Still No Greek Deal

The situation with Greece’s debt, which seemed better for a few hours as its leader met with European Union, European Central Bank and IMF officials in Brussels, is bad again. It appeared that those three groups would release the money Greece needs to cover its March obligations so as not to default. But that capital comes with strict restrictions, and the Greeks may be unable to accommodate them. Greece has to show its financiers that planned austerity programs are well underway and that all of the political powers in the country have endorsed them. That broad political endorsement is by no means assured as leaders jockey for the approval of sullen voters who believe austerity measures have gone too far.

Google Home Entertainment

Rumors have started to spread across the tech world that Google (NASDAQ: GOOG) will release a home entertainment system that can stream music throughout people’s homes. The press has speculated that the world’s largest search company believes it can follow Apple (NASDAQ: AAPL) into the hardware business. Apple is widely admired for its ability to marry devices with apps and entertainment. Google has started down the path of hardware integration with it purchase of handset firm Motorola (NYSE: MMI). Google may find the going rough, though. Most hardware companies have very modest margins, or make no money at all, as companies that make products to compete with the iPhone and iPad have already discovered.

Additional Job Cuts

PepsiCo (NYSE: PEP) and Alcatel-Lucent (NYSE: ALU) are the latest multinationals to “reorganize” their businesses for the future. At Alcatel this means a cut of 1,800 people. At Pepsi it means dropping 8,700 workers. These restructurings are presented to investors and the press as ways to drive efficiency and margins. A look below the surface at most companies that take this path reveals that sales have faltered and management needs a way to show investors that they can make even modest returns.

Douglas A. McIntyre

The Hong Kong division of Alibaba may go private as part of a refinancing and a buyback of Yahoo!’s (NASDAQ: YHOO) shares. (Reuters)

Financial backers of Greece say they are concerned about whether a deal to lend the company more money will hold. (Reuters)

Economists concerned about the U.S. economy a few months ago change their opinions. (Reuters)

A fall off in investment bank activity hurts Barclays (NYSE: BCS) earnings. (Reuters)

China’s imports fall, raising demand concerns. (Reuters)

The new CEO of Sony (NYSE: SNE) will try to marry hardware and software for many of the firm’s products, just as he did with the PS3. (Reuters)

The head of Xstrata is under pressure to get a better deal for a Glencore merger. (Reuters)

A new settlement between banks and the government could help one million homeowners. (WSJ)

Google (NASDAQ: GOOG) to launch a home entertainment system as it moves into the hardware space as Apple (NASDAQ: AAPL) has. (WSJ)

An insider trading bill is broadly supported by Congress members. (WSJ)

Oracle (NASDAQ: ORCL) expands its use of web-based software products. (WSJ)

The FDA will speed the approval of biosimilar drug treatments. (WSJ)

An Alcatel-Lucent (NYSE: ALU) reorganization could cost 1,800 jobs. (WSJ)

Weekly unemployment benefits numbers improve steadily. (WSJ)

Greek unemployment rises to 20.9%. (WSJ)

The head of the European Central Bank pushes banks to take inexpensive loans to stabilize eurozone financials. (WSJ)

Canada will allow uranium exports to China. (WSJ)

A Hasbro (NASDAQ: HAS) and Zynga (NASDAQ: ZNGA) partnership to marry physical games with online ones. (WSJ)

Southern Co.’s (NYSE: SO) plan to build a reactor in Georgia receives NRC approval. (WSJ)

Apple’s market cap passes that of Google and Microsoft (NASDAQ: MSFT) combined. (WSJ)

New research suggests the education gap between rich and poor has widened. (NYT)

German officials are worried that the ECB has cut lending standards too much. (FT)

Douglas A. McIntyre

Handset makers Research in Motion Ltd. (NASDAQ: RIMM), Nokia Corp. (NYSE: NOK), Motorola Mobility Holdings Inc. (NYSE: MMI), Sony Ericsson, LG Electronics, and HTC Corp. trail far behind in profits, with only Nokia, Samsung, and HTC posting any profit at all. Sony Ericsson posted an operating loss of -$317 million in 2011 and Motorola lost -$19 million. LG managed to break even.

In market share by operating system, Apple’s iOS trails the Android operating system from Google Inc. (NASDAQ: GOOG), with 19% to Android’s 48% at the end of 2011. Canaccord Genuity estimates that at the end of this year, Android will hold 57% share to Apple’s 22%. The wild card here is Nokia’s coming introduction of new smartphones using the Windows Phone operating system from Microsoft Corp. (NASDAQ: MSFT).

Compared with profits, though, operating system market share doesn’t mean much, especially because Google distributes Android for free. And that free software is probably the only thing that allows Samsung and HTC to make a profit at all.

