Co-Founder Of Microsoft Drives Patent Dispute

They make up the common features of the Internet experience: instant NYSE updates, recommended news stories, supplemental videos along the side of your navigation bar.

Now taking a claim on these popular tech widgets is Microsoft's co-founder Paul Allen. He says he owns the intellectual property behind all these innovations, and he's demanding that some of the world's top Web companies pay it forward to use them.

Allen, a 57-year-old software mastermind, sued a sea of Silicon Valley companies on Friday. He targeted Internet giants such as Google Inc., Facebook Inc. and eBay Inc. based on having created their businesses around what he claims is his technology.

Paul Allen's legal action asserts that those three companies as well as eight others are utilizing patented technology developed over 10 years ago at his former Silicon Valley development center. The computer software pioneer did not actually develop any of the technology himself however owns the patents.

His Silicon Valley targets do not plan to go down so lightly. "This lawsuit against some of America's most innovative companies reflects an unfortunate trend of people trying to compete in the courtroom instead of the marketplace," a Google spokesman said.

Patent litigation as a whole is on the rise, in what is evolving into a lucrative endeavor. Ocean Tomo, a merchantile bank in Chicago that monitors the intellectual-property market, values the licensing market at up to $500 billion.

Allen's lawsuit comes at the heels of firms such as NTP Inc., which regulates and enforces non-tangible patents, and by many critics, have been coined "patent trolls". Courts have tried to make a presence in patent litigation, however with mixed results.

The four intellectual property patents addressed in the suit were created at Interval Research Corporation of Palo Alto, California. Allen financed the tech lab during the Internet bubble with roughly $100 million, however since a decade ago, the lab no longer exists.

Mr. Allen was unavailable for comment, according to spokesman David Postman, who said Mr. Allen's facility developed the technology that he claims to be his own. "We recognize that innovation has a value, and patents are the way to protect that," said Postman.

Mr. Postman also commented that the timing of the lawsuit was in no way related to the status of Allen's health or personal finance. Mr. Allen recently offered to donate the majority of his fortune. Last year, he was diagnosed with non-Hodgkin's lymphoma, but has successfully completed treatments and has no current problems.

"It sounds like the classic patent-troll case," said a Stanford Law School professor, who also has experience as a Nashville intellectual property. He mentioned that claims filed by owners of aged patents over technology, especially tech patents that are used so widespread, can be difficult to win.

Paul Allen's attorneys said a group has been reviewing his patent portfolio for years, evaluating what is relevant to the market while tightening the loose ends to complete the patent process. During that time, some of Mr. Allen's patents were sold or licensed.

Ron Laurie, a former intellectual property lawyer who now counsels businesses on patent licensing strategy, claimed Mr. Allen and the companies he owns have typically avoided the litigation process. "He's not been thought of as being in the troll community at all," said Mr. Laurie, who in the past has represented Mr. Allen in other concerns.

Legal professionals claim that an emergence in large settlements for patent holders in recent years have motivated owners to file infringement suits, rather than sell intellectual property, even when patents are several years old.

A perfect example occurred in July when NTP sued Microsoft, Apple Inc. and four other organizations over intellectual property patents involving the wireless transmission of email to PDAs and cellphones. Research In Motion Ltd., the maker of BlackBerry, paid NTP $612.5 million to settle the claim.

Nathan Myhrvold, former chief technology officer of Microsoft, has put a stamp on thousands of patents valued at over hundreds of millions of dollars. Mr. Myhrvold patents some of his inventions through his firm Intellectual Ventures in Seattle, but also invests in patents to license. A critical ingredient to successful patenting requires consulting with an experienced Nashville intellectual property law firm who can manage the legal complexities.

The companies named in Paul Allen's lawsuit are Google, Facebook, eBay, Apple, Yahoo Inc., AOL Inc., Netflix, Office Depot Inc., OfficeMax Inc., Staples Inc. and YouTube, a subsidiary of Google.

Noteworthy organizations not present in the defendants' list are Microsoft and Amazon.com Inc. Both companies Mr. Allen has personal and financial ties to. Mr. Postman denied comment on the list of defendants.

EBay said it was currently analyzing the claim and is planning an aggressive defense. "We believe this suit is completely without merit and we will fight it vigorously." a Facebook spokesman added.

Mr. Allen's lawsuit outlines violations of four IP patents for technology that are considered to be essential components of e-commerce and Internet search companies, in addition to being critical to the operations of the companies that use them.

One patent's technology enables a website to provide relevant suggestions to consumers for items related to what they currently have on their screen. The same technology allows social-networking websites to relate online activities and interests of its users.

A second key component involved in the dispute allows news readers to quickly pinpoint related stories to a particular topic. The other two patents enable ads, news updates or video images to flash on a user's computer screen, aside from their main activity.

Mr. Allen was the primary source of funds for Interval Research. During the companies prime, the facility employed over 110 professionals, "and was at the forefront in designing next-generation science and technology," the suit says. David Liddle, Interval Research's co-founder and a former Xerox Corp. researcher, could not be reached for comment.

The research pioneer was invested in a number of projects, with objectives to develop technology applicable to Mr. Allen's ventures in cable television and telecommunications. The company also focused on creating technology that could be licensed to investors and other companies.

According to Mr. Allen's lawsuit, in 1998 Interval Research was found listed in Google's "credits" site as an external collaborator and one of many sources of research funding for the founder's research that resulted in Google.com.

The creations of Interval Research extended from motion-detection technology used in video games to technology used for cellular voice-processing. The company dissolved shortly after its plans to commercialize its technology failed to resolve out as planned.

HP’s $1.8 Billion 3Par Offer Steps Up Its Bidding War With Dell

Bloomberg

Hewlett-Packard Co. escalated a bidding war with Dell Inc. yesterday, saying it would pay $1.8 billion for the computer-storage company 3Par Inc. and trumping an offer from Dell for the second time.

HP’s bid of $27 a share is 11 percent more than Dell’s $24.30-a-share offer, which 3Par had accepted earlier in the day. The public bidding kicked off on Aug. 16, when Dell said it would pay $1.15 billion, or $18 a share.

The escalating bids have boosted the price to about nine times the annual revenue of 3Par, which has lost money every year since going public in 2007. The premium reflects the urgency for both companies to use acquisitions to fuel growth and expand beyond personal computers. 3Par sells hardware and software that make it easier and cheaper to store information.

“One company wants to not only get it for themselves, but prevent a fierce competitor getting it,” said HP investor Mike Shinnick, who helps oversee $7.5 billion for Wasatch Advisors Inc. in South Bend, Indiana. “The real question is: Can you make that money off it going forward? It’s very questionable.”

After HP announced its latest bid, 3Par jumped 6.6 percent to $27.75 in extended trading yesterday, a sign investors expect the price to go up again. The shares had fallen 73 cents to $26.03 earlier on the New York Stock Exchange. 3Par, based in Fremont, California, had said it would pay Dell a $72 million termination fee if it accepts another acquisition proposal.

Proven Approach?

HP and Dell are chasing new areas of the growing market for data-center hardware and software, betting they can use their global sales forces to quickly ramp up revenue at 3Par, said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey.

“You just literally can target a wider addressable market,” she said. “The model has been proven to work.”

John D’Avolio, a 3Par spokesman, declined to comment. Dell spokesman David Frink said his company plans to act “in the best interest of customers and shareholders.” Dell has the right to match or exceed the offer within three days of 3Par saying it considers HP’s bid to be superior, he said.

HP, the world’s largest PC maker, would gain higher-end storage products, helping it package its servers, storage and networking equipment for corporate customers, said Jeff Fidacaro, an analyst at Susquehanna Financial Group in New York. For Dell, owning 3Par would mean a chance to sell its own storage systems, rather than reselling products from EMC Corp., he said.

Better for HP?

3Par is “not setting the world on fire” in terms of profitability, though it is one of the few attractive storage companies available to buy, EMC President and Chief Operating Officer Pat Gelsinger said yesterday at a press event. HP would likely derive more value from 3Par than Dell by offering the products through its sales force, Gelsinger said. Hopkinton, Massachusetts-based EMC, which leads the market for storage computers, competes with 3Par.

HP’s latest offer values 3Par at 262 times the company’s earnings before interest, taxes, depreciation and amortization during the past year. In 20 deals in the past five years, acquirers paid a median 15 times trailing Ebitda, according to Bloomberg data.

