Most airlines operating (both domestically and internationally) in the USA had a hard time through the last couple of years. The year 2000 has been the last good one for the airline industry. Since then the events of 9/11 took place, oil prices shot up, which in effect left most of the airlines in the red since then.
There was another reason for the air carriers' problems, which is easily overseen because of the obvious ones I have just named above. The passengers’ attitudes and needs changed. They did not feel like they needed the service major airlines offered for the premium price, but rather fast and reliable travel and most of all: cheap. The customers needed service such as Southwest Airlines provides. SWA was the only big airline that stayed profitable all the time from 2000 through now.
The competition understood that finally. It took them a lot of layoffs, Chapter 11's etc., but they finally grasped the facts. After that, it became a struggle to increase operational efficiency, be leaner and faster... and, guess what? It seems that this corporate turnaround is successful, as many airlines' figures where in the black for 2006. The drop in oil prices also help the carriers, lowering there cost (The profit data and more on that: http://online.wsj.com/article/SB117010210807591473.html?mod=home_whats_news_us ).
In this pretty optimistic picture, there is a concern. Airlines stocks fell today, as Saudi Arabia cut down its oil production, sending the crude oil price up. The question remains, whether the major airlines will be able to sustain their profitability in the coming months regardless to the oil prices fluctuation.
Tuesday, January 30, 2007
Thursday, January 25, 2007
The bigger they are...
Ford Motor Company is one of the oldest, and historically one of the most successful American auto manufacturers. "Historically" is the key term here. Ford has been loosing money for years now, and its stock has price steadily declined. It is now near the 8$ value, a mere 1/5 of what it was just in 1998 (For Ford's stock chart see: http://mwprices.ft.com/custom/ft2-com/html-interactivecharting.asp?osymb=F&ocountrycode=&expanded=true&subtab=1&colMode=&pageNum=&company=NEW&industry=&region=&extelID=&isin=&ftep=&sedol=34537086&FTSite=FTCOM&symb=F&countrycode=&t=e&s2=&q=F&time=3yr&freq=1dy&compidx=SP500%7E3377&indName=aaaaa%7E0&sid=205397&ma=0&maval=9&uf=0&lf=1&type=8&lf2=0&lf3=0&comp1=&comp2=&comp3= )
Today Ford announced whooping 5.8$ Bln Q4 loss, totaling its 2006 loss to 12.7$ Bln, making it the biggest loss in the company's history. These figures are attributed to major decline in global auto sales, as well as high costs of a painful restructuring process that Ford is undergoing (More on that: http://biz.yahoo.com/ap/070125/earns_ford.html?.v=28 ).
Ford is not the only auto manufacturing giant in trouble, as the rest of the US "big three" GM and Chrysler (a division of DaimlerChrysler) also struggle. The Wall Street Journal reports that GM and Ford cut down more than 70,000 jobs in 2006. Their oversea Far East based competitors (like Toyota, Honda and Hyundai) are giving the American auto makers a hard time.
With such a serious situation, the domestic manufacturers are looking towards the government for help. It seems that this time, they actually might get help. In his annual "State of the Union" address the President announced a few policy elements that could be of great help for the American auto industry. The new energy policy and possible obligation to use alternative fuels such as ethanol should give the domestic auto makers some edge over the competition. On top of that, a possible reform of the health care system could lower the costs that the big three carries in employees benefits and health care plans (The whole story on that: http://online.wsj.com/article/SB116969452776887202.html?mod=home_whats_news_us ).
The question is, whether the automakers are going to be able to take advantage of this and build on it to successfully compete with oversea competition. The forecasts for the auto industry in 2007 are supposedly better than for 2006, the next months will show how Ford and GM use those opportunities.
Today Ford announced whooping 5.8$ Bln Q4 loss, totaling its 2006 loss to 12.7$ Bln, making it the biggest loss in the company's history. These figures are attributed to major decline in global auto sales, as well as high costs of a painful restructuring process that Ford is undergoing (More on that: http://biz.yahoo.com/ap/070125/earns_ford.html?.v=28 ).
Ford is not the only auto manufacturing giant in trouble, as the rest of the US "big three" GM and Chrysler (a division of DaimlerChrysler) also struggle. The Wall Street Journal reports that GM and Ford cut down more than 70,000 jobs in 2006. Their oversea Far East based competitors (like Toyota, Honda and Hyundai) are giving the American auto makers a hard time.