What gives Apple its staggering profit share is the company’s ability to price its iPhones at a premium other vendors’ offerings. Apple is clearly forcing its competitors to race to the bottom and compete with one another on price. Ericsson has already abandoned its joint venture with Sony. Why Sony plans to continue losing money probably has more to do with management egos than anything else.

Motorola, which is about to be acquired by Google, is also in a precarious position. Because Android doesn’t cost any of its competitors anything, the Google/Moto tie-up gains no advantage from the acquisition. HTC, which has fouled up its inventory management, might not have enough time to sort itself out. LG can hold on for a while because it is large enough to absorb some losses (-$266 million in the first 3 quarters of 2011), but there’s really no reason for the company to continue to bleed to death.

Samsung saw its share of the industry’s total operating profits fall from 26% in the third quarter of 2011 to 15% in the fourth quarter. And it looks like the third quarter was the aberration, probably due to impatient consumers who would have bought the iPhone 4S if it had been available by late September.

Samsung is expected to grow its market share from 19.5% in 2011 to 26.3% in 2012. That doesn’t really help much though, as Samsung’s problem is that its profit share is quite vulnerable. The company simply doesn’t have the thought leadership position in the smartphone marketplace and there is no way for the company to price its phones to yield maximum operating profits. Its position remains at the front of the line of also-rans.

Canaccord Genuity raised its price target for Apple to $665/share today, and we have more coverage on that here. Apple shares are up about 3.6% just before noon today, at $493.72 after posting a new 52-week high of $495.12.

Paul Ausick

Groupon’s shares dropped 15% after its announcement that it lost money in the fourth quarter of last year. It said its “active customers” rose 275% from the same period a year ago to 33 million. Revenue jumped 194% to $506.5 million. And Groupon said sales in the first quarter would be as little as $510 million, up “only”73% from last year. Then Groupon claimed it would continue to have outsized investments for marketing. Many investors are worried that the use of online coupons is a model that consumers adopted only briefly, as well as that rivals like Amazon.com (NASDAQ: AMZN) have similar services. Beyond that, the lingering issue is whether people clip coupons more than they watch videos, communicate by text or hang out on Facebook. There are only so many hours in an internet day.

People clearly spend a lot of time on Facebook, but there is a debate over what they do. A set of research from Citi released last fall said that people are on Facebook for 16% of their time online, on average. The number eclipsed time spent on Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO). But how long does it take to do a successful search on Google before the user moves to a site the search uncovered? Google remains a utility as much as anything else, with search results mixed with ads on similar subjects. It is a nearly perfect match of content and marketing messages, as Google’s numbers have shown. Facebook’s 850 million users interact with friends and acquaintances, for hours it seems, but wandering people are hard to target, even with data on behavior and demographics. Facebook had less than $4 billion in revenue last year. So Wall St. wonders whether the people on the social network care at all about the ads that they see.

There is a cottage industry of research about why people visit online sites, whether they watch video on PCs or TV, and why some websites are better for advertisers than others. None of the research is conclusive enough, at least from the standpoint of many people who review it, to convince experts that time spent on Facebook or Groupon can ever yield the kind of revenue garnered by Amazon.com and Google. At least Amazon and Google can demonstrate a long history of interaction that yields a steady and growing stream of revenue. Each has a future likely to be as good as its past as far as revenue and profits are concerned. Facebook and Groupon have not yet cleared that hurdle.

Douglas A. McIntyre

Groupon (NASDAQ: GRPN) posts earnings that trouble Wall St. and its shares fall by 10%. (Reuters)

A deal on mortgage data and foreclosures between five banks and state attorneys general is close to being done. The amount of the settlement will be about $25 billion. (Reuters)

Credit Suisse (NYSE: CS) posts a drop in Q4 results. (Reuters)

Rio Tinto (NYSE: RTP) posts poor results due to metal prices. (Reuters)

Levovo beats earnings forecasts as its market share rises, and it will produce a TV product for Chinese consumers. (Reuters)

Google (NASDAQ: GOOG) to launch a cloud storage product. (WSJ)

The House probably will approve a bill to regulate insider trading by members of Congress and their staffs. (WSJ)

China and Canada to increase official trade relations. (WSJ)

China’s CPI rises to 4.5% in January — up from 4.1% in December. (WSJ)

Some car companies press sales in Indonesia as the number of drivers there surges. (WSJ)

Chrysler may set a deal with banks for consumer and dealer loans that would replace its relationship with Ally. (WSJ)

Apple (NASDAQ: AAPL) tightens it approval process for apps used on the iPad and iPhone. (WSJ)

Petrobras (NYSE: PTR) estimates of its reserves and the P&L they may create could be too optimistic. (WSJ)

Goldman Sachs (NYSE: GS) buys much of AIG’s (NYSE: AIG) troubled bond portfolio, which dates back to 2008. (WSJ)