3Par’s stock jumped 45 percent on Aug. 23, after HP announced its earlier bid. The shares closed at $9.65 on Aug. 13, the last trading day before Dell’s initial agreement was made public. Dell fell 4 cents to $11.75 in Nasdaq Stock Market trading yesterday, while HP declined 2 cents to $38.22 on the New York Stock Exchange.

Hurd’s Departure

Although HP is more than three times as profitable as Dell, it’s coping with the loss of its chief executive officer. Mark Hurd exited on Aug. 6, following a probe that found he filed inaccurate expense reports to conceal a personal relationship with a marketing contractor. He had led the company on an acquisition spree of more than $20 billion, expanding into products ranging from networking equipment to smartphones.

Dell, meanwhile, is trying to rebound from shrinking market share in PCs and tightening profit margins. This month, more than 25 percent of shareholders withheld support for CEO Michael Dell as a director.

Kaushik Roy, an analyst at Wedbush Securities in San Francisco, has predicted that HP will end up with 3Par.

“HP is going to win,” he said this week. “HP has the balance sheet to buy anything.”

UnitedHealth Races McKesson in $11 Billion Tech Hunt

Bloomberg

 

UnitedHealth Group Inc., the biggest U.S. insurer, and McKesson Corp., the largest drug distributor, are vying for billions of dollars in added sales by bulking up their information-technology units.

The companies are expanding beyond their core business to help insurers cope with the health overhaul, which threatens to swamp industry computer systems, said Joanne Galimi, a Boston- based analyst for technology researcher Gartner Inc.

Bracing for added taxes and regulations, insurers are upgrading long-neglected systems used to enroll members, track care and process claims, Galimi said. They also face a 2013 switch to a new government-mandated system for classifying diseases. As a result, insurer spending on data technology will jump 24 percent by 2013, to $11.3 billion, according to a March report by IDC Health Insights, of Framingham, Massachusetts.

“Every health-care payer in the world needs an upgrade,” said Stephen Krupa, a founder of Psilos Group Managers LLC, a venture capital fund with $580 million invested in Click4Care and other medical companies. “You or I are talking about getting an iPad. They are still getting off mainframes.”

Insurers are seeking savings to offset costs from the legislation signed by President Barack Obama in March. The law calls for $240 billion in taxes and Medicare cuts on insurers over the next decade, while adding as many as 32 million customers. It also caps the amount of premiums spent on administrative costs, and bans denials of coverage based on preexisting medical conditions.

Potential Acquisitions

The technology push may spur acquisitions of a growing crop of software vendors catering to the industry, among them Click4Care Inc. and ZeOmega, Galimi said.

UnitedHealth, based in Minnetonka, Minnesota, bought two closely held software companies during the last five weeks to expand its Ingenix data unit. For McKesson, technology sales are likely to be the San Francisco-based company’s biggest growth area over the next four years, said Helene Wolk, an analyst at Sanford C. Bernstein & Co. in New York.

UnitedHealth, the biggest insurer by sales, rose 92 cents, or 3 percent, to $31.96 in New York Stock Exchange composite trading at 4:01 p.m. McKesson climbed 14 cents to $60.46. Both stocks have gained 6.8 percent in the past 12 months.

Insurers lag behind the banking industry, where customers routinely track accounts and make transactions online, Galimi said. That’s partly because many of the 1,300 U.S. health plans are nonprofits that haven’t had the resources to stay current, the analyst said. Consolidation has also left companies with multiple, often redundant systems, she said.

Paper Records

“So many health insurers have manual processes, workarounds, paper-based records,” Galimi said in a telephone interview. “The very big ones are doing better because they have dollars to spend, but they’ve also had more acquisitions under their belts, so they have more siloed systems.”

A Gartner survey of 60 insurers in December 2008 found 70 percent had at least two back-end claims systems. Thirty-two percent had four or more.

Health plans are also retooling to comply with ICD-10, a federally mandated system for classifying patients’ medical conditions. The change will add thousands of disease codes as of Oct. 1, 2013, said Maureen O’Neil, another Gartner analyst. Installing and testing software may take insurers as long as 2½ years, she said.

“Virtually every core application is going to need to be changed,” O’Neil said in a telephone interview.

Psilos Niche

That’s created a niche for entrepreneurs like Krupa, the venture capitalist, who sees a market in using information- technology to streamline a U.S. health system that spends $2.5 trillion annually.

Krupa’s Psilos fund sold ActiveHealth Management and its care-coordination software to Hartford, Connecticut-based Aetna Inc., the third-largest U.S. insurer, for $400 million in 2005. New York-based Psilos has investments in about 18 health-care companies today, among them Click4Care and Burlington, Massachusetts-based HealthEdge Software Inc., vendors that analyze patient data and organize benefits.

The companies have seen “unprecedented growth” in sales this year, said Robert Gillette, CEO at both. Click4Care, based in Powell, Ohio, makes software that sifts through prescriptions, electronic medical records, claims data and other information to identify patients at risk of developing a particular illness.

The company aims to help insurers flag the diabetic who hasn’t been taking insulin or the 40-year-old due for a prostate exam, Gillette said. It’s developing other programs that cater to patients and caregivers.

Texting Grandma

“If grandma’s had a hip replacement, you’d get a text message reminding you to drive her to physical therapy,” Gillette said. “We’re working on an iPad application so you can track her care.”

At some insurers, such “care management” work is still done by employees using “spreadsheets and sticky notes,” Gillette said. Click4Care’s programs do it automatically. HealthEdge makes software to track policy benefits and provider rates. Gillette declined to give specifics about either business’s sales or to comment on the potential for being acquired.

Health-plan executives “finally understand after quite a few years that they need to transform,” Gillette said. “A lot of them are looking at the technological transformation as a way to rally the organization.”

ZeOmega Growth

Closely held ZeOmega sells software used to manage more than 10 million customers’ medical care, up from about 7 million two years ago, Chief Financial Officer Nandini Ragaswamy said by telephone. She said the Frisco, Texas-based company expects “triple-digit growth,” spurred by an aging U.S. population and rising medical costs.

“Health-care reform is the event that set it off, although the underlying factors have been there for years,” said Ragaswamy, who founded ZeOmega with its CEO, her husband Sam. “The industry is coming to the conclusion that care management is going to be the critical solution to reduce health-care costs and still maintain quality.”

She declined to discuss the chance of an acquisition.

Insurers may look to buy vendors to streamline their own systems and to improve the data they get from doctors and hospitals, said David Larsen, an analyst at Leerink Swann & Co., a healthcare investment bank based in Boston. Among potential targets, he cited Portico Systems of Blue Bell, Pennsylvania; iHealth Technologies Inc. of Atlanta; and Benefitfocus of Charleston, South Carolina. All are closely held.

Ingenix Deals

UnitedHealth’s information-technology unit, Ingenix, said Aug. 16 that it would buy closely held Axolotl Corp., a San Jose, California-based creator of networks for doctors and hospitals to share medical data online. The insurer said July 22 that it had reached an agreement to acquire Picis Inc. of Wakefield, Massachusetts, a maker of software for emergency rooms and intensive care units. Terms of both deals were undisclosed.

Ingenix generated $1.13 billion in sales last year, up from $867 million in 2007. Health-technology and consulting are among UnitedHealth’s biggest opportunities for growth in California health insurance quotes, as the health law squeezes profit margins for traditional insurance, Chief Executive Officer Stephen Hemsley said in a July 20 conference call with analysts.

McKesson had $3.1 billion in technology sales last year, about 3 percent of total revenue. While insurers have cut technology budgets amid the recession, they’re working to automate as many administrative functions as they can, said Matthew Zubiller, a company vice president.

‘Hand-Holding’

Labor-intensive systems for preauthorizing care are prime targets, according to Zubiller.

“These systems need a lot of hand-holding,” he said in a telephone interview. “Every single authorization is touched by somebody.”

TriZetto Group Inc., a closely held rival to Ingenix and McKesson, has also seen sales grow, said Jeffrey Rideout, chief medical officer at the Greenwood Village, Colorado-based company. He declined to give specific figures. Insurers are rushing to comply with health-law mandates that take effect this year, among them a ban on lifetime benefit limits and extended coverage for some beneficiaries’ adult children, he said.

