Wal-Mart Radio Tags to Track Clothing

The Wall Street Journal

 

Wal-Mart Stores Inc. plans to roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear, the first step in a system that advocates say better controls inventory but some critics say raises privacy concerns.

Starting next month, the retailer will place removable "smart tags" on individual garments that can be read by a hand-held scanner. Wal-Mart workers will be able to quickly learn, for instance, which size of Wrangler jeans is missing, with the aim of ensuring shelves are optimally stocked and inventory tightly watched. If successful, the radio-frequency ID tags will be rolled out on other products at Wal-Mart's more than 3,750 U.S. stores.

"This ability to wave the wand and have a sense of all the products that are on the floor or in the back room in seconds is something that we feel can really transform our business," said Raul Vazquez, the executive in charge of Wal-Mart stores in the western U.S.

Before now, retailers including Wal-Mart have primarily used RFID tags, which store unique numerical identification codes that can be scanned from a distance, to track pallets of merchandise traveling through their supply chains.

Wal-Mart's broad adoption would be the largest in the world, and proponents predict it would lead other retailers to start using the electronic product codes, which remain costly. Wal-Mart has climbed to the top of the retailing world by continuously squeezing costs out of its operations and then passing on the savings to shoppers at the checkout counter. Its methods are widely adopted by its suppliers and in turn become standard practice at other retail chains.

But the company's latest attempt to use its influence—executives call it the start of a "next-generation Wal-Mart"—has privacy advocates raising questions.

While the tags can be removed from clothing and packages, they can't be turned off, and they are trackable. Some privacy advocates hypothesize that unscrupulous marketers or criminals will be able to drive by consumers' homes and scan their garbage to discover what they have recently bought.

They also worry that retailers will be able to scan customers who carry new types of personal ID cards as they walk through a store, without their knowledge. Several states, including Washington and New York, have begun issuing enhanced driver's licenses that contain radio- frequency tags with unique ID numbers, to make border crossings easier for frequent travelers. Some privacy advocates contend that retailers could theoretically scan people with such licenses as they make purchases, combine the info with their credit card data, and then know the person's identity the next time they stepped into the store.

"There are two things you really don't want to tag, clothing and identity documents, and ironically that's where we are seeing adoption," said Katherine Albrecht, founder of a group called Consumers Against Supermarket Privacy Invasion and Numbering and author of a book called "Spychips" that argues against RFID technology. "The inventory guys may be in the dark about this, but there are a lot of corporate marketers who are interested in tracking people as they walk sales floors."

Smart-tag experts dismiss Big Brother concerns as breathless conjecture, but activists have pressured companies. Ms. Albrecht and others launched a boycott of Benetton Group SpA last decade after an RFID maker announced it was planning to supply the company with 15 million RFID chips.

Benetton later clarified that it was just evaluating the technology and never embedded a single sensor in clothing.

Wal-Mart is demanding that suppliers add the tags to removable labels or packaging instead of embedding them in clothes, to minimize fears that they could be used to track people's movements. It also is posting signs informing customers about the tags.

"Concerns about privacy are valid, but in this instance, the benefits far outweigh any concerns," says Sanjay Sarma, a professor at the Massachusetts Institute of Technology. "The tags don't have any personal information. They are essentially barcodes with serial numbers attached. And you can easily remove them."

In Europe some retailers put the smart labels on hang tags, which are then removed at checkout. That still provides the inventory-control benefit of RFID, but it takes away other important potential uses that retailers and suppliers like, such as being able to track the item all the way back to the point of manufacture in case of a recall, or making sure it isn't counterfeit.

Wal-Mart won't say how much it expects to benefit from the endeavor. But a similar pilot program at American Apparel Inc. in 2007 found that stores with the technology saw sales rise 14.3% compared to stores without the technology, according to Avery Dennison Corp., a maker of RFID equipment.

And while the tags wouldn't replace bulkier shoplifting sensors, Wal-Mart expects they'll cut down on employee theft because it will be easier to see if something's gone missing from the back room.

Several other U.S. retailers, including J.C. Penney and Bloomingdale's, have begun experimenting with smart ID tags on clothing to better ensure shelves remain stocked with sizes and colors customers want, and numerous European retailers, notably Germany's Metro AG, have already embraced the technology.

Robert Carpenter, chief executive of GS1 U.S., a nonprofit group that helped develop universal product-code standards four decades ago and is now doing the same for electronic product codes, said the sensors have dropped to as little as seven to 10 cents from 50 cents just a few years ago. He predicts that Wal-Mart's "tipping point" will drive prices lower.

"There are definitely costs. Some labels had to be modified," said Mark Gatehouse, director of replenishment for Wrangler jeans maker VF Corp., adding that while Wal-Mart is subsidizing the costs of the actual sensors, suppliers have had to invest in new equipment. "But we view this as an investment in where things are going. Everyone is watching closely because no one wants to be at a competitive disadvantage, and this could really lift sales."

Wal-Mart won't disclose what it's spending on the effort, but it confirms that it is subsidizing some of the costs for suppliers.

Proponents, meanwhile, have high hopes for expanded use in the future. Beyond more-efficient recalls and loss prevention, RFID tags could get rid of checkout lines.

"We are going to see contactless checkouts with mobile phones or kiosks, and we will see new ways to interact, such as being able to find out whether other sizes and colors are available while trying something on in a dressing room," said Bill Hardgrave, head of the RFID Research Center at the University of Arkansas, which is funded in part by Wal-Mart. "That is where the magic is going to happen. But that's all years away."

UPS Raises Outlook, Despite Mixed Economy

Associated Press

 

UPS isn't expecting U.S. consumers to significantly increase spending anytime soon. Instead, it's counting on businesses to push the economy — and UPS' domestic business — slowly forward with overdue purchases of computers and other electronics.

UPS on Thursday expressed confidence that the "slow pace" of economic recovery in the U.S. can be overcome by increased prices and strong international shipments. UPS raised its full-year outlook for the second time since January.

The results from the world's largest shipping company confirm that U.S. consumers and businesses aren't spending beyond the necessities — except when it comes to technology.

Consumers are gobbling up iPhones, iPads and other new gadgets that are shipped from Asia, Chief Financial Officer Kurt Kuehn said in an interview with The Associated Press. Technology purchases are countering sluggish spending in other areas for businesses, too — especially those that put off upgrades or new computer purchases during the recession.