Two million homeowners could benefit from a $25 billion settlement over mortgages reached between five banks and the government. (NYT)

Car sales in China fall 24% in January. (NYT)

Young people are watching TV more and more on PCs. (NYT)

BP (NYSE: BP) is conversing with the U.S. government over claims from the Deepwater Horizon oil spill and may settle. (Bloomberg)

Sarkozy’s approval ratings in France are near all-time lows for a president. (Bloomberg)

Douglas A. McIntyre

BP Fights On

The crisis at BP (NYSE: BP) due to the Deepwater Horizon disaster seems long gone. It is not. BP signaled an improvement of its financial health with a dividend increase. At almost the same time, the UK-based firm said it would “vigorously” contest suits against it because of the spill. That vigorous defense of actions will take years. The first major suits against it will be filed this month. Large liability cases brought by governments and private enterprises against major companies before indicate that the process of trial and settlement talks can drag on seemingly forever.

Toyota’s Recovery

Toyota (NYSE: TM) announced the start of an unexpectedly rapid comeback from recall problems and the shuttering of many of its plants due to the Japanese earthquake of last March and more recent interruptions of its supply lines due to floods in Thailand. Toyota made $1.1 billion in the quarter that ended in December. Toyota raised forecasts for net and operating profit. The company still has to regain market share in the U.S. and gain on Volkswagen and General Motors (NYSE: GM) in China, the world’s largest car market. Its market share in the U.S. reached almost 18% four years ago, and it briefly moved ahead of Ford (NYSE: F). Its portion of the market is down to about 12%, and its has competition from resurrected GM and Chrysler, as well has rapidly selling new cars and light trucks made by South Korean manufacturing behemoth Hyundai.

Lumia 900 Launch

Nokia’s (NYSE: NOK) Lumia 900, its new flagship product, is about to go on sale in the U.S. The launch carries with it the hopes of a comeback for the world’s largest handset maker and its software partner Microsoft (NASDAQ: MSFT). Microsoft has had terrible trouble as it struggled to sell its mobile OS against Apple’s (NASDAQ: AAPL), as well as smartphones that use the Google (NASDAQ: GOOG) Android platform. The recent history of smartphone launches shows that the fate of products usually is determined in the first few days they are available. Reports of strong sales bring new customers into stores. Reports of weak sales cause analysts and the press to label a new product DOA.

Douglas A. McIntyre

Read America’s Ten Shrinking Corporate Giants

Large companies can lose a significant amount of their revenues because they get into a great deal of financial trouble. A company may lose part of its customer base quickly because of economic forces, or it may be part of a financial catastrophe. As a result, the company’s revenue declines, and it begins to post large losses. In cases like these, companies often are forced to sell divisions to fund their survival. Alternatively, companies may close some of their operations that drain capital. General Motors and Citigroup are good examples of this category. Each moved from relative prosperity to difficulty in a very short period.

The other reason large companies shrink quickly is by design. The management of a corporation created by merger or acquisition activity may find that some of its pieces no longer fit together. One division may grow at a much higher or slower rate compared to others. Also, the way the stock market values one part of a large corporation may change because it is in a category Wall Street no longer favors. That, in turn, becomes a burden on the stock price of the entire enterprise. Telecom hardware company Motorola Solutions and media giant Time Warner fall into this category. Each is smaller than it was five years ago because it spun out a major business.

24/7 Wall St. used Capital IQ to screen the largest companies in America based on total revenue in 2006. We then screened for those that had the largest drops in total revenue between 2006 and 2010. Most of the eight companies on this list lost a third of their total revenue over the period, and some lost more than half. The list is ranked by total revenue loss from greatest to least.

This is 24/7 Wall St.’s list of America’s Shrinking Corporate Giants

In the fourth quarter, HTC’s revenue fell 2.9% year-over-year. More telling is that revenue dropped 25% from the third quarter to the fourth. Operating profits were worse, down 36% and 23% respectively. First-quarter profits will drop as much as a third from the fourth quarter of 2011, to $2.2 billion.

The first reaction to the news was hard to dispute. Samsung is set to overtake Nokia (NYSE: NOK) as the world’s largest handset company, and smartphones will be the driver of that success. Apple has taken the number three spot in the market. Its position is marked by the fact that it sells no inexpensive handsets. Smartphones are its sole product category, which makes its success all the more impressive. HTC has been marginalized.

HTC management has to ask itself the same question that LG, Motorola (NYSE: MMI), Sony Ericsson and Nokia do. At what point does an investment in the smartphone industry become financially foolish? At what point is it better to take and hold a 5% market share with modest R&D and marketing expenditures. Put another way, at what point is it best to surrender — at least surrender that foolish hope that there is a chance to overtake Samsung, with its colossal balance sheet, and Apple with products that come nowhere close to satisfying customer demand?