“People don’t understand how challenging this can be for insurers,” Rideout said in a telephone interview. “It’s not like you can go into the basement and flip a switch.”

Intel To Buy Security Firm McAfee For $7.68B

The Wall Street Journal

Intel Corp. agreed to buy computer-security software firm McAfee Inc. for $7.68 billion, as the chip maker moves increasingly into the software sector to support its expansion outside of the PC market.

The Silicon Valley giant will pay $48 for each share of McAfee, a 60% premium to Wednesday's closing price. The stock last traded at that level in 1999.

The acquisition is the latest in a string of deals aimed at consolidating formerly disparate parts of the technology sector. Tech giants dominant in particular areas of the industry are using acquisitions to grab footholds in faster-growing markets. Hewlett-Packard Co.'s  recent purchase of Palm Inc. was aimed at moving the world's largest PC maker into the smartphone sector. Meanwhile, Oracle Corp.  purchased Sun Microsystems last year to expand from selling software into providing a complete hardware and software package for corporate IT departments.

Intel's acquisition of McAfee, the company's largest-ever purchase, seeks to help the company expand into two new markets: smartphones, and the myriad electronic devices such as billboards, automated teller machines and others known as "embedded systems," that are increasingly connecting to the Internet, providing more personalized and interactive features.

Shares of McAfee were recently up 58% to $47.18--they were down 28% the past year through Wednesday--while Intel declined 2.5% to $19.10.

"With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online," said Intel President and Chief Executive Paul Otellini. "In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences."

McAfee, best known for its widely popular anti-virus software, has marshalled more resources to go after the quickly developing mobile market. It recently announced the purchase of mobile-device security company tenCube, a move that follows its purchase of Trust Digital, another mobile-security-software firm.

Intel, for its part, has been targeting the smartphone space with its Atom chip, which is widely popular in netbooks, but has yet to make waves in a cell phone market dominated by less power-hungry chips built by Qualcomm Inc. and others off of a design from ARM Holdings PLC.

The company has been targeting software firms to bring it into these new markets for some time. Last year Intel purchased software-maker Wind River Systems Inc. for $884 million to help move its Atom chip into embedded devices such as electronic billboards or automatic teller machines. By providing software, Intel makes it easier for customers to adopt its chips instead of those made by rivals.

Intel Chief Financial Officer Stacy Smith said in April that his company would be looking at software acquisitions to help it make more customized server and mobile seo products.

"In everything we do, software becomes more important," Smith told Dow Jones Newswires.

Intel expects the deal to "slightly" cut into earnings the first year after closing because of merger-related charges, and have little impact on the bottom line in the second year. A slight increase after those charges are seen in the first year.

The deal is Intel's second this week. Monday, Intel said it would buy Texas Instruments Inc.'s cable-modem product line for an undisclosed amount.

The acquisitions come as Intel last month reported its best-ever quarterly results in an ongoing rebound in the semiconductor market. For its part, McAfee's second-quarter earnings rose 38%, allaying concerns about its business after a weak first quarter. The company said sales grew sharply in North America, one of its key markets.

"The deal makes a lot of sense strategically over the long-term," said Patrick Wang, a chip analyst at Wedbush Morgan. He said that by integrating McAfee's security products, it's possible that Intel devices will soon be able to conduct real-time scanning for viruses and spyware, speeding up the process of protecting PCs and smartphones.

"From a technology standpoint, I really like it," said Wang.

Sony Develops Single Cable to Transmit Data and Power

International Business Times

Sony has announced the development of a single cable interface which would replace close to 22 cables used in smartphones to transmit power and data, said a statement.

The new development of transmitting both power and data over a single copper cable would replace the complicated set of ribbons used to connect a handset display to the body of a device.

The single cable interface will allow clamshell mobile model makers greater flexibility in design.

Traditionally separate wires are dedicated to carry audio, video, control signals and power. Sony's technology allows both power and data to carry on the same cable and also makes transmission faster at 940 Mbps.

"Sony's newly-developed 'single wire interface technology' has achieved bi-directional transmission of several kinds of signals, including video, audio and control signals, by using time division duplex and multiplex," said a statement by the company.

In addition, the DC power is supplied on the same signal cable using Sony's unique encoding technology with DC balance that "enables both DC power supply and high speed data to be transmitted within a limited frequency bandwidth."

With a current surge in the features an average smartphone carries and the high resolution displays it uses, resulted in a glut of cables to accommodate the flow of data and additional power. The bundle of cables took more space and made bending a cluster of wires more difficult, thus limiting designing.

Sony's technology will help designers incorporate greater flexibility, with the freed space which cables would otherwise consume. Also for after sales service it would provide a less complicated platform - sans the bundle of wires.

The inside of mobile will be aesthetically more refined to complement its exterior now.

Sony has not announced any new models built around this development but plans to implement the technology by licensing the IP to ROHM Co., Ltd., which has a track record in peripheral technologies.

Opposition Grows to FM Chip Mandate for Mobiles

PC World

 

A proposal by the National Association of Broadcasters (NAB) to require all mobile devices sold in the U.S. to include FM radio chips is meeting growing opposition from IT and mobile trade groups.

Six trade groups, including the Consumer Electronics Association (CEA) and mobile organization CTIA, sent a letter to congressional representatives Monday, asking them to reject the proposal, part of long-term negotiations between the NAB and representatives of the U.S. music industry on payments to performers for songs played over the radio.

The NAB proposal, made public Aug. 6, could harm the tech and mobile industries, even though they have stayed largely on the sidelines in the debate over so-called performance royalties, the letter said.

"It is simply wrong for two entrenched industries to resolve their differences by agreeing to burden a third industry -- which has no relationship to or other interest in the performance royalty dispute -- with a costly, ill-considered, and unnecessary new mandate," said the letter, sent to leaders of the U.S. House and Senate judiciary committees. "The proposed imposition of an FM chip mandate is not necessary for resolution of the dispute between performance artists and broadcasters."

Adding an FM chip to mobile devices would raise production costs and give consumers functionality they haven't demanded, said the letter, also signed by executives at TechAmerica, the Telecommunications Industry Association, the Information Technology Industry Council, and the Rural Cellular Association. Mobile devices that contain FM chips aren't top sellers in the U.S., the letter said.

The likely outcome is that "consumers would pay more for functionality they may not desire or ever use," the letter added.

CEA and CTIA have pledged to fight the NAB FM chip proposal. Monday's letter includes new trade groups opposed to the NAB plan.

The NAB and representatives of the music industry have been sparring for years about performance royalty payments, with the NAB suggesting payments aren't justified because radio play represents free advertising for performers. But negotiations kicked into high gear after the judiciary committees in both the House and Senate approved performance rights bills last year, even though the full Congress didn't pass the legislation.

The NAB and the MusicFirst Coalition, representing the Recording Industry Association of America and other groups, have been negotiating since then, and NAB released the proposed compromise this month. In exchange of about US $100 million in payments a year to the music industry, the NAB wants an FM chip mandate.

The NAB won't accept a performance rights compromise without the FM chip mandate, officials there said.

There would be several benefits to requiring FM chips in mobile devices, NAB officials said. The public could get timely emergency updates not available on most other music services available on mobile phones, and they receive a free, new music service, an NAB official said. Radio stations could grow their ratings, and mobile carriers could share in the profits from song tagging services, the NAB said.

In addition, an FM chip in mobile phones would free up network capacity for the mobile providers, since many users might opt for radio rather than Web-based music services such as Pandora, the NAB said. The cost of an FM chip when mass produced, would likely be "pennies" per mobile device, the trade group said.

"Countries around the globe have added radio-enabled cell phones that are increasingly popular with consumers," Dennis Wharton, executive vice president for communications at NAB, said in an e-mail. "Day in and day out, local radio stations serve as a reliable lifeline in times of crisis and weather emergencies. In an increasingly mobile society, it would be unfortunate if telco gatekeepers blocked access to public safety information offered by free and local radio."

The NAB's proposal isn't about public safety, the trade groups' letter said. Instead, it's about "propping up a business which consumers are abandoning as they avail themselves of new, more consumer-friendly options," the letter said.

NAB officials note that the nationwide radio audience increased over the past year, according to Arbitron.

TSMC Sales, Profits hit all-time High in Second Quarter

Bloomberg / Business Week

 

Chip giant Taiwan Semiconductor Manufacturing Co. (TSMC) reported its best quarterly net profit and sales ever in the second quarter, and predicted the third quarter will be even better.

