Varian Semiconductor Sued by Investor Over $4.9 Billion Bid

July 14, 2011, 11:30 AM EDT By Janelle Lawrence and Phil Milford

(Updates with excerpt from complaint in third paragraph.)

July 14 (Bloomberg) -- Varian Semiconductor Equipment Associates Inc. was sued in federal court by an investor who says stockholders will be shortchanged in a planned $4.9 billion, $63-a-share takeover by Applied Materials Inc.

Investor David Crane also contends Varian directors violated U.S. securities law by issuing misleading proxy materials that failed to fully explain the sales process and why the board “chose to negotiate exclusively with Applied,” according to a complaint filed yesterday in Boston.

Shareholders “will be prevented from obtaining a fair price for their common stock” unless a judge and jury stop the transaction under its present terms, Crane said in court papers.

Applied, based in Santa Clara, California, agreed May 4 to buy Gloucester, Massachusetts-based Varian Semiconductor in anticipation of increased demand for microchip technology used in mobile devices such as Apple Inc.’s iPhone.

Bob Halliday, Varian’s chief financial officer, didn’t immediately return a call seeking comment on the lawsuit.

Varian Semiconductor rose 8 cents to $61.41 at 10:50 a.m. New York time in Nasdaq stock market trading. The stock has risen 66 percent this year.

The case is Crane v. Varian Semiconductor, 11CV11236 RGS, U.S. District Court, District of Massachusetts (Boston).

--Editors: Glenn Holdcraft, Charles Carter

To contact the reporters on this story: Janelle Lawrence in Boston at jmlawren@aol.com; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Daniel Ek’s Spotify: Music’s Last Best Hope

By Brendan Greeley

Spotify founder Daniel Ek and Christina Aguilera, photographed in Los Angeles on July 8 Photograph By Art Streiber

(Corrects price of subscription fee in Europe in 10th paragraph)

“You can’t work in music. You have to find another job.”

Per Sundin’s concerned mother was on the phone. It was the summer of 2006, and both Sundins were watching a debate between Sweden’s two major party candidates for Prime Minister. Earlier that year, police in Stockholm had confiscated servers and questioned the founders of The Pirate Bay, a file sharing site that had been ignoring increasingly piqued letters from the American entertainment industry. Media piracy had become a national campaign issue in Sweden, which according to Harvard’s Berkman Center is second only to Japan in speed, price, and availability of broadband Internet access. During the debate, the moderator asked the candidates how they felt about file sharing. Both agreed that piracy was too easy, and that it didn’t make sense to criminalize an entire generation of music lovers.

It had been a bad couple of years for Sundin, who runs Universal Music in Sweden. Revenues consistently fell 10 percent per year. Between 2001 and 2008, he would fire 200 employees. Universal, where he is now, dropped from 110 to 40. He was reluctant to tell people he worked for a record label. At parties he would become angry. He asked friends whether they downloaded, whether their children downloaded. No one had a problem with taking music for personal use. “But that,” he would say, “is what we do!”

Even in bad times, the record business has its perks. To get to Sundin’s office, you pass two stands of fresh lilies, a Warhol-style photo of the My Aim Is True-era Elvis Costello, and a Guns N’ Roses pinball machine. To advance in the music industry, you evidently have to agree to hang a photo of Bruce Springsteen in your office; Sundin’s is as big as his desk and has Clarence in it, too. He tells of a major-label project in 2001 that gave a small group of consumers access to 5,000 albums, along with CD burners and color printers. “We thought you’d always need a CD,” he says. Sundin, to be sure, fought hammer and tongs to punish music piracy, but he seems almost sheepish now. “We went through an evolution,” he says. “The consumers went through a revolution.”

Worldwide revenue for the recording industry peaked in 1999 at $27 billion, according to International Federation of the Phonographic Industry (IFPI). By 2008 it had plummeted to $14 billion. That year, Universal, EMI Music, Sony, Warner, and Merlin, which represents independent music labels, each agreed to an experiment: They would give their entire catalogs to a Swedish startup run by a then-25-year-old with no experience in the music industry. That company, Spotify, entered seven European markets and began giving out invites to listen to 13 million songs, on demand, for free. “We had to try everything,” Sundin says.

At the time, the industry was pressing European countries to write laws in line with a European Union directive to stiffen civil enforcement of intellectual-property rights. Record labels had to win not only in court but also among the public. Sundin saw a demo of Spotify and laid out the case to his bosses in London. “To get legislators on our side,” he explained, “we need services for the kids.” “This can’t be true,” he thought after the demo. “It can’t be this good.”

Daniel Ek is 28 now, just old enough to have seen a slide projector and just young enough that he feels he needs to explain how a slide projector works. He is tall and akimbo-limbed—not overweight, but built like someone who spent his youth in front of a computer. Today’s polo shirt, worn above creatively stressed jeans, is green. Tomorrow’s will be red. A felt hat with ear flaps sits on his desk, a gift from a friend. He wore it once, he says, in an internal meeting. To show he meant business.

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Google’s Challenge to Facebook Seen Eroding Quarterly Profit

July 14, 2011, 10:26 AM EDT By Brian Womack

(Updates with opening shares in eighth paragraph.)

July 14 (Bloomberg) -- Google Inc.’s challenge to Facebook Inc. in social networking, an effort analysts said will cost more than $200 million, probably slowed second-quarter profit growth for the world’s largest Web search engine.

Profit excluding some costs rose to $7.85 a share in the period, Google will report later today, according to analysts surveyed by Bloomberg. Profit would have been higher if not for spending on Google+, a service unveiled by new Chief Executive Officer Larry Page last month to compete with Facebook, said Colin Gillis, an analyst at BGC Partners LP.

“Larry’s here, and he’s here to spend,” said Gillis, who estimates that Google spent about $100 million on the project, half the total, in the second quarter alone. “There are some large opportunities that they’re chasing after.”

Google+, an online tool that lets users create and communicate with groups of friends, is part of Page’s attempt to lure Web users from rivals including Facebook. Higher spending on social networking, mobile software and e-commerce -- areas aimed at lessening Google’s reliance on traditional Internet search -- eats into profitability.

Adjusted operating margin, a measure of profitability that excludes certain costs, declined to less than 48 percent in the second quarter from 49.4 percent in the preceding period, said Ben Schachter, an analyst at Macquarie Capital in New York.

“What investors are thinking about in general right now is return on these investments,” said Schachter, who rates the stock “outperform” and doesn’t own it. “They certainly haven’t shied away from spending money. My view is that this is money that is well spent.”

Sales Boosted By Search

Second-quarter revenue, minus sales passed on to partner sites, likely rose to $6.57 billion in the June period, the average estimate of analysts. Google’s first quarter revenue of $6.54 billion, announced in April, topped analysts’ predictions.

