Friday, August 31, 2012

Oracles don’t go wrong. Buffett does!

The ghosts from Buffett’s derivative investments have returned to haunt Berkshire Hathaway’s report card in the second quarter. It may well be time to give up the portfolio, says Deepak Ranjan Patra

In an interview published in B&E nearly two years ago (Issue dated November 27, 2008, titled: Is everything alright with Warren Buffett?), the Oracle of Omaha Warren Buffett had words of assurance as usual for investors of Berkshire Hathaway, who were worried about the fact that the company’s class A stocks had declined by nearly 9% in value at the Wall Street in 2008 at that time. His words were, “I personally think that the stock will be $200,000 a share by the end of 2010. So, the appreciation you’re talking about is basically better than 50% in a few years. That does seem pretty good to me.”

It would have been better than good, if only it had happened! The share was trading at $100,700 per share at that time (November 26, 2008), and today (August 17, 2010) it’s trading at $115,260 a share; which is an appreciation of just 14.4%. And after looking at the company’s report card for the second quarter of the current fiscal, the prospect of the promised appreciation seems more distant than ever.

Berkshire Hathaway, which maintained a quarterly profit level of over $3 billion through out even the most troubled days of the global meltdown, booked a net profit of less than $2 billion in the quarter ending June 30, 2010. On a year-on-year comparison, the company’s net profit has dropped by a mind-boggling 40% to $1.97 billion during the quarter from $3.29 billion for the corresponding quarter in the previous financial year. Worse still, the outlook for the company for the remaining six months of the year does not provide much inspiration either. So much so that equity research firm Stifel Nicolaus & Company has given the Berkshire scrip a ‘sell’ recommendation. As confirmed by a Thomson Reuters analyst, this is the first time that any analyst has put the company on the ‘sell’ list since 2006.

Has the king of markets lost his Midas touch for good? Or is it just an exaggerated pessimism? Well, matters look absolutely different for the company when one evaluates its situation without taking the derivatives business into consideration. In that context, the company’s revenue has in fact surged by 7% yoy during the quarter to $31.7 billion. Moreover, in terms of market performance, the company has offered 20% return to its stock holders at the bourses as compared to a negative return of 5% offered by the benchmark S&P 500 index. However, when performance of the company’s derivative business is clubbed into the total, it’s a different story. The business, which allowed the company to breathe more freely during the second quarter of financial year 2009 with a huge profit of $1.53 billion, has had an asphyxiating effect during the last quarter with an equally huge loss of $1.41 billion. As per the company, fall in stock prices during the quarter affected the value of its derivative contracts. Buffet himself admitted long ago, “Derivatives are financial weapons of mass destruction.” In that light, the high exposure to derivatives is indeed surprising in Berkshire’s case.


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Thursday, August 30, 2012

“We want to excel with our biometric solutions”

Rajiv Bhalla, Country Head, Sales & Marketing, NEC India strives to be an active player in the UID project. He says that the project will completely change the way identity and authentication is viewed today. By Neha Saraiya

NEC has been in India through a liaison office for long. But, it was not before 2006, that the company established its full fledged subsidiary on the Indian soils. But who would know that the company will soon bear the wither of bad weather in form of global turmoil affecting the overall businesses of the company. But now back to the track, the company not only closed the Fiscal year ended March 31, 2010 with over ¥3,583.1 billion sales revenue , but is quite bullish about its focus on hospitality and education sectors. And after its pact with Tata Indicom Broadband for providing integrated solutions, last year, Rajiv Bhalla, Country Head, Sales & Marketing, NEC India, shares his future agenda, in an exclusive interview.