The company's strong performance highlights the speed at which the chip industry is recovering from the lows reached last year as the global recession took hold. It also follows stellar results from other chip giants. Intel, the world's biggest chip maker, also reported a record-breaking second quarter as revenue, gross margin, operating profit and earnings per share all hit new highs.

TSMC is considered a technology industry bellwether for its size and the range of devices for which it makes chips. TSMC is the world's largest contract chip maker, manufacturing chips for global companies such as Texas Instruments, Qualcomm and Nvidia.

TSMC's net profit reached NT$40.28 billion (US$1.25 billion), up 65 percent over the same period last year and beating its former record of NT$34.49 billion from the fourth quarter of 2007. TSMC's sales rose 41 percent to NT$105.0 billion, another record. Its old sales record was NT$93.86 billion, also from the fourth quarter of 2007.

Demand for TSMC's chip manufacturing services was brisk globally, but also picked up in some new areas, including Japan. That country has been slow to outsource chip manufacturing to companies such as TSMC, but appears to have recently started to move in that direction.

"Last year I told you that mainland Chinese sales had overtaken our Japanese sales. This year, I'm happily surprised that Japanese sales have grown enormously. This year, in spite of China's continued high growth, Japan's growth makes it a still bigger area than China in our sales," said Morris Chang, chairman and CEO of TSMC, at its investors' conference in Taipei.

Chang said TSMC's view of the chip industry overall has improved so that he now forecasts 30 percent year-on-year revenue growth for the industry, and 40 percent growth for the contract chip industry.

TSMC also raised its forecast for spending on new factories and chip equipment this year to US$5.8 billion, from $4.8 billion previously.

Some analysts voiced concern over the heavy spending, particularly in light of increased spending by other chip makers, such as Samsung Electronics and TSMC's top rival, GlobalFoundries. Ambitious spending plans sometimes result in a chip glut, sending prices down.

Chang brushed away the concerns, saying that despite TSMC's speed in increasing spending and factory capacity so far this year, it has not been able to meet the needs of its customers. The company spent $3.1 billion in the first half of this year.

TSMC said its revenue will be even better in the third quarter, rising to between NT$109 billion and NT$111 billion, which will break its second quarter record. The company appears to be on target to fulfill a promise made by its chairman last year, that 2010 will be a record year for TSMC in terms of both sales and profit.

Chang also said TSMC plans to roll out chips made using 20-nanometer process technology in the second half of 2012. The company's most advanced chip technology currently is 28nm, which is ready for production. Chang said there will likely be no products in volume production this year using its 28nm technology.

He also said a partnership with Intel over its Atom processing cores remains on hold, and that there has been no news on that partnership for the past six months. Intel talked up its own plans to make system-on-chip products (SoCs) containing its Atom processing cores at the Intel Developer Forum in Beijing earlier this year. Previously, it appeared Intel would partner with TSMC on the venture.

Motorola, Verizon Team Up For TV Tablet Tied To FiOS Service-FT

Financial Times

 

Motorola is developing a digital tablet device that will allow users to watch television on it, as the US mobile phone group attempts to chip away at a market established by Apple’s popular iPad.

The device, which will have a 10-inch screen and operate on Google’s Android software, could launch as early as this autumn in the US.

It was expected to tie closely to Verizon’s FiOS digital pay-television service, people briefed on the plans said. Motorola also manufactures the TV set-top boxes for the FiOS television service.

The tablet market is seen as the next battle ground in the mobile devices war that has pit myriad device makers and Microsoft, Google and Research in Motion against Apple.

The iPad has become a hit for Apple, lifting the company from number seven to number three in the worldwide market for notebooks and other portable computers, according to Deutsche Bank.

The Motorola tablet’s integration with TV is a key competitive advantage against rival developers.

But the company that invented the cell phone has made no secret of its exploration of a market resurrected by the iPad.

By working with Verizon Wireless, which owns a 25 per cent share of the US television market where it operates and a 29 per cent share of broadband customers, Motorola will not be seen as upsetting the lucrative business of pay TV.

Sanjay Jha, chief executive of of the Illinois-based company’s mobile devices business, said in May Motorola was exploring tablet options using Google’s Android smartphone software.

“We’re very focused on participating in this convergence between mobility and home, and I actually think you will see some products from us in a very short period of time,” he said, without providing details.

Months ahead of the iPad’s launch this year, Apple failed to convince TV programmers to either lower the price of TV show sales or sell a package of the top shows that was seen undercutting traditional TV pay models.

In spite of Apple’s robust sales of tablets and phones, devices running Google’s Android operating system secured a 27 per cent market share in the US in the first six months of the year, ahead of iPhone’s 23 per cent share, according to audience tracking group Nielsen.

Like a flood of tablets set to hit the market, Motorola’s device aims to address other perceived weaknesses of the iPad.

It will support Adobe Flash, the software that underpins some 90 per cent of web videos. Apple has backed an alternative standard, HTML 5, on its iPhone and iPad devices.

Motorola’s device is expected to be thinner and lighter than the iPad and to let users share its wireless data connection with nearby devices.

It will be built with two cameras, one for taking photos and the other facing the user for video conferencing.

Motorola, Google and Verizon declined to comment.

3PAR Surges as HP Enters the Fray with Dell

Forbes

A potential bidding war between the tech heavyweights juices the firm's shares.

Hewlett-Packard said Monday it has submitted a bid to acquire 3PAR for $24 in cash, for a total of $1.6 billion. The bid is a 33% premium above the $18 per share Dell offered last week.

Shares of 3PAR are higher by 42%. Compellent Technologies, which is a provider of enterprise-class network storage solutions, is up 10.25%. CommVault, a data management software company, is up 13.6%. Isilon Systems ( ISLN - news - people ) is also higher on the 3PAR news, up 11.9%.

On 10 times average daily trading volume, Texas Pacific Land Trust  ( TPL -  news  -  people ) is up 13.8% today. And on more than 13 times average daily trading volume, SinoCoking Coal and Coke Chemical Industries is up 21%.

Hon Hai Pushes Into Chinese Market

The Wall Street Journal

 

TAIPEI—Hon Hai Precision Industry Co., whose Chinese factories produce many of the world's most popular electronics products, including iPads and iPhones is making a push to sell gadgets in China's own fast-growing consumer market.

Starting later this year, Hon Hai plans to open at least 10 large electronics stores in the Shanghai area by the end of 2011, under a partnership initiated last year with Germany retailer Metro AG. Louis Woo, the senior Hon Hai executive in charge of the retail push, outlined the plans in an interview.

Hon Hai also intends to open 45 to 50 branches of Cybermart, a small retail chain it purchased a decade ago but which has seen little growth. Cybermart currently operates 34 stores in 20 Chinese cities.

And Mr. Woo said the company plans to open another 200 electronics booths in hypermarkets in Chinese cities, while also providing funding for Chinese employees who return to their hometowns to start small shops through which Hon Hai can distribute products.

Hon Hai's retail push comes as it is facing challenges in its core manufacturing business after decades of rapid growth. The Taiwan-based company, which also uses the trade name Foxconn, assembles iPhones and iPads for Apple Inc., mobile phones for Nokia Corp., and personal computers for Hewlett-Packard Co., among others.

Its nearly one million employees and revenue of $61.9 billion last year makes it by far the world's biggest contract manufacturer of electronics, bigger by sales in the first quarter than its 10 biggest competitors combined, according to research firm iSuppli.

But having gained such dominance, Hon Hai must increasingly look far afield for growth. Revenue last year was flat, although analysts expect it to increase again this year. Meanwhile, Hon Hai is having to adjust its main business to rising costs. In June, Hon Hai announced sharp pay increases for its workers in the wake of a spate of employee suicides at its massive Shenzhen operations, where more than half of its nearly 900,000 Chinese staff work.

Hon Hai has said it is stepping up expansion of manufacturing operations in China's less expensive hinterland provinces, and it plans to discuss with clients the possibility of raising product prices to offset planned wage increases, which are part of a broader wave of wage increases affecting many foreign companies.

The flip side of rising wages in China is that workers will have more spending power, meaning Hon Hai's expansion in retail could enable it to benefit from the very trend that is squeezing its costs in the core manufacturing business.

