adopting some form of foreclosure freeze in recent weeks, it's taking longer for some delinquent borrowers to resolve their mortgage cases and put their troubles behind them, the lawyers said.

This problem is especially acute in the Washington region, home to nearly a third of the the nation's 854,000 employees with top-secret clearances.

"Resolving debt is more complicated when the lenders are in paralysis," said Dennis Sysko, a national security lawyer in Glen Burnie. "The longer it is unresolved, the longer the cloud remains."

Lawyers in the Washington area said they are starting to field inquiries about foreclosure delays from workers who have security clearances or are trying to get them. Many don't know whether they should be elated or concerned by the turn of events.

"I'm just really confused because nobody has made clear to me what this foreclosure delay means," said Brian Young, a federal employee from Capitol Heights.

Young bought his first home in October 2007 with a first and second mortgage from Bank of America. At the time, he had the interim secret clearance he needed to do his electrical engineering job at a Defense Department agency, he said. He applied for a permanent clearance soon thereafter.

When the permanent clearance did not come through as quickly as he'd hoped, Young said, his pay was cut, and he fell behind on his mortgage in August. He was engaged in talks with his lender to modify his loan when his security clearance was revoked. His supervisors suspended him from his job, citing him as a financial risk, mostly because of his mortgage problems, he said.

Young is appealing the decision. But as he waits, he's fallen further behind on his mortgage and other bills, including child support payments. Bank of America informed him that it would expedite foreclosure and seize his home, but then the lender suddenly announced a halt to all its foreclosure sales nationwide. This week, the bank said that it would restart foreclosures in some states, but not yet in the Washington region.

"This is just dragging everything out, and my credit keeps taking more hits," Young said. "If it helps me in some way, cool. But I just don't know if it does."

The moratorium comes to D.C.

Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes. The firm limited its freeze to the 23 states where lenders have to win a court order to initiate a foreclosure. Other major lenders, including J.P. Morgan Chase and Bank of America, also suspended foreclosures in those states.

Virginia, Maryland and the District were not immediately affected by the lenders' actions. But then Bank of America suspended foreclosures nationwide. Others have since selectively halted foreclosures here. And at least two area circuit courts - in Prince George's and Montgomery counties - are reviewing cases for paperwork flaws.

Under government guidelines, the failure of security-cleared workers to live within their means and pay off debt suggests poor self-control, bad judgment and an unwillingness to abide by rules, raising concerns about their ability to protect classified information.

Only a few government agencies make public their decisions to revoke or deny security clearances. Among them is the Defense Department's Office of Hearings and Appeals (DOHA), which reviews cases involving contractors for the Pentagon and about two dozen agencies, according to lawyers.

From January 2006 through June 2010, about 70 appeals involving foreclosures and other distressed sales were considered by that office, and security clearances were revoked or denied in 62 of those cases, according to Sheldon I. Cohen, an Arlington Virginia lawyer who recently wrote a paper about the rulings.

"In many cases, they act as a court of morality," Cohen said.

Based on his study of the DOHA appeals cases in the past 41/2 years, Cohen said that the number of security clearance denials and revocations has kept pace with the number of mortgage defaults, foreclosures and other distressed sales in the country.

'Emotionally charged issue'

The number of security-cleared workers who are in trouble with their loans is not public. But John P. Mahoney, a lawyer at Tully Rinckey in the District, said there is no reason to believe that these employees are insulated from the problems that plague the housing market at large.

"Now they are concerned that their clearance will be pulled or they will be fired because their real estate investments have gone bad," Mahoney said. "It's a very emotionally charged issue, because some of these people have had high-level clearances for decades and never dreamed they would face a problem like this."

Two weeks ago, Mahoney was contacted by a government contractor panicked about the payments she's missed on three investment properties she can no longer afford. She can't refinance or sell the homes because each has lost value.

The contractor, who asked not to be named for fear of losing her job, said in an interview that she has had a security clearance for more than 20 years. She is talking to Bank of America, her lender, about modifying the loans to avoid foreclosure.

"I'm hoping the freeze will work for me instead of against me," she said.

But anything that keeps her from resolving the problems leaves her in limbo. And that means it will take that much longer for her to regain her financial footing, reestablish her credit and reassure the government that she's trustworthy.

"If the foreclosure moratorium continues and she is unable to successfully modify her loans, she's left with the financial concerns that could lead to her termination," Mahoney said. He added, "Action needs to be taken, a government-wide approach, so that people who add value to the government's mission and have a long record of trusted service don't lose their jobs for no other reason than an economic downturn."