"Tech has really been leading from Asia, with China leading the charge," Kuehn said. A growing portion of UPS' business is international.

Consumers and business customers also want their goods more quickly, increasingly using next-day air service instead of cheaper truck delivery. That bodes well for UPS' ability to fetch more money per package.

The Atlanta company said Thursday it expects adjusted earnings of $3.35 to $3.47 per share this year, up from a previous prediction of $3.05 to $3.30. Analysts' currently expect $3.27.

Shares of UPS jumped 6.5 percent to $63.93 in midday trading.

UPS Inc. said Thursday that earnings for the second quarter nearly doubled to $845 million, or 84 cents per share, compared with 445 million, or 44 cents per share a year ago. Revenue rose 13 percent to $12.2 billion.

Thomson Reuters says analysts forecast 77 cents per share on $11.98 billion in revenue.

"UPS fired on all cylinders in the second quarter even in the face of a mixed global economic environment," said CEO Scott Davis.

UPS' international business continues to be the key growth area. Package volume jumped 24 percent, while revenue per package rose about 2 percent because customers used cheaper modes of shipping. International exports rose 15 percent in the quarter, led by shipments out of Asia, which were up more than 40 percent.

In the U.S., average daily package volume rose just 1 percent. But UPS took in 6 percent more revenue per package, mostly by charging higher prices and passing along fuel costs to customers.

Even as business improves, UPS isn't eager to hire anytime soon. Instead, it's looking for ways to take on more shipments without adding costs.

For the quarter that ended in May, UPS' smaller rival FedEx earned $419 million, or $1.33 per share. It said last month that economists are being too pessimistic about the pace of global recovery.

Apple Seeks Growth Beyond Consumers

The Wall Street Journal

 

 

Apple Inc. is boosting efforts to appeal to a new type of customer: small businesses.

The consumer electronics giant responsible for the iPhone is seeking to hire engineers in as many as a dozen U.S. retail stores to put together Apple-based computer systems for small businesses, according to recent job postings on Apple's website. The employees would implement computer systems for clients and are expected to be proficient in networking hardware and server platforms.

"Thousands of businesses run on Apple products," the posting reads. "Many more would like to, and that's where you come in."

The new positions mark the latest development in Apple's evolving strategy, which has historically focused on the consumer market and niche businesses, like design and media firms. Now, Apple wants to leverage its popular iPhone and iPad devices, using their appeal as a selling point for more expensive products, including its line of Macintosh computers and servers. (See related article on C10.)

Apple is targeting smaller, local businesses that it can reach through its chain of nearly 300 retail stores, according to two Apple employees familiar with the company's strategy. The new jobs could pay up to $80,000 a year, one of them said.

Each of Apple's stores already has at least one salesman dedicated to managing accounts with local businesses, the employees said. Recently, Apple also began recruiting from within the sales staff to create a specialized team that negotiates leasing and pricing terms for business customers, one of the people said. Some stores have seen revenue more than double after implementing the program, the person added.

An Apple spokeswoman declined to comment.

The focus on smaller businesses is unlikely to push Apple into further competition with big computer makers like Hewlett-Packard Co. and Dell Inc., though it could upset its network of authorized consultants, who often serve local businesses.

Targeting smaller businesses could prove lucrative. North American businesses with fewer than 1,000 employees are expected to spend $310.8 billion on information technology this year, according to industry tracker Gartner. The figure is seen rising roughly 6% to $328.3 billion next year. Capturing part of those sales could boost Apple's annual revenue, which is expected to grow 46% to $62.6 billion this year, according to consensus estimates from Thomson Reuters. "They're well aware of the opportunities in business," said Gleacher & Co. analyst Brian Marshall. "This is something they're focusing on even if they're not talking about it publicly."

Apple has had mixed results trying to crack the business market in the past. Its computers are generally more expensive than comparable PCs, prompting cost-conscious companies to look for cheaper alternatives.

Apple's retail staff historically hasn't provided the hand-holding and on-site support that many businesses expect. Instead, it has cultivated a network of authorized consultants, many of whose customers are referrals from Apple's retail employees.

"Almost half of our new customers come from the Apple Store," said Allen Cleaton, owner of Virginia-based MacPro Solutions. He said local businesses often come to him because Apple's staff generally don't have the level of technical expertise needed to set up and maintain a businesses computer network.However, Mr. Cleaton said that if Apple starts providing a higher level of service, it could threaten local companies like his own.

The Apple employees familiar with the new position said it was a natural progression of recent initiatives. Apple maintains a team at its headquarters to handle big companies and government agencies, but it has increasingly handed responsibility for small and mid-sized business accounts to its retail stores, the people said.

Apple has put an incentive program in place to manage the growth of these new business initiatives, they said, assigning new business sales staff based on revenue targets for each store.

Apple also has designed specialized conference rooms in its newer retail stores, like those in Minneapolis and Shanghai, which are specifically meant for meetings between sales staff and high-level business executives.

Walmart, Best Buy in Sub-$300 Laptop Price War

PC World

 

Walmart and Best Buy appear to have kicked off a price war in time for the back-to-school shopping season, with both retailers offering Compaq laptops with 15.6-inch screens for under US$300.

Walmart is selling Hewlett-Packard's Compaq Presario CQ62-219WM for $298 through its online store. Best Buy is selling a Compaq Presario CQ60-615DX for $299 on its website.

The cheap laptops have similar specifications. Both come with a single-core Intel Celeron 900 processor running at 2.2GHz and include 2GB of DDR2 memory. They also have 250GB hard drives, wired and 802.11 b/g/ wireless networking capabilities, DVD burners and Intel's 4500M integrated graphics.

The systems come with Microsoft Windows 7 Home Premium 64-bit OS and include other applications often referred to as bloatware. One notable feature absent from the laptops is a webcam.

Best Buy is also selling a $299 Toshiba Satellite C655-S5049 laptop on its website. That laptop also has a 15.6-inch screen and Celeron 900 processor, but includes 2GB of the faster DDR3 memory type.

The price war is similar to one that broke out before last year's back-to-school season, said Stephen Baker, vice president of industry analysis at The NPD Group. That battle ignited last July when Best Buy offered an Acer laptop for $299, and Walmart undercut the price by $1 with a Compaq machine.

