Daily Archives: July 8, 2007

Moody’s Savages Private Equity

Moody’s is unleashing an attack on private equity, The ratings company obviously does not want to be accused of missing a blow-up if buy-out deals which took on too much debt cannot cover the nut.

Given the size of some recent deals and the portion of these purchases that is being funded by borrowing, the Moody’s move may just be to cover it from future bad press.

The FT quotes the Moody’s report as saying private equity’s  "tendency to increase a portfolio group’s indebtedness to pay themselves large dividends runs counter to their claim of being long-term investors."

The Moody’s attack is likely to cause a lot of mud slinging. 

But, the trouble that Moody’s is talking about is already beginning. As The Economist points out, a number of planned deals are already being cancelled: "Sensing a shift in the economics of the industry, creditors around the world have started questioning the easy money offered to private-equity firms, which feed off risky types of debt."

Of course, markets that create great wealth over relatively short period often come apart as quickly. That is the concern at Moody’s and it is not an unfair one.

Douglas A. McIntyre

Posted on: July 8, 2007 – 7:55 pm in Uncategorized

Dow Jones On A Fishing Expedition

Dow Jones (DJ) has decided that, instead of selling out to News Corp (NWS) right away, it will shop the company around.

The first stop will be billionaire Ron Burkle who has been rumored to be matched up with Dow Jones’ unions. Whether the train has any other stops is unclear.

All aboard.

Douglas A. McIntyre

Posted on: July 8, 2007 – 6:28 pm in Uncategorized,

A Microsoft (MSFT) Break Up?

John Dvorak over at MarketWatch has raised the issue of Microsoft (MSFT) being broken into pieces. He writes: "As things stand, Microsoft has become stodgy and rumpled."

The idea of taking apart Microsoft is not new. It reached its peak in 1999 when the Justice Department was pushing an antitrust case against the world’s largest software company. The government brought in M&A firm Greenhill & Co. to examine how Microsoft might operate in pieces, but things never went that far.

Dvorak does not specify what the pieces might be. The most probable configuration of a new set of companies would include; 1) the client operation which is the desktop OS, 2) the business division plus servers and tools, 3) the online business which has MSN and Live Search, and 4) entertainment and devices which has Xbox, mobile products and Zune.

The problem with the plan, or any plan of this sort is that Microsoft’s online businesses and its entertainment/devices are too weak to stand on their own. Even if they are not well managed by the big software firm, the odds that they would survive as independents is fairly low.

Microsoft has certainly been a disappointment for shareholders. But, the more likely path is that Steve Ballmer and his operating executives will make a hard set of decisions. They will close some businesses and put substantial resources behind others. It has already dawned on them that portions of the company are failures. And, it is just a matter of time before they have to address it or face the the humiliation of under-performing the market year after year.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 8, 2007 – 6:20 pm in Uncategorized,

Chinese Car Market Gets Crowded

Nissan wants to sell 300,000 cars in China this year. During 2006, the company moved 220,000 units. The Japanese company is even beginning to market its luxury Inifiniti line to the upper end of the huge market.

The trouble with the automotive business in China is that all of the big car companies want to sell a million cars there and think their sales can grow at 30% to 40% per year. The market leaders, GM (GM) and VW, are likely to find that the number of rivals with a presence in the market is getting larger as time passes.

Companies like Ford (F) and Toyota (TM) cannot afford to miss the China opportunity. But, as local car companies are not going to permanently leave the market to outsiders, and nothing goes up at 40% forever.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 8, 2007 – 4:35 pm in Uncategorized, , ,

Verizon’s (VZ) Three Card Monte

Verizon (VZ) cuts the old copper wire to homes when it installs its new fiber-to-the-home service, Fios. Fios offers faster broadband, so who needs the copper anyway?

Verizon points out that they tell everyone that the copper link is going away. It is somewhere in the paperwork which the customer gets. The installation guy is supposed to mention it, if he remembers.

But, if the current Fios customer wants to go back to an old phone line or shut off more expensive Fios and return to using DSL, the fact that the cooper has been yanked is a problem. Fios has another issue. When the electricity goes down, it don’t work. Cooper does not have that problem. Makes calling 411 sort of tough if you have the newer tech.

The deal is a nifty way to help build a Fios customer base in a market where most people who have a voice/TV/broadband package currently get it from the cable company.

Retaining customers for Fios is easier whent consumers can turn it on but can’t turn it off.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 8, 2007 – 3:15 pm in Uncategorized

Apple (AAPL): A 3G iPhone?

One of the biggest knocks against the new Apple (AAPL) iPhone is that it works on AT&T (T) 2.5G network and not a newer 3G network. Consumers want that faster connection speed.

So, it is natural that Apple and AT&T shareholders and iPhone customers would want to know when 3G is coming.

Apparently, not soon. Business 2.0 writes that the iPhone does not have a 3G radio, which it would need to access the faster network. This might explain why industry experts believe that Apple will launch the iPhone on a 2.5G network in Europe.

There is no telling how much the iPhone’s sales will be held back by a delay in functioning on 3G. Certainly competitors like Nokia (NOK) and Motorola (MOT) will be waiting.

If the market is looking for an Achille’s heel on the iPhone, this may be it.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com 

Posted on: July 8, 2007 – 10:06 am in Uncategorized, , , , ,

Will Baidu’s (BIDU) Chinese Music Business Model Spread?

Chinese search leader Baidu (BIDU) has formed a partnership with the largest Chinese record label to stream music online. For free. Advertising will run on the pages where the music is accessed.

Money will be paid to artists from the advertising revenue pot.

The idea, while not entirely novel, is being put into place by the most powerful internet company in China. If it works well, the question is whether it will move to other place, especially the US.

"Free" music could put a dent in Apple’s (AAPL) strangle hold on digital music and help companies like RealNetworks (RNWK) which have hundreds of millions of digital players downloaded on PCs. The extent to which this music can be transferred to MP3 players is not clear yet, but iTunes might get some competition.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 8, 2007 – 9:56 am in Uncategorized, , ,

Verizon’s (VZ) Friend: The Cable Box

There was a time when cable operators picked a box, generally from Motorola (MOT) or the Scientific Atlanta division of Cisco (CSCO). They rented the device out to customers and probably made a very god buck.

The FCC has mandated that consumers be able to buy their own boxes, on the basis that competition is a good thing. That does not always work, as people learned with the break-up of the original AT&T.

The cable guys say that all of these new boxes, with digital feeds and one billion channels, are more expensive, so they will need to raise the price that they charge. Comcast (CMCSA) and Time Warner Cable (TWC) say that the new mandate will make cable more expensive for consumers.

Passing along costs may be a way for the cable companies to cut their own throats. With Verizon (VZ) and AT&T (T) coming to market with fiber-to-the-home, the best move they could hope for is rising cable TV rates. A door that is barely open for them because cable is the incumbent, could be pushed ajar by a spike in charges from the like of Comcast.

Cable has a big lead, but industries have squandered leads before.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 8, 2007 – 9:47 am in Uncategorized, , , , , ,