With such a serious situation, the domestic manufacturers are looking towards the government for help. It seems that this time, they actually might get help. In his annual "State of the Union" address the President announced a few policy elements that could be of great help for the American auto industry. The new energy policy and possible obligation to use alternative fuels such as ethanol should give the domestic auto makers some edge over the competition. On top of that, a possible reform of the health care system could lower the costs that the big three carries in employees benefits and health care plans (The whole story on that: http://online.wsj.com/article/SB116969452776887202.html?mod=home_whats_news_us ).
The question is, whether the automakers are going to be able to take advantage of this and build on it to successfully compete with oversea competition. The forecasts for the auto industry in 2007 are supposedly better than for 2006, the next months will show how Ford and GM use those opportunities.
Monday, January 22, 2007
Let's talk drugs.
Today's news included a couple of interesting reports from some of the pharmaceutical industry giants. The outlook for the companies mentioned is rather mixed and predicting some serious trouble lying ahead of them.
Pfizer, the world’s largest pharmaceutical company (probably most known for the common public because of Viagra, which got a great share of media attention in its time) seems to be struggling greatly. Stiffening competition from makers of generic drugs and patent expirations are accounted for most of the trouble (See: http://biz.yahoo.com/ap/070122/pfizer_restructuring.html?.v=43 ). However, one should not miss that this drug maker's business environment just shares the notion that its products are overpriced, just not worth the great deal of money that is on the price tag. This is a problem that might not be as easy to solve, as those, call them "technical" trouble named above.
Pfizer's first reaction was the announcement of cutting around 10,000 jobs, and closing a couple of R&D and the production facilities. The goal of the CEO Jeffrey Kindler is to achieve a much leaner structure and: "maximize revenue, cut cost, simplify structure, improve communications, trim the fat" (From: http://online.wsj.com/article/SB116946650860883613.html?mod=home_whats_news_us ).
Meanwhile, another pharmaceutical titan Bristol-Myers Squibb is involved in a high-stake court case over the exclusive rights to the hit drug Plavix. The drug is reported to generate 4Bln $ revenue for the drug maker in 2005 alone. That fully underlines a possible impact of loosing in court. Still even if the company wins its case, it will still face competition from the generic version of Plavix. Fortunately for Bristol-Myers Squibb, unlike Pfizer, this drug maker does not face any major patent expires in the next couple of years (More on the story: http://online.wsj.com/article/SB116932062100782781.html?mod=home_whats_news_us )
The future for both of these companies is a big unknown. Regardless of the work that they have to do in the intermediate terms, the drug manufacturers must prove that they creating so much value with its drugs, to justify its prices. Otherwise, the future might be bleak for them.
Pfizer, the world’s largest pharmaceutical company (probably most known for the common public because of Viagra, which got a great share of media attention in its time) seems to be struggling greatly. Stiffening competition from makers of generic drugs and patent expirations are accounted for most of the trouble (See: http://biz.yahoo.com/ap/070122/pfizer_restructuring.html?.v=43 ). However, one should not miss that this drug maker's business environment just shares the notion that its products are overpriced, just not worth the great deal of money that is on the price tag. This is a problem that might not be as easy to solve, as those, call them "technical" trouble named above.
Pfizer's first reaction was the announcement of cutting around 10,000 jobs, and closing a couple of R&D and the production facilities. The goal of the CEO Jeffrey Kindler is to achieve a much leaner structure and: "maximize revenue, cut cost, simplify structure, improve communications, trim the fat" (From: http://online.wsj.com/article/SB116946650860883613.html?mod=home_whats_news_us ).
Meanwhile, another pharmaceutical titan Bristol-Myers Squibb is involved in a high-stake court case over the exclusive rights to the hit drug Plavix. The drug is reported to generate 4Bln $ revenue for the drug maker in 2005 alone. That fully underlines a possible impact of loosing in court. Still even if the company wins its case, it will still face competition from the generic version of Plavix. Fortunately for Bristol-Myers Squibb, unlike Pfizer, this drug maker does not face any major patent expires in the next couple of years (More on the story: http://online.wsj.com/article/SB116932062100782781.html?mod=home_whats_news_us )
The future for both of these companies is a big unknown. Regardless of the work that they have to do in the intermediate terms, the drug manufacturers must prove that they creating so much value with its drugs, to justify its prices. Otherwise, the future might be bleak for them.
Wednesday, January 17, 2007
What does the market hold for the future?
The last couple of months have been very good for the stock market, especially the Dow Jones Industrial Average (DJIA), which broke its index record set in the year 2000 and went on over the value of 12,000 points, hitting new record highs on a regular basis.