"They are selling them because they drive traffic into the stores, provide great value to their customers [and] help each other compete against one another," Baker said.

The stores will keep at it for as long as PC makers supply them with products that allow them to hit those price points, Baker said. Cheap PCs may have tweaked configurations, by reducing the amount of memory or hard drive capacity, for example, to let the stores sell the machines for less.

But reviewers seem to be content with the products. On the Best Buy website, 463 reviewers gave the Compaq laptop an average rating of 4.5 out of 5 stars. On the Walmart site, 15 reviewers gave its $298 laptop close to a 5 star rating.

One Walmart reviewer said the discount laptops are good for basic productivity and Internet applications, but not for more demanding tasks.

"With an Intel Celeron 900 processor and 2GB of RAM, don't expect to be zipping through video editing apps, especially considering it is a single-core CPU," wrote one reviewer under the name noraaregnilc.

Schaeuble Denied Twice by Merkel Defies Doctors to Save Euro With Germany‏

Bloomberg News

 

German Finance Minister Wolfgang Schaeuble defied doctors in March after an operation, traveling to Brussels for a European Union debt crisis meeting. The EU was preparing a financial package to avert a Greek default as traders placed bets against the euro.

Wheelchair-bound Schaeuble, 67, and his peers from the other 15 euro countries crafted an emergency loan bailout in case Greece’s efforts for tax increases and wage cuts failed. The rescue plans, opposed by more than half of Germans, were hatched before Chancellor Angela Merkel endorsed the initiative.

“He came right out of the hospital to the meeting and was a very active member in our discussions,” Luxembourg Finance Minister Luc Frieden said in an interview. “He showed his commitment to public service in a way that maybe others wouldn’t have done.”

Fighting for the EU has been a cornerstone of Schaeuble’s politics during his four decades in parliament. His path has been made more difficult by his relationship with Merkel, 56, who twice denied him the chance to lead Germany.

“We are the country in the middle of Europe,” Schaeuble said in a July 8 interview with Bloomberg News. “Germany has always been at the center of every major war in Europe, but our interest is not to be isolated.”

Less than a week after Schaeuble left his hospital bed, Merkel told reporters that EU leaders should discuss allowing the International Monetary Fund to aid Greece, publicly disagreeing with Schaeuble. She told Deutschlandfunk radio that a March 25 summit was unlikely to produce an aid package for Greece and that the EU shouldn’t create “illusions.”

Cost Burden

European governments said on April 11 that they were prepared to lend at least 30 billion euros ($39 billion) to Greece, complementing IMF aid. The total bailout package was raised May 2 to 110 billion euros over three years, with Germany shouldering more than 25 percent of the euro countries’ cost.

“His goal has always been for Germany to be recognized and anchored in Europe, with less national political responsibility, and an acceptance of Germany paying the EU’s bills,” said Carl Graf von Hohenthal, a management adviser at public-relations firm Brunswick Group Inc. in Berlin. Merkel is “pro-EU, but she wants a bigger political voice for Germany in Europe and she doesn’t want to pay all the bills anymore,” he said.

Schaeuble, a lawyer, has served in Germany’s Bundestag, parliament’s lower house, since 1972. He gained a reputation as a troubleshooter after five years as then-Chancellor Helmut Kohl’s chief of staff and minister for special affairs from 1984 to 1989, the year the Berlin Wall fell. He also held the post of interior minister twice before becoming Merkel’s choice of finance minister in October.

Inside and Out

“Schaeuble knows the EU inside and out because he did the heavy lifting on Europe for Chancellor Kohl in the 1980s and 1990s,” said Ulrich Deupmann, the author of a Schaeuble biography and director of Berlin-based political advisory company Ideas.ag. “He’s been helping construct the EU since his time as Kohl’s chief of staff and in his role in getting the euro approved.”

His relationship with Merkel is complex because of her role in undermining him as Christian Democratic Union leader during a party financing scandal in the late 1990s. Schaeuble admitted taking a donation of 100,000 deutsche marks ($66,000) from an arms dealer who later fled the country before being convicted of tax evasion and sentenced to eight years in prison.

Schaeuble resigned as CDU chairman in 2000, meaning he would never become chancellor. His departure paved the way for Merkel’s ascent. Merkel blocked Schaeuble’s path again in 2004 by ruling against his candidacy for the mainly ceremonial office of German president.

‘Wealth of Experience’

Merkel appointed Schaeuble as her finance minister on Oct. 24. After debates over who would serve in her cabinet ended at 2 a.m., Merkel cited Schaeuble’s “wealth of experience” and said he had her confidence.

“Schaeuble is the person everybody assumes would have been a great chancellor,” said Gary Smith, executive director of the American Academy in Berlin. “Merkel can’t not have him. He’s the figure in the cabinet who gives her gravitas.”

It was Schaeuble who negotiated the unification treaty that brought East and West Germany together in 1990. That was when he first encountered Robert B. Zoellick, then chief U.S. negotiator in international talks that led to German reunification, and now World Bank president.

“Schaeuble served Germans and all the rest of us so well with his steadiness,” Zoellick said in an e-mail.

University Days

Hans-Peter Repnik, a former parliamentarian and a friend from university days, said Schaeuble has always used his “sharp intellect” to convince others of his views.

“If he feels he has to throw a stone very far into the water, he lets the waves ripple for a bit and in the end he mostly reaches his goals,” Repnik said in an interview.

He doesn’t always act multilaterally. The finance minister caused ripples in markets in May with a surprise ban on naked short-selling, which involves investors speculating on declines in companies that they don’t own. Frankfurt-based Deutsche Bank AG, Germany’s biggest bank, dropped as much as 3.7 percent the day after Schaeuble’s May 18 announcement and the euro slid to a four-year low.

Three weeks later, French President Nicolas Sarkozy lent his voice to the German campaign in a joint letter with Merkel to the EU, urging faster curbs in the 27-nation bloc on financial speculation. In response, the European Commission said it would accelerate proposals to regulate short selling and credit-default-swaps.

‘It Works’

“Sometimes one has to go ahead at a unilateral level and others will follow,” Schaeuble said in the interview in Berlin. “You see, it works.”

The minister grew up in Freiburg, a southwestern German city in the wine-growing region that borders France and Switzerland. It was this experience that honed his vision of an integrated Europe with Germany firmly anchored at its core, Repnik said.

