Filed under: Competitive strategy, General Electric (GE), Marketing and advertising, China

General Electric (NYSE: GE) is still trying to convince investors that it can offset slow growth and some weak divisional results by doing well in emerging markets. So far, the stock market has not purchased in.

The market has actually been hostile to the message. GE shares are just above $34, which is not far from their 52-week low and down considerably from their high of $42.15. Over time, earnings from regions like India and China may help the stock, but the company is going to have to push harder to mark its case. It will use the Olympics in Beijing as a spring-board.

“We want to humanize G.E. even as we show worldwide investors that G.E. is a major player in the world,” stated Don Schneider, executive creative director at BBDO New York, the Omnicom (NYSE: OMC) unit that is G.E.’s longtime advertising agency, told the The New York Times

GE is a major player in the world but the politics in countries such as China might not make growth there as simple as investors would hope. A global recession could also slow infrastructure building in Asia and the India sub-continent.

To some extent, the large marketing budget for this Olympics is a waste of money. Wall Street wants to know that GE is willing to deal with its slow-growing medical and industrial units either by selling them or slicing costs. Tickets to the Olympics won’t help.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Rumors, Management, Rants and raves, Competitive strategy, JPMorgan Chase (JPM), Washington Mutual (WM), Wells Fargo (WFC)

Yesterday, wearing my investor hat, developer hat, architect’s hat, business owner’s hat and strategic thinking cap, I wrote about the various scenarios that might make sense for either J. P. Morgan Chase & Co. (NYSE: JPM) or Wells Fargo & Company (NYSE: WFC) to acquire Washington Mutual, Inc. (NYSE: WM).

Giving this further thought and drawing on some of how this could play out from yesterday’s post I am wondering why this possible deal isn’t turning to frenzy. Perhaps all the parties are just playing hard to get. Maybe JPM and WFC have proved to be superior navigators than most other massive financial companies and that they fear being shipwrecked on the rocks of a Washington Mutual.

If I’m Chase management, this deal makes too much sense to let pass. Adding WaMu’s west coast footprint advances Chase goals in a fraction of the time it would take to build out a comparable branch network and at great savings. Add in the customers base and service operations minus all the overlapping departments and this is a winner. All that needs to be done is get to the bottom line and do the deal. Bankers should understand the time value of money and get on with it.

The opportunity for Chase is very clear. Wells on the other hand might feel that more organic growth and more methodical steps is the prudent path to continued success. That’s perfectly understandable, but might be overly cautious in a very competitive environment. You either move forward or backward, you can’t stay in the same place.

Wells Fargo would benefit greatly from the increased scale and WaMu would benefit tremendously from better management, something that seems to have been degraded at WaMu over time. I think the institutional culture is a much better fit than JPM/WM would be so the transition would be smoother.

While JPM would benefit from not having the costs of new construction (mostly signage initially) WFC would actually be able to sell off some valuable real estate and recoup much of its up front costs. In many cases the WaMu branches might be superior situated than the WFC, so that the WFC branch might be the one to sell off.

I also think if Wells Fargo fails to act, they’ll have taken a major action just the same. Joining forces with WaMu would make a very formidable competitor for Chase or anyone else. Chase ($148 billion cap) is currently bigger than Wells ($107 billion cap), but adding WaMu’s $15 billion scales them up nicely. I think the Wells-WaMu combination is much better and offers greater rewards and opportunity.

Washington Mutual is probably worth much more then the current Wall Street appraisal but as long as it is floundering it won’t be appreciated. Washington Mutual should be stoking the M&A fire at full blast.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.

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Filed under: International markets, Management, Competitive strategy

Luxury automobile maker BMW AG revealed today its plans to slash another 5,600 jobs by the end of 2008 as part of a restructuring effort aimed at boosting company’s profits. Its decision is expected to bring annual savings of 500 million euros ($752 million) starting in 2009.

According to a BMW spokesman, part-time workers would take the hardest hit, with 5,000 fewer posts. Half of them had already been eliminated last year and the rest are set to be cut by the end of 2008. The restructuring plan also involves more than 3,000 full-time jobs, including 2,500 in Germany, and 600 other positions in other regions. Thus, the restructuring plan comes with a total number of 8,100 jobs cuts. This is 7.5% of BMW’s work force, which totals almost 108,000 workers.