Google, based in Mountain View, California, lost 52 cents to $537.74 at 10:02 a.m. New York time in Nasdaq Stock Market trading. The stock fell 9.4 percent this year before today.

While Google’s sales are buoyed by demand for online ads, margins are likely to keep narrowing into next year amid costs for such services as Google Offers, a feature that mirrors Groupon Inc. by providing daily deals to users at local businesses, according to Morgan Stanley.

‘Stiff Competition’

“We are encouraged by early progress of Google Plus and Google Offers, but Google faces stiff competition from incumbents who have first-mover advantage,” Morgan Stanley analysts, who downgraded the company to “equalweight” from “overweight,” wrote last week in a research note. “The payoffs of such endeavors may be longer term.”

Adding to costs, Google increased hiring by 1,900, or 7.9 percent, in the first quarter, part of its plan to boost overall hiring by 6,000 this year. Research and development costs rose 50 percent in the March period while sales and marketing increased by 69 percent.

Google is investing in social features to lure Web surfers and advertising sales from Facebook, the world’s most popular social-networking site. Online users spent an average of 6.7 hours on Facebook in June, compared with 4.1 hours on Google, according to ComScore Inc.

The release of Google+ comes after other missteps in social-related services, including Google’s Buzz and Wave. Google reached a settlement in March with the U.S. Federal Trade Commission over concerns it violated its own privacy policies with Buzz. Google stopped developing Wave, an online collaboration site, last year because of slow adoption.

‘Slicker Products’

The new service has a look and feel similar to Facebook’s, but with a focus on managing contacts around different relationships. Just days after its debut, Google temporarily shut down the invite mechanism for Google+ following “insane demand,” Vic Gundotra, head of social efforts, said on the company’s website.

“This is definitely one of the slicker products that has come out of Google in a long time,” said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco who rates Google a “buy.”

Google+ is still early in its development, with less than a month for users to try out the service, Gillis said.

“It’s way too soon to make a call on Google+,” he said. “It’s a credible alternative to Facebook, but social networking is all about scale.”

The company also is boosting investment in mobile services. Google’s Android operating system is expected to maintain its lead globally this year with 38.9 percent of the worldwide smartphone market, compared with 18.2 percent for Apple Inc.’s iPhone, according to research firm IDC.

No ‘Repercussions’

Google, meantime, holds its lead in online searches. The company had 65.5 percent of queries in the U.S. in June, compared with No. 2 Yahoo! Inc., which had 15.9 percent, according to ComScore Inc Inc.

Overall, Google is expected to grab 41 percent of online ad revenue in the U.S. in 2011, compared with 11 percent for Yahoo, according to EMarketer Inc. in New York. Facebook should get 7 percent and Microsoft Corp. should have 6 percent.

“Having this initial success with Google+ allows them to spend without as many repercussions from investors,” Schachter said.

--Editors: Tom Giles, Nick Turner

To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Murdoch's Mess

By Paul M. Barrett and Felix Gillette

Murdoch arriving at News International’s London offices on July 10 Frank Doran/Rex

On July 19, Rupert Murdoch is scheduled to sit before a U.K. parliamentary committee investigating the phone hacking and corruption scandal engulfing his media empire. For Americans the setting may be exotic, but the structure of the drama will feel familiar. An executive stares down grandstanding legislators and makes a choice: a tight-lipped defense of conduct or an apology for prior sins.

Murdoch—the Oxford-educated son of an Australian newspaper man—did not forge himself into the chief executive officer of the 21st century’s dominant global media empire by issuing apologies. This time he might want to make an exception.

If even a handful of the accusations being leveled against some of News Corp.’s journalists turn out to be true—hacking a murdered girl’s voice-mail messages; tampering with evidence; bribing police; procuring the medical records of a Prime Minister’s ill son—News Corp. will have been guilty of, at the very least, abysmal management. Given the level of scrutiny the company has brought upon itself, it’s almost certain those accusations will now, finally, be fully investigated.

But by letting the damage get so severe before conceding there might be something rotten at News Corp., Murdoch and his management team have allowed the tiny print newspaper division—just 3 percent of overall profit in the most recent quarter—to imperil the broader company. His decision, really a capitulation, to pull its $12.5 billion bid to gain full control of British Sky Broadcasting, the U.K.’s largest pay-television broadcaster, has effectively cratered the strategy of bolstering News Corp.’s digital operations and tapping into BSkyB’s rising cash flow. Members of the House of Commons are now questioning whether News Corp. is fit to hold on to the 39 percent of the company it already owns. In Washington, two senators are calling for probes into whether Murdoch’s reporters tried to hack into the phones of Sept. 11 victims and their families.

The revealing thing about the News Corp. scandal is not that journalists can be ruthless in pursuit of a scoop. It’s that News Corp.’s influence on Western media—and British culture specifically—is so pervasive. Aside from the countless celebrities, public figures, and victims of tragedy whose privacy News Corp. journalists are reported to have violated, the trickling revelations have shown that British media and power are inextricable.

Prior to the scandal, Prime Minister David Cameron was focused on implementing the U.K.’s most austere budget in generations. Now he’s scrambling to explain why he hired Andy Coulson, a former News of the World editor, and cultivated friendships with a circle of senior Murdoch executives and family members, including Murdoch’s son James and Rebekah Brooks, the CEO of News International and another former editor of News of the World. “British politicians had gotten the idea, rightly or wrongly, that they couldn’t win a general election without the endorsement of Murdoch and his newspapers,” says Tim Bale, a professor of politics at the U.K.’s University of Sussex. “[Cameron’s] judgment looks questionable, and it makes him look like he’s part of this elite group who felt they were bulletproof and could do anything, including possibly misleading Parliament and the police.” It is safe to say that no one in British public life has been ennobled by the scandal.

When allegations first surfaced about sleazy tactics at the 2.8 million circulation News of the World, Murdoch blamed them on a solitary rogue reporter at the newspaper who had been fired. In 2007 the episode appeared to be subsiding; the reporter, Clive Goodman, and an outside private investigator, Glenn Mulcaire, were put behind bars for tapping the phones of members of the royal family. The British police then closed their investigation, citing a lack of evidence.

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PC Shipments Miss Second-Quarter Forecasts, Researchers Say

July 13, 2011, 6:46 PM EDT By Adam Satariano

(Adds Gartner figures starting in first paragraph.)

July 13 (Bloomberg) -- Global personal-computer shipments rose less than forecast amid a sluggish economy and consumer preference for smartphones and Apple Inc.’s iPad media tablet, according to two market-research firms.

Shipments climbed 2.6 percent, IDC said, just shy of the 2.9 percent increase the researcher had forecast. Gartner Inc. said PC sales rose 2.3 percent from a year earlier, compared with the 6.7 percent gain the firm predicted.

