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Thursday, July 17, 2008

The Associated Press: Yahoo calls Microsoft's actions `stupefying'

SUNNYVALE, Calif. (AP) — Yahoo Inc. sent a letter to shareholders Thursday in which it called Microsoft Corp.'s actions in its dance to acquire all or part of the Internet company "stupefying."

The letter from Yahoo Chairman Roy Bostock and Chief Executive Jerry Yang also hammered investor Carl Icahn, Microsoft's partner in the latest acquisition offer, for his lack of knowledge about the Internet business. It said the latest offer from "the odd couple" serves "only their very narrow special interests."

The missive marked the latest bit of acrimony to surface in Yahoo's scramble to maintain control of its board.

Icahn, a billionaire, has nominated a slate of candidates to oppose Yahoo's current nine directors in an Aug. 1 shareholder vote at the Sunnyvale-based company's annual meeting.

In attempt to avoid the showdown, Icahn and Microsoft teamed up with a buyout offer that Yahoo rejected Saturday. The terms are complex, but the deal would have involved splitting the company, with Microsoft taking the search engine and Icahn overseeing Yahoo's remains.

As part of their proposal, Microsoft and Icahn also wanted Yahoo to pay a special dividend of $4.50 per share and sell the company's Asian holdings — two options that Yahoo said it's considering doing on its own in an attempt to boost its stock price.

Yahoo shares gained 29 cents, or 1.3 percent, to $22.77 in Thursday's late afternoon trading. Microsoft had orally offered in early May to buy Yahoo in its entirety for $33 per share only to withdraw the bid after Yahoo sought $37 per share.

The two rivals have been intermittently negotiating and bickering for the past two months, with Icahn chiming in as he tries to broker a deal between Yahoo and Microsoft.

Much of Thursday's letter expanded upon Yahoo's previous criticism of Microsoft and Icahn.

Yahoo says that it would accept $33 per share now, but that Microsoft no longer is willing to put that much money on the table. Instead, Yahoo contends Microsoft is hoping to buy the entire company or its search engine at a "bargain basement" price if Icahn seizes control of Yahoo's board.

"Microsoft's flip flops and inconsistencies over the past five months are so stupefying that one can only conclude that Microsoft was never fully committed to acquiring Yahoo," the letter said.

Yahoo also reiterated its belief that it would be mistake to entrust its Internet franchise to Icahn because he is a technology neophyte with no concrete business plan other than working out a deal with Microsoft.

"We believe you cannot count on Microsoft to bail out Mr. Icahn's misguided agenda, at least not on terms that are in the best interests of Yahoo stockholders," the letter said.

Icahn, who owns a 5 percent stake in Yahoo, has said the board is more interested in protecting its jobs than evaluating the merits of selling its online search operations to Microsoft.

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Bloomberg.com: U.S.

July 17 (Bloomberg) -- Coca-Cola Co., the world's biggest soft-drink maker, fell the most in almost four years in New York trading after its largest bottler posted a loss on a decline in soda and water sales.

The bottler, whose profit is reflected in the sodamaker's earnings, posted a $5.3 billion writedown in franchise licenses and goodwill. That pushed Coca-Cola's second-quarter net income down 23 percent to $1.42 billion, or 61 cents a share.

Chief Executive Officer Muhtar Kent, who took over Atlanta- based Coca-Cola this month, said consumers had less money to spend on Diet Coke, Minute Maid juices and Dasani bottled water because of rising food and energy prices. The amount of Coca-Cola drinks sold worldwide rose 3 percent, less than the 4 percent increase some analysts estimated, an indication that slowing sales in North America may expand elsewhere.

``When the fuel price is sky high at the pump, you really don't want to go into the store and spend another couple of bucks on snacks and pop or soda,'' Mariann Montagne, an analyst with Thrivent Asset Management in Minneapolis, said in a interview on Bloomberg Television. Montagne's firm manages $70 billion in assets, including Coca-Cola shares.