The DJIA's blue chips are among the stocks pulling the market up, as it has been closing at new all time highs for most of the time in January 2007. Another factor contributing to the rise in stock prices is the very good performance of the financial sector. Examples would be, among other, companies such as JP Morgan, achieving a whooping 68% rise in net income in Q4, comparing with Q4 2005 (More on that: http://online.wsj.com/article/SB116903511859878854.html?mod=home_whats_news_us ), or Merrill Lynch, taking advantage of the strength of the financial marketing in the concluding months of 2006 (More details on this story: http://online.wsj.com/public/resources/documents/info-earn06q4.html ).
The worries about the rising inflation have offset the strong performance of the sector (Details: http://biz.yahoo.com/ap/070117/wall_street.html?.v=33 ). The Tech sector's fall also contributed to what is shaping up to be a pretty weak day on the security markets.
The above concerns do not change the big picture though. Falling oil prices should loosen up the inflation pressure, and the Fed officials feel than can handle inflation and bring it down. Meanwhile, as the MarketBeat blog is stating, the predictions for the global economy are getting more positive (http://blogs.wsj.com/marketbeat/2007/01/17/the-future-looks-bright/ ). The US economy seems to be entering 2007 in good condition, quote: "Most reports ... indicated that economic activity expanded at a moderate pace," the Federal Reserve said (From: http://biz.yahoo.com/ap/070117/fed_economy.html?.v=8 ).
To sum up, it seems that despite some minor problems, the intermediate outlook for the economy looks promising. The question is, how is the market going to incorporate those news.
The DJIA's blue chips are among the stocks pulling the market up, as it has been closing at new all time highs for most of the time in January 2007. Another factor contributing to the rise in stock prices is the very good performance of the financial sector. Examples would be, among other, companies such as JP Morgan, achieving a whooping 68% rise in net income in Q4, comparing with Q4 2005 (More on that: http://online.wsj.com/article/SB116903511859878854.html?mod=home_whats_news_us ), or Merrill Lynch, taking advantage of the strength of the financial marketing in the concluding months of 2006 (More details on this story: http://online.wsj.com/public/resources/documents/info-earn06q4.html ).
The worries about the rising inflation have offset the strong performance of the sector (Details: http://biz.yahoo.com/ap/070117/wall_street.html?.v=33 ). The Tech sector's fall also contributed to what is shaping up to be a pretty weak day on the security markets.
The above concerns do not change the big picture though. Falling oil prices should loosen up the inflation pressure, and the Fed officials feel than can handle inflation and bring it down. Meanwhile, as the MarketBeat blog is stating, the predictions for the global economy are getting more positive (http://blogs.wsj.com/marketbeat/2007/01/17/the-future-looks-bright/ ). The US economy seems to be entering 2007 in good condition, quote: "Most reports ... indicated that economic activity expanded at a moderate pace," the Federal Reserve said (From: http://biz.yahoo.com/ap/070117/fed_economy.html?.v=8 ).
To sum up, it seems that despite some minor problems, the intermediate outlook for the economy looks promising. The question is, how is the market going to incorporate those news.
Tuesday, January 16, 2007
When will they learn?
Business people are not very well perceived by the general public when it comes to judging about their professional integrity. The common perception is that they take advantage of the information asymmetry and abuse the privileged position that they have over the external stakeholders. Events such as the Enron and WorldCom scandals seem to support this judgment.
In my opinion, the common view of the business people is biased by those few who break the rules and abuse the trust and harm the interests of their own clients/shareholders for personal financial gain. That does not change the fact that this minority gives a whole wide profession a bad name.
Countless courses in business ethics, which are by now offered at virtually every business school in the country and various publications address that issue. Government regulations are designed to eliminate the possibility of frauds and unethical behavior. Courts prosecute those suspected of unlawful behavior.
Does it mean that unethical behavior can be completely rooted out from the world of business professionals? Last weeks news reports conclude just the contrary.
Legal authorities in the U.S. investigate the back-dating case of Apple Inc options, as it seems that the computer industry giant may be in some trouble. The issue is that options were backdated, which changed their value, this was supposed to be approved on a special board meeting... that never took place. (More on that case: http://online.wsj.com/article/SB116856838800274709-search.html?KEYWORDS=apple+&COLLECTION=wsjie/6month ). The news about the investigation hurt the Apple stock price, offsetting part of the rise reported after the company announced the introduction of iPhone.
In a different case, Europe's largest engineering company, Siemens, ran in trouble as its the former CFO and No. 2 in the corporate hierarchy was named a suspect in the on-going German police investigation of a bribery case, amounting to at least half a billion dollar (more on that: http://online.wsj.com/article/SB116861598934275269-search.html?KEYWORDS=siemens&COLLECTION=wsjie/6month ).