Hewlett-Packard Co. remained the industry’s top PC seller, accounting for 18.1 percent of the global market, according to IDC. Dell Inc. was second with 12.9 percent, and Lenovo Group Ltd. moved up to third with 12.2 percent, IDC said.

“These preliminary results continue to reflect pressure from competing consumer and business products as well as cautious spending,” Jay Chou, a senior research analyst at Framingham, Massachusetts-based IDC, said in a statement.

PC sales in the U.S. slipped 4.2 percent, hurt by falling sales for low-cost laptops and weaker demand among corporate buyers, IDC said. The comparison with 12 percent growth in last year’s second quarter made the drop seem especially steep, IDC said. Lack of purchases by budget-strapped government agencies also contributed to the decline in the U.S., Gartner said. Gartner pegged the U.S. shipment decrease at 5.6 percent.

Apple’s Gains

One exception to the slump was Apple, whose Mac sales have benefited from the popularity of its iPhone and iPad mobile devices. The Cupertino, California-based company saw shipments grow almost 15 percent in the U.S., making it the country’s third-largest PC vendor with 10.7 percent of the market, IDC said.

Apple, which introduced a new iMac line of desktop computers, jumped from fifth to third place, overtaking Acer Inc. and Toshiba Corp., according to Gartner’s report.

Worldwide PC shipments totaled 84.4 million, according to IDC, while Gartner said global unit sales were 85.2 million for the quarter. Lenovo’s sales growth in the U.S. and Japan helped it overtake Acer in global shipments, making Acer the fourth- largest PC seller, IDC said.

--Editors: Jillian Ward, Tom Giles

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Major Areas of Study at Tennessee Technology Center at Nashville

Tata Consultancy Net Climbs 28% as Outsourcing Orders Rise

July 14, 2011, 10:31 AM EDT By Ketaki Gokhale

(Updates with analyst comment in fourth paragraph.)

July 14 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest software exporter, reported first-quarter profit rose 28 percent after clients outsourced more computer services.

Net income increased to 23.8 billion rupees ($535 million) in the three months ended June 30, from 18.6 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement today. The software services provider announced earnings as per International Financial Reporting Standards for the first time and there were no comparable analyst estimates.

Tata Consultancy joins larger rival Accenture Plc in signaling corporations are boosting spending on computer services and consulting. Chief Financial Officer S. Mahalingam expects to sustain at least 20 percent sales growth for the foreseeable future as technology outsourcing demand grows.

“It’s a good result definitely,” said Hardik Shah, an analyst with KR Choksey Shares & Securities Pvt. in Mumbai. “The stock was down 2 percent today, it might open tomorrow with a positive upside.” Shah said he will review his “hold” rating and share price estimate of 1,247 rupees.

Profit was projected at 22.7 billion rupees under U.S. Generally Accepted Accounting Principles according to the median of 20 analyst estimates compiled by Bloomberg. There is unlikely to be a significant difference between earnings stated under IFRS and U.S. GAAP for software exporters, said Pralay Kumar Das, an analyst at Elara Securities India Pvt. in Mumbai.

Tata Consultancy fell 2.2 percent to 1,123.70 rupees at the 3:30 p.m. close in Mumbai. The stock was the worst performer today on the benchmark Sensitive Index, or Sensex, which rose 0.1 percent. Earnings were announced after market close.

‘Demand Momentum’

Revenue climbed 31 percent to 108 billion rupees, from 82.2 billion rupees a year earlier. Sales were projected at 106.5 billion rupees according to the median of 39 analyst estimates compiled by Bloomberg.

“We see continued demand momentum,” Chief Executive Officer N. Chandrasekaran said at a media briefing. “TCS continues to partner with many customers to help them successfully execute their transformation agendas,” he said in the statement.

The software company added 24 clients during the quarter, increasing the number of $50 million customers to 33 from 27, according to the statement.

Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. and Singapore Airlines Ltd., had a 7.5 percent increase in volume last quarter from the preceding period. First-quarter volume at Infosys Ltd., India’s second-largest software exporter, grew 4 percent, Chief Financial Officer V. Balakrishnan said July 12.

Information-technology services companies define volume as the number of man-months workers spend on projects for clients.

IT Spending

“Globally, IT spending is expected to grow this year, and as of now, that looks to be on track,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai. “TCS hasn’t spoken about any indicators of a demand slowdown either in terms of a project start or project signing so far.”

Worldwide spending on information technology services is forecast to rise 6.6 percent to $846 billion this year, after growing 3.1 percent last year, Stamford, Connecticut-based researcher Gartner Inc. said in a report last month.

Still, Tata Consultancy remains “watchful” of the global economic uncertainties, Chandrasekaran said.

Infosys shares fell the most in almost three months in Mumbai on July 12, after the Bangalore-based company forecast sales that missed analysts’ estimates. The software-services provider projected revenue in the year to March to range from $7.1 billion to $7.3 billion. That lagged behind the $7.5 billion average of 56 analyst estimates compiled by Bloomberg.

Hiring Plans

Tata Consultancy said it added a net 3,576 employees during the quarter, for a total of 202,190. The company remains on course to hire 60,000 workers in the 12 months ending March 31, said Ajoyendra Mukherjee, vice president for human resources.

Workers left Tata Consultancy at a rate of 14.8 percent in the three months ended June, according to the statement, up from 13.1 percent for the same period last year. Infosys reported employee attrition of 15.8 percent for the quarter.

Operating margin at Infosys may come under pressure during the year ending March because of higher salaries paid to attract and retain talent, CFO Balakrishnan said July 12.

Tata Consultancy also gave its largest wage increases in three years, damping operating margin by 131 basis points from a year earlier to 26.2 percent last quarter, Chandrasekaran said.

“The uncertain global macroeconomic environment demands that we adopt an entrepreneurial approach and remain agile to capture growth opportunities as they emerge,” he said.

--With assistance from Rajhkumar K Shaaw in Mumbai. Editors: Suresh Seshadri, Subramaniam Sharma.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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Hewlett-Packard Reorganizes PC Unit to Push WebOS Software

By Aaron Ricadela

(Bloomberg) — Hewlett-Packard Co., the world’s largest computer maker, is reorganizing its personal-computer division as part of a push to broaden use of the software it gained from the acquisition of Palm Inc.

Jon Rubinstein, Palm’s former chief executive officer, will take charge of product development and innovation for the Personal Systems Group, which encompasses PCs, tablets and smartphones. Senior Vice President Stephen DeWitt will run a new unit responsible for developing and promoting the WebOS computer operating system. Both will report to Todd Bradley, who runs PSG. DeWitt discussed the changes in an interview today.