Coca-Cola fell $2, or 3.8 percent, to $50.34 at 4:15 p.m., the biggest drop since Sept. 15, 2004. The shares lost 18 percent this year, compared with a 14 percent decline by PepsiCo Inc.


The writedown at Coca-Cola Enterprises Inc., which is 35 percent owned by Coca-Cola, stemmed from a deteriorating outlook for North American sales that led the bottler to decide its assets weren't worth what it once thought. Coca-Cola's profit was reduced by 40 cents a share as a result.

Coca-Cola's second-quarter revenue rose 17 percent to $9.05 billion from $7.73 billion in the three months ended June 27, the company said in a statement.

Coca-Cola peaked at an eight-year high of $65.56 on Jan. 10 before declining on slowing U.S. consumer spending.

Then-CEO Neville Isdell, with Kent at his side as international president and chief operating officer, shepherded the surge in the share price as he boosted soda marketing, added sales of non-carbonated drinks with the $4.1 billion purchase of Glaceau Vitaminwater-maker Energy Brands Inc. and restructured the company's management.

The moves have been unable to turn around falling U.S. sales volume. Kent took over on July 1 from Isdell, who remains chairman.


SunTrust Banks Inc., the company's second-largest investor with 43.6 million shares, may decide next week what to do with its stake in order to raise cash. Billionaire investor and former Coca-Cola board member Warren Buffett, who controls Berkshire Hathaway Inc., is the sodamaker's largest shareholder with an 8.7 percent stake.

Sales volume increased 5 percent overseas, and was little changed in North America. Bill Pecoriello, an analyst at Morgan Stanley, estimated a global gain of 4 percent.

``We clearly recognize that there are short-term challenges in the marketplace related to economic trends,'' Kent said during a conference call.

Excluding the writedown, Coca-Cola earned $1.01 a share. Thirteen analysts surveyed by Bloomberg estimated average profit of 96 cents a share. Ten predicted sales of $8.83 billion.

A year earlier, Coca-Cola earned $1.85 billion, or 80 cents.

Soft Drinks

Coca-Cola Enterprises CEO John Brock has been unable to halt the decline of Coca-Cola Classic or sell enough non-carbonated drinks such as Vitaminwater to make up for falling soda sales in North America, which accounts for 70 percent of its revenue.

More-profitable convenience-store sales of soda and water have dropped, making Coca-Cola Enterprises' right to distribute Coca-Cola products less valuable, the Atlanta-based bottler said.

The bottler will increase U.S. prices after the Labor Day holiday, Brock said.

``North America is just a tremendous problem,'' Tom Pirko, the president of Bevmark LLC, a consulting firm in Buellton, California, said in a Bloomberg Television interview.

Coca-Cola also said it would repurchase from $1.75 billion to $2 billion of its shares in 2008. Previously, it said it may buy as little as $1.5 billion in stock. The company has bought back $1 billion worth this year.

International Sales

Sales have been rising in China, India, Russia, Brazil, Eastern Europe, Turkey and the Philippines, led by the company's flagship Coca-Cola, then-President Kent said during a conference call in April.

The operating-profit margin in North America, the company's largest market, was 22 percent last year, which compares with 39 percent in the division that includes North Asia and the Middle East and 54 percent in Latin America. Each division accounts for almost a quarter of total operating profit.

Coca-Cola also has purchased a stake in Honest Tea Inc., the maker of low-calorie organic bottled tea, to boost North American revenue as health-conscious consumers seek alternatives.

Morgan Stanley's Pecoriello said last month that U.S. growth in sales of sports drinks, bottled water, vitamin-enhanced water and energy drinks has decelerated. Pecoriello, who spoke at a conference by Beverage Digest, is ranked by Institutional Investor magazine as the top U.S. beverage analyst. He recommends buying Coca-Cola shares.

