Up Front
Edited by Ira Sager
Talk Show
"To me, it's a little difficult to give tax relief to people that don't pay income tax." -- House Majority Leader Tom DeLay on extending tax credits to 6.5 million low-income families.
SILICON SAGAS
How Wide a Probe at IBM
The SEC investigation of IBM (IBM
) is broader than first thought. An IBM spokesman confirms that the SEC is investigating other parts of its business. "It's more than just retail," the spokesman told BusinessWeek. IBM won't specify what's under the SEC's microscope.
Since becoming CEO last year, Sam Palmisano has taken steps to improve the transparency of IBM's earnings -- an issue that dogged former CEO Lou Gerstner. But on June 2, critics received new ammo. IBM disclosed that the SEC is seeking information about revenue recognition in 2000 and 2001, "primarily concerning certain types of customer transactions." The probe, IBM says, arose from an SEC inquiry into a customer of IBM's Retail Store Solutions unit, which sells electronic cash registers. IBM denies any wrongdoing.
That explanation has many on Wall Street convinced the SEC is examining only a sliver of IBM's business. Some analysts believe the inquiry won't pan out. "The probability is that either the investigation fizzles out or doesn't have significant impact on future results," wrote Merrill Lynch (MER
) analyst Steven Milunovich. That may still happen, but not before the SEC eyes more than IBM's retail unit.
By Spencer Ante
RETAIL DETAIL
Really Big Sears Stores
Does the world need another big box retailer, one that sells appliances, apparel, toys, garden supplies -- and milk? Sears, Roebuck & Co. (S
) thinks so. The struggling retailer, best known for its 870 mall stores, will open a stand-alone store this fall in a suburb of Salt Lake City.
Called Sears Grand, it's one of three stores the company plans to open by next summer that are, well, grandiose in size and selection. Sears is trying to find sites for two more.
In clothing, Sears has been hammered lately by the likes of Kohl's and Target. And Sears' hold on the home-appliance and tools business has started to crack under pressure from Lowe's (LOW
) and Home Depot (HD
). At 210,000 square feet, the new stores will be double the space of a standard Sears. To attract more shoppers, they will carry a wider assortment than Sears' mall stores, from CDs and toys, to a "pantry" section with snacks and beverages.
Sears may find shopping habits hard to change. The same pantry strategy didn't work for Kmart. And even Toys 'R' Us has a hard time against Wal-Mart. What's more, Kohl's, Target, Lowe's, Home Depot, and Wal-Mart plan to open over 700 outlets all told this year. Dreyfus analyst Elaine Rees says that while the move makes sense, "competitive obstacles are great." Sears' big step out of the mall could be too little, too late.
By Robert Berner
FAT CATS
Steve's Big Sell-Off
For a guy who has been almost religious in his zeal to hold company shares, Microsoft (MSFT
) CEO Steve Ballmer can't seem to unload them fast enough lately. In the past two weeks, Ballmer has sold nearly 60 million shares -- about $1.5 billion worth. Eye-popping numbers, to be sure, but all the more remarkable since Ballmer hadn't sold company stock in more than a decade.
In a November, 2001, interview with BusinessWeek, Ballmer couldn't have been more adamant about sitting on his shares: "People always talk about diversification, but I know that I'm always going to have enough." Moreover, he said holding his stock showed his faith in Microsoft "the best way I know how, besides my hard work."
Now it's just going to be his hard work that marks his support. Last month, Ballmer told the SEC that he will sell shares under a fixed plan to diversify his holdings. Ballmer won't provide details, but in a May 23 press release, he says he remains "as committed to Microsoft as ever." He'd better be. He still has more than 410 million shares left.
By Jay Greene
THE LIST
UP, UP, AND AWAY
Flier Miles Keep Airlines Aloft
Airlines may be burning money as fast as their planes burn fuel, but don't blame it on travelers cashing in their frequent-flier points for free tickets. On the contrary: The promotion has become the only profit center for the major carriers today.
No wonder airlines are looking to expand these programs. American Airlines (AMR
) already allows people to earn mileage by clipping coupons on Kellogg (K
)'s cereal boxes. Starting in July, Kellogg will randomly award weekend vacations to consumers who mail in coupons. And in mid-May, American Express (AXP
) launched a program to award Delta Air Lines (DAL
) points when clients use its financial consultants. "There are other things on the plate," says Edward French, president of American Airlines' marketing program.
How can a giveaway make money? Airlines charge third parties plenty for mileage points. American Airlines sells miles for 2.2 cents apiece. (It won't say how much it clears.) But United Airlines (UAL
) says its frequent-flier unit had operating income of $226 million on $703 million in revenue in 2002. So the sky's the limit.
By Michael Arndt
RETAIL DETAIL
Tennis Treads from the Michelin Man
You would expect to find Michelin on the Grand Prix racetrack, but on the tennis courts at the French Open? The French tiremaker is using the Paris tournament to introduce its newest product: a tennis shoe with a Michelin-made sole. The sneaker, made by French shoe company Babolat and slated to go on sale in Europe this summer, is part of a push by Michelin to rejuvenate its image.
The 104-year-old company is developing a range of branded merchandise -- everything from sports gear to cutlery. It's also working on a line of sports apparel. Casual clothing and housewares, all bearing the image of the roly-poly Michelin man, were introduced in Japan last fall. Michelin hasn't decided when the new products will hit the U.S. and other markets.
Michelin isn't the first tiremaker to take a spin beyond wheels. Goodyear sells jackets and caps aimed at auto-racing enthusiasts. But the $18 billion company's ambitions are far bigger. Patrick Oliva, head of new-product development, says branded products could reach 10% of sales within 10 years. Maybe Michelin will fare better with buyers than it did on the courts. Croatia's Ivan Ljubicic, who wore the new shoes at the Open, was defeated in the third round.
By Carol Matlack
WIRED LIFE
Tech Slump? Not in Spain
To a tech industry hungry for growth, Spain is the new El Dorado. Indeed, Spain has become Western Europe's fastest-growing technology market. First-quarter PC sales surged 29%, vs. a 6% uptick for all of Europe, says researcher IDC. And while just 16% of Spaniards were online in 2000, 26% had logged on by the end of 2002, says Forrester Research (FORR
).
Tech multinationals are sharing the bounty. German software giant SAP (SAP
) boosted its Spanish revenues 8% in 2002, twice its growth rate in the rest of Europe. Sales at Hewlett-Packard (HPQ
) Spain's leading pc seller, climbed 35% in the first quarter. "The opportunities we see in Spain are really huge," says Santiago Cortés, managing director of HP Spain.
What's driving the surge? Government initiatives, in part. Madrid earmarked $392 million this year to bring broadband to rural areas and get schools and libraries online. And small businesses can now get tax breaks for upgrading to high-speed access. Such moves are buenas noticias for Europe's troubled tech sector.
By Paulo Prada
THE BIG PICTURE
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