“The Franco-German tension from the past was omnipresent until the great mood of optimism and reconciliation with France came about in the 1950s and 1960s,” Repnik said. “German unity and Europe. These are the two topics that have kept Wolfgang Schaeuble busy as long as I’ve known him.”

After an assassination attempt by a deranged man in 1990 left him paralyzed from the chest down, he returned to work within three months. Schaeuble, a chess player and music lover who used to play the violin, is regularly seen around Berlin exercising on a hand bike. Married with four children, he carries a battered 10-year-old briefcase to work.

Directing by Phone

The March EU session wasn’t the only time Schaeuble jeopardized his health for the EU. During a May 9 crisis meeting, the minister was rushed to the hospital in Brussels after reacting to medication. From his bed, he directed negotiations by phone, the Finance Ministry said, helping the EU craft an unprecedented $1 trillion loan package and bond purchases.

His rapport with U.S. Treasury Secretary Timothy F. Geithner, who offered advice in a phone call the day before, helped Schaeuble convince European finance ministers that the EU had to make a show of force on Greece, the ministry said.

He has earned the respect of Geithner, who refers to Schaeuble as one of the “adults” at the policy table.

Urged on by Schaeuble, the German parliament backed loan guarantees of 22.4 billion euros for Greece, more than a quarter of the euro region’s contribution of 80 billion euros, complemented by 30 billion euros from the IMF. German guarantees for the euro rescue package, totaling 750 billion euros, amount to as much as 147.6 billion euros.

No Specialist

He “makes no pretense of being a financial specialist, but he nevertheless cuts to the core of issues in common sense terms,” Zoellick said. “His words carry great weight with his colleagues.”

Schaeuble’s approach to the EU differs from that of Merkel, who grew up in communist East Germany and speaks some English and fluent Russian after study trips to the then-Soviet Union.

It was Schaeuble, who is comfortable in French and English, who floated the idea of a European Monetary Fund, modeled after the IMF to lend to troubled euro members states in return for a say in their budgetary affairs. Merkel adopted the idea, highlighting the envisaged expulsion of euro zone members as a measure of last resort.

Commodity Manipulation May Be Easier to Prove With U.S. Financial Overhaul‏

Bloomberg News

Traders will face new rules aimed at making it easier for regulators to prove manipulation in markets for commodities such as oil, wheat and natural gas under the financial overhaul awaiting President Barack Obama’s signature.

The regulations, written in part by Senator Maria Cantwell, a Democrat from Washington state, attempt to relieve the Commodity Futures Trading Commission of the burden of proving a trader intended to manipulate prices. Instead, the CFTC will have to show the trading was “reckless.”

“It will make it easier for the CFTC to bring cases and get people to settle, because people will be reluctant to go to court,” said Geoffrey Aronow, former director of enforcement at the commission and a partner at the Washington law firm Bingham McCutchen LLP.

Proving manipulation has challenged courts and lawmakers since the early attempts to regulate U.S. commodity markets in the 1920s. The financial overhaul of the $615 trillion derivatives market, approved by the U.S. Senate last week and the House on June 30, redraws rules that have been determined for decades by a patchwork of case law.

The legislation will allow the CFTC to better police manipulation, while also expanding its jurisdiction to the over- the-counter derivatives market, said Michael Greenberger, a former director of trading and markets and now a professor at the University of Maryland law school in Baltimore.

Lower Standard

“The standard of proof is lower,” Greenberger said. “If you can’t police for manipulation, you’ve effectively got one hand tied behind your back. The Cantwell amendment unties the hand of the CFTC.”

Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather. Futures are traded on regulated exchanges, while over-the- counter contracts are privately negotiated.

The financial overhaul will push most of the off-exchange contracts to be processed, or cleared, through third-party clearinghouses and traded on exchanges or similar systems. All trades will have to be reported to trade repositories, which will allow regulators a view of the overall risk in the market.

“The problem I’ve got with it is you have no guidance for your traders,” said Jerry Markham, a professor at Florida International University law school in Miami and an expert witness. “Traders have to be aggressive. This is trading, not tiddlywinks.”

Under current law, manipulation cases hinge on a four-prong test that begins with proving that prices were “artificial,” or outside the bounds of normal supply and demand, Markham said. Then the government must prove that the accused had the ability to cause an artificial price, took actions to cause it and intended it. Proving intent typically requires evidence such as traders’ e-mails or taped telephone calls, he said.

‘Artificial’ Prices

Proving manipulation in court is tough because the statute provides little definition, including how to measure an “artificial” price and establish intent, said Craig Pirrong, director of the Global Energy Markets Institute at the University of Houston, who has written essays on the subject and served as an expert witness.

Confusion has existed since the early days of regulation, Pirrong said. He quoted a 1928 hearing where cotton trader William Clayton said manipulation seems to mean any market move “that does not suit the gentleman who is speaking at the moment.”

In 2008, the year after BP Plc paid a record $303 million to settle a CFTC claim that it cornered the propane market, the four BP traders who were individually charged in the case won a dismissal, in part because U.S. District Judge Gray Miller in Houston found that the law they were accused of violating was too vague to be enforceable.

‘Confusing’ Regime

“The court is sympathetic to the government’s desire to discourage the types of behavior alleged here, but its ability to do so is currently limited by a confusing and incomplete statutory common-law regime,” Miller wrote in his decision,

The U.S. Justice Department has appealed the case.

In addition to the anti-manipulation rules introduced by Cantwell, the law contains provisions that allow the CFTC to police trading practices with oddball names such as “spoofing” and “banging the close,” and contains a measure that Commission Chairman Gary Gensler has dubbed “The Eddie Murphy Rule.”

The rule is named for the 1983 movie Trading Places, which starred Murphy and Dan Akroyd. The plot centers on two brothers who plot to get an orange crop forecast and corner the market for orange juice. Murphy and Akroyd beat them to it, substitute a forgery, and make a fortune while the scheming brothers go bust. The provision bans trading using non-public information misappropriated from a government source, such as crop forecasts or fuel stockpile reports.

Canceling Trades

“Spoofing” is a practice where a trader enters a bid or offer with the intent of canceling it before the trade is carried out.