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

Last Updated: July 17, 2008 16:47 EDT
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Bloomberg.com: Worldwide

July 17 (Bloomberg) -- JPMorgan Chase & Co., the largest U.S. bank by market value, reported second-quarter earnings that exceeded analysts' estimates, helped by higher investment banking fees and revenue from the consumer business.

JPMorgan rose 14 percent, sparking a rally in financial stocks, as the company followed Wells Fargo & Co. in posting a smaller drop in profits than investors were expecting. Second- quarter net income fell 53 percent to $2 billion, or 54 cents a share. Analysts were predicting 44 cents.

Chief Executive Officer Jamie Dimon said in a statement that while a weakening economy means financial markets will remain ``under stress,'' the New York-based company's capital position is strong. JPMorgan has posted more than $12 billion of writedowns, losses and credit provisions on mortgage-tainted assets through the second quarter, a fraction of the $43 billion at Citigroup Inc., which reports earnings tomorrow.

``JPMorgan is like a raging bull prize fighter punching their way through the credit crisis,'' David Hendler, an analyst at CreditSights Inc. in New York, said in a Bloomberg Television interview. The bank ``has a fortress-like balance sheet and that really helps them absorb these punches,'' he said.

Shares of the company rose $4.86 to $40.80 in composite trading on the New York Stock Exchange at 4:20 p.m.

Bear Stearns

Second-quarter earnings were cut by $540 million of costs from the takeover of Bears Stearns Cos., which JPMorgan agreed to buy in March as the fifth-largest U.S. securities firm faced bankruptcy. The bank won't record any gain on the purchase, which it previously thought would add $1 billion. JPMorgan said it will keep 7,000 of Bear Stearns's 14,000 employees.

JPMorgan increased credit reserves by $1.3 billion to cover bad loans in the quarter, and wrote down the value of leveraged loans and mortgage-related assets by $1.1 billion.

Revenue fell 3 percent to $18.4 billion in the quarter, beating the average estimate of $16.6 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 6 percent, down from 14 percent a year earlier.

The investment banking unit had a second-quarter profit of $394 million, versus earnings of $1.2 billion a year earlier. The division reported its second-highest quarter for fees, pulling in $1.7 billion. Revenue for the business fell 6 percent partly on weaker equity trading.

Return on equity for the investment bank was 7 percent in the second quarter. That compares with 12.3 percent for New York- based Morgan Stanley and 20.4 percent for Goldman Sachs Group Inc., also based in New York.

Consumer Banking

Consumer banking earned $606 million, a 23 percent drop from a year earlier as JPMorgan set aside more money to cover bad loans. Revenue in the retail bank was $5 billion, up 15 percent.

Chief Financial Officer Michael Cavanagh said on a conference call with reporters that mortgages had ``deteriorated'' with higher late payments and losses.

The problems extended to the bank's so-called prime mortgages, given to customers with the best credit quality, Dimon said on a call with analysts. Prime mortgage losses could climb to $300 million a quarter by 2009.

JPMorgan's decision in 2007 to expand in mortgages was ``wrong,'' Dimon said. ``Prime looks terrible. We're sorry.''

Home-equity losses could reach $700 million by the fourth quarter, less than the previous forecast of $900 million, Cavanagh said.

``It's too early to declare victory on that,'' he said. ``The trend of deterioration may be slowing a bit here.''

Card Business

The credit-card division's profit fell to $250 million, or 67 percent below last year's results. Net charge-offs rose to 5 percent in the quarter.

JPMorgan fell 18 percent during the past 12 months, compared with the 66 percent drop of Citigroup and the 47 percent decline of Bank of America Corp.

``It was clearly a very good report,'' Peter Sorrentino, who helps oversee $16.7 billion at Cincinnati-based Huntington Asset Management, including 3.6 million JPMorgan shares, said in a Bloomberg Radio interview. ``The telling thing for me was the number of business categories where they had very positive revenue comparisons with the same quarter last year.''