"Wage increases will directly and definitely link to higher domestic consumption," said Mr. Woo, who is chairman of NCIH International Holdings Ltd., Hon Hai's retail subsidiary. Hon Hai's sales strategy is in line with that of the Chinese government's to reduce the economy's reliance on exports in favor of stronger domestic demand, he notes.

Mr. Woo said Hon Hai plans to distribute products it makes for big brands as well as goods from other factories. Hon Hai hasn't finalized plans with companies like Apple to determine exactly which of their products it will carry.

H-P and Nokia declined to comment. Apple didn't respond to a request for comment.

Mr. Woo says the company could offer start-up capital of about $25,000 each to the employees who want to return home to start mom-and-pop electronics shops in China's smaller cities and towns.

China's electronics market is already huge, with some $135 billion in sales expected this year, according to a forecast by Pully Brand Technology Consulting, a Chinese consultancy focused on electronics. China is the world's largest handset market by number of subscriber accounts and the second-largest personal-computer market after the U.S. by unit sales.

The retail market is dominated by big Chinese chains including Gome Electrical Appliances Holdings Ltd., which operates 726 stores in 198 Chinese cities as of the end of last year, and Suning Appliance Co., which aims to have 1,200 stores nationwide by year's end.

Some analysts doubt that retail is a good fit for Hon Hai. Most of its clients already have their own retail strategies in China, and building new sales channels takes time and requires different know-how than manufacturing, said Michael Palma, a senior analyst at IDC who covers electronics manufacturers.

"The question is how well they can operate a retail operation and drive new sales. Hon Hai has a poor track record on the retail side of things and the organization's DNA may not help with the effort," he said. Mr. Palma says Hon Hai has the resources to fund the operation, attract the right people, and sustain operations for a period of time. But if it can't drive sufficient sales, "it may just muddy the water for their clients' existing retail strategies."

Hon Hai doesn't disclose Cybermart's annual revenue, but analysts said it isn't a meaningful contributor to Hon Hai's revenue.

Mr. Woo said Hon Hai believes retail sales of electronics are growing fast enough that Hon Hai will be able to grab market share. He plans to focus on China's smaller cities, which he thinks will benefit from China's urbanization policies.

"We see there is a lot of opportunity to organize small format retailing, especially in the fourth, fifth and sixth-tier cities," he said.

Retail also lets Hon Hai capture more of its clients' spending. "It is almost like we can take care of the whole product sample from design development to manufacturing and to selling it to consumers," said Mr. Woo.

iPhone Maker Rallies Workers after China Suicides

Associated Press

 

Young workers who normally spend their days assembling iPhones and other high-tech gadgets packed a stadium at their massive campus Wednesday, waving pompoms and shouting slogans at a rally to raise morale following a string of suicides at the company's heavily regimented factories.

The outreach to workers shows how the normally secretive Foxconn Technology Group has been shaken by the suicides and the bad press they have attracted.

"For a long period of time I think we were kind of blinded by our success," said Louis Woo, special assistant to Terry Gou, the founder of Foxconn's parent company. "We were kind of caught by surprise."

The company has already raised wages, hired counselors and installed safety nets on buildings to catch would-be jumpers. Other changes include job rotation so workers can try different tasks and grouping dorm assignments by home province so workers don't feel so isolated.

However, Woo acknowledged there will be challenges in preventing such tragedies in a work force of 920,000 spread across 16 factories in China, all of which are to have morale boosting rallies. Woo said he expected the company will grow to 1.3 million workers sometime next year.

"No matter how hard we try, such things will continue to happen," he said.

The rally Wednesday took place at Foxconn's mammoth industrial park in Shenzhen, which employs 300,000 and where most of the suicides have taken place. The latest suicide - the 12th this year - occurred Aug. 4 when a 22-year-old woman jumped from her factory dormitory in eastern Jiangsu province.

Twenty thousand workers dressed in costumes ranging from cheerleader outfits to Victorian dresses filled the stadium at the factory complex, which was decorated with colorful flags bearing messages such as "Treasure your life, love your family." The workers chanted similar slogans and speakers described their career development at Foxconn.

As they filed toward the stadium for the rally, a flood of workers headed in the other direction to begin the night shift.

"In the past, from the time we started work until when we finished, we would not really have a break. But now we've been given time to rest," said 18-year-old worker Huang Jun. "If I can get off work early enough and have a little time for fun, then I feel a bit better and less stressed out."

Other workers said they wanted Foxconn to organize more recreational activities such as sports or karaoke.

Woo said it was common for workers to have 80 hours a month of overtime, but Foxconn was aiming to reduce the workload and become the first company in the industry to keep overtime to a maximum of 36 hours a month - as required by Chinese law.

Foxconn, part of Taiwan's Hon Hai Precision Industry Co., has built itself into the world's largest contract maker of electronics by delivering quality products on thin profit margins for customers including Apple Inc., Sony Corp., Dell Inc., Nokia Corp. and Hewlett-Packard Co.

Labor activists, however, say that success has come in part from driving workers hard by enforcing a rigid management style, operating a too-fast assembly line and requiring excessive overtime. The company denies that it treats employees inhumanely.

The troubles at Foxconn came to light amid broader labor unrest in China and highlighted Chinese workers' growing dissatisfaction with the low wages and pressure-cooker working conditions that helped turn the country into an international manufacturing powerhouse.

One activist said the rally Wednesday was unlikely to boost morale and does not replace the need for more thoroughgoing reforms.

"I don't think today's event is going to achieve anything except provide a bit of theater," said Geoffrey Crothall, spokesman for the China Labor Bulletin, a labor rights group based in Hong Kong. "Basically what Foxconn needs to do is treat its workers like decent human beings and pay them a decent wage. It's not rocket science."

HP to Buy Software Security Company Fortify

Reuters

HP announced this morning that it’s acquiring Fortify, a company that specializes in software security. The terms of the deal were not disclosed.

The purchase would allow HP to offer a way for businesses to “reduce business risk, meet compliance regulations and protect against malicious application attacks by integrating security assurance.” It would also give customers the best of both worlds in software security — Fortify specializes in static application security analysis (scanning software for flaws or malicious code before deploying), while HP is more familiar with dynamic security analysis (scanning code while its live).

The two companies previously worked together on Hybrid 2.0 (PDF link) — which HP calls “The Next Generation of Integrate Static and Dynamic Security Analysis.” The union will push development of this technology even further.

HP plans to run the company as a standalone unit, and it will eventually be integrated into its Software and Solutions business.

Based in San Mateo, Calif., Fortify was founded in 2003, and received initial funding by Kleiner, Perkins, Caufield and Byers.

For Apple Suppliers, Pressure to Win

The Wall Street Journal

Indictment Alleging Employee Kickback Scheme Highlights the Value of Information in Race for Prestigious Contracts

Allegations of a kickback scheme orchestrated by an Apple Inc. employee underscore the pressures on companies that hope to serve as suppliers to the fast-growing Silicon Valley giant.

Paul Shin Devine, a global supply manager at Apple, was accused in a federal grand jury indictment with receiving more than $1 million in kickbacks from six Apple suppliers in Asia. Mr. Devine, who was arrested Friday, was charged with offenses that include wire fraud, money laundering and unlawful monetary transactions. The indictment also names Andrew Ang, an employee of one of Apple's suppliers, who is accused of wire fraud and conspiracy.

Apple also named Mr. Devine in a civil suit filed Friday in U.S. District Court in San Jose, Calif., that includes allegations of fraud and violations of racketeering laws. He is scheduled to make a court appearance on Monday.

"Apple is committed to the highest ethical standards in the way we do business," said an Apple spokesman, adding that it has "zero tolerance for dishonest behavior inside or outside of the company."

Mr. Devine, of Sunnyvale, Calif., couldn't be reached for comment. Arlette Lee, an agent for the Internal Revenue Service, confirmed that it conducted the investigation jointly with the FBI and Mr. Devine was being held in an undisclosed location by the U.S. Marshals Service.

Ms. Lee said Mr. Devine didn't yet have a defense attorney. She declined to comment on Mr. Ang's whereabouts. Mr. Ang, of Singapore, couldn't be reached for comment. The FBI and the U.S. Marshals Service didn't return calls seeking comment.