The legislation also targets any activity that shows a “reckless disregard” for “orderly” trading in the closing period, during which the day’s settlement prices are determined. The provision targets a practice known as “smashing” or “banging” the close, where traders attempt to bully the day’s settlement price by buying or selling large volumes just before the close.

“It’s going to be very much like the standard for pornography,” said Gary DeWaal, general counsel for Newedge USA LLC, the world’s largest futures broker. “The CFTC is going to say, we know orderly when we see it. And that’s going to be a bone of contention.”

Action on Track in not Helping NASCAR Attendance, Ratings

USA Today

 

Popularized by the movie Days of Thunder dramatizing stock-car racing at its most cartoonish, the axiom might be the easiest way to explain NASCAR's rise from regional phenomenon to national platform.

"The bare essence of the sport is, 'He crashed me, so I crashed him back,' " Texas Motor Speedway president Eddie Gossage says. "That's the appeal."

But after a first half of the 2010 Sprint Cup season filled with slam-bang feuding — primarily the row between Carl Edwards and Brad Keselowski but also boiling between Kevin Harvick and Joey Logano— and unpredictable finishes, it hasn't caused a spike in the rooting interests of NASCAR.

Based off feedback from a 12,000-member fan council (created by NASCAR and surveyed regularly online) that demanded more action, a series of rule changes were implemented over the past 18 months — double-file restarts, multiple attempts at overtime finishes, a return to the traditional spoiler. It's resulted in first-half records for leaders, lead changes per race and green-flag passes.

"The gods in the NASCAR control booth made some great moves, and it seems to have produced much better racing," longtime racing promoter and consultant H.A. "Humpy" Wheeler says, "but it is bombing at the box office."

According to NASCAR estimates, attendance has dropped in 14 of the first 19 races of the season, and the average crowd of 99,853 projects to 3.6 million — which would be nearly a million off the total in 2003, the last season before the Chase for the Sprint Cup made its debut.

Another less-than-capacity crowd is expected for Sunday's Brickyard 400 at Indianapolis Motor Speedway (whose 257,000 seats could be less than two-thirds full and off last year's 180,000 pace). Meanwhile, TV ratings remain mired in a slump with TNT closing its six-race schedule down 9.1%.

"I wish that it had an immediate effect on attendance and the audience, but it appears there's a bit of a lag," says Lee White, president of Toyota Racing Development. "I can't believe people wouldn't be here watching if they knew what they were going to see. But it's going to take time to have an effect."

The recession can be blamed in part, given that NASCAR demographics say its fan base is middle class, but some of the erosion predates the downturn.

As a way to goose interest in his sport, NASCAR chairman Brian France has hinted at overhauling the Chase, the 10-race championship run that closes the season. Citing a need for more "Game 7"-style moments, everything from adding knockout-style eliminations to ensuring a one-race playoff for the championship is being considered. The Chase currently resets the top 12 in points, seeds them by wins and uses the same consistency-based points system to determine the champion. The past two seasons, Jimmie Johnson virtually had clinched the title entering the finale, and aside from its first two years, the Chase hasn't delievered a multiple-driver battle for the title as intended.

The playoffs have had a positive impact on the viewership in other sports. The NFL (102%), NBA (158%) and Major League Baseball (425%) all posting large postseason ratings gains over the regular season last year. All three leagues posted a triple-digit gain over the regular season with a championship game or series. In NASCAR, the 10 Chase events last year shown on ABC earned a 3.5 rating that was down from Fox's 5.1 during the first 13 races and was a drop from 3.8 during the 2008 Chase.

Julie Sobieski, ESPN's vice president of programming & acquisitions who handles its business relationship with NASCAR, says the network believes there'd be an opportunity for increases in NASCAR viewership with a format change. ESPN and ABC broadcast the final 17 races of the season, starting with Sunday's Brickyard.

"Anything that really puts the emphasis on winning in every race throughout those playoffs increases the drama for fans, knowing everything is on the line every single race," she said. "That's something we support as an opportunity to get the NASCAR fans excited again and the casual sports fan as well."

To conform or not?

It's not such an easy philosophical shift, though. After mocking the mainstream as "stick and ball sports" while trying to differentiate itself during its formative years, NASCAR would be mimicking them in adopting their playoff systems.

"I struggle deciding which side of that argument I'm on," says Dale Earnhardt Jr., NASCAR's most popular driver. "The changes they want to make fit into what seems to be the demand these days, even if it isn't traditional. It just seems to be what's hot. I'm not sure that it's a positive for the long haul. After we make this kind of change, where do to go from there? That's pretty radical."

Gossage, whose Texas track plays host to two races annually, loves the Chase but says "fans haven't connected to it, so Brian is right in trying to find ways to create drama." Attendance has dropped annually in five of the Chase's six seasons (the format was tweaked in 2007, increasing the field from 10 to 12 drivers and adding bonus points).

"Race fans have a problem if a guy has a great regular season, gets in the Chase and loses," Gossage says. "A single-elimination format is the standard in most sports, but it's one of those things that race fans have a problem with.

"We can't just say 'OK, we're doing the NFL,' because it doesn't work that way."

On the day France floated the idea of tweaking the Chase, Denny Hamlin posted on Twitter that "if we haven't noticed already … the more we change stuff the lower the ratings get."

Hamlin, who finished fifth in last year's Chase for the Sprint Cup, doesn't think NASCAR is analogous enough to other team sports to justify the switch because the competition isn't head to head.

"This is a sport where if somebody else makes a mistake, it can cost you," Hamlin says. "(In) other sports, if another team makes a mistake, you're the one who wins because of it. That's why I think we originally chased this out into 36 weeks, to make sure you brought it out into a long enough season to where the true champion was crowned every year."

Veteran Jeff Burton says a driver's "body of work should count" toward a title. But, he adds "I don't view it from the same eyes as the fans. The (racing) is better because of enhancing the aggressiveness, (and) I think NASCAR will want to try to figure out how to do more. That's why they're looking at reshuffling the Chase. If the fans are telling them, 'We want to see a more exciting Chase,' NASCAR is going to do whatever they have to do to make it exciting."

Target audience falls off

NASCAR isn't the only sport considering changes in the face of stiff financial head winds and lagging interest from its fan base, says David Carter, of the University of Southern California's Sports Business Institute.