Friday, October 22, 2010

Costly Sales Growth for Amazon

The Wall Street Journal

Amazon.com Inc. posted a 16% profit increase as sales continued at breakneck pace, but the Internet retailing giant also showed that it is spending heavily to expand its business.

Meanwhile, the company predicted strong growth for the current quarter, which includes the key holiday shopping season.

The Seattle company will this year open 13 new distribution centers, bringing its total to 52, said its chief financial officer, Tom Szkutak.

The company has also been offering trials of its Prime free-shipping loyalty program to more groups, including new parents and college students.

The expansion is coming at a cost for the e-commerce giant, which saw operating expenses rise 40% in the third quarter from a year earlier, continuing a trend seen in the second quarter.

"This is because of the growth we're seeing in our retail business and our Fulfillment By Amazon business," Mr. Szkutak said, referring to a program where Amazon houses and ships goods for smaller merchants.

Amazon's third-quarter results were driven by a 39% increase in sales to $7.56 billion. Most of the growth came from the company's catch-all electronics and general merchandise category, which increased sales by 68%.

Overall, income for the third quarter was $231 million, or 51 cents a share, compared with $199 million, or 45 cents a share, in the third quarter 2009.

Amazon offered no new details on sales of its Kindle e-reader or sales of digital books. In August, Amazon began shipping new versions of the Kindle, including an entry-level model that retails for $139, its lowest price yet.

The investments spooked some investors. Amazon's shares, which have been trading near all-time highs in recent weeks, fell 3.8% in after-hours trading to $158.65 after trading up 4% to $164.97 at 4 p.m. on the Nasdaq Stock Market.

Some analysts applauded the spending.

"Amazon has been trying to build their fulfillment system in advance of the holidays," said Scott Tilghman, an analyst with Hudson Square Research.

That spending is worthwhile because "Amazon has a pretty sticky customer base," he said. "You get somebody hooked and they love coming back, and you have nice long-term revenue stream."

Amazon also forecast a robust holiday quarter, when U.S. retail is typically at its peak. Amazon said its sales for the current quarter would increase 26% to 40% to between $12 billion and $13.3 billion from a year earlier.

But expenses will rise as well. The company gave a range for operating income that showed it could drop as much as 24% or climb as much as 18% from a year ago.

"Amazon is clearly investing for future growth and sacrificing margins to do that. But the guidance for fourth-quarter revenue implies staggering growth," said Jordan Rohan, an analyst at Stifel, Nicolaus & Co. "Amazon appears to be winding up to deliver the knock-out punch to everybody else in e-commerce," he said.

Research firm eMarketer predicts that U.S. e-commerce sales as a whole will increase 14% in the fourth quarter to $51 billion from a year earlier.

Already e-commerce sales growth is far outpacing the rest of U.S. retail, with the National Retail Federation forecasting U.S. sales across all channels in November and December will increase just 2.3% this year to $447.1 billion.

Silicon Valley 3.0: Tech's New Wave

The Wall Street Journal

Edenvale Technology Park gives a glimpse of the new Silicon Valley.

The long recession only tiptoed through the 2,300-acre office park, with many start-ups here expanding their operations over the past 18 months. One prominent tenant, solar company Nanosolar Inc., began producing solar panels in March and plans to add space and more employees to its 350-person work force.

Scientific-equipment maker Stratedigm Inc. moved into a 6,000-square-foot space in Edenvale—more than double its old office size—as it revs up sales. And several biomedical start-ups that were started under one roof also upgraded to bigger offices in the park.

Edenvale shows how Silicon Valley's start-up economy has quietly broadened beyond information technology. It now includes a growing cadre of bioscience and "clean technology" firms, presaging a more-diversified economic base and bolstering the valley's status as the world's innovation hotbed.

Edenvale's relative strength contrasts with how it fared in the last downturn, a decade ago. Back then, the office park was filled with traditional tech companies such as International Business Machines Corp. and optical-networking company ONI Systems Corp. When the tech bust hit in 2000, the area imploded. Dozens of tech firms shut down or scaled back. Vacancy rates soared to 25%.

After that, San Jose officials sought to diversify Edenvale. "San Jose went through a soul-searching process on the nuts and bolts of our economy," says Julie Amato at the San Jose Redevelopment Agency, a governmental organization focused on creating jobs and removing blight. "We better understood how a diverse economic base could help us." Since then, Edenvale's make-up of start-ups has shifted.

It's a reflection of what's happening across Silicon Valley. Though local tech giants such as Hewlett-Packard Co. and Google Inc. still dominate headlines and payrolls, the area's start-up economy has branched out significantly in recent years.