Hewlett-Packard is counting on the integration of WebOS to differentiate its products from rival machines, including Apple Inc.’s iPad and those using Google Inc.’s Android. Hewlett-Packard CEO Leo Apotheker said in February that all of the company’s PCs will feature WebOS by the end of next year, a shift away from machines that only run Microsoft Corp.’s Windows operating system.

Rubinstein helped create the iMac and iPod at Apple before becoming Palm’s CEO. He will now be Hewlett-Packard’s senior vice president of product innovation and will work on projects that span the Palo Alto, California-based company, including the printing group, DeWitt said.

“We’re fortunate to have Jon doing that voodoo that he does,” DeWitt said. “He’s going to bring his knowledge, experience and passion for building products across the PSG portfolio.”

Apotheker is reorganizing business units to revive growth and take back market share after slicing $1 billion from the company’s annual revenue forecast in May. Corporations are “wary” of large-scale information-technology spending amid
concerns about global economic growth, Apotheker said at a July 9 technology conference in Aix-en-Provence, France.

On June 14, Hewlett-Packard said executives in charge of global sales, software and data-center equipment and services would report directly to Apotheker.

Hewlett-Packard bought Palm last year to add mobile devices and software to its product lineup.

DeWitt, who joined Hewlett-Packard in 2008 from a closely held computer maker named Azul Systems Inc., had been responsible for sales, marketing and operations of personal systems in North America. Stephen DiFranco, a former general manager at Hewlett-Packard, is now a senior vice president, taking DeWitt’s former role. The personal systems group was responsible for $40.7 billion in sales last year.

DeWitt will take charge of engineering, research and development, and sales and marketing for WebOS. Hewlett-Packard’s TouchPad tablet computer, which runs on WebOS, went on sale July 1, accompanied by an advertising campaign featuring
Jay-Z and other celebrities.

“It’s critical for us to expand our programs” and entice more developers to create applications for the platform, DeWitt said.

The WebOS operating system includes the ability to run multiple applications at once and lets developers design apps that talk to each other. For example, information from Facebook can be shared in users’ contact lists. It also lessens Hewlett-Packard’s reliance on Microsoft’s Windows software.

Bradley said in an interview that July 1 was a “soft launch” for the TouchPad and that more advertising will commence on July 17. The company also plans to issue a software update for the tablet in about 10 days, he said.

“We’ve had two weeks of kicking the tires at retail,” he said. “We’ve got a phenomenal tablet product.”

Still, the company must compete with Apple’s best-selling iPad tablet and devices running Android software. Hewlett-Packard has “a really good opportunity to become No. 2 in tablets fairly quickly,” Rubinstein said in a June interview.

Hewlett-Packard also is in talks to license the WebOS mobile software to other hardware makers, Apotheker said in an interview in Beijing last month. Samsung Electronics Co. held talks to use WebOS in its smartphones, according to three people with knowledge of the discussions.

Hewlett-Packard lost $1.14, or 3.1 percent, to $35.29 at 4 p.m. on the New York Stock Exchange. The shares have declined 16 percent this year.

With Cliff Edwards and Serena Saitto

Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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Software AG Drops as Second-Quarter Sales Miss Analyst Estimates

July 14, 2011, 4:56 AM EDT By Ragnhild Kjetland

July 14 (Bloomberg) -- Software AG, Germany’s second- largest maker of business software, fell the most in two years in Frankfurt trading after reporting second-quarter sales that missed analysts’ estimates.

Revenue will be 256 million euros ($364 million) to 258 million euros, hurt by currency moves and the unexpected failure to close software-license deals, the Darmstadt-based company said late yesterday. Demand for implementation of products from SAP AG, the world’s largest maker of business-management software, fell from last year, it said. Sales had been seen at 280 million euros, the average estimate in a Bloomberg survey of eight analysts.

The stock fell as much as 6.74 euros, or 16 percent, to 35.32 euros, the biggest intraday drop since April 2009, and traded 12 percent lower at 36.84 euros as of 10:32 a.m.

On July 12, Indian software exporter Infosys Ltd. forecast sales that missed analysts’ estimates as customers held off signing new contracts because of uncertainties in the global economy.

Software AG, which makes software for business transactions and offers consulting services, said it still forecasts growth in full-year sales of as much as 7 percent at constant currencies and net income to increase as much as 15 percent based on a “strong” sales pipeline.

Software AG will report complete second quarter results on July 28 and SAP will report earnings on July 25.

--Editors: Robert Valpuesta, Jerrold Colten.

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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Kunz: Google+ Skimps on Your Score

By Ben Kunz

Join Google+, Google’s latest attempt to displace Facebook and Twitter, and you’ll see a wonderfully clean social-media interface. Simple updates, clever “Circles” privacy features, and 10-way video chat have helped Google+ attract an estimated 10 million users in its first two weeks.

But something is missing: a prominent score of followers or friends to fuel your ego.

Google has side-stepped the “game mechanics” fad of the past five years, in which tech companies award users with badges, points, and titles. This is fascinating given the billions of dollars in advertising at stake. Consumers have migrated in droves to social media, and use of Google’s search engine may fade as a result—so after two social-media failures with Wave and Buzz, Google can’t afford to mess up a third time.

Yet Google+ has cast a vote against the silliness of ego awards by not including them. All you get, buried inside your Google+ profile, is a tiny number showing how many people have put you in “Circles.” Google is betting the future of social media is more serious, and this has implications for any business chasing Facebook “Likes.”

First, understand that “game mechanics” is different than games, which are hotter than ever before. U.S. consumers spent $25.1 billion on video games and hardware last year; today the heaviest U.S. gamers have an average age of 41. Zynga‘s FarmVille games helped propel Facebook into the mom and senior citizen crowd.

Game mechanics, by comparison, is what happens when marketers play with your mind. This form of psychological persuasion has been around since the invention of coupons and is designed to take advantage of flaws in human psychology.

You see, people are bad at judging value—especially when we have no basis for comparison. Behavioral psychologist Richard Thaler calls this “mental accounting,” in which we all try to calculate the best deals in our head, and was one of the first to note that marketers could influence our internal accounting by forcing “framing” on us. A classic example is a leather coat priced at $500, perhaps too costly for your wallet. But if the same jacket is priced “50 percent off, marked down from $1,000,” you might jump at the deal. Groupon is making millions with this price-framing approach, which of course makes no real sense for consumers.

Game mechanics follows us through life: We get grades in high school and college, bonuses tied to our salaries, frequent-flier miles for taking a given airline. But as the social-media bubble took off, tech companies rushed to expand game hooks, because online there is no other basis for judging value.