Swap Prices

Credit-default swaps on JPMorgan fell 9 basis points to 116 in New York, according to CMA Datavision.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

``We remain somewhat cautious about calms before storms, as consumer and commercial losses will likely increase into early 2009, if not longer,'' David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a research note today. He rates the stock ``in-line.''

Dimon also repeated that he would consider buying another bank. He said he has no plans to increase the dividend while credit quality continues to decline.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: July 17, 2008 16:24 EDT
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Bloomberg.com: Worldwide

July 17 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, posted fourth-quarter profit that trailed analyst estimates and gave a disappointing forecast after a sluggish U.S. economy crimped sales, sending the shares down 6.4 percent.

Net income increased 42 percent to $4.3 billion, or 46 cents a share, from $3.04 billion, or 31 cents, a year earlier, the company said in a statement today. That missed the 47-cent average of estimates compiled by Bloomberg. Sales rose 18 percent to $15.8 billion in the quarter ended June 30.

Sales of word-processing and spreadsheet products missed Microsoft's goals for the second straight time amid what Goldman Sachs says is the worst technology spending environment since 2003. Chief Executive Officer Steve Ballmer is courting sales overseas, and efforts have been hampered by piracy in countries such as China, where eight in 10 programs are illegal copies.

``The forecast from Microsoft was a little light, reflecting the slowing economy,'' Michael Holland, chairman of Holland & Co. in New York, which owns the shares, said in a Bloomberg Radio interview. ``They also have a major issue with piracy, and it looks like an intractable problem.''

Microsoft, based in Redmond, Washington, forecast first- quarter earnings of 47 cents to 48 cents a share on sales of $14.7 billion to $14.9 billion. Analysts on average anticipated a profit of 49 cents on sales of $15.1 billion.

Microsoft cut 1 cent from its forecast for the fiscal year that started this month, saying profit will be as little as $2.12 a share, instead of $2.13. Sales will be $67.3 billion to $68.1 billion. Analysts' estimates averaged out to a profit of $2.17 and sales of $67.4 billion.

Office, Online

Microsoft dropped $1.76 to $25.76 in late trading. The stock had risen 26 cents to $27.52 as of 4 p.m. New York time in Nasdaq Stock Market trading and has fallen 23 percent this year.

Google Inc. also posted profit that trailed forecasts today, missing analysts' projections for just the third time since it sold shares to the public. The stock sank as much as 12 percent.

Sales of Internet advertising missed Microsoft's estimates as the business lost search queries to Mountain View, California- based Google. The unit's loss widened to $488 million amid higher spending. Revenue from business applications trailed estimates as customers choose cheaper versions of the Office software, Chief Financial Officer Chris Liddell said today on a conference call.

Ballmer, 52, is contending with a slowdown in the U.S. economy and rapid growth in emerging markets, where average prices are lower and pirated copies account for more than half of software in use, according to the Business Software Alliance trade group in Washington.


Sales in the U.S. increased 15 percent, and revenue abroad gained 18 percent, Liddell said in an interview. The first- quarter miss is because of ``very tough comparables'' to the year earlier, which benefited from demand for the Xbox and a reduction in piracy, he said. Business will improve throughout the year, he said. The company also spent money to ramp up its staff overseas.

``Given the economic environment out there, I'm very happy,'' Liddell said.

PC sales rose 16 percent to 71.9 million units worldwide last quarter after price cuts stoked demand, Stamford, Connecticut-based Gartner Inc. said yesterday. That beat the 11 percent growth the researcher had predicted.

``Based on PC unit sales, people expected better guidance,'' said Jeff Gaggin, a New York-based analyst at Avian Securities. He has a positive rating on the shares and doesn't own them.

Windows sales topped estimates in the fourth quarter, rising 15 percent to $4.37 billion and rebounding after an increase in piracy caused the unit to fall short in the third quarter.

Yahoo, Xbox

To build other avenues for sales, Ballmer moved into online advertising and this year sought to buy all or part of Yahoo! Inc. Microsoft, owner of the No. 3 search engine, would triple its users by acquiring Sunnyvale, California-based Yahoo, the No. 2 player in the market.