The changes foretell how Silicon Valley's big-company makeup may shift 10 to 15 years down the road as some of the new start-ups take off into big successes, even as others fail, says Bill Miller, a Stanford University professor emeritus of computer science and management and a former entrepreneur.

"Whether these new industries will play a big role or a small role" in the overall economy remains to be seen, Mr. Miller says. But "my belief is they will play a pretty big role."

Already, the start-up ferment means Silicon Valley has become less reliant on its dominant information-tech industry, blunting the pain of the recession.

Less than a third of Silicon Valley's work force is now employed in chips and computer manufacturing, compared with more than 50% in 1990, according to research firm Collaborative Economics.

Instead, the area's jobs and local municipalities' tax base have begun spreading to emerging sectors such as clean tech. Between 1995 and 2008, the number of clean tech and related jobs in the San Francisco Bay Area rose 58% to around 44,000 positions, according to Collaborative Economics. Though such jobs remain a fraction of the area's overall work force of 4.1 million, the growth far outstripped the region's 8% employment growth over the same period, the research firm says.

Today, less than half of the region's venture capital, which is used to finance start-ups, goes to tech companies—compared with nearly 70% five years ago, according to research firm VentureSource.

The amount of venture capital going into Silicon Valley and Bay Area companies—at $8.3 billion in 2009—is far below its peak of $11.8 billion in 2008, according to VentureSource. Nationwide, venture capital expenditures fell to $22 billion last year, down from its peak of $32 billion in 2007, according to VentureSource.

Silicon Valley's diversification should lead to greater economic stability and the creation of more high-paying jobs, says Mr. Miller, who likens a broader economic base to a diverse gene pool, which helps species adapt to big environmental shifts. The broadening also is necessary for Silicon Valley to retain its standing as an innovation center, particularly as some mainstay industries such as corporate software and hardware mature, he adds.

Like many tech start-ups before them, some of the new bioscience and clean-tech start-ups will disappear before they can become big-companies. Unlike Web start-ups, which can be started cheaply with a few programmers and inexpensive equipment like personal computers, clean-tech and bioscience firms require substantial capital to build manufacturing facilities and undergo drug trials. Such costs can keep the companies unprofitable for years.

Solar and many clean-tech industries also rely on government subsidies, and demand for their products could depend on government environmental policies, which are out of the control of those companies.

Still, Silicon Valley's start-up scene has often led to generational shifts in its big industries. In the 1970s, chip start-ups foreshadowed the chip-company era of the 1980s. A few software start-ups in the 1980s became a mainstream industry made up of behemoths such as Oracle Corp. in the 1990s. And the dot-com ferment of the late 1990s—much scoffed-at by 2002—foreshadowed today's established Internet industry of Google, eBay Inc. and Facebook Inc.

Today's start-ups include clean-tech outfits such as Bloom Energy Corp., which is working on a fuel cell to deliver energy more efficiently. There are also bioscience companies like Pacific Biosciences of California Inc., which is developing a DNA sequencing process to help medicine and health research.

The growth of such firms is having a magnet effect, attracting more clean-tech and bioscience companies to the area.

In just one building in Edenvale alone, about half a dozen of the more than 20 bioscience start-ups residing there moved in all or some of their operations from outside the area. GeneWeave Biosciences came from New York. Oxford BioTherapeutics, a U.K. company, opened lab operations in Silicon Valley.

Some of the region's new start-ups are already making a move toward big-company status. Electric car maker Tesla Motors Inc. went public in June and has signed a deal to develop electric cars with Toyota Motor Corp. Biofuels start-up Codexis Inc. raised $78 million in an April initial public offering and expects to hit nearly $100 million in revenue this year. In August, Pacific Biosciences filed plans for a $200 million IPO.

In five years, "our vision is that we will have many factories and that we'll have an impact on the climate," says Chris Gronet, chairman of solar-panel maker Solyndra Inc. in Fremont, Calif. Solyndra has raised around $1 billion in funding and took over the space of an old-tech hard-disk drive maker for its headquarters in 2007.

But Solyndra is already facing challenges. It pulled its IPO filing earlier this year, citing "adverse market conditions." Codexis, which is unprofitable, has also seen its share price trade down since its IPO. Imara Corp., a maker of high-power lithium-ion batteries, shut its doors last year after failing to raise more venture-capital funding.