Even though only a marginal proportion of business professional engages such unlawful practices as the ones named above, their actions influence the way the whole sector is perceived. The funniest thing about it is that usually people who commit such crimes are caught and prosecuted - it is just to hard to destroy all the data pointing to them as culprits. Still, it happens over and over again, hurting individuals, companies and whole professions. When will they finally learn it?
In my opinion, the common view of the business people is biased by those few who break the rules and abuse the trust and harm the interests of their own clients/shareholders for personal financial gain. That does not change the fact that this minority gives a whole wide profession a bad name.
Countless courses in business ethics, which are by now offered at virtually every business school in the country and various publications address that issue. Government regulations are designed to eliminate the possibility of frauds and unethical behavior. Courts prosecute those suspected of unlawful behavior.
Does it mean that unethical behavior can be completely rooted out from the world of business professionals? Last weeks news reports conclude just the contrary.
Legal authorities in the U.S. investigate the back-dating case of Apple Inc options, as it seems that the computer industry giant may be in some trouble. The issue is that options were backdated, which changed their value, this was supposed to be approved on a special board meeting... that never took place. (More on that case: http://online.wsj.com/article/SB116856838800274709-search.html?KEYWORDS=apple+&COLLECTION=wsjie/6month ). The news about the investigation hurt the Apple stock price, offsetting part of the rise reported after the company announced the introduction of iPhone.
In a different case, Europe's largest engineering company, Siemens, ran in trouble as its the former CFO and No. 2 in the corporate hierarchy was named a suspect in the on-going German police investigation of a bribery case, amounting to at least half a billion dollar (more on that: http://online.wsj.com/article/SB116861598934275269-search.html?KEYWORDS=siemens&COLLECTION=wsjie/6month ).
Even though only a marginal proportion of business professional engages such unlawful practices as the ones named above, their actions influence the way the whole sector is perceived. The funniest thing about it is that usually people who commit such crimes are caught and prosecuted - it is just to hard to destroy all the data pointing to them as culprits. Still, it happens over and over again, hurting individuals, companies and whole professions. When will they finally learn it?
Friday, January 12, 2007
Steve Jobs does it again
The founder of Apple Computer, Steve Jobs is a very well known figure in the high-tech industry, and the whole business world. His life story is pretty inspirational – he founded an extremely successful computer company back in the 1980’s, and a couple of years after parting ways with it, he was brought back at the helm, and turned the struggling business into a cash cow. He has achieved even more – Mac computers were made hip again, and iPod became a part of the popular culture.
In the last couple of days, Jobs and Apple got a lot of media attention again. News of the iPhone electrified the technology and business world, bringing Apple stock prices to an impressive high.
The iPhone follows the trend present in the mobile technologies sector in the last couple of years – more and more integrated features. “The device, priced up to $599 in addition to a two-year cellular service contract, allows users to download and play iTunes music, browse the Web, send email and make calls. Equipped with a wide screen and a two-megapixel camera it can also link wirelessly to music headsets, stereo systems and Wi-Fi networks.” (From: the Wall Street Journal online, by LI YUAN and PUI-WING TAM, http://online.wsj.com/article/SB116836172312771508-search.html?KEYWORDS=Apple+Storms+Cellphone+Field&COLLECTION=wsjie/6month ).
The above named characteristics are not really something revolutionary; other cell phone manufacturers have already produced phones with similar qualities. The key to Apples potential success is not being innovative in this case. It rather is being better than the innovators and offering an appealing design, as it was in the case of the iPod. Most commentaries that I have read, agree that this project will probably be successful, especially that Apple should have a reliable distribution channel in Cingular Wireless.
One thing that is mostly overlooked by the media is the totally different mindset presented by Jobs – it is not Apple Computers Inc anymore, it is just Apple Inc, which underlines the company’s focus that is not just limited to computers, but it is rather moving away from the image of a computer company.
Jobs seems to be very confident, or even cheeky – he scheduled the Mac World Expo at the same time as the Consumer Electronics Show, and actually managed to grab most of the media attention! The iPhone has chances of becoming a phenomenon such as the iPod, which means the future might be looking bright for Mr. Jobs and Apple, and pretty bleak for it competitors.
In the last couple of days, Jobs and Apple got a lot of media attention again. News of the iPhone electrified the technology and business world, bringing Apple stock prices to an impressive high.