Excerpts:

B&E: IP telephony systems to promote convergence of communications in hotels seems to be the emerging trend but with the global IP telephony market for hotels still slightly above $1 billion, do you feel such sophisticated systems have any place in the Indian hotel industry?
RB: As far as adoption of new technology is concerned, many hotels are at a nascent stage with most of them using TDM based combinations of analogue and digital switchboard (PBX) systems inspite of availability of advanced and cost-effective solutions like IP Telephony. At the same time, due to aggressive competition, demanding customers and thin profit margins, hoteliers are constantly looking for cost-effective solutions contributing positively to their bottom-line and IP Telephony exactly helps in achieving the same. At present there is less awareness among hospitality players about the benefits of advantageous technology like video-conferencing, IP Telephony, and the wonders it can do to their business. But with hotels introspecting, keeping their customers in mind on the future of services offered, NEC is optimistic that more and more hotels will realize the underlying benefits of IP Telephony which will help it in finding greater acceptability in the Indian hospitality market. According to industry analysts, ABI Research, sophisticated systems based on IP telephone networks in hotels will increasingly enable a range of new services aimed at improving customer service in hotels and resorts. Although worldwide revenue from such systems totaled only $869 million in 2008.

B&E: But, with the kind of technological sophistication in your products, what is your strategy to promote them to your target segment across various sectors?
RB: We are an end-to-end IT and network solutions provider offering a wide range of solutions that are applicable for the hospitality sector, including state-of-the-art IP telephony solutions that enhance business productivity. Despite a slow start initially, NEC has established itself as a steady player in the market. Our overall strategy has been to target the customer base with a technologically superior and customized value proposition. We are aggressively targeting verticals like education, hospitality, enterprise, biometric security and other growth segments through its products and solution suite comprising of projectors, commercial display units, EPBAX, IP Telephony, point of sale (POS) solutions & biometric ID solutions.

B&E: Which sector makes up your main focus?
RB: We have hospitality sector as our central focus. In line with our focus on the hospitality segment, we have three national distributors, Enkay Technologies (Hospitality solutions; Enterprise sales - EPABX, IP telephony, and key telephone systems), Syntel (key telephone systems, IP telephony) and Intellicon (IP telephony) to cater to the hospitality sector. Earlier this year, we launched our state-of-the-art UNIVERGE SV8500, a powerful enterprise communication solution capable of supporting up to 16,000 endpoints in a single system. With this, we are targeting 18% of the hospitality market.


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Wednesday, August 29, 2012

Shocking misreporting by census

Most countries are supporters and signatories of United Nations’ Convention on the Rights of Persons with Disabilities, which came into effect from July 3, 2008, with 146 participants and 88 ratifications. However, the origin of this convention dates way back in 1987, when Italy and Sweden proposed a need for a body that can end discrimination against disabled people. Following this, it was the US that led the way in providing civil rights to the disabled through the ‘Americans with Disabilities Act’ signed on July 26, 1990, at the behest of President George H. W. Bush. The fortnight gone by has been a special one for Americans as they are celebrating the 20th anniversary of this path breaking act. And why is that important for them?

As per a 2007 report by National Council for Disability, a huge 18.1% of the American population reported some level of disability, and 11.5% reported a severe disability. Even in the UK, according to the Family Resource Survey, 18% of the population is disabled. Australia has similar figures, with 15% disabled. According to Participation and Activity Limitation Survey, Canada had 14.3% disabled. And these are developed nations, where general disability should be expectably less than underdeveloped or developing nations. Looking at India’s disability figures, all logic can be put to rest. According to the last available survey by NSSO (the official census survey organisation), India has only 2.13% of the population (2.6 crores) reported to be disabled. The Office of Chief Commissioner for Persons with Disabilities estimates that 5% of population is disabled. These figures are unbelievable, to say the least. Even if one were to benchmark India against Canada, considering an average percentage of 14% disabled, the nation would have around 16.8 crores disabled! The first step to caring for the disabled is to churn out true figures.


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Tuesday, August 28, 2012

F.R.I.E.N.D.S indeed!

Courteney Cox is helping Jennifer Aniston find love once again. Rumours are abuzz that Jennifer and the True Blood star Christopher Gartin got together following a surprise date arranged by Courteney. Later, Jen invited Chris for a dinner at Courteney’s house. Courteney recently revealed that her 11-year-old marriage with David Arquette has had its ups and downs and the duo has even attended couple therapy. Her efforts at setting-up Jen are quite creditable... what are friends for after all?


