Research In Motion, the company that makes those devices that people stare at while walking through Manhattan while intermittently bumping into fellow pedestrians, reported fairly strong earnings today – albeit earnings that fell short of what the Wall Street wizards hoped to see. (Revenues grew 35% year over year, and gross margin was up to 45.7% versus 40% a year ago.)
So what was it that got the Wall Street types so worked up?
We met with Sergio Cabral, governor of the state of Rio de Janeiro today. The 47-year-old is a smooth pol who never goes off message. His message today was: A bill to redistribute oil royalties is unconstitutional, and unfair to Rio, which produces the lion’s share of Brazil’s oil. We’ll let Brazilian lawmakers duke it out in Brasilia – and in the press – as they have been doing in recent days. When Rio won the 2016 Olympics last year, I wrote that the related costs would saddle the city with massive debts and *white elephant* facilities. I still view this as a risk, with a caveat: If Cabral and his coterie deploy Rio’s wealth wisely, the city will turn a corner and become a livable and visit-able world-class city — offsetting any negatives associated with the Olympic games. Cabral himself is a bit of a cipher, but I felt reassured by the smart, worldly Joaquim Vieira F. Levy, a former national Treasury minister now serving as Rio state’s Secretary of Finance. I met Cabral and Levy at an “Invest in Rio” conference sponsored by The Wall Street Journal. Also interesting were some of the industrialists and public pension fund managers with stakes in Rio’s future – such as Fabio de Oliveira Moser, chief investment officer of PREVI, Banco do Brasil’s employee pension fund. He has money to deploy in Rio, and is scrutinizing commercial and residential redevelopment opportunities. One came away from the conference believing that Rio’s huge, decrepit port area will emerge as an attractive, thriving destination for tourists, not to mention locals; and that an ongoing effort to more effectively police the favelas is having the sort of impact that will genuinely improve the lives of the poor. It’s so hard to gauge the future of Rio from afar. But one has the sense that 1) Brazil’s robust 5% annual GDP rate — likely to continue for a decade, according to superstar businessman Eike Batista; 2) the burgeoning oil sector centered in the state of Rio; 3) this autumn’s national elections which will underscore democratic Brazil’s political stability; and 4) the World Cup and Olympic games in coming years – all of these factors add up to a real turning point for Rio de Janeiro. “Rio is becoming a garden of opportunities, said Moser. The dynamic, youthful Elvio Gaspar, director of BNDES, the Brazilian Development Bank, said Rio’s fortunes depend on a “regularity of growth” beyond a surge in Olympics-related economic development. This, Gaspar argued, can and likely will happen as long as the political class stays clean: “Any shadow of corruption will destroy our dreams.”
Day 2 of Australian government officials speaking frankly, and sharply, about the shameful sham Shanghai trial of Australian citizen Stern Hu and three Rio Tinto colleagues who are Chinese citizens. Monday, when the sentences came down against the Rio Tinto Four, Australian foreign minister Stephen Smith rightly described them as “harsh.” Today came Prime Minister Kevin Rudd saying China failed to “demonstrate to the world at large transparency that would be consistent with its emerging global role.” As I’ve said again and again, we know nothing – at most next to nothing – about the case. We don’t know if the four Rio employees are guilty as charged. All we know is they were denied due process at every stage of the case, from their detentions last July to the lengthy prison sentences handed down this week. For its part, Rio Tinto is so eager to remain in China’s good graces – the mining company makes a lot of money there – that it has fired the four defendants while declining to speak out on their behalf. At least Australia’s government is saying what needs to be said.
Verizon’s new iPhone deal with Apple is a blow to Google and its Android phone ambitions. Given a choice, most consumers would opt for iPhone over Android devices. So, the availability of a new iPhone model at Verizon sales will cut into Android sales at a crucial time — just as Google’s gaining traction in the market. That said, the recent growth in Android phones from the likes of Motorola, Sony Ericsson and HTC suggests Apple shouldn’t take its market dominance for granted. A blend of smart functionality and appealing pricing is all a user needs to opt for an Android-based model over the iPhone. Check out this article from ChannelWeb, and this one; also have a look at an article in PCWorld, which shows that Google’s got big plans for Android.
Chrysler is accelerating the relaunch of its big sedan, the Chrysler 300, to November from early 2011. The scoop, by colleague Jeff Bennett, underscores Chrysler’s plight: it doesn’t have enough hot new models; the launch of new Fiat-based vehicles is off in the future; and meanwhile Chrysler’s brand identity is dying on the vine. What is Chrysler? What does it stand for? Ten to 15 years ago, the answer was clear and simple: world-class sport-utility vehicles and minivans. Today? That’s a head-scratcher. How will the 300 fare this fall in what’s likely to be a still-weak economy, with consumers worried about their jobs, paychecks and a resurgence in the price of oil? Here’s my thinking: A revamped Jeep Grand Cherokee is due to hit dealer lots in May. It will do well among people with secure jobs who like riding big and high and don’t mind getting walloped at the gas station. It will command a robust price, thanks in part to a new engine with improved fuel efficiency, and it will help Chrysler regain some of its dwindling identity. The 300, however, will do only so-so at dealerships. As a result, the price will have to be relatively low, eating into Chrysler’s profit margin. But on the bright side, the 300 will buy Chrysler time while it scrambles to produce what it can only hope is an alluring line of small Fiat cars.
