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Tepid Tech


Show us the money. So said Wall Street to tech companies after Intel (INTC) and Yahoo! (YHOO), bellwethers of the PC and Internet advertising segments, reported profits on Jan. 17 that sank below Street expectations. Intel blamed its blues on a supply shortage of chipsets needed for its desktop PCs, while Yahoo cited steeper operating expenses and less-than-stellar ad growth. On Jan. 18, Apple and eBay weighed in with so-so forecasts.

Even though other tech titans, such as IBM (IBM) and EMC (EMC), posted solid results, disillusionment prompted a slew of downgrades as analysts ran new numbers for their growth projections. No one expects the bottom to fall out, but investors may do well to stay wary, given the problems likely to plague techdom this year as communications, computing, and consumer electronics makers clash.

See "Intel's Supply Stumble"

Remember King Pyrrhus? Twenty-three centuries ago he beat the Romans in battle, but at such a cost that his army lost the war. As bidding goes stratospheric for Guidant (GDT) and Dofasco, the winners could end up with Pyrrhic victories of their own. Topping Johnson & Johnson (JNJ) once again, Boston Scientific (BSX) on Jan. 17 said it'll pay $27 billion for Guidant despite falling sales and earnings at the medical-implant outfit. Meantime, Luxembourg's Arcelor on Jan. 16 upped its offer for Canadian steelmaker Dofasco to nearly $5 billion, grabbing the lead from ThyssenKrupp of Germany. Share prices of both leading bidders fell amid worries that they're overpaying.

See "Guidant or No, J&J Is a Buy" and "Is the Battle for Guidant `Irrational'?"

Airbus came on strong in the stretch, confounding the experts by finishing ahead of Boeing (BA) in passenger aircraft orders for the fifth year running, 1,055 to 1,002. But look closer: Boeing sold 154 widebody 777s to just 15 competing A340s, and widebodies boast much wider margins. For now, both planemakers are soaring on record sales.

See "Why Airbus Can't Glide on 2005"

So far, no one's charged with stealing. Former CEO Hank Greenberg got the boot and, months later, American International Group (AIG) remains strong. But AIG's accounting shenanigans could bring some of the largest fines in corporate history. The insurance giant may pay up to $1.5 billion to settle federal and state civil investigations, said insiders on Jan. 13. Who's furious at the reports? Greenberg, who asserts that New York State Attorney General Eliot Spitzer, a candidate for governor, is on the warpath against AIG for political gain. AIG declined comment; the stock barely budged.

Take your breakup and....Well, maybe Wall Street's reaction to Tyco's (TYC) plan, announced on Jan. 13, wasn't quite that violent, but almost. Shares tumbled 11% the day CEO Edward Breen unveiled a complex scheme to split the $40 billion conglomerate into three pieces, and were down 13% by Jan. 18. One reason: While the breakup will take at least a year to complete, Tyco's earnings engine has blown a piston.

See "The Trouble with Tyco"

When a state passes a law aimed at the health coverage of one company, it's not too tough to guess what company that might be. On Jan. 12 the Maryland legislature, over the veto of Republican Governor Robert Erlich, approved a bill that will force Wal-Mart (WMT), which employs 17,000 in the state, to spend at least 8% of its payroll on health insurance for those workers or pay into an insurance fund for the poor. Unions and activist groups are pushing similar legislation for all large employers in at least three dozen states, but most of those bills are likely to sicken and die.

See "First Wal-Mart. Then Who?"

Another migraine for the Bush Administration: Hundreds of thousands of mostly poor seniors who signed up for its Medicare drug plan had trouble getting their meds in the chaotic two weeks after it took effect on Jan. 1. Officials are boosting Web and phone assistance, so that when pharmacists check to see if a patient is enrolled, they'll be more likely to get an answer. The feds are also telling insurers to reimburse states that ponied up when seniors were turned away because they couldn't prove they were in the plan. Washington says clients shouldn't leave drugstores until they get what they came for.

From hunter to hunted in three short months. That's the apparent fate of Dutch media group VNU, owner of market research outfit ACNielsen and the target of a Jan. 16 takeover bid from a private equity consortium including Blackstone Group, Carlyle Group, and Kohlberg Kravis Roberts. (Just a day later, VNU said it was buying a majority stake in Web research firm BuzzMetrics.) VNU's penchant for audacious deals got it in trouble last November, when shareholder pressure led to the resignation of CEO Rob van den Bergh. The consortium's $8.8 billion offer looks stingy, but for now there's no other bidder.

Parked in Chapter 11 for 37 months, United (UAL) is taxiing toward a Feb. 1 takeoff. But despite huge cutbacks -- it got rid of nearly 25,000 employees, or one in three, and dumped its pensions -- it's unclear whether it can gain altitude. United began presenting its reorganization plan on Jan. 18 for final approval. All parties had signed off, though workers were still grumping about the deal management made for itself. CEO Glenn Tilton, for example, will get at least $15 million in stock. The airline says it should be profitable this year but pegs that to $50-a-barrel oil. Crude closed near $66 on Jan. 18.

Continuing a thrust to extend its empire beyond the Web, the search king on Jan. 17 bought radio-advertising outfit dMarc Broadcasting for a sum that could range from $102 million to $1.2 billion, depending on dMarc's performance over three years. Google (GOOG) stock slid 5% on Jan. 18, largely because of broader tech jitters.

See "Google: Searching for an Edge in Ads" and "S&P Downgrades Google to Sell"

In conformist Japan, the nail that sticks out often takes a pounding. Latest case: Takafumi Horie, Netrepreneur and founder of portal Livedoor. Six months ago the business press was lionizing Horie as an iconoclast. He was even recruited by Prime Minister Junichiro Koizumi to run for a Diet seat. (Horie lost big.) Now, Livedoor is under investigation for allegedly doctoring its earnings and its accounting. A flood of sell orders crushed Livedoor's stock and prompted the Tokyo Stock Exchange to halt trading early on Jan. 18 for the first time ever -- but not before the Nikkei lost nearly 7% over three days as other key Japanese Net plays, such as Yahoo Japan, Softbank, and Rakuten, Japan's biggest online retailer, also went into free fall. Horie and Livedoor officials deny the charges and say they will cooperate. But Horie probably won't be getting face time with Koizumi anytime soon.

See "High Drama on the Tokyo Exchange"


Steve Ballmer, Power Forward
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