Twitter gives you prominent Followers and Following scores atop each page;Klout and PeerIndex rank your supposed influence over others in social media;Foursquare Labs awards users with badges and titles such as “Mayor” for checking in to locations;And in perhaps the craziest craze, Facebook has convinced the business world that chasing “Likes,” in which consumers click an icon once to signal favor for a product, is paramount. The bottled water company Crystal Rock recently ran an ad campaign offering to donate $5 to charity for every “Like” on its Facebook page for up to $25,000 in total donations. As of July 13, Crystal Rock had 1,737 Likes.

Yes, game mechanics works sometimes. In his South by Southwest keynote speech this spring, Seth Priebatsch, founder of location-based game company SCVNGR, told how Princeton University used gaming psychology to reduce incidents of test cheating from 400 per year to two. Princeton removed teachers from the classroom during tests and instead had each student sign an affirmation that he or she would report anyone cheating around them. By turning the “villain” from the teacher to the cheater, peer pressure changed the “game” of honesty.

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The Technology Fix: The Promise and Reality of Computers in Our Schools

During the technology boom of the 1980s and 1990s, computers seemed set to revolutionize education. Do any of these promises sound familiar?

-Technology would help all students learn better, thanks to multimedia programs capable of adapting to individual needs, learning styles, and skill levels.
-Technology would transform the teacher’s role from a purveyor of a one-size-fits-all curriculum to a facilitator of student exploration.
-Technology would replace static textbooks with dynamic, interactive learning resources that were always up-to-date.
-Technology would boost test scores, as engaged and motivated students acquired advanced skills, problem-solving abilities, and a growing thirst for knowledge.

By 2001, educational materials developer William D. Pflaum had begun to suspect that technology was not the all-purpose solution it had seemed. He decided to see how computers were really being used in U.S. classrooms and embarked on a yearlong road trip to a cross-section of elementary, middle, and high schools throughout the nation. In this book, he recounts his journey. Although he did find technology application to admire, too often he found broken promises: millions spent for little measurable gain, problems instead of solutions, a fix instead of a fix.

This inside look at computer use in our schools shares the voices, experiences, triumphs, and frustrations of educators and students in urban, rural, and suburban settings. The author provides insight into the key roles that computers currently play in the classroom and clarifies what we must do ensure that the promise of technology is fulfilled . . . and that students truly benefit.

Price: $10.75

Click here to buy from Amazon

How to Reach Students in the Digital Age With a Certificate in Instructional Technology

How Technology Creates Wealth

Society, Ethics, and Technology, Update Edition

From the forefront of news today to your textbook, SOCIETY, ETHICS, AND TECHNOLOGY, Fourth Edition, stresses the latest technological innovations and how these advancements represent new ethical challenges and dilemmas for society as a whole. You gain a strong foundation in theory and applied ethics as you discover how to examine critically the social effects of technology surrounding your daily life. This timely anthology, filled with the latest readings from prominent scholars and leaders, focuses on the most current technology issues and ethical debates. Useful introductions before each selection and Focus Questions help you understand readings within context. Readings, drawn from a variety of contemporary social issues, closely examine technological change and its social consequences from a variety of historical, societal, and philosophical perspectives. The book also delves into what the future holds in areas such as human rights, information technology, biotechnology, energy, and the environment. In addition to highlighting ethical theory, readings help you establish a solid decision-making framework. Detailed coverage examines the impact of specific, recent technological advances, such as artificial intelligence and surveillance, while special historical highlights technology particularly in medieval times and the twentieth century. This update edition now includes information on engineering ethics as well as summaries of recent news events with discussion and writing questions to help focus attention on the related ethical issues.

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Facebook Introduces Skype Video Calls in Challenge to Google

By Douglas MacMillan and Zachary Tracer

(Bloomberg) — Facebook Inc., the world’s largest social network, is stepping up competition with Google Inc. by teaming with Skype Technologies SA to offer free video calls.

Facebook also said it has more than 750 million users, up from 500 million, in an announcement today at an event in Palo Alto, California, where it is based. Microsoft Corp., a long- time Facebook partner, is acquiring Skype in an $8.5 billion deal expected to close later this year.

Video chats can help Facebook fend off competition from Google, which introduced a social network with that feature last week, and offer an alternative to Apple Inc.’s FaceTime for the iPhone. Chief Executive Officer Mark Zuckerberg is using partnerships and media features to increase Facebook’s audience and avert user defections.

“You’re going to have more and more competition between Facebook and Google,” said Ben Schachter, an analyst at Macquarie Capital, in an interview on Bloomberg TV’s “Bottom Line with Mark Crumpton.” “The two companies are going to be battling it out for some time to come.”

Facebook also unveiled a multi-person chat feature that lets several people hold online conversations at the same time.

“We’re using the best technology that’s out there for doing video chat with the best social infrastructure that’s out there in order to create some really cool new scenarios,” Zuckerberg said during a presentation at the event.

Facebook began holding talks with Skype about offering Web video calls on its social network in 2010, a person familiar with the discussions said earlier this year. An October update to Skype included voice calling between Facebook friends. Microsoft agreed to buy Skype in May.

“This is a really strategic long term deal between Skype and Facebook,” said Neil Stevens, vice president and general manager for consumer at Skype, in an interview with Bloomberg Television. “This isn’t just a one shot one deal implementation of a product. This is a long term relationship.”

Google’s new site, called Google+, includes Google’s maps and images, messages, comments and other content from selected groups of friends, as well as a video chat feature.

Microsoft, based in Redmond, Washington, invested $240 million in Facebook in 2007 and entered an agreement to sell ads on the social network.

Facebook is forging ties with other media and technology companies. It added Netflix Inc. CEO Reed Hastings to its board of directors in June and discussed incorporating more social features into the online video-streaming service. In March, Time Warner Inc.’s Warner Bros. studio announced plans to offer movie rentals on Facebook for $3.

Facebook is valued at $71 billion on SharesPost Inc., an exchange for shares of private companies.

With Brian Womack and Chris Valerio

MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco. Tracer is an intern for Bloomberg Businessweek.

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Big Cable Resists a Slingbox Solution

Slingbox

By Alex Sherman

Cable TV executives are constantly talking about “TV Everywhere”—shows and movies available anywhere at any time. The Slingbox, a $180 gadget that lets users watch live TV via any Internet-linked device, would seem to dovetail nicely with that vision. Yet the cable industry has shown little interest in the technology. Comcast and Cox Communications, the No.?1 and No.?3 cable operators, say Sling isn’t a good fit for their services. And No.?4, Charter Communications, “has plotted a different route to?…?TV Everywhere,” says Rich DiGeronimo, the company’s chief for product and strategy.

One reason for cable’s reluctance to embrace Slingbox is its ownership. The technology is controlled by Dish Network, a satellite TV provider and a longtime cable rival. “Why help a competitor?” asks Amy Yong, an analyst at Macquarie Securities in New York. “The Comcasts of the world?…?are big enough that they can develop this internally.”

