Daily Archives: November 18, 2007

China Freezes Lending, Risks Breaking Economy, Stock Market

In an extremely dangerous move, the Chinese central government has put a halt to a great deal of the bank lending in the country. According to The Wall Street Journal "a China Banking Regulatory Commission official in Shanghai confirmed that local and Chinese subsidiaries of foreign banks have been requested to ensure that loans outstanding at year end don’t exceed the levels on Oct. 31"

The move could hurt consumer spending within the country, but its most immediate effect should be to bring local stock markets down. Much of the stock purchasing that has lifted shares traded in Shanghai to tremendous levels comes from the ability of buyers to borrow money to put into shares of Chinese companies.

Overall, it is not good news for investors in China shares.

Douglas A. McIntyre

Posted on: November 18, 2007 – 9:05 pm in China

Is Nvidia (NVDA) A Buyer For AMD (AMD)?

Mubadala Development Co, the investment arm of  the Abu Dhabi government, put $622 million into AMD (AMD) last week to buy 8.1% of the company at $12.70 a share. The market did not like the deal. The stock traded at $12.64 and moved down more after hours. Wall St. understands that all AMD has done is buy a little time. The chip company has $5.1 billion in long term debt and had an operating loss of $226 million in the last quarter. Larger rival Intel (INTC) its pressuring AMD sales and margins.

AMD needs a buyer to survive. And, there may be only one company that makes sense–Nvidia (NVDA). The graphic chips company has a market cap of $18 billion to AMD’s $7 billion. NVDA has about $1.5 billion in cash and securities on its balance sheet and had operating income of $201 million in the last quarter.

Why would Nvidia buy a company that is less successful than itself? Perhaps to protect a large part of its market. In the companies own documents it says that it " we expect substantial competition from both Intel’s and AMD’s strategy of selling platform solutions, such as the success Intel achieved with its Centrino platform solution. AMD has also announced a platform solution. Additionally, we expect that Intel and AMD will extend this strategy to other segments, including the possibility of successfully integrating a CPU and a GPU on the same chip. If AMD and Intel continue to pursue platform solutions, we may not be able to successfully compete and our business would be negatively impacted."

Buying AMD would help offset that risk, as it would another one. Nvidia also reports that "we are the largest supplier of AMD 64 chipsets with 62% segment share in the second quarter of calendar year 2007, as reported in the latest PC Processor and Chipset report from Mercury Research. Decline in demand in the AMD segment would harm our business."

A failing AMD might get rid of one potential competitor, but it would allow Intel to control the entire game. And, it would take away one of Nvidia’s most important partners–AMD.

One of the strongest arguments against a Nvidia/AMD deal is that it could harm the graphics chip maker’s relationship with Intel. But, Intel is facing a series of monopoly suits against it by AMD and government bodies that have taken AMD evidence to go after the larger company for antitrust violations. A bigger and stronger chip company competitor might make a series of settlements on monopoly matters easier for Intel to reach

Also, Intel knows it has to have competition. Without a strong competitor, it could face future antitrust actions. And, having another robust player in the market has helped Intel drive its R&D operations harder to stay ahead. The entire market has benefited from that.

The move would be a big risk for Nvidia, but being a standalone graphics chip company has risks of its own.

Douglas A. McIntyre

Posted on: November 18, 2007 – 6:42 pm in Semiconductor, , ,

Is Abu Dhabi Driving Down The Dollar?

The $650 billion Abu Dhabi Investment Authority is planning to move more if its investment capital into emerging markets. Its management believes that countries like India and China have more growth potential than the US or Europe. And, that movement could be helping drive down the dollar. It could also contribute to a future drop.

According to Reuters "the world’s largest sovereign wealth fund has traditionally invested in U.S. Treasuries and other fixed-income assets."

The Qatar Investment Authority, which controls $60 billion, is also said to be cutting it investment in the dollar and US treasuries.

What this means is the the US consumer is becoming the dollar’s worst enemy. American consumption of goods and services from China, India, and other parts of the developing world are firing the boilers of those economies, making them more attractive to investment capital. This, in turn, is pulling Middle Eastern money out of US treasuries and into these emerging nations.