Ernst Baumann, the company’s head of personnel, stated BMW may make more cuts if the dollar continues to decline. Baumann did not specify the total costs that the restructuring plan would bring, but he believes expenses will result in the “three-digit million” euro range.

BMW made an announcement at the end of December about a plan to slash its workforce as a part of an effort to lift its profits. However, the company had not confirmed so far the number of jobs cut, referring only to the inability to reduce expenses in some regions.

Norbert Reithofer, BMW’s new Chief Executive, also stated back in September of last year that the company plans to increase its productivity by at least 5% per year and to “focus the entire organization on the return on capital.”

Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.

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Filed under: Competitive strategy, China, Best Purchase (BBY)

Ideal Buy, Inc. (NYSE: BBY) continues to remain dominant in the U.S. when it comes to massive consumer electronics stores, but that doesn’t mean that’s ignoring other potentially lucrative markets. Six to eight new locations in the Shanghai area this year will help make China become its second largest market after the U.S., according to Best Purchase International chief Robert A. Willett.

China’s move up that important ladder will occur within three to five years. Ideal Buy already has a store in Shanghai and plans on a second in a “short period.” In fact, Best Purchase recently hired an exec dedicated just for picking retail location sites in Shanghai. Now, that means business!

Best Buy has been in China since 2003 but didn’t launch its first store until almost 18 months ago after much careful consideration about location. Best Buy’s business in China can’t match sales from its U.S. locations, but it is faster growing. Its Shanghai location has consistently ranked in the top 50 globally for sale revenue growth as well.

But it probably won’t be simple for Ideal Buy to create the massive market it expects in China. Existing retailer GOME has recently focused on acquisitions at the same time Best Purchase is delicately balancing relationships with Chinese vendors. Growing while keeping the balance happy will take time and considerable effort, but it’ll pay off for Best Purchase handsomely in the near future.

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Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), China, Japan

Yahoo! (NASDAQ: YHOO) may have a superior foothold in Asia than any other large world wide web company. This is driven by its holdings in Yahoo! Japan and Chinese e-commerce company Alibaba. According to The Wall Street Journal, “Depending on how their value is calculated, the stakes account for $9 billion to $14 billion of Yahoo’s value.”

The valuations are old news. What is not so old is that it is dawning on Microsoft (NASDAQ: MSFT) that having Asian allies may help the company fight off Google (NASDAQ: GOOG) in the fast-growing markets of the Far East. It is something that the world’s largest software company does not have now.

The Yahoo! board has a unique opportunity to talk up the strategic value of these holdings with shareholders in public and with Microsoft in private. The prevailing wisdom is that Yahoo! has no substitute other than to sell to Redmond, and that the price is the issue. Yahoo! management should be saying that the Microsoft bid does not take into account the value of having powerful partners in Japan and China and that these are worth several more dollars a share.

It is an argument that has the benefit of being true.

Douglas A. McIntyre is an editor at 27wallst.com.

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Filed under: Products and services, Competitive strategy, Apple Inc (AAPL), Wal-Mart (WMT), Target Corp. (TGT), Best Purchase (BBY)

Wal-Mart Stores, Inc. (NYSE: WMT) is the world’s largest retailer, and the largest U.S. retailer of music. The retailer sells more CDs than anyone, but that dominance is being threatened in a paradigm shift that’s been coming for years now: the digital download.

Apple, Inc. (NASDAQ: AAPL)’s iTunes on the internet music, video and motion picture store will likely surpass Wal-Mart as the largest music seller in the U.S. without a single physical product being sold some time this year. Research group NPD estimates that iTunes has moved past discount retailer Target Corp. (NYSE: TGT) and consumer electronics retailer Ideal Purchase, Inc. (NYSE: BBY)

“Digital sales were up close to 50% and CD sales were down 20 % last year … even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year,” according to NPD. As has been predicted for quite a long time, the CD, while still popular, is slowly fading away, although the transition to an all-digital music future in the U.S. is far from complete.

But, it’s happening — and with teens leading the way (but not owning credit cards in most cases), online music retailers need to make it easier for core customer groups to buy on the web. If each 15 year-old can go online and purchase music without a credit card in the future, the transition will only see more speed.