Now, Sling may get a lift from an effort to persuade second-tier cable companies to buy set-top boxes with the technology. The devices are being made by EchoStar, which like Dish Network is controlled by Denver billionaire Charlie Ergen. On June 14, EchoStar unveiled a line of set-top boxes that are “SlingLoaded,” letting users watch live TV anywhere there’s an Internet connection. EchoStar says three cable systems have agreed to test the new products but declined to name them. If smaller cable players succeed with Sling, the company believes, the industry leaders may warm up to the technology.

With varying degrees of success, the biggest cable operators have tried to develop TV Everywhere offerings on their own. Cable systems typically let subscribers access reruns and movies via websites or mobile apps, but they don’t offer first-run shows or live broadcasts such as football games outside the home. And content providers aren’t eager to share potential mobile revenues with the cable companies. Viacom, owner of MTV, Comedy Central, and other networks, on June 23 filed a lawsuit against Cablevision, saying a Cablevision app that lets users watch live TV on an iPad anywhere in their home violates the terms of their contract. Cablevision denies the claim. Time Warner Cable and Viacom have entered into a standstill agreement to try to resolve similar suits. “The larger cable guys?…?have tested the water, and they’re getting a lot of pushback” from networks, says Alistair Chatwin, EchoStar’s director for product development.

Chatwin says Sling offers a solution that’s legally in the clear and better than anything cable companies have, because it lets users watch live shows not just at home, but anywhere they have an Internet connection. (The Viacom cases don’t address the issue of access away from home, which cable executives say will be even more complicated to work out.) The U.S. Copyright Office has said Sling doesn’t violate any laws, and the company says no one has sued it since its founding in 2004.

EchoStar needs a success with the new boxes. Dish Network accounted for 83 percent of EchoStar’s revenues last year. The two were a single company until 2008, when Ergen split them into a service provider and a manufacturing arm. (The precursor company, EchoStar Communications, in 2007 paid $380 million for Sling Media.) “Many of our potential customers have perceived us as a competitor due to our affiliation with Dish Network,” EchoStar noted in its annual Securities and Exchange Commission filing last year.

Ergen’s presence at the top of both entities—he’s chairman of EchoStar and Dish—doesn’t help relations with cable companies. He has spent years demonizing the industry and once ran ads urging consumers to “Stop Feeding The Pig” by subscribing to a handful of dominant cable companies. Blake Krikorian, who co-founded Sling with his brother Jason, says he agreed to sell Sling because he thought Ergen would step away from the manufacturing arm. Krikorian’s hope was that multiple video providers, including Comcast and satellite rival DirecTV, both of which expressed interest in Sling, would buy stakes in the company and share Sling’s technology. “I’m very disappointed that Charlie didn’t entertain the opportunity to have other video providers invest in Sling,” Krikorian says. Ergen declined to comment for this article.

Michael Hawkey, EchoStar vice-president of sales and marketing, says the cable industry should get over its fear of Ergen and instead focus on the bigger issue: the legal fight over access to video on the go. He also urges cable and satellite companies to band together and share technology to fend off Netflix, Apple, and other new rivals. “What’s more frustrating for cable, working with a company that’s significantly owned by Charlie or fighting lawsuits with content providers?” says Hawkey. “I think we can make this happen.”

The bottom line: Although Slingbox has gained little traction with cable companies, EchoStar is hoping deals with smaller players will boost sales.

Sherman is a reporter for Bloomberg News.

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SK Telecom Falls to Eight-Year Low on Speculation of Hynix Bid

July 07, 2011, 9:23 PM EDT By Jun Yang and Saeromi Shin

July 8 (Bloomberg) -- SK Telecom Co., South Korea’s largest mobile-phone carrier, fell to the lowest in more than eight years in Seoul trading on mounting speculation it will bid for a stake in Hynix Semiconductor Inc.

SK Telecom, whose parent group has said it’s undecided whether it will bid for the chipmaker, declined for a fourth day, dropping as much as 3.9 percent to 148,500 won as of 9:32 a.m. in Seoul, the lowest intraday level since March 2003. Korea Economic Daily and Mirae Asset Securities Co. analyst Choi Yoon Mee said in reports today the company may make a bid.

Deutsche Bank AG cut its price estimate for the stock by 8 percent, citing concern that such a move would reflect the parent’s ambitions to shed its image as a “domestic-oriented conglomerate” rather than a move that benefits the phone carrier. Lauren Kim, a Seoul-based spokeswoman for SK Telecom, wasn’t immediately able to comment.

“We find it difficult to identify any clear business synergy from a telecom operator acquiring management control of a memory chip manufacturer,” John Kim, an analyst at Deutsche Bank in Seoul, wrote in a report yesterday. “The latest developments add to the list of uncertainties affecting investor sentiment.”

Not all analysts would oppose the move. The export-oriented chip business might be attractive to SK Telecom, which has been looking for new sources of revenue outside the local market, where growth of mobile-phone subscribers has been stagnant, Yang Jong In, a Seoul-based analyst at Korea Investment & Securities said.

The company, which was under government pressure this year to cut phone bills to curb inflation, may also be looking for less regulated businesses than telecommunications, Yang said.

--Editors: Young-Sam Cho, Dave McCombs

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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Philips Chief Seen Calling Upon KKR Past to Eliminate More Costs

July 08, 2011, 1:32 AM EDT By Maaike Noordhuis

July 8 (Bloomberg) -- Frans van Houten, 100 days into his job as chief executive officer at Royal Philips Electronics NV, is poised to announce a bigger overhaul of the Dutch maker of lighting and DVD players, drawing on cost-cutting skills honed when working with private equity firms.

Philips may remove management layers and cut office and information technology costs, said FNV Bondgenoten union official Ron van Baden. At least 300 million euros ($430 million) in savings are needed just to offset higher costs, analysts surveyed by Bloomberg said. Philips will announce “decisive action” shortly, spokesman Joost Akkermans said, without being specific.

Van Houten, the former head of NXP Semiconductors, part owned by Kohlberg Kravis Roberts Co, faces the challenge of boosting profit and sales growth against a backdrop of slowing markets for lighting and traditional electronics in Western Europe and competition from low-cost Asian manufacturers. Shares of the Amsterdam-based company dropped 8.8 percent on June 22, when van Houten warned profit from lighting and consumer- electrical goods slumped in the second quarter.

“You would rather think management layers or specific product groups may be cut out,” given the job cuts Philips already made, van Baden said in an interview. He posted on Twitter: “Philips employees now will experience what van Houten learned from KKR.”