According to the indictment and the civil suit, Mr. Devine came up with an elaborate scheme in which he supplied companies such as Cresyn Co. in South Korea, Kaedar Electronics Co. in China and Jin Li Mould Manufacturing Pte. Ltd. in Singapore with confidential information that would let them negotiate favorable contracts with Apple. The companies provided goods such as mechanical parts, tooling and fixtures in connection with products that included Apple iPods and iPhones, according to the documents.

The allegations point to the high financial stakes for suppliers, which made regular payments to Mr. Devine in exchange for information that would help them in dealing with Apple—including Apple's sales volume forecasts, product specifications, competitors' target prices and bids, according to the indictment and Apple's complaint. In a correspondence with Jin Li Mould, for example, Mr. Devine recommended that it offer Apple a price of two U.S. cents for a part, in between the one cent that Apple desires and the four cents submitted by a competitor.

A spokesman for Cresyn, an earphone maker in South Korea, on Monday expressed regret about the situation but said that its contract with the Apple employee was "not illegal."

Jin Li and Cresyn couldn't be reached for comment. Calls to Kaedar Electronics' China office went unanswered Sunday. A spokesman for Pegatron Corp., the manufacturing subsidiary of Asustek Computer Inc. of Taiwan, said Pegatron acquired Kaedar in late 2008 or early 2009. The Pegatron spokesman, Charles Lin, said he wasn't aware of the indictment or lawsuit against Mr. Devine. The Wall Street Journal previously reported that Pegatron is working on an iPhone for a second mobile standard, CDMA, for Apple.

The indictment and the civil suit also suggest the effort Mr. Devine made to avoid detection at a company well known for its tight security. Mr. Devine corresponded with the suppliers through Hotmail and Gmail accounts that he created, even telling one contact that the "Apple IT team will randomly scan email for suspicious email communications for forecast, cost and new model information," according to the indictment.

Mr. Devine asked for payments in traveler's checks and opened as many as 14 bank accounts in the U.S. and overseas, some of which were in his wife's name and a corporation that he set up called CPK Engineering Inc., the indictment alleged. The document states he requested that payments be wired in amounts less than $10,000 to avoid detection and used code words such as "sample" instead of "payment" to further disguise the transactions. Mr. Devine shared part of the money with Mr. Ang, who was an employee of Jin Li, and helped broker deals with Jin Li as well as others, the document alleges.

Apple's lawsuit said Mr. Devine began working for Apple in July 2005 as a manager responsible for selecting and managing relationships with companies that supply Apple with parts and materials for iPods and iPod accessories. His profile on networking website LinkedIn said he graduated from the Sloan School of Management at the Massachusetts Institute of Technology in 2005 and worked at testing equipment maker Teradyne Inc. from 1998 to 2005.

Apple also stated, in its complaint, that the company began investigating Mr. Devine last April for a possible violation of its corporate policy and found a cache of suspicious e-mails from Hotmail and Gmail accounts in his company laptop that contained discussions with suppliers that included confidential corporate information and acknowledgments of payments received.

The Cupertino, Calif., company said these activities apparently took place from October 2006 until the present. The federal indictment said the alleged scheme took place no later than February 2007.

IBM to Buy Unica for $480 Million to Gain Software

Bloomberg

 

International Business Machines Corp., the world’s largest computer-services provider, agreed to buy Unica Corp. for about $480 million to gain technology that lets customers build more targeted marketing campaigns.

Unica shareholders will get $21 a share in cash, Armonk, New York-based IBM said today in a statement. That’s more than double the stock’s closing price yesterday.

IBM Chief Executive Officer Sam Palmisano said this year he is planning to spend about $20 billion on acquisitions in the next five years. The software unit, IBM’s most profitable, will make up about half of its earnings in 2015, the company said in May. The unit has made about 60 acquisitions since 2003.

Unica, based in Waltham, Massachusetts, makes software that helps organizations analyze and predict customer preferences, helping their marketing efforts.

“Done well, marketing becomes less of an annoyance and more of a service,” Craig Hayman, general manager of IBM’s Industry Solutions unit, said in an interview.

Unica has 500 workers and its customers include EBay Inc. and Best Buy Co. It helped ING Groep NV customize its marketing across websites and branch offices to appeal to individual preferences, said Yuchun Lee, chief executive officer of Unica.

“We help make sure the messages are personalized and relevant,” said Lee.

IBM said it expects to close the deal in the fourth quarter.

Oracle's Ellison Says Ouster of Hurd Like Apple Firing Jobs

Bloomberg

Oracle Corp. Chief Executive Officer Larry Ellison said Hewlett-Packard Co.’s board was wrong to force the resignation of CEO Mark Hurd, comparing the move to the firing of Steve Jobs in the 1980s.

In a letter to the New York Times, Ellison said, “The HP board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago.”

Hurd left HP last week after a contractor named Jodie Fisher, who helped organize executive events, made a claim of sexual harassment against him. While the board determined that he didn’t violate the harassment policy, it found that he made inaccurate expense reports and concealed a personal relationship with Fisher, a former actress and reality TV contestant.

“In losing Mark Hurd, the HP board failed to act in the best interest of HP’s employees, shareholders, customers and partners,” Ellison, a friend of Hurd, said in the letter. “The HP board admits that it fully investigated the sexual harassment claims against Mark and found them to be utterly false.”

According to Ellison, the board was split 6-to-4 over whether to disclose the sexual-harassment claim. The directors later decided to make the decision unanimous, Ellison said.

Mylene Mangalindan, a spokeswoman for Palo Alto, California-based Hewlett-Packard, said the board was unified in seeking Hurd’s resignation for violations of HP’s business- conduct standards.

‘Only Vote’

“As the company stated previously, the board voted unanimously for Mr. Hurd’s resignation,” she said. “And that was the only vote the board took on this issue.”

Karen Tillman, a spokeswoman for Redwood City, California- based Oracle, didn’t immediately respond to a request for a copy of Ellison’s letter.

“Unless he’s a member of this board of directors and has a track record where it counts, his opinion should be taken with a grain of salt,” said HP investor Michael Cuggino, president of Permanent Portfolio Funds, which owned 713,000 shares of HP as of last week. “We are monitoring developments and continue to determine whether HP stock is worthy of us holding it in the long term.”

HP, the world’s largest personal-computer maker, said Hurd submitted expense reports that hid his relationship with Fisher. The expenses, which ranged between $1,000 and $20,000, were for meals and travel, and Hurd intends to pay back the total, according to a person familiar with the matter.

No Affair

Fisher didn’t have “an affair or intimate sexual relationship” with Hurd, she said in a statement released by her lawyer, Gloria Allred.

Allred described Fisher as “a single mom focused on raising her young son. She has a degree in political science from Texas Tech and was recently the vice president of a commercial real estate company.”

Fisher worked on the House Select Committee on Narcotics Abuse and Control, Allred said. Fisher also has appeared as an actress in such films as 1992’s “Intimate Obsession,” “Body of Influence 2” and “Sheer Passion,” according to her Internet Movie Database page, which lists her age as 50.

Cathie Lesjak, HP’s chief financial officer, took over as interim CEO last week while the Palo Alto, California-based company seeks a new leader.

Apple Inc. fired Jobs in 1985 after he clashed with CEO John Sculley. He returned to the company 12 years later to lead a comeback, building it into the most valuable technology business in the world.

“That decision nearly destroyed Apple and would have if Steve hadn’t come back and saved them,” Ellison wrote.

Cisco Falls After Sales Forecast Misses Analysts' Estimates

Bloomberg

 

Cisco Systems Inc., the world’s largest maker of networking equipment, fell as much as 12 percent in Nasdaq trading after forecasting sales that missed analysts’ estimates and saying the recovery may be slowing.

The stock had its biggest intraday drop in more than three months, falling $2.73 to $21 at 9:30 a.m. New York time on the Nasdaq Stock Market. Revenue in the current quarter will be between $10.64 billion and $10.83 billion, the San Jose, California-based company said on a conference call. Analysts surveyed by Bloomberg had estimated $10.95 billion.

Spending by global companies on information technology equipment will slow to 4 percent next year as the economy weakens, according to Goldman Sachs Group Inc. While Cisco is expanding into more than 30 new markets, the company said concerns about the European economy and job growth in the U.S. caused it to be conservative in its forecast for growth in the fiscal first quarter.

“There are obviously headwinds,” said Catharine Trebnick, an analyst at Avian Securities Inc. in Boston, who has a “positive” rating on the shares. “The growth to get back to a normal economy is slower than anticipated.”