It’s all about the risk, stupid.
You want to grab these bank executives around the shoulders and shake some sense into them, especially after reading about their latest efforts to hold off any reform aimed to prevent another financial crisis like the one we just went through.
Today’s WSJ has an article that explores the different moves here and overseas to tax banks. The idea is to raise money that can be used to bail them out in the future, rather than use taxpayer money to do so, if any crisis comes upon us.
Predictably, the banks are crying foul. A trade group cautions the wisdom of a tax because it would remove capital from the banking system – capital that then couldn’t be lent.
The trial of the Rio Tinto Four has come to an ugly end with lengthy prison sentences for the Chinese-born employees of the big miner, including Australian citizen Stern Hu. Reporters were allowed to witness the trial’s final day via closed-circuit TV – but no further details about the alleged crimes were forthcoming. We really have no insight into what the four people allegedly did, nor do we know who was on the other side of alleged bribes and exchanges of commercial secrets. As Australia’s foreign minister, Stephen Smith, lamented, “there are serious unanswered questions” about the charges relating to theft of commercial secrets such that “the international business community will want to pursue with China.” Little was heard from Rio Tinto itself – the Australian company has left public statements to Canberra during the eight-month process, and in the past week seemed to distance itself from its employees. This even though the workers’ guilt was by no means established via an open and transparent proceeding. With the exception of Google, Western companies are much too eager to remain in Beijing’s good graces.
It seems difficult economic times have left no industry untouched.
Consider karaoke. The Los Angeles Times reports the business is in a bad way in the U.S.. The slowing economy and some industry specific issues seem to be the culprits.
The LA Times reported that in 2002 annual sales of karaoke machines and software totaled $200 million. It ‘s now about $40 million.
Hans Vestberg, Ericsson’s new CEO, stopped by the newsroom today. The 44-year-old, lean, long-limbed and full of energy, proved very adept at saying a lot without revealing much. Which is his prerogative, of course, an probably the prudent course albeit disappointing to journalists. What does he think about AT&T’s problems accommodating surging iPhone usage? Vestberg doesn’t talk about competitors. What about the increasing hurdles Western companies in China are encountering? Ericsson’s been in China since 1888, Vestberg says in an artful dodge. How did Deutsche Bank’s downgrade of Ericsson shares sit with him? Vestberg respects Deutsche Bank, “We stand strong in our service offering,” etcetera. Don’t get me wrong: it was an enjoyable encounter and that’s because Vestberg is dynamic and good -natured; he also struck me as creative and flexible. Midway through the interview, his phone (a Sony Ericsson Android model) rang; it was the CFO, a role Vestberg previously held for a few years. Yet Vestberg doesn’t seem obsessed with short-term financials. Indeed, he didn’t know the details of Deutsche’s downgrade – a reassuring sign, in my mind, because the boss of a big telecommunications equipment and services provider needs to think big. The mobile universe is expanding at a phenomenal pace. but it appears we won’t see Ericsson make any jumbo acquisitions any time soon. Vestberg says wireless growth will be “organic” even as Ericsson continues to make smaller purchases in services and multi-media.
It’s getting hot in here. With less than three weeks before the U.S. Treasury announces whether it is going to name China as a currency manipulator (for keeping a lid on the yuan to help its exporters), the rhetoric is kicking into high gear.
But how much will the U.S. complaints achieve? If we look at history, the answer is…not much. China hates to be told what to do, and it rarely responds favorably to outside pressure.
Indeed, the U.S. rhetoric could end up being counterproductive. It’s also unclear what would be the end result if Treasury in its semi-annual report opts to label China a currency manipulator. That could potentially open a large can of worms; such a designation sets in train a process whereby trade penalties could be the end result.
China has been getting testier in the past few weeks. Its message (which is being given on a daily basis right now) remains the same: The yuan is not undervalued, and calls for change are counterproductive. But the tone is clearly getting crankier.
Indeed, China’s Minister of Commerce Chen Deming recently warned Beijing “won’t turn a blind eye” to attempts to cite the yuan as a reason for imposing trade sanctions, and central bank Governor Zhou Xiaochuan has said “too much noise” coming from U.S. lawmakers regarding the yuan isn’t helpful in economic policy discussions.
China could yet crank up things up a notch by firmly reminding the U.S. (and the rest of the world) of the massive amounts of U.S. Treasurys held in Chinese coffers. It is already warning that yuan gains may not be to the U.S.’ overall benefit.
Some in the U.S. are calling for everyone to calm down. Several currency experts this week urged Congress not to unilaterally punish China with trade sanctions.
Let’s hope saner heads prevail before someone does or says something regrettable. For more, there’s my recent column on the topic on Dow Jones Newswires: =MONEY TALKS: Yuan A Piece Of Me?
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