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Friday, August 24, 2012

Obama does a Putin with BP!

...and arm-twists BP with open threats – is this ethical, if not illegal?

In a sequence of events reminding one more of the mafiosi-like Putin administration, Obama and his White House staff – with Chief of Staff Rahm Emanuel leading from the front – first hounded BP officials (read a detailed story on BP in our strategy section in this issue), then threatened them, and finally arm-twisted them to set up an escrow account of $20 billion for providing relief to the claims arising out of the BP oil spill.

There are many reasons why this particular case of money jostled out by Obama from BP is unethical and even illegal – despite the general public viewpoint – and one believes done purely for playing to the galleries for benefit at the hustings. Firstly, in the capitalist setup that the United States operates in, it is the insurance company (Jupiter Insurance Inc. in this case) that covers the spill that needs to be steamrolled by Obama and not BP. It doesn’t matter that Jupiter Insurance is more or less owned by BP; equity ownership always comes with zero additional liability – that is, BP cannot be legally asked to pay a penny more than its investment in Jupiter Insurance.


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Thursday, August 23, 2012

HOW NIYAMGIRI BECAME A GLOBAL HOT SPOT

SLATED TO BE A MAJOR GAME CHANGER, THE NIYAMGIRI MINING PROJECT CONTINUES TO TAKE A TOLL ON TIME, MONEY AND PATIENCE FOR VEDANTA. WHERE DID THEY GO WRONG?

While planning mining activity in India, the actual operational intricacies of the mining hardly seem to be issues at all, compared with the larger issues that are giving so many CEOs sleepless nights. Actually, the ground above has hardly proved as rosy as the ground below. Vedanta’s Orissa mining project is just one of those that seem to have come to the right place but the wrong time.

The periphery of Niyamgiri Hills, where Vedanta set up an alumina refinery and entered into an agreement with the government and the Orissa Mining Corporation (OMC) for bauxite (which the latter would mine from the Niyamgiri Hills), remains a global flashpoint; which we can largely credit to the no holds barred propaganda campaign unleashed by international NGOs against Vedanta, supported by voices within political circles as well. That is ironic, since Vedanta had precisely invested in the Rs.45 billion project to greatly improve its competitive position globally. Was it flawed intent or was it the manner in which Vedanta presented it to the world? Or, as some company officials put it, a larger competitive conspiracy?

Well, the ball started rolling when Sterlite (Vedanta group company) got approval for its refinery in 2004, and hoped to secure bauxite supplies from Orissa Mining Corporation, which was supposed to mine on the Niyamgiri Hills. The case of OMC got stuck in the court due to environmental and community issues, and Sterlite filed an application seeking expediting of the process. That was really when environmental groups and NGOs smelt blood and criticised the move strongly; saying that the two projects should not have been submitted for clearance separately if they were part of one commercial venture. And then began intense scrutiny of the environmental impact and societal impact of the two projects, and all conjectures were built on the premise that there were skeletons in Vedanta’s cupboard. And the faces of protesting Dongria Kondh tribals, who reside in the Niyamgiri Hills were shown across the world as victims of Vedanta’s mining project. Naturally, political implications followed in India, since poverty has that irresistable appeal.

The SC cleared the mining project, understanding that there was no displacement involved and also mandating that the three parties – Sterlite, OMC and Government of Orissa would invest in the Scheduled Area Development of Lanjigarh. Sterlite was supposed to invest 5% of its net profits or Rs.1 billion, whichever is greater, in the SPV, apart from other investments towards wild life management, tribal development and compensatory afforestation. But clearance from the Ministry of Environment & Forests is still pending in this matter.

Read more......

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Wednesday, August 22, 2012

PAKISTAN: DEFENCE BUDGET

US has to carefully monitor direction of defence spending in Pakistan

Yet, the US & IMF indirectly strengthen these jehadis. Terrorists in PoK received monthly salary hikes from the Pakistani establishment to the range of Rs.10,000 per month up from around Rs.8,000 recently, as per intelligence reports. The Taliban, which pays its militants Rs.2 lakh for every NATO soldier killed, had its roots in Pakistan. The father of Pakistan’s nuclear weapon programme Dr. A. Q. Khan was quite an unworthy parent; accused of leaking nuclear materials to North Korea and Iran.

