In Business This Week
Edited by Monica Roman
HEADLINER
James Houghton: Through the Revolving Door
Leading optical-fiber maker Corning (GLW
) has its third CEO in the past 16 months. On Apr. 15, John Loose, 60, unexpectedly retired, and was replaced by Chairman James Houghton, 66. A member of the family that founded Corning in 1851, Houghton served as CEO from 1983 to 1996.
Why the return ticket? Although a leader in fiber optics, Corning's sales have been decimated by the telecom meltdown. The company says first-quarter sales came in at $900 million, about 4% lower than it predicted in February. Sales dropped 12% last year, to $6.3 billion, and Wall Street expects sales to fall another 37% this year, to $4 billion. Corning also announced 4,000 job cuts on top of 10,000 last year.
One bit of news cheered investors, though. Corning says cost-cutting trimmed its first-quarter loss to about $94 million, some 40% lower than expected. That triggered a 9% jump in Corning's stock, to $7.44. Still, SoundView Technology analyst Kevin Slocum doesn't expect Corning's revenues to start a healthy recovery until the second half of 2003.
By Geoffrey Smith
HP and Compaq: It's Official--Almost
Hewlett-Packard (HWP
) took a giant step towards completing its purchase of Compaq Computer (CPQ
) on Apr. 17, when a preliminary vote count showed a 51.4% to 48.6% lead over opponents led by Walter Hewlett. Some obstacles remain. Hewlett can demand a recount. And a trial begins in Delaware on Apr. 23 to see whether HP improperly used corporate assets--say, promising future banking contracts--to "buy" votes from shareholder Deutsche Bank (DB
), which switched 17 million shares in favor of the deal on the morning of the Mar. 19 vote. That's less than HP's current margin of victory, but Hewlett's suit asks Delaware Chancery Court to declare his side the victor. Also, the Securities & Exchange Committee and the U.S. Attorney for the Southern District of New York have requested information about the alleged vote-buying. HP and Deutsche Bank deny wrongdoing.
Why Uncle Sam's Wallet Looks Thin
It seems that the federal government is in a deeper deficit hole than first thought. Through Apr. 15, the Internal Revenue Service cashed just $16 billion worth of individual income tax checks, vs. $29 billion in the 2001 period. Behind the steep fall: a plunge in capital-gains tax payments and a surge in IRS refunds, courtesy of the tax cuts passed by Congress last year. Although the final returns from the April tax season aren't yet in, the results so far suggest that this fiscal year's budget deficit could be as much as double the roughly $50 billion last projected by the Congressional Budget Office. But there is a silver lining: The lower tax receipts mean U.S. consumers have more money to spend.
Maybe Mike Ovitz Needs an Agent
The problems are mounting for onetime super-agent Michael Ovitz, who lost his deal to make movies with Vivendi's Canal+ six months after closing his money-losing TV operation. Now, Ovitz's Artist Management Group is losing top clients, including Robin Williams, Pete Sampras, and Sex & The City creator Darren Star. Ovitz was hit with a $9.6 million lawsuit from the former head of the TV unit, who alleges that Ovitz misrepresented his ability to fund his company.
Sighs of Relief in Silicon Valley
Chipmakers have finally turned the corner on an annus horribilis. Semiconductor giants Intel (INTC
), Texas Instruments (TXN
), and Motorola (MOT
) matched or beat Wall Street earnings expectations during a traditionally weak first quarter. They also predicted improved performance during the rest of the year, signaling that they are clawing their way out of one of the worst downturns in history. While the timing of a resurgence in U.S. demand for chips remains cloudy, semiconductor companies are benefiting from improved margins as a result of heavy cost-cutting last year and an industrywide switch to new cost-saving manufacturing technologies.
IBM and Hitachi: Team Drivers
Under pressure to cut mounting losses in its hard-disk-drive operations, IBM (IBM
) and Hitachi (HIT
) on Apr. 16 announced a preliminary agreement to combine their disk operations in a joint venture. Hitachi is expected to own 70% of the venture, and will pay IBM more than $1 billion for its disk-drive unit. IBM will own the remaining 30% of the venture, but analysts say this may be a prelude to exiting the business. Another factor that led to the deal is IBM's manufacturing problems and lagging disk technology. Last year, IBM's $4 billion disk unit lost about $250 million. IBM employs about 17,000 people at plants in Singapore, Thailand, Japan, Germany, Mexico, and Hungary.
Et Cetera...
-- TRW (TRW
) rejected a sweetened acquisition offer by Northrop Grumman (NOC
).
-- Dick DeVos, 46, will retire Aug. 31 as president of Alticor, the parent of Amway.
-- Bristol-Myers Squibb (BMY
) announced the resignation of CFO Frederick Schiff.
CLOSING BELL
A Spurt at Sprint
Sprint PCS (PCS
) shares leaped 25.7%, to $12.60, on Apr. 16, after the wireless-phone company dialed in a first-quarter loss less dire than expected. It lost 15 cents a share, but analysts had foreseen 20 cents. The rally was also fueled by the company's forecast that it would continue to hit subscriber growth targets.
CLOSING BELL
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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