Since van Houten became CEO, Philips shares have declined 23 percent, paring the company’s market value to 17.7 billion euros. The company reports earnings on July 18. Fresh cost- cutting goals may not trigger a share rebound, said Peter Olofsen, an analyst at Kepler Capital Markets. Investors may instead wait for third-quarter results, and the release of financial targets reflecting moves such as ceding control of an unprofitable TV operation, he said.

‘Drastic Measures’

“Drastic measures” are needed to ensure Philips doesn’t fall short of targets, said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers.

The company in September outlined a goal for earnings before interest, taxes and amortization of 10 percent to 13 percent of sales through 2015, and it’s vital that Philips doesn’t come up short, Versteeg said. Analysts predict 200 million euros in extra costs stemming from sales and research, and an added 100 million euros in TV spinoff expenses.

Reviewing the workforce will be part of van Houten’s plan to deepen an existing program called Accelerate, Akkermans said. The program is designed to bring products to the market more quickly to push growth. Sales, excluding takeovers, disposals and currency shifts, grew 4 percent last year.

Growth Challenge

“The story of Philips is about accelerating growth given they have lowered their break-even point quite a lot since the downturn,” said Klas Bergelind at RBS. “And in this macro- environment that is a challenge”.

Second-quarter earnings at lighting and consumer lifestyle units dropped 60 percent and 71 percent respectively, Philips predicted. It’s on course to report its worst quarterly result in two years with analysts estimating a 42 percent drop in EBITA to 304 million euros.

Advised by consultants McKinsey & Co., van Houten employed a traffic-light system to warn managers of the company’s 400 business groupings if results are going astray, with those classified as red indicating a need to make adjustments. His strategy is focused on decentralizing decision making.

Worst Over

Van Houten is also partway through a clear out of executives. By the end of this year, five of the six management board members will have left. Van Houten and Chief Financial Officer Ron Wirahadiraksa have temporarily assumed the day-to- day running of lighting operations until management can be appointed.

Philips in 2009 set out to slash 6,000 jobs to bolster profitability to deal with the financial crisis, which lowered demand for products spanning electronic toothbrushes to health scanners.

Measures already taken probably mean that another cull of workers is unlikely, union official van Baden said. Of the 119,001 workers in 2010, about 45 percent worked in lighting, 30 percent in healthcare products, and 15 percent in consumer- goods.

“In every division there are still weak spots,” Theodoor Gilissen analyst Versteeg said. “If you’re a manager underperforming within your division, you have a serious problem.”

--Editors: Andrew Noel, Robert Valpuesta

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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Top 10 Mistakes Business Owners Make With Their Technology and IT Decisions

LawPivot's Jay Mandal, Startup Counsel

Jay Mandal Gabriela Hasbun for Bloomberg Businessweek

By Olga Kharif

In Silicon Valley, there’s a vocabulary of asceticism: “ramen-profitable” and “bootstrapping” are terms to live by for young companies that need to make every dollar count. It’s hard to scrimp on legal fees, however. Incorporating a company or raising venture capital requires professional legal advice that can cost thousands of dollars.

Jay Mandal, the former lead mergers-and-acquisitions lawyer for Apple, thinks he can help. He quit his lucrative corporate gig in 2009 to found LawPivot, a Q&A website that matches cash-sensitive startups with the lawyers who might be able to help them. Companies visit the site and pose questions, such as whether they need to trademark a brand or how to minimize liability from negative user reviews.

Behind the scenes, LawPivot’s algorithms funnel the questions to its roster of lawyers based on expertise and quality of past responses. For now, companies can ask three questions per month for free, though LawPivot plans to charge a subscription fee of $80 a month.

That’s a deal, compared with most lawyers’ hourly rates. “I use it to supplement my current legal counsel,” says Ajay Kamat, the 26-year-old co-founder of Micromobs, a collaboration software startup in Mountain View, Calif., that has used the site for six months. “I easily saved thousands.” Lawyers don’t make any money for answering questions, but they do get leads on potential clients. Yusuf Safdari, senior counsel at the Palo Alto office of Pillsbury Winthrop Shaw Pittman, says he scored three paying clients by answering 50 questions through LawPivot in the past year. “It’s great, the time efficiency,” Safdari says. “Instead of me going to fancy events to find clients, clients are finding me.” More than 800 lawyers and 1,200 startups have used the site.

Mandal, 37, is a fourth-generation lawyer whose grandfather served as a justice in a state supreme court in India. After graduating from law school at the University of California, Berkeley, he spent six years working in corporate law at firms including Pillsbury Winthrop before joining Apple. He’s also a startup veteran: In 2003 he co-founded IPpro, which lets U.S. companies outsource patent work to lawyers in India, where it can be completed for a fraction of the cost. “I consider myself an entrepreneur first and lawyer second,” Mandal says.

Mandal lived the ramen-profitable life while building LawPivot. After quitting Apple, he and co-founder Nitin Gupta recruited four engineers. The six holed up in a room above the garage of Mandal’s home in Fremont, Calif., where his wife, Anamika, kept everyone fed with Indian snacks during all-nighters. After raising $600,000 from investors, including Google’s venture arm, late last year, Mandal moved his team into office space in Mountain View. “My wife misses them,” he says. “They were there all the time.”

Algorithms direct legal questions to experts

Law degree from University of California, Berkeley

“I consider myself an entrepreneur first and lawyer second”

Kharif is a reporter for Bloomberg News and Bloomberg Businessweek in Portland, Ore.

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Google Social App 4.0. or 5.0.? Hard to Keep Track

By Patrick Clark

Google+, the search giant’s latest attempt to create a social network, was launched on June 28. Here, some earlier Google forays.

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Hynix Sale Pits SK’s Phone Billionaire Versus STX’s Ship Magnate

July 08, 2011, 6:24 AM EDT By Jun Yang and Kyunghee Park

July 8 (Bloomberg) -- SK Telecom Co. and STX Group plan to make competing bids for a controlling stake in Hynix Semiconductor Inc. in the biggest sale of a South Korean technology asset in more than a decade.

The mobile-phone unit at billionaire Chey Tae Won’s SK Group and shipping magnate Kang Duk Soo’s STX submitted letters of interest before the 4 p.m. deadline today, according to separate statements from the companies. There were no other bidders, said Korea Exchange Bank, which is leading nine financial institutions to unload their Hynix stake, worth 2.4 trillion won ($2.2 billion) based on current market prices.

The bidding will pit Chey against Kang for control of the second-largest producer of chips known as DRAM, a market marked by boom-and-bust cycles and multi-billion-dollar capital investments each year. The sale, Hynix creditors’ fourth attempt in two years, has raised concerns Korean business groups known as the chaebol are reviving practices of over-expansion that led to the financial crisis in the late 90s.