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Filed under: Products and services, Industry, Consumer experience, Rants and raves, Competitive strategy, Marketing and advertising

I read another blog recently that ranted and raved about the request record industry companies recently made to World wide web Service Providers to enforce anti-piracy on their servers and networks. The blog was not in favor of that move and I wholly concur that it is not the responsibility of another industry to make up for the problems facing the record industry. True, it would likely be prudent for ISPs to check for anti-piracy issues on their networks, but in the long run it has to be about keeping your own customers and not alienating others with threats against their privacy.

The British government seems poised to deal with the dynamic of this problem directly, after music industry trade groups there asked the government to take action. According to Billboard, the move to fight illegal file-sharing is “intended to ensure the prosperity of the country’s creative industries” by taking legislative action as early as 2009 if the music industry and ISPs don’t find a common ground. Legislators have also vowed to protect privacy in the face of these challenges. Unfortunately, the challenges of ISPs providing anti-piracy clean-up for the music industry does fly in the face of privacy issues, even if that means protecting the act of illegal file-sharing.

The Australian government has also taken a similar stance, but is keen to implement a “three-strike proposal” where illegal file sharers would be issued warnings before a suspension of access and eventual cancellation. Still, the plan would require ISPs to monitor user traffic and infringe on privacy issues, reports Billboard. World wide web industry trade groups in Australia have also defended the position of not adopting these types of policies or “taking responsibility of illegal operations on their networks” because “present legislation already covers copyright infringement, and these should be used against illegal downloaders.”

Whatever your thoughts on the position of the ISPs may be with regard to anti-piracy, this should not be read as advocating that activity. Simply put, it is nearly pathetic for the record industry to expect another industry to sacrifice its business practices because music is being illegally traded and shared. As others have pointed out, some responsibility should be taken by ISPs about regulating users who do break copyright law but “ratting” out users to the music industry isn’t the proper action either.

It is the duty of the record industry to figure out ways to make consumers want to pay for music. Obviously that is the real crux of these issues, the fact that consumers don’t find value in the music. At least that’s the idealistic hope on the part of this writer as to why consumers would illegally trade and share the products. It is obvious that no matter how much freedom the record industry gives digital stores to sell tracks without anti-piracy technology, the tactic is just not working. It’s been a bad year for anti-piracy technology, but that just means a good year for digital stores. While it is hard to see any return from how far things have gone, there’s a solution out there and illegal file sharing is not the answer.

In the end, the solution is also not going to be found by looking to blame other industry’s or even the consumer for not regulating illegal file sharing. ISPs are not responsible for the record industry’s problems. If anything, that industry has providing new markets and avenues of advertising for music, so to be bitten at might not be taken too lightly by ISPs. Consumers should not be illegally sharing, but they shouldn’t distrust their Internet service providers either.

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Filed under: Rumors, Rants and raves, Competitive strategy, JPMorgan Chase (JPM), Comerica Inc (CMA), Wachovia Corp (WB), Washington Mutual (WM), Wells Fargo (WFC)

It has been rumored for the past couple of months or so that J. P. Morgan Chase (NYSE: JPM) has been pondering the acquisition of downtrodden Washington Mutual (NYSE: WM) and might have had some preliminary discussions. I have been thinking that Wells Fargo (NYSE: WFC) might have more than a passing interest too.

I have had business dealings with all three financial companies, including stock ownership, loans, and multiple bank accounts. We’ve owned JPM stock in the past, but do not currently. We sold most of our WaMu stock last year but still own it in one account. We’ve never owned Wells, but of the three we would like to get into this one the most, at the right price, of course. I have written extensively about all three companies, so it is with more than a passing interest that I was thinking about M&A issues.

Chase and Wells both could make use of WaMu and gain financially but in different ways. Chase has a much more massive need to establish a presence on the West Coast. It has been expanding over time but its branch system is still weak compared to Wells and the other major banks. With its extensive branch system on the West Coast, WaMu would solve that problem fast.

Looking at Wells Fargo, which already has one of the largest foot prints west of the Mississippi, there is no real need for WaMu’s retail outlets. On the other hand, there would be tremendous strategic advantage to WFC if they could prevent JPM from achieving its goals, or at least slowing it down.