Microsoft made its initial bid of $44.6 billion, or $31 a share, public in February and negotiations broke down in May. Now activist investor Carl Icahn is trying to oust Yahoo's board at an Aug. 1 meeting, and Microsoft said this month it may restart talks on a combination if he wins.

Microsoft said today that it had offered to buy $3.9 billion in Yahoo stock at $19.50 a share as part of its proposal to buy the Internet company's search business. Liddell also said the company would guarantee revenue for Yahoo for up to 15 years, depending on the performance of its Web site.

Sales in the online business will increase as much as 20 percent this year as the company makes acquisitions and develops new technology, Liddell said.

One bright spot has been the Xbox video-game business, which lowered prices to spur sales in Europe and benefited from providing exclusive content for the best-selling ``Grand Theft Auto IV'' to online players. The business posted a profit for the year and sales in the quarter were in line with estimates.

Xbox gains will abate in coming month, and revenue may fall as much as 4 percent this year, Microsoft said. There is no new Xbox coming soon.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

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Dell gains traction in global computer shipments - Austin Business Journal:

The latest report on personal computer shipments shows Dell Inc. gaining ground against its competitors.

The Round Rock computer maker increased its worldwide PC shipments nearly 22 percent in the second quarter, according to preliminary figures from Gartner Inc. That puts Dell (Nasdaq: DELL) in second place behind Hewlett Packard in global shipments. Dell holds 15.6 percent worldwide market share compared with H-P's 18 percent.

The report credits Dell's "expansion into retail and other indirect channels" for the improved performance. In the last year, Dell began selling its PCs in stores like Wal-Mart and Best Buy, a departure from the company's traditional direct sales-only approach.

Domestically, Dell continues to dominate. The company grew its second quarter shipments 12 percent over last year, maintaining a healthy 32 percent market share, well ahead of H-P with 25 percent of total U.S. shipments.

Total worldwide PC shipments hit 71.9 million units in the second quarter, up 16 percent from second quarter 2007, the Gartner report shows.

Laptops continue to lead shipment growth, with prices for mobile PCs dropping sharply compared with desktop units, according to the report.

"Economic uncertainties have hit PC revenues, resulting in steep [average selling price] declines, especially in markets such as the United States and the Europe, Middle East and Africa regions," says Mika Kitagawa, principal analyst for Gartner's client computing markets group. "The industry could ultimately see a significant wave of consolidation if stronger vendors continue to press their pricing advantage."

For the complete report go to www.gartner.com/it/page.jsp?id=724111

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Google earnings miss expectations, shares fall: Financial News - Yahoo! Finance

SAN FRANCISCO (Reuters) - Google Inc (NasdaqGS:GOOG - News) posted a 35 percent rise in quarterly net profit, missing Wall Street's consensus forecast, showing the Internet leader may be suffering from a weakening global economy as rivals have.

Shares of Google fell to $477, a decline of more than 10 percent, from a Nasdaq close of $533.44.

Net income for the second quarter rose to $1.25 billion, or $3.92 per diluted share, compared with the year-earlier quarter's $925 million, or $2.93 per diluted share, when an unexpected jump in expenses hit results.

Gross revenue rose 39 percent to $5.37 billion.

Excluding stock-based compensation costs, the company reported a profit of $4.63 per share -- below what Wall Street had forecast.

Analysts were expecting a net profit, on average, of $4.00 per share for the latest quarter, according to Reuters Estimates. Excluding stock option expenses, Wall Street was looking for an average second-quarter profit of $4.72 a share.

Revenue was expected to grow 39 percent, on average, to $5.37 billion according to analysts tracked by Reuters Estimates. Forecasts ranged from $5.16 billion to $5.62 billion, representing growth of 33 percent to 45 percent.

(Reporting by Eric Auchard, with additional reporting by Paul Thomasch; Editing by Braden Reddall)

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