Information tech start-ups also remain a big part of Silicon Valley's economic mix. The rise of social-networking companies such as Facebook and Twitter Inc. has spurred hiring and the creation of new sectors such as online social gaming. Apple Inc.'s iPhone has spawned a booming cottage industry of "app" makers for smartphones. Some 37% of app makers that it tracks are now in Northern California, estimates Mobclix Inc., which runs a nationwide app exchange, making the region the top locale for apps, ahead of 12% in the New York and New Jersey area.

Still, a shift in Silicon Valley's economic makeup appears inevitable, says Paul Holland, a venture capitalist at Foundation Capital, which is funding clean-tech start-ups. "Some of the diversification happening at the early stage is already starting to show up in the bigger players," he says.

Edenvale typifies Silicon Valley's latest crop of start-ups. Prior to the 1970s, the area was largely ranch and farm lands. In the early 1970s, property developers such as Carl Berg, CEO of Mission West Properties Inc., began buying land there.

Starting in 1976, the San Jose Redevelopment Agency designated 2,300 acres in the area as a redevelopment project, meaning the neighborhood was targeted for construction and job growth. Companies such as disk-drive maker Western Digital Corp. soon began opening facilities there, joining existing tenants such as IBM and then Fairchild Semiconductor Corp.

Edenvale took off in the late 1990s as dot-com fever and a telecom boom enveloped Silicon Valley. Networking companies such as StrataCom Inc. moved in, building a manufacturing facility in the office park before being acquired by Cisco Systems Inc. in 1996 for $4 billion.

To accommodate the tech boom, more than 2.8 million square feet of new research and development space was built in Edenvale between 1998 and 2002, according to the Redevelopment Agency. Vacancy rates in the park still went to nearly nil. Tech companies "were spending money like mad," says Mr. Berg, the property developer.

Then the tech bust hit. In its wake, dozens of companies shut down or moved out.

That was when San Jose officials began studying industries beyond IT that it could potentially tap, such as biosciences. In 2004, San Jose funded and opened a 37,000-square-foot bioscience start-up incubator in Edenvale to nurture new companies. In 2007, the city created a program to give solar companies capital-equipment grants if they moved into Edenvale.

By that year, a trickle of non-IT companies began appearing in Edenvale. One was Nanosolar, a solar company founded in 2002 with funding from Google founders Sergey Brin and Larry Page.

The start-up, which uses a high-speed printing technology to lower the cost of making solar panels, was initially located in Burlingame, Calif., in a 1,000-square-foot space with 10 people, says Nanosolar co-founder Brian Sager. By late 2007, it had raised around $100 million in venture capital, grown to 50 people and needed to expand into a manufacturing space to start producing its panels.

That year, Nanosolar scored a $1.5 million incentive package from San Jose to move into Edenvale. In exchange, Nanosolar promised to create an undisclosed number of jobs in the area. In addition, San Jose officials promised streamlined permits to get Nanosolar's manufacturing facilities up and running, says Mr. Sager. The company moved into a 100,000-square-foot building in Edenvale that had previously been StrataCom's facility.

With production of solar panels now ramping up, Mr. Sager says Nanosolar has already expanded into a part of the parking lot. It plans to add an adjacent 110,000-square-foot space over the next few years.

"When we first came, there were a lot of empty buildings in Edenvale, since a lot of companies that focused on optical networking here had disappeared," says Mr. Sager. Now he notes that other solar companies have also appeared in Edenvale, including Stion Corp. and SoloPower Inc.

Indeed, in the recent recession, Edenvale's vacancy rate didn't rise above 20%, says the Redevelopment Agency.

At the same time, bioscience-related firms have sprouted in Edenvale. Earlier this year, medical products maker Hospira Inc. signed a lease to shift some operations into the office park. Biomedical start-ups have also clustered there around the bioscience incubator, the San Jose BioCenter. The BioCenter leases out small lab spaces and "clean" rooms for testing products so that start-ups don't need to build their own research-and-development facilities.

Raj Chhibber, a former chip-industry executive, moved into the BioCenter incubator in 2005. He says he decided to go into bioscience and leave semiconductors because chips "are a mature technology." He named his start-up BrighTex Bio-Photonics LLC, and by late 2007, had created a $10,000 to $70,000 machine that cosmetics companies and others can use to analyze and test skin.

In 2008, the self-funded start-up graduated from the BioCenter into a 4,000-square-foot industrial space in Edenvale.

With BrighTex's sales set to grow 40% this year, Mr. Chhibber plans to boost his staff to 40 by the end of 2010, up from eight in 2007. He's also considering buying another 4,000-square-foot property in Edenvale for expansion.

"There's definitely been a shift here," says the 50-year-old. "In the late 1980s, it was all data-storage companies here. Now that's no more."