"There's plenty of concern to go around, and the biggest issue is complacency," Carter says. "I don't think you can accuse NASCAR of being complacent. Fans demand meaningful change and progress, whether that's instant replay at the World Cup or adding a playoff element in NASCAR.

"That's why these leagues need to continue to tweak, especially if they want to resonate with the next generation of fans that wants everything now and wants technology at their fingertips. You better be able to deliver it, or you're going to run into trouble. All sports need new storylines, and those tend to come from young people."

Fox Sports chairman David Hill recently told the Sports Business Journal "the biggest problem facing NASCAR is that young males have left the sport." Fox said ratings among men 18-34 declined 29%.

Gossage says his track is tailoring its 2011 promotions to a younger audience than ever.

"I'm trying to find a campaign that appeals to car guys with an old hot rod but also to a guy who wears a flat-bill hat and drinks Red Bull," he says. "I think I got it, but I can tell you it's not easy."

Regardless of demographics, the economy also remains a major drain in a sport in which France says, "We ask our fans in the big-event business to stay longer, drive further, buy hotel rooms and the like as part of what it takes to come to our events."

International Speedway Corp., which owns 12 speedways that host Cup races, slashed prices on more than half a million tickets but didn't discount prices once the season started.

Craig Rust, president of ISC's Chicagoland Speedway, says the track's tickets ($156-$280 for a Nationwide-Cup package; single-race tickets weren't available) were too expensive this season, making it difficult to capitalize on this year's improvements to the competition.

"Sometimes as an industry, the expectations are, 'That'll fix it,' and that's not the case," says Rust, who plans to decouple the track's ticket package next year along with a possible price cut. "This is going to be a two-, three-, four-year process of being consistent with the messaging. The product sells tickets, and I think the product is good."

NASCAR might not be done tweaking the product, either. A redesign of cars in its second-tier Nationwide Series allowed for rebranding models as muscle cars such as Mustangs and Challengers. There'll be similar changes to the front end of Sprint Cup cars next year that could allow for more brand identity for auto manufacturers.

"I'm hoping as quick as possible they get that into the Cup series," says Speedway Motorsports Inc. chairman Bruton Smith, whose company owns seven tracks that host Sprint Cup races. "Fans all want these vehicles we recognize. They're doing things now with those cars where you can recognize them. That is a giant step in the right direction. That's going to add ticket sales."

WHEELER'S COLOR PLAN

H.A. "Humpy" Wheeler has a two-toned plan for reigniting interest in NASCAR: more colorful personalities and less colorful cars.

Behind a dearth of long-running feuds (aside from Carl Edwards and Brad Keselowski), the former Charlotte Motor Speedway president says allowing sponsors to rotate paint schemes on Sprint Cup cars causes a disconnect with fans. Among Wheeler's chief offenders are Kyle Busch and Dale Earnhardt Jr. Earnhardt, NASCAR's most popular driver, has a rotation of primary sponsors with blue- and green-based schemes.

"You need a GPS to find Earnhardt," Wheeler says. "Tony Stewart and Carl Edwards have more paint schemes than the Louvre, and by the time you figure them out, the race is over. When Jeff Gordon goes Pepsi and knocks out the day-glow red, he is as lost as Livingstone in deepest Africa. Poor old Joe Fan sitting in a $100 seat on a 1.5-mile track looks at colors, not numbers, for his car identification."

Wheeler, who owns a racing consulting firm, has recommended to NASCAR chairman Brian France mandating a team's colors in the preseason, but it might not be an easy sell. As Cup budgets skyrocketed over the past decade into the $20 million range, teams signed multiple primary sponsors to defray costs.

Besides consistent colors, Wheeler says NASCAR's attendance slump would end with the emergence of "an exciting new superstar with lots of vim and vigor who can turn the air purple and pink at the same time.

"That would turn the ticket selling spigot on," he says. "The bottom line is we have great racing most of the time. We don't have sustained drama and are confusing the heck out of the fan.

"I think NASCAR is doing their part. The fault lies with some of the sponsors. Some of these companies have people that don't understand the race fan and are making bad decisions. Let these drivers go and let the dust stir, but please do it in the same color every week."

Union Pacific, Illinois Agree on High-Speed Passenger Rail Plan

Bloomberg / Business Week

Union Pacific Corp., the biggest U.S. railroad, and the state of Illinois agreed to begin construction of the first U.S. high-speed passenger rail route created with economic-stimulus money.

The company was among freight railroads operating in the U.S. that balked at May guidance from the U.S. Federal Railroad Administration that spelled out relationships between them and operators of high-speed passenger service on their tracks.

“Today’s announcement will create hundreds of jobs and is a major step towards making high-speed rail a reality in Illinois,” Governor Pat Quinn, a Democrat, said today in an e- mailed statement. “When the corridor is completed, travelers will be able to move from Chicago to St. Louis in under four hours.”

The Chicago-St. Louis route received $1.1 billion from last year’s $787 billion economic-stimulus package to help create faster passenger rail service. Illinois is the home state of President Barack Obama and U.S. Transportation Secretary Ray LaHood.

Union Pacific Chief Executive Officer James Young said the May U.S. guidance led the Omaha, Nebraska-based railroad to “basically stop” the project on the Chicago-St. Louis line. Since then, Young and other railroad executives met with LaHood about their concerns.

Rail and Illinois concrete contractors are due to begin work in September.

TSMC to Spend $9 Billion on Chip Plant to Meet Rising Demand

Bloomberg / Business Week

 

Taiwan Semiconductor Manufacturing Co. will spend NT$300 billion ($9.3 billion) on a new factory, betting higher demand for the most advanced technology used in making components for phones and computers will offset the rising cost of building plants.

The world’s largest custom manufacturer of chips will hire as many as 8,000 workers at the facility in Taichung, central Taiwan, Chairman and Chief Executive Officer Morris Chang said at a ground-breaking ceremony today.

Taiwan Semiconductor, whose clients include Qualcomm Inc. and Nvidia Corp., is expanding after posting record sales last quarter as global demand for computers and digital electronics climbed. The Hsinchu, northern Taiwan-based company’s $4.8 billion expenditure for this year, which excludes the new plant, will be equal to 15 percent of global chip-equipment revenue, according to data from industry group SEMI.