Juniper Networks Inc., the second-biggest networking-gear maker, fell as much as 9.7 percent on the New York Stock Exchange. JDS Uniphase Corp., the maker of fiber-optic equipment, slid as much as 9.7 percent on the Nasdaq and storage-computer maker NetApp Inc. lost as much as 10 percent.

Unlikely Double Dip

Chief Executive Officer John Chambers, 60, said the company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy. While many of its customers were planning on 2 percent growth in the second half of the calendar year, the pace of the recovery in the U.S. and Europe was less clear, Chambers said. That doesn’t mean the company expects the economy to worsen, he said.

“We’re not making a call on the economy going down,” Chambers said yesterday on a conference call. “I think the probabilities on a double dip, or whatever you want to call it, are relatively low.”

Fourth-quarter sales climbed 27 percent to $10.8 billion, the company said in a statement. Analysts had predicted $10.9 billion in the period ended July 31. Net income jumped 79 percent to $1.94 billion, or 33 cents a share, from $1.08 billion, or 19 cents, a year earlier.

Excluding some costs, fourth-quarter profit was 43 cents a share, above the 42-cent average estimate.

“There is some growing evidence that the economy is starting to have an impact,” said Erik Suppiger, an analyst at Signal Hill Capital Group in San Francisco. He has a “buy” rating on the shares and doesn’t own them.

Billions for Acquisitions

Investors look to Cisco as an indication of the health of the technology industry because the company dominates the market for routers and switches, products that direct the flow of Internet traffic. Large companies account for most sales of switches, while phone and Internet-service providers typically buy the more expensive routers.

Cisco took advantage of the economic slump by making acquisitions. It paid more than $4.5 billion to buy seven companies since the start of 2009 as businesses delayed spending on infrastructure during the recession.

The acquisitions of Tandberg ASA, which sells lower-cost videoconferencing products, and Pure Digital Technologies Inc., which makes the Flip video camera, were aimed to position Cisco for faster growth as the economy recovers.

By promoting video cameras and videoconferencing gear, the company aims to generate even more Internet traffic, increasing demand for its routers and switches. Global data traffic probably will more than double every year through 2013, according to Cisco.

Hiring Workers

Cisco said it hired 2,000 workers last quarter and would add an additional 3,000 to help its burgeoning businesses grow globally. That signals confidence in a recovery, said Simon Leopold, an analyst at Morgan Keegan & Co. in New York.

“There’s an element of good news in this forecast,” said Leopold, who rates the shares “outperform” and doesn’t own them. “This is a company that’s hiring, not firing.”

HP Drops as Hurd Quits, Leaving Lesjak Slowing Growth

Bloomberg

Cathie Lesjak, who took over Hewlett- Packard Co. temporarily after Mark Hurd quit last week, inherited a growth slowdown and a senior staff who may be distracted by jockeying for the top job.

Lesjak addressed reporters and analysts twice in her three days as interim chief executive, seeking to play down concerns about the shakeup. Hurd resigned after a probe found inaccurate expense reports and a personal relationship with a contractor named Jodie Fisher, who is a former actress and reality TV contestant. The stock fell more than 9 percent on Aug. 6 after the announcement.

Going into what has been HP’s biggest quarter, the computer maker forecast sales of $32.5 billion to $32.7 billion. That would be up about 6 percent from a year earlier, a slower rate than the past three quarters. The CEO search makes running the operations more complicated. Several outsiders will be considered for the CEO post, along with executive vice presidents Todd Bradley, Dave Donatelli, Ann Livermore and Vyomesh Joshi, said Abhey Lamba, an analyst at ISI Group.

“If one of them gets the job, what are the chances the other three stay on? That is the question HP has to deal with,” Lamba said. The New York-based analyst recommends buying the shares, which he doesn’t own himself.

Out of the Running

Lesjak, 51, took herself out of the running for the permanent post. The company’s goal is to find the best candidate for the job, she said.

Hurd’s replacement will have to follow through on his five- year run of dominating the personal-computer market and expanding into new areas. Under his guidance, Palo Alto, California-based HP unseated Dell Inc. in PCs and undertook more than $20 billion in acquisitions, pushing deeper into computer services, networking equipment and smartphones.

Candidates from outside HP include Steve Mills, who has run the software group at International Business Machines Corp. for a decade and recently took over the hardware division, and former Oracle Corp. executive Ray Lane, who’s now a managing partner at Kleiner Perkins Caufield & Byers, according to analysts and recruiters.

Hewlett-Packard dropped 5 cents to $46.30 in regular New York Stock Exchange on Aug. 6. The shares have dropped 10 percent this year.

In May, Hurd reported quarterly sales that were about $1 billion more than analysts estimated. Revenue growth accelerated to 13 percent from the year earlier as the company shook off the recession. In the preliminary report for last quarter, which HP will release officially on Aug. 19, the company pegged sales growth at 11 percent.

Lower Forecast?

Its forecast for the current quarter suggests that management is being more conservative, possibly because of the CEO change, Lamba said.

The company investigated Hurd after receiving a letter from Fisher’s lawyer on June 29. Hurd turned the letter over to HP General Counsel Michael Holston within roughly a half-hour, according to a person familiar with the situation.

While the company determined that he didn’t harass Fisher, it found that she received numerous inappropriate payments from HP during her two years as a marketing contractor. Hurd and Fisher settled the case out of court, according to her lawyer, Gloria Allred.

The woman’s job was to organize forums for CEOs and chief information officers that gave customers access to Hurd and other HP executives. She would gather background information on invitees and introduce executives to one another.

Acting Career

Fisher didn’t have “an affair or intimate sexual relationship” with Hurd, she said in a statement released by her lawyer. Allred described Fisher as “a single mom focused on raising her young son. She has a degree in political science from Texas Tech and was recently the vice president of a commercial real estate company.”

Fisher worked on the House Select Committee on Narcotics Abuse and Control, Allred said. Fisher also has appeared as an actress in such films as 1992’s “Intimate Obsession,” “Body of Influence 2” and “Sheer Passion,” according to her Internet Movie Database page, which lists her age as 50.

HP said Hurd submitted inaccurate expense reports that concealed his personal relationship with Fisher. The expenses, which range between $1,000 and $20,000, were for meals and travel, and Hurd intends to pay back the amount, according to a person familiar with the matter.

Ethical Guidelines

The investigation was led by Holston, along with outside counsel, under the supervision of the board, according to a person with knowledge of the situation.

The board’s nominating and governance committee, which consists of board members Lawrence Babbio, Sari Baldauf, Lucille S. Salhany and G. Kennedy Thompson, is responsible for enforcing HP’s standards of business conduct, a set of ethical guidelines for employees that HP said Hurd violated.

In a conference call yesterday, Lesjak said Hurd’s resignation won’t affect customer relationships and that the depth of the company’s management is the best in its history. HP’s success over the past five years has been a team effort, not just Hurd’s doing, she said.

“There’s no question he did a very good job,” Lesjak said. “But he doesn’t do everything. He was one person.”

Sony, Panasonic TVs Star in Price Battle in China Showrooms

Bloomberg

 

Sony Corp.’s and Panasonic Corp.’s ambitions for higher earnings this year depend on convincing Yin Weiguang, a retired construction worker in Beijing, that he chose the wrong television.

“I don’t really care about fancy features,” said Yin, 55, who paid 2,799 yuan ($413) for a 32-inch set made by Skyworth Digital Holdings Ltd. “I just use it for basic entertainment: watching news, weather forecast and TV series.”

Sony and Panasonic, the world’s two largest makers of consumer electronics and Sony camera batteries, are slashing some TV prices by a third in China after being outsold six-to-one by Shenzhen-based Skyworth. Sony aims to double TV shipments in China this fiscal year, and Panasonic expects 50 percent growth in the world’s second- largest market for flat-panel TVs.

“The price battle in China will likely intensify as local manufacturers, South Korean makers and Japanese companies all fight for market share,” said Yoji Takeda, who heads the Asian equity management team at RBC Investment (Asia) Ltd., which oversees $1.1 billion. “Prices will probably continue falling with increased market supply during the second half.”