The iPhone follows the trend present in the mobile technologies sector in the last couple of years – more and more integrated features. “The device, priced up to $599 in addition to a two-year cellular service contract, allows users to download and play iTunes music, browse the Web, send email and make calls. Equipped with a wide screen and a two-megapixel camera it can also link wirelessly to music headsets, stereo systems and Wi-Fi networks.” (From: the Wall Street Journal online, by LI YUAN and PUI-WING TAM, http://online.wsj.com/article/SB116836172312771508-search.html?KEYWORDS=Apple+Storms+Cellphone+Field&COLLECTION=wsjie/6month ).
The above named characteristics are not really something revolutionary; other cell phone manufacturers have already produced phones with similar qualities. The key to Apples potential success is not being innovative in this case. It rather is being better than the innovators and offering an appealing design, as it was in the case of the iPod. Most commentaries that I have read, agree that this project will probably be successful, especially that Apple should have a reliable distribution channel in Cingular Wireless.
One thing that is mostly overlooked by the media is the totally different mindset presented by Jobs – it is not Apple Computers Inc anymore, it is just Apple Inc, which underlines the company’s focus that is not just limited to computers, but it is rather moving away from the image of a computer company.
Jobs seems to be very confident, or even cheeky – he scheduled the Mac World Expo at the same time as the Consumer Electronics Show, and actually managed to grab most of the media attention! The iPhone has chances of becoming a phenomenon such as the iPod, which means the future might be looking bright for Mr. Jobs and Apple, and pretty bleak for it competitors.
Thursday, January 11, 2007
Unusually mild winter brings oil prices down
This year’s winter has been surprisingly mild so far. The effects of the surprisingly warm weather have a significant impact on the economy, one that is hard to oversee now.
The mild weather caused a dramatic decrease in the usage of oil used for heating as well as in the usage of natural gas. A plunge in the stock market oil prices has followed. The Wall Street Journal reported that oil prices reached a 19 month low yesterday, hitting around 54 $ for a barrel ( http://online.wsj.com/article/SB116844625784572707-search.htmlKEYWORDS=oil+prices&COLLECTION=wsjie/6month).
This seems to be good news for the whole U.S. economy, as well as for the U.S. consumers. The low oil prices mean lower transportation, logistics and production costs for many industries. It should also give a good mood to the millions of American car drivers, as gas prices might fall in the close future.
On the other hand, this phenomenon is causing problems for the energy sector companies in the USA, as well as for OPEC, as they see their profits plunging. There is a dual negative effect on American energy companies. First of all, it cuts down the sector's profits. Chevron already announced that the decline in crude oil prices will indeed hurt its upcoming quarter profits (http://online.wsj.com/article/SB116848607242073432-search.html?KEYWORDS=chevron&COLLECTION=wsjie/6month). Furthermore, the energy companies have a bad press, as people get worried that the unusually warm weather is an effect of the global warming, and yes, the energy sector is the first one to blame. This forced the industries giant Exxon to agree on talks about limits for the gas emissions which are supposed to be one of the causes of global warming (http://blogs.wsj.com/washwire/2007/01/11/exxon-warns-to-greenhouse-dialogue/).
OPEC will probably react with a decrease in oil production in the coming days to boost up the oil prices, but in the mean time, U.S. consumers may enjoy the effects of the decrease in oil prices.
The mild weather caused a dramatic decrease in the usage of oil used for heating as well as in the usage of natural gas. A plunge in the stock market oil prices has followed. The Wall Street Journal reported that oil prices reached a 19 month low yesterday, hitting around 54 $ for a barrel ( http://online.wsj.com/article/SB116844625784572707-search.htmlKEYWORDS=oil+prices&COLLECTION=wsjie/6month).
This seems to be good news for the whole U.S. economy, as well as for the U.S. consumers. The low oil prices mean lower transportation, logistics and production costs for many industries. It should also give a good mood to the millions of American car drivers, as gas prices might fall in the close future.
On the other hand, this phenomenon is causing problems for the energy sector companies in the USA, as well as for OPEC, as they see their profits plunging. There is a dual negative effect on American energy companies. First of all, it cuts down the sector's profits. Chevron already announced that the decline in crude oil prices will indeed hurt its upcoming quarter profits (http://online.wsj.com/article/SB116848607242073432-search.html?KEYWORDS=chevron&COLLECTION=wsjie/6month). Furthermore, the energy companies have a bad press, as people get worried that the unusually warm weather is an effect of the global warming, and yes, the energy sector is the first one to blame. This forced the industries giant Exxon to agree on talks about limits for the gas emissions which are supposed to be one of the causes of global warming (http://blogs.wsj.com/washwire/2007/01/11/exxon-warns-to-greenhouse-dialogue/).
OPEC will probably react with a decrease in oil production in the coming days to boost up the oil prices, but in the mean time, U.S. consumers may enjoy the effects of the decrease in oil prices.
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