Paraphrase commentator Jim Hoagland puts it thus, “Oppose or ignore us at our — and your — peril is the unofficial national motto of Islamabad”. As an ill-governed and terror ridden nuclear power, Pakistan is too valuable to be left alone, else it could be the first macabre instance of terrorists having a state! But US must realise that blindly supporting Pakistan is no less perilous in the long run.


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Tuesday, August 21, 2012

Pimp ma’ ride

Stronger nations station their forces to intimidate weaker ones

You thought imperialism was dead? Hardly, since none can beat Uncle Sam’s current record with more than 369,000 of its 1.3 million troops stationed in 150 countries outside its own. A distant second in terms of troops stationed outside is Britain – with 41,000 out of 217,000 active duty military personnel stationed in Cyprus and Germany, having training missions in South East Asia and Middle East and on active duty in Iraq, Afghanistan and the Balkans. Close on the heels of the Brits are the French with 34,000 out of their total 360,000 defence personnel deployed abroad; the biggest contingent being positioned in Haiti, Lebanon, Cot d’Ivoire, and Afghanistan. Next on the ladder are Germany with 7551 contingents (Afghanistan & Kosovo) and Russia with 5000 (Tajikistan & Moldova).

No matter how they camouflage their occupation of foreign land, no country or citizen wants their nation to be under the control of outsiders. That’s what Hamid Karzai is realising. Despite his vouching for the support of the US-led coalition forces, common Afghans are greatly opposed to foreign military presence in their homeland. Iraqis are also getting impatient with the slow pace of American withdrawal.


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Monday, August 20, 2012

But when Apple makes any kind of play

You can look at it as an advantage or as a drawback, but when Apple makes any kind of play, it is bound to invite numerous discussions, debates and scrutiny. The same is true for its latest acquisition of Intrinsity. Is Steve Job’s new penchant for semi-conductors the ‘wrong move’ that experts had been waiting for so long? by Amir Moin

Another aspect of this whole episode is how this will change the dynamics of the industry. Apple chips are 
based on a design that competes with Intel’s for the fast-growing market of small to mid-size consumer devices, ranging from smart phones to tablet computers. So if Apple prompts other tablet manufacturers to use a similar chip in their products, Intel could see red. Intel also supplies microprocessor’s for Apple’s computing devices and would rue losing such a high profile client.

Custom made chips, if successful and pathbreaking, will come with unique hardware features that are hard to copy and will set Apple apart from vendors who manufacture their products using off the shelf components already available in the market. However, manufacturing chips from scratch is also an extremely risky proposition because such chips are so complex and expensive to make.

In mobile computing, the right kind of chip design can provide a tremendous, differentiated competitive advantage. Apple is even abandoning the traditionally open software-development model. The iPhone, iPod Touch and iPad are all but closed to third-party developers who don’t use Apple’s software-development kit (SDK) and the Apple-filtered App Store. With all this, Apple is tightening its hold over mobile platforms and the huge revenue potential of a fully closed system may encourage Apple to further accelerate this development. All these developments may have huge implications for Apple but given the drive of Apple to be different; this acquisition is poised to bring paradigm shifts in the industry only if Apple convinces other vendors to use its custom made chips instead of what are already available off the shelf.

Apple’s stock price fell significantly post the acquisition announcement (m-cap collapsed from $245 billion on April 26, 2010 to $233 billion on May 7, 2010, though recovering to $238 billion on May 12), showing the lack of faith even extremely loyal investors have in Steve’s latest move. This was also because of news of Google’s Android phones beating Apple’s iPhones in US Q1 (Jan-Mar 2010) sales. With all this in the background and performance issues creeping up fast in iPad customer feedback (Jobs has still not launched iPad in Asia, Australia and Europe), Steve the Goliath needs the latest gambit to give returns too fast to get the heat of his back. But hey, since when has he started caring about what others think of his strategic moves?


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