HTC was the latest smartphone company to have had a hot hand. Its sales in 2010 and early 2011 were extraordinary. Its smartphones had a number of features that made them competitive to the iPhone. HTC had unlocked the secret of making features of the Google (NASDAQ: GOOG) Android operating system competitive with the Apple OS. But it could not produce a product like the iPhone 4S or Samsung Galaxy S II. It also did not have the marketing muscle to pressure Apple and Samsung in the consumer markets.

HTC’s run is over now. That may not make sense, because it was doing so well a year ago. But Apple and Samsung have grabbed market share that they can hold because of better products and better finances.

Douglas A. McIntyre

SolarCity is the largest solar installer in the US, with about 14% of a market worth more than $2 billion. The company does not reveal its module suppliers, but did sign a 5-year supply contract with First Solar Inc. (NASDAQ: FSLR) in 2008, and has in the past used modules manufactured by both Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Kyocera Corp. (NYSE: KYO), Sharp, and thin-film start-up Miasole. Competitors among publicly listed companies are Real Goods Solar Inc. (NASDAQ: RSOL) and Westinghouse Solar Inc. (NASDAQ: WEST), formerly Akeena Solar, which licenses the Westinghouse brand from Toshiba Corp.

SolarCity offers homeowners solar installation with a variety of payment options, but the company’s rapid growth has come from its power-purchase agreements with homeowners who install the rooftop systems and then pay only for the power they use. These projects are financed by loans to SolarCity from the likes of Bank of America Corp. (NYSE: BAC) and Google Inc. (NASDAQ: GOOG) which have backed the program with loans totalling well over $240 million.

The company also offers systems purchasing plans and lease plans for residential and commercial customers. SolarCity also has a major contract with the Department of Defense to install solar systems on military housing units. The company was supposed to receive a federal loan guarantee to partially fund the $1 billion project, but the application was filed too late to be considered by the September 30th deadline. That’s when BofA/Merrill Lynch stepped in with financing.

SolarCity is also on the side of installers who disagree with the dumping case filed by the US division of Germany’s Solarworld AG against Chinese solar panel makers. The falling cost of the solar panels has generated more interest among consumers and commercial customers for installing solar PV systems, which is good for SolarCity, Real Goods, and other installers like Sungevity and SunRun.

SolarCity offers installation services in 11 states and the District of Columbia. And unlike the ill-fated Solyndra, SolarCity’s brand is both well-known and popular.

Paul Ausick

Fed president Richard Fisher says there is no need for QE3. (Reuters)

Panasonic posts a quarterly loss of $2.6 billion. (Reuters)

Martha Stewart Omnimedia (NYSE: MSO) says a provision in its deal with Macy’s (NYSE: M) would let it move ahead with its new JCPenney (NYSE: JCP) deal. (Reuters)

The U.S. plans to spend $2.8 billion to upgrade the F-16. (Reuters)

The Senate will pass a bill that makes it illegal for members of Congress to engage in insider trading. (WSJ)

Glencore and Xstrata may merge because of the rise in value of natural resources. (WSJ)

Bank “rainy day” funds may be run down by a need to boost earnings. (WSJ)

PetroChina (NYSE: PTR) will buy into Canadian shale assets to ensure future supply. (WSJ)

Corporate profits have risen but the portion paid out in taxes has fallen. (WSJ)

The Government Accountability Office says many hospitals overpay for devices. (WSJ)

The Obama Administration will accelerate the approval of wind farms off the East Coast. (WSJ)

Facebook will push advertisers to use its Sponsored Stories to increase its revenue. (WSJ)

Google (NASDAQ: GOOG) will try to add to the security of its Android mobile-device software to combat hackers. (WSJ)

The head of Dow Chemical (NYSE: DOW) says Europe is in a recession. (WSJ)

New York Times (NYSE: NYT) profits fall as digital revenue fails to grow enough to offset print. (WSJ)

CME Group (NASDAQ: CME) will set an insurance program to help farmers after the collapse of MF Global. (WSJ)

A St. Louis Federal Reserve report shows that startup growth has slowed. (WSJ)

Excess natural gas supplies could cause a price crash in the spring. (WSJ)

The Securities and Exchange Commission allows big banks to avoid some sanctions. (NYT)

The National Institute of Economic and Social Research says the UK will be in recession this year. (NYT)

Greek tax reform has not overcome the nation’s inability to collect taxes. (NYT)

China may put money into the European Stability Mechanism/European Financial Stability Facility to help the region. (FT)

In testimony before Congress, Bernanke expresses concern about the growth of the economy. (FT)

Greece faces more trouble in its effort to remain in the eurozone as its rescue falters. (Bloomberg)

Deutsche Bank will not take European Central Bank loans in a move to protect its reputation. (Bloomberg)

Douglas A. McIntyre