“As TSMC has the capital and its smaller rivals don’t, its investment in a new plant has the potential to increase its market share,” said Jack Hung, who rates the company “neutral” at Mega Securities Co. in Taipei. “The spending plan shows TSMC is very confident about the industry outlook and expects a global shortage of chips in the long term.”

Gigafab

TSMC fell 0.7 percent to close at NT$59.90 in Taipei, compared with a 0.5 percent decline by the benchmark Taiex index. The stock has lost 7.1 percent this year, compared with a 6.4 percent drop for the Taiex.

The Taichung factory will be TSMC’s third so-called gigafab, with capacity to make 100,000 12-inch wafers of chips per month, Chang, 79, said. Wafers are the silicon dies from which semiconductors are struck.

Adding to plants in Hsinchu, Tainan, southern Taiwan and China, the new facility will incorporate solar power and light- emitting diode lighting with a goal of zero greenhouse gas emissions, Chang said. The cost of the new facility will be spread over coming years, he added.

Among the new hires, TSMC expects to employ as many as 4,000 engineers at the site, Senior Vice President of Operations Mark Liu said before the ceremony. A TSMC gigafab running at full capacity can generate annual revenue of $5 billion, Liu said.

Demand for advanced chipmaking technology, which TSMC defines as having connections smaller than 90 nanometers, will more than double in the six years to 2014, compared with 30 percent growth for standard technology, Liu said. One nanometer is equal to one billionth of a meter, with smaller metrics indicating more-advanced technology.

Rising Cost

A gigafab costs $6 billion to $10 billion, compared with $3 billion to $4 billion for older “megafabs,” which have capacity to produce 25,000 wafers per month, Liu said.

Chang on June 15 raised his industry sales growth forecast to 30 percent from 22 percent, citing the global economic rebound and rising demand in emerging markets. The CEO, who founded TSMC 23 years ago, is closely followed as a market forecaster because his company has wide access to the chip industry.

TSMC last month received Taiwan government approval to take possession of an 8 percent stake in Semiconductor Manufacturing International Corp., which it accepted as settlement for a trade-secrets lawsuit it brought against the Shanghai-based company.

Intel Corp., the world’s biggest chipmaker, posted record second-quarter revenue, topping analysts’ estimates, driven by corporate spending. ASML Holding NV, Europe’s biggest maker of chip equipment, had profit for the period that surpassed analysts’ predictions and forecast record revenue for the year.

Global sales of semiconductor equipment will more than double to $32.5 billion this year and climb 9 percent next year, San Jose-based SEMI said in a July 13 statement.

Bloch to Leave H&R Block due to Disagreements

Kansas City Biz Journal

Thomas Bloch, son of H&R Block Inc. co-founder Henry Bloch, will not seek re-election as a director, citing concerns about the direction of the company.

Thomas Bloch has been a director since 2000. Before that, he had a 19-year career at H&R Block (NYSE: HRB), culminating in a term as CEO from 1992 to 1995. He served as president of the company from 1988 to 1995.

His term ends at H&R Block's annual shareholder meeting, which typically takes place in September.

Bloch cited several specific concerns he has with the direction of the Kansas City-based tax preparer.

First, he opposed the $2 billion stock buyback program that was authorized in 2008, saying it was ill-timed. He said the company repurchased shares significantly above their current price, which now reflects H&R Block’s status as one of the worst-performing stocks in the S&P 500 this year.

He said he also opposed the financial plan for the fiscal year that ended April 30, which he deemed to be “overly optimistic.”

Third, Bloch said he opposed the re-election of Richard Breeden as chairman last year.

“The leadership he demonstrated early on in hastening the company’s exit from the sub-prime mortgage and brokerage business was commendable,” Bloch wrote in a letter to the board. “More recently, however, Richard and I have had differences of opinion on a number of fundamental issues that, I believe, could affect the company’s long-term future.”

Bloch said he is concerned that, as the company’s stock price declines, the board will bow to pressure from short-term-oriented shareholders and put the long-term shareholder value at greater risk.

“Since I stepped down as CEO 15 years ago and especially since rejoining the board 10 years ago, no issue has raised my ire more than the pricing strategy employed in our core business,” Bloch stated. “Clearly, if our average charge had increased consistent with inflation since 1996, it would be significantly less than its current level. Today, the ability to present a compelling value proposition represents one of the most serious impediments to our tax offices’ long-term success, in my opinion.”

Bloch also expressed concern that the compensation package for new H&R Block CEO Alan Bennett is overly generous and seriously flawed with respect to its incentives. Bennett will receive a guaranteed $2.55 million in his first year and was given an option to purchase 1 million shares at $14.37 each.

Bloch said the decision not to stand for re-election was not easy.

“My wish is that (my father) will have an opportunity to see the company he built over several decades return to greatness,” Bloch wrote. “I have an enormous respect for him, our dedicated employees, and our franchisees. I hope they understand how painful it was for me to arrive at this decision. More importantly, I hope that my decision will serve as a catalyst for positive change.”

The H&R Block board in a statement thanked Bloch for his service.

Google Expansion Helps Economy, Hurts Stock Price

Associated Press

Google Inc. is doing its part to stimulate the economy and hurting its stock in the process.

 

 

With its payroll swelling at the fastest rate in four years, some of Google's expenses are climbing faster than its revenue.

That's creating a drag on its earnings, which is pulling down the Internet search leader's stock price.

Consider Google's second-quarter results released late Thursday. Both net income and revenue rose 24 percent from the previous year, but that didn't impress investors because the earnings missed the target set by analysts.

Google shares dropped $23.32, or 4.7 percent, in Friday premarket trading. The stock had closed Thursday at $494.02 and declined in extended trading.

Here's the main reason for the earnings letdown: Google is spending more to maintain its commanding lead in Internet search while it also tries to diversify by developing products in other promising niches such as online video, mobile devices and computer operating systems. To help achieve its goals, the company added nearly 1,200 employees in the second quarter to end June with more than 21,800 workers.

Google, based in Mountain View, has hired nearly 2,000 workers through the first half of the year, putting it on pace to add the most people to its payroll since 2006 when it ushered in 6,100 new employees in 12 months.

The European debt crisis also worked against Google in the April-June period.

Investors are worried the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts.

Those fears hurt Google because about one-third of the company's revenue comes from Europe, and customer payments made with the euro translated into fewer dollars than a year ago. Even so, the currency squeeze wasn't as severe as some analysts anticipated.