But, as the price of US debt is pressured by a lack of overseas buyers, yields in treasuries move up, making them more attractive to US institutional money managers. That makes Wall St look treasuries as an alternative to stocks, pushing the demand for equities down.

So, do the investing habits of Middle Eastern funds hurt the US stock market? Probably so. But, the US consumer has walked too many miles carrying the economy on his back. Soon, imports driven by the American economy are likely to slow, and emerging markets will lose their largest driver.

Douglas A. McIntyre

Posted on: November 18, 2007 – 6:19 pm in Economy

Washington Post (WPO) Versus NY Times (NYT) Online

The Washington Post Company (WPO) and New York Times (NYT) have been posting very different numbers in their online businesses. While the NYT figures show that its internet operations could offset its declines in print revenue, there does not appear to be any chance of that at the Post.

In the last quarter, the newspaper business at WPO had revenue of $211 million and operating income of $8.8 million a drop of almost half from the same quarter a year ago  It barely broke even. At the Times, newspaper revenue was $730 million and operating income was $33 million.

At the Post, online revenue was much more modest than Wall St. might have hoped. It hit $27.2 million up only 11% from the year before. At the Times, internet revenue from the same period rose almost 26% to just under $80 million. Taking out the company’s About.com business, and that figure for Q3 is $55 million for the online versions of the newspapers, and the growth rate over the previous year was 23%.

The Washington Post properties may be suffering from slow audience growth, which is not good news. According to Alexa, the online audience measurement service, washingtonpost.com ranks 763 among all websites, down 139 positions in three months. More recent numbers show that slide continuing. Another measurement service, Compete, shows the website’s audience growing, but not as fast as nytimes.com. The audience at Newsweek.com has started to grow sharply since it became independent from MSNBC, but Slate, the Post’s online magazine property, is ranked No. 2,606 in Alexa, down 858 places over the last three months. In measurements by Compete, it shows slow growth over the last year.

At the Times, Compete shows 38% growth over the last twelve months for nytimes.com. Alexa ranks the site at No. 216, down 16 positions in three months. The company’s Boston.com site is up 8 spots in Alexa to 1,302 among all websites. Compete has it up 24% in audience over the last year.

The slow internet revenue growth at The Washington Post appears to be linked to poor audience growth at some of its properties. And, that may be a hard problem to solve.

Look for more in-depth on these and other new and old media operations in 24/7 Wall St.’s "Old Media/New Media" Stock Letter.

Douglas A. McIntyre

Posted on: November 18, 2007 – 11:23 am in Internet, ,

Citigroup (C) May Hire Royal Bank of Scotland Chief To Be CEO

Citigroup (C) may look outside the US for its next CEO. According to The Telegraph, Royal Bank of Scotland CEO, Sir Fred Goodwin, "is understood to have been informally approached by Citigroup about taking on the chief executive’s role at the world’s largest bank."

One of the issues standing in the way of the appointment is that RBS could be facing the same kind of write-downs which hit Citi last quarter. The Telegraph may like the story, but it could be a waste of ink.

Douglas A. McIntyre

Posted on: November 18, 2007 – 7:48 am in Banking,

GM (GM) Launches Big “Sale” To Cut Inventories

It looked like things were getting better for the US car industry, but then along came higher fuel prices and the housing slump. Those UAW deals don’t look like such a big advantage now.

GM (GM) is launching a "Red Tag" sale. Under the program customers can get 60 months of zero percent financing on some 2007 models and discounts on some of the new 2008s.

In a note picked up by The Wall Street Journal GM says the annual Red Tag Event "is another example of GM using appropriate strategic and tactical incentive offers."

Wall St. will almost certainly pick up on the fact that this will hurt GM’s earnings in North America and make the fourth quarter a good deal tougher.

The alternative is to let inventory build up, some of it on dealer lots. And, GM is not prepared to offer much larger discounts at the end of the year to eat through that inventory.

Unless it has to.

Douglas A. McIntyre

Posted on: November 18, 2007 – 6:00 am in Autos,