In December, Sony offered a 32-inch set for 3,000 yuan, or 33 percent off the previous price for that size, targeting customers in regional cities and rural districts, said Yuki Shima, a spokeswoman for the Tokyo-based company. To help cut costs, Sony has increased outsourcing of TV production to Foxconn Technology Group, the world’s largest contract manufacturer of electronics.

50 Percent Cut

Panasonic, the world’s biggest maker of plasma TVs, may cut prices of some models in China as much as 50 percent this year, Hitoshi Otsuki, senior managing director of the Osaka-based company’s overseas operations, said in an interview last week.

“The market is totally different from the U.S. and others,” Otsuki said. “In China, domestic manufacturers are very powerful, especially in low-end products. The smaller sets are the fastest-growing area and the most difficult for us.”

Sony slipped 0.7 percent to close at 2,681 yen in Tokyo, narrowing its gain this year to 0.4 percent. Panasonic fell 1.2 percent, extending its loss in 2010 to 17 percent. Skyworth Digital dropped 0.4 percent at the midday break on the Hong Kong Stock Exchange.

Biggest Flat-Panel Market

Sales of liquid-crystal-display TVs in China will rise 15 percent to 45.5 million next year and overtake North America shipments, according to DisplaySearch estimates. China will become the biggest flat-panel TV market, including plasma sets, in 2012, according to the Austin, Texas-based researcher.

Skyworth is the market leader in China with a 15 percent share, followed by domestic rivals Hisense Electric Co. and TCL Corp., according to AVC Consulting in Beijing.

Japan’s Sharp Corp. was the top non-Chinese vendor with 4.9 percent, followed by Samsung Electronics Co. and LG Electronics Inc. of Seoul. Sony and Panasonic, the maker of Viera-brand TVs, each had 2.4 percent.

“Sony has started to take more serious action in China,” Shima said, citing the introduction of the lower-priced model in December. “We need to become sensitive about changes on products and business models for China.”

A price war may reverse the optimism sparked last month after the Japanese companies increased profit forecasts, said Yuuki Sakurai, chief executive officer of Tokyo-based Fukoku Capital Management Inc. Sony and Panasonic on July 29 cited better-than-expected sales of flat-panel TVs for raising their full-year projections, sending shares of both companies higher in Tokyo trading the following day.

Sony estimates 60 percent growth in worldwide TV sales by volume and Panasonic 35 percent.

“There’s no way Sony and Panasonic can compete with Chinese producers in terms of prices,” Sakurai said. “Even the South Koreans are struggling. Chinese consumers aren’t very keen on top-quality products.”

Samsung, the world’s largest TV maker, said last month that falling set prices may erode profitability this quarter. The company intends to keep prices above those of Chinese producers.

“We will stick to a strategy that will make people aware of our premium image,” said Chenny Kim, a spokeswoman at Suwon, South Korea-based Samsung. “We won’t compete with local companies in pricing.”

Skyworth’s annual shipments in China rose 12 percent to 7 million units in the fiscal year ended March 31 from a year earlier, the company said April 19. Revenue from the business increased 55 percent.

Competition, What Competition?

Skyworth, whose shares trade in Hong Kong and Frankfurt, isn’t concerned about international competitors, said Shen Jian, a spokesman. Brands from abroad account for about a quarter of the TVs sold in China, according to DisplaySearch.

“Domestic branded TVs are cheap and durable,” said Yin, who receives a monthly pension of about 4,000 yuan.

A 40-inch, international-brand TV sold for an average of about $902 in the second quarter, or about 33 percent more than Chinese marques, according to DisplaySearch.

“Our advantage is we are a local brand,” Shen said. “We don’t worry about the competition at all.”

Still, the price cuts may be helping overseas companies make inroads. Chinese producers’ combined market share fell to 76 percent in the first quarter from 83 percent the previous three-month period, according to Hisakazu Torii, a Tokyo-based analyst at DisplaySearch.

Value For Money

Liu Lin, 29, said non-Chinese TVs are worth the extra cost.

“The quality of Sony’s picture is really good,” said Liu, who bought a Sony 46-inch Bravia set for 5,999 yuan, or more than half her monthly pay. “Quality and price are of the same importance in buying a TV set.”

Japanese TV makers also face the hurdle of a stronger currency that’s giving them less room to cut prices than South Korean rivals. The yen has gained about 7.4 percent against the yuan this year, while the Korean won has weakened 1.2 percent.

They may get a boost from the falling prices of flat panels and used monitors, typically the costliest TV component. LG Display Co., the world’s second-largest LCD maker, last month forecast that panel prices would decline an unspecified amount through August.

“Price is my top concern given I’m not that well-paid,” said Pan Ying, who earns about 5,000 yuan monthly at a Beijing health-care company. “I’ll consider a foreign brand if the price is good.”

Sam's Club to Use Wi-Fi to Push TV's

The Wall Street Journal

Customers to Get Unfettered Internet Access to Test Devices—and Check Up on Competitors' Prices

This holiday season, Sam's Club is making a big bet on Internet-connected television sets—and hopes that providing free Wi-Fi in its stores will help draw customers to the new technology.

The Wal-Mart Stores Inc. membership warehouse chain's more than 500 clubs will be outfitted with Wi-Fi by November. The move is testament to Sam's Club's high hopes for Internet TV sets and other Web-enabled devices this holiday shopping season.

By providing Wi-Fi, Sam's Club says it hopes to help customers better understand such products, which are still relatively new to the market. "This will allow a member to walk up to a Samsung LCD Internet-enabled TV and see how to find his Facebook page or stream video from Vudu," said Sam's Club Chief Executive Brian Cornell in an interview. "It is an intimidating category with lots of complexity."

But Wi-Fi also will allow Sam's Club shoppers more reliable Internet access on their smartphones in the warehouse, where they can find additional information about what they are buying or check competitors' prices. AT&T Inc. is providing the network, accessible to any Sam's Club member through a few key strokes, according to Michael Chaney, Sam's senior director of technology services.

Mr. Cornell said Sam's Club is "very comfortable" with its members' checking competitors' prices.

Consumer-electronics experts said they expect in coming months to see more retailers set up Wi-Fi in their stores to better demonstrate how products work. Wi-Fi is available at Apple Inc. stores, at Best Buy Co., and at stores owned by the consumer electronics chain TigerDirect Inc., which purchased the CompUSA brand in 2008.

"There's clearly a lot of need for Internet access in retail stores," said Stephen Baker, consumer electronics analyst at NPD Group, a market research firm. Retailers spend "all that money to put information online, so they want to make sure customers get the benefit of that, regardless of where they are shopping," he added.

Internet-connected sets accounted for 11% of all TV sales in the first six months of the year, and that figure is expected to grow, according to NPD.

Shoppers have been able to access the Internet via smartphones in stores without the aid of Wi-Fi, but adding the service—which provides wireless high-speed Internet service within a relatively small radius, or hot spot—removes dead zones and increases the reliability for Internet access throughout the store.

Retail analysts said Wi-Fi will be an important addition at a retail chain such as Sam's Club, known for low prices but a limited amount of sales help. Mr. Cornell said Sam's Club has beefed up consumer-electronics training and also began offering a 24-hour phone service where members can access information and assistance from tech experts.

Best Buy, the largest seller of consumer electronics, said it isn't worried about stepped up competition.

For the holidays, "we will offer a superlative experience for consumers who want to understand how Internet TV options connect to their lifestyles and their other gear," said Best Buy spokesman Scott Morris. "Certainly you can expect an unparalleled breadth of selection and highly competitive pricing."

Sam's also is launching an app for all smartphones that will eventually let shoppers scan products at home and create shopping lists. They can access Sam's Club discounts with their phone app that will be deducted automatically at checkout.

Best Buy is testing a similar phone app called Shopkick in its San Francisco stores that will allow customers to redeem rewards points and personalized discounts at checkout by providing their cellphone number.

An increasing number of high-end television sets offered for sale in stores will have Internet connectivity this year, as streaming movie services available as part of the sets have proven popular with consumers. Internet connectivity helped increase sales of Blu-ray players last year, after sales languished for several years.

This year's television models will have Internet connectivity built in, instead of accessed through a wire that needed to be plugged in—a consumer turn-off, according to NPD's Mr. Baker.

With the advent of more store Wi-Fi networks, retailers said they aren't concerned about shoppers increasingly using their smartphones to check competitors' prices in their stores. "They know they are not going to lose customers over a few dollars, and many retailers have price-match programs," said Mr. Baker.