The dollar seems more likely to weaken than Google's commitment to bring in more engineers and sales representatives to peddle the online ads that generate most of the company's income.

Without making specific projections, Google's management left little doubt substantially more people will be joining the company in the months ahead as it pursues long-term opportunities.

"Google is building a business not for this quarter or the next quarter, but an infrastructure for the next half-decade to decade," Patrick Pichette, Google's chief financial officer, said in an interview late Thursday. "What a great moment for us to invest to create these fantastic products that everybody is going to live on."

Even as Google sacrifices earnings growth, it is accumulating more cash. Google had $30 billion at the end of June, up from $26.5 billion. And it might not even use that money to invest in new technology or buy more companies. That's because the company revealed Thursday that it may borrow up to $3 billion on the premise that its money managers can realize investment returns that outstrip its borrowing costs.

Although Google remains the Internet's most profitable company, investors have been fretting about signs of decelerating growth amid stiffer competition from Apple Inc., Facebook and Microsoft Corp. On top of those challenges, a showdown over online censorship in China has muddied Google's future prospects in the world's most populous country.

Those factors have contributed to a 23 percent decline in Google's stock price that has erased about $45 billion in shareholder wealth so far this year.

Google earned $1.84 billion, or $5.71 per share, in the second quarter, up 24 percent from $1.48 billion, or $4.66 per share, a year ago.

If not for expenses covering employee stock compensation, Google said it would have made $6.45 per share. That figure was below the average estimate of $6.52 per share among analysts polled by Thomson Reuters.

Revenue climbed 24 percent to $6.82 billion, from $5.52 billion a year earlier. After subtracting commissions paid to its ad partners, Google's revenue stood at $5.09 billion - about $10 million above analyst projections.

In another key figure watched closely by investors, the number of revenue-generating clicks on Google's ads in the second quarter increased 15 percent from the same time last year. The gain is in the same range as the increases in the past year.

The average price per ad click in the second quarter edged up 4 percent from last year, but it's slower than the growth seen during the previous two quarters.

VC Funding Gaining Steam in California

LA Times

Investment reached almost $4 billon in the state during the second quarter, a 51% gain from a year earlier and the most since the third quarter of 2008.

Venture capitalists are quietly reasserting themselves in what is one of the few bright spots for the California economy.

Venture capital investment reached almost $4 billon in California during the second quarter of this year, a 51% gain from the same period last year and the most since the third quarter of 2008. The number of companies they are funding also rose — up more than 8% to 296 compared with a year earlier, according to Dow Jones VentureSource, which collected the data.

Eventually this will mean jobs for California.

"The venture industry creates a lot of jobs because they are funding companies that are starting up almost from scratch," said Jessica Canning, global research director for Dow Jones VentureSource in San Francisco.

Venture capital investment is approaching its pre-recession levels, she said.

"This is good news," said Stephen Levy, chief economist and director of the Center for the Continuing Study of the California Economy in Palo Alto. "The investment will turn into jobs as some of these companies become successful."

Levy cautioned that the venture capital investment numbers represent a leading indicator for job growth and that the effects of the funding would take many months if not years to play out, "but as a first step it is very positive and probably along with the revival of business at the ports is the best economic signal going on for California."

Any upward eddy in jobs is of crucial importance to California, which some economists fear could fall into a double-dip recession.

On Friday, the California Employment Development Department said the state's jobs climate stagnated in June as part-time federal census workers lost their jobs and about 400,000 out-of-work people lost their unemployment benefits.

Although the monthly, seasonally adjusted unemployment rate crept down a tenth of a percentage point to 12.3%, the economy lost 27,600 jobs, the state said. California's unemployment rate was 11.6% in June 2009. Nationally, it hit 9.5% last month. Los Angeles' seasonally adjusted rate was unchanged from May at 12.2%.

The money venture capitalists poured into California in the second quarter accounted for slightly more than 51% of the $7.7 billion in venture capital put to work in 744 deals for U.S.-based companies in the period. The California money went into 296 deals.

The national funding was the highest quarterly total for capital invested since $8.4 billion was put into 699 deals during the third quarter of 2008.

Canning said signs of a resurgent venture capital industry also bode well for the national economy.

The investments demonstrated growing confidence in the financial markets — stock offerings is one of the methods venture capitalist use to capture profits from their investments. The investment also reflects a healthy corporate environment, she said.

"While initial public stock offering are the all-stars of the business, mergers and acquisition are the lifeblood for venture capitalists," Canning said. "Venture capital is impressed with the current round of corporate profits and believes that will give big companies the ammunition to make acquisitions."

Historically, venture capital investment has leaned toward technology and healthcare companies, -- which could help offset higher California health insurance quotes -- but the data for the latest quarter demonstrates that the funding is increasingly going to the energy sector — especially companies that supply the budding electric vehicle business and its infrastructure and renewable energy businesses, Canning said.

In California, renewable energy accounted for just 21 of the deals — not even 10% of the total — but represented $1 billion, or about a quarter, of the money invested, Canning said.

The San Francisco Bay Area, which dominated venture capital business in the state and the nation, had seven renewable energy deals, raising about $800 million. The biggest was a $350-million investment by VantagePoint Venture Partners, Morgan Stanley and other firms in Better Place, a Palo Alto provider of electric vehicle support infrastructure, Canning said.

California's renewable energy industry could be one of the biggest job providers, she said.

"This is a very young industry, essentially what the Internet was in 1998. The potential for that industry to grow is significant. We are just starting to scratch the surface," Canning said.

The second quarter was the first time that renewable and alternative energy venture capital investment in Northern California topped that for either healthcare or technology in total dollars, Canning said.

Venture capital investment in the Los Angeles metropolitan area represented a much smaller slice of the pie compared with the funds that get placed in the Bay Area, she said. The Los Angeles area accounted for $278 million in investment in 31 companies during the quarter, up from $111 million placed with 25 businesses a year earlier.

The Southern California deals also tend to be consumer-oriented businesses, such as the $31 million Insight Venture Partners put into HauteLook, an online private shopping club based in Los Angeles, Canning said.

Regardless of the industry, Levy said that the improved outlook for venture capital investment "debunks the idea that no body wants to do business in California. We continue to get half of a rising tide. This will take awhile but some success at these companies will lead to steady job growth."