In my view, Wells would have one other benefit that Chase does not. While both banks would love to gain Washington Mutual’s customers, Chase would likely keep most of the retail branches and thus incur the cost of converting them. Wells on the other hand could probably shut down two thirds of the branches, sell the real estate and transfer the accounts to its closest branches. Wells has a lot of overlap that Chase does not.

If Wells bought out leases and sold off the commercial real estate, it would make the acquisition much more profitable. My sources tell me that the only negative would be the bad publicity associated with all the layoffs that would occur during the reorganization. That might be so, but some of those layoffs might occur anyway as WaMu adjusts to its current, lower level of business. Despite the unpleasantries of staff reductions, this too would contribute to WFC’s return on invested capital. This is something that shareholders and analysts alike would want to see.

Other banks like Wachovia Corp. (NYSE: WB) or Comerica Inc. (NYSE: CMA) might take a gander at WaMu for the same reasons as Chase, but I think they’ve enough on their plates already, and are not currently positioned for such a large deal.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.

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Filed under: Industry, Competitive strategy, Microsoft (MSFT), Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM)

The server virtualization business is the next large thing in corporate computing as it grants servers to run several programs where before they might have been able to run only one. That grants enterprises to save on hardware costs. The leader in the industry has been VMware (NYSE: VMW), which had its IPO less than a year ago. The company has had red-hot growth rates and is very profitable.

As is true in all things involving software, though, Microsoft (NASDAQ: MSFT) wants a piece of the action [subscription required]. It is about to launch software to compete with VMware. The name of the new product line is Hyper-V.

As VMware gets ready for the challenge from Microsoft, it is forming alliances with IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) to ship its software pre-installed on some of their servers.

According to The Wall Street Journal, “VMware customers aren’t ready to say they’ll switch, but seem to welcome the competition.” Microsoft’s new product is bad for VMware no matter how Wall Street wants to slice it. After hitting $125.25 post-IPO, VMW share are now below $59. The company has operating margins of 20% and is still growing at a rapid pace.

Microsoft knows how to enter a market: come in with a good product, tie it to Windows and price the new software to squeeze competitor margins. VMware is in for the fight of its life.

Douglas A McIntyre is an editor at 247wallst.com.

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Filed under: Earnings reports, Consumer experience, Competitive strategy, Home Depot (HD), Lowe’s Cos (LOW), Housing

After home improvement retailer Lowe’s Cos. (NYSE: LOW) posted a 33.4% decline in its fourth-quarter profit yesterday, it was its main competitor Home Depot Inc. (NYSE: HD)’s turn to step up to the plate and impress Wall Street. As Trey Thoelcke discussed, the world’s largest home improvement store chain managed to top estimates only once in the past six quarters, and current earnings numbers were not too encouraging either.

Home Depot reported that its quarterly profit slipped more than 27% to $671 million as the slumping U.S. housing market brought the first annual decline for the company’s sales. The retailer posted earnings of 40 cents a share, falling short of analyst estimates for a profit of 43 cents a share.

Looking at revenue, Home Depot saw an increase of 1.5% to $17.66 billion, up from $17.4 billion a year earlier, as the largest U.S. home-improvement retailer benefited from an extra week during the quarter. Excluding that, sales would have dropped 4.7%. Analysts forecast revenues of $18 billion for the quarter, according to Thomson Financial.

Continued consumer fears over the weak housing market and credit crisis put a curb on their spending on building and home goods supplies, resulting in an 8.3% decline in the company’s same-store sales. Average sales ticket also dropped by 2.3% to $54.96, compared with $56.27 a year ago.

Despite posting lower-than-expected earnings, Frank Blake, the company’s Chief Executive, stated that Home Depot’s progress on its “key priorities” during the past year “set the foundation for the long term health.” Blake expects a “challenging” environment through 2008 whose pressure could bring a decline of 4% to 5% for total sales, and a loss between 19% and 24% for full year continuing operations earnings. Analysts had forecast a drop of 7% to $2.11 a share for full-year profit.

Effects of the weak housing and credit markets are becoming more an more visible in earnings coming from companies that are directly affected by consumers’ weak appetite for home supplies. Although Home Depot plans to cut costs by reducing the number of new stores, it is not too clear how the company will manage to improve customers’ experience and gain back the lost ground. The obstacles may be even bigger as worries over a possible recession seem to be far from over.

Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.

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