“The market’s not happy because there’s no logical reason for SK to claim they can run a semiconductor company,” said Shaun Cochran, head of Korea research at CLSA Asia-Pacific Markets. Same applies to STX, with the only difference being “SK Telecom at least has cash to do it,” he said.

While supporters praise the chaebol for pulling the country out of poverty from the 1950 to 1953 Korean War and transforming it into Asia’s fourth-largest economy, the International Monetary Fund cited the debt-driven chaebol model as part of the reason the nation’s economy landed in a financial crisis at the end of 1997.

Textiles Beginnings

The phone carrier’s shares fell 7.1 percent this week and closed at an eight-year low in Seoul trading, while STX Corp. dropped 6.9 percent. The benchmark stock index climbed 2.6 percent.

SK Group, whose roots stretch back seven decades when it was a textiles maker, has grown into the nation’s third-largest chaebol with 86 units sprawled across energy, financial services and telecommunications. Chey’s wealth is estimated at about $2 billion, making the 50-year-old South Korea’s seventh-richest man, according to Forbes magazine.

SK Telecom is seeking to diversify its businesses by buying Hynix and will make a final decision on whether to proceed after “thorough reviews,” the Seoul-based phone carrier said in a statement.

With 1.5 trillion won in cash as of the end of the first quarter, SK Telecom won’t likely have trouble financing a purchase of Hynix, Choi Yoon Mee, an analyst at Mirae Asset Securities Co., said in a note today.

Largest Tech Deal

The stake of about 15 percent being sold by shareholders led by Korea Exchange Bank would make the buyer the biggest shareholder in the chipmaker.

The disposal of the stake would also be the largest share sale of a South Korean technology company since July 1999, when Hynix bought a majority holding in Hyundai Microelectronics Co. for 2.56 trillion won, according to data compiled by Bloomberg.

SK’s plan to spend that money on a costly, unrelated business isn’t winning over investors, Cochran said.

“What foreign investors definitely would like them to do is to pay that capital out in their dividends, but obviously they’re reluctant to do that,” he said.

Hynix wouldn’t be SK Telecom’s first investment in a business straying from its main operations. In 2003, the company bought a stake in Posco as part of a deal to stop the nation’s biggest steelmaker from selling its stake in the carrier, which was valued at $942 million at the time.

Middle East Fund

STX has grown into South Korea’s 14th-biggest business group since it was founded by Kang, 60, a decade ago through acquisitions. STX Offshore was taken over by the group in 2001 and STX Pan Ocean Co., the nation’s biggest commodities shipping company, was bought in November 2004.

While it acquired Aker Yards ASA, Europe’s largest shipyard, for about 1.4 trillion won in 2007, buying Hynix would be STX Group’s biggest acquisition.

STX, which plans to team up with a unidentified Middle East sovereign wealth fund, won’t need to borrow to pay for the stake, according to Vice Chairman Lee Jong Chul. It also plans to sell assets to raise funds for the deal, he said.

Ryu Jae Han, chief executive officer of state-run Korea Finance Corp., said in October that shareholders including his corporation wouldn’t object to a buyer partnering with a foreign investor.

End of Bank Supervision

STX Group’s five listed units had cash and equivalents of about 2.9 trillion won at the end of March, according to their financial statements.

For Hynix, the sale may result in the end of a decade under bank supervision. Hynix was bailed out by creditors including Korea Exchange Bank and Woori Bank in 2001 after they swapped debt for equity.

Still, Hynix’s competitiveness, which allowed it to avoid a loss this year amid an industry downturn, may make it an attractive asset for SK Telecom and STX, which are looking for new sources of revenue, said James Song, a Seoul-based analyst at Daewoo Securities Co.

Hynix posted record sales and profit in 2010, helped by cost cuts and demand for chips used in mobile devices, leading the company to pay a cash dividend to investors for the first time. It reduced debt by more than 1 trillion won last year and had more than 2 trillion won in cash, according to the company.

The chipmaker plans to spend about 3.4 trillion won this year expanding production and upgrading factories, after investing 3.4 trillion won in capital expenditure in 2010.

“Hynix’s constant need for capital expenditure deterred potential buyers in the past,” Song said.

--Editors: Brett Miller, Young-Sam Cho, Anand Krishnamoorthy

To contact the reporters on this story: Jun Yang in Seoul at Jyang180@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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Meaningful Learning with Technology (4th Edition)

Grounded in constructivist teachings, this popular text demonstrates how teachers can use technology to engage and support meaningful learning of their students.

 

Organized around learning processes such as inquiring, experimenting, writing, modeling, community building, communicating, designing, visualizing, and assessing, Meaningful Learning with Technology, Fourth Edition, demonstrates for the reader how learners can use different technologies for meaningful learning. Numerous examples from teachers in K-12 classrooms, give readers a clear understanding of how technology can be used with different types of students, including expanded coverage of effective technology use with young learners.

 

All chapters now present learning objectives as well as ISTE NETS for Students and 21^st Century Skills that may be met through the learning activities described.  The text is further strengthened by the inclusion of practical application with technologies that many teachers currently use; discussion of widely available web-based tools for learning and collaboration; and the addition of Assessing Meaningful Teaching and Learning rubrics which give readers a tool for reflecting on their practice. Each chapter extends learning by culminating with questions and issues for readers to think about.

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Default: The GOP’s Well-Played Threat

By Laura Litvan

Bloomberg, Getty Images

When House Majority Leader Eric Cantor walked out on the bipartisan debt ceiling talks in late June, all of Washington professed shock. For some cable news addicts, it rivaled the Casey Anthony trial in its titillation factor. Opinion writers and Democrats warned that Cantor was sacrificing the global economy for the sake of politics. The Republicans seemed to be playing brinkmanship with the debt ceiling, which the Obama Administration says must be raised by Aug. 2 to avoid a U.S. default.

It’s time to take a deep breath and stop the fretting. The likelihood of the U.S. defaulting on its debt obligations is slim. Very, very slim. Republican leaders may engage in some theatrics, but in the end they will almost certainly take their bows and allow the curtain to close without incident. Want proof? Look no further than the very public statements of the Republican leadership, which has professed loudly, often, and in unwavering terms that there will ultimately be a happy ending. “Nobody believes the United States is going to walk away from its obligations,” House Speaker John Boehner told Fox News on June 28. A month earlier, he reassured worried financiers at the Economic Club of New York that he believed letting the debt talks fail would be “irresponsible.”

Boehner has been hammering at the same point since just days after the November elections, which returned the Republican Party to power in the House. “We’re going to have to deal with it as adults,” he said to reporters then, explaining that he was already talking to newly elected Republican lawmakers to impress on them the importance of preventing a default. “Whether we like it or not, the federal government has obligations, and we have obligations on our part,” he said.

That sentiment is shared by pretty much the entire Republican leadership. Just a few months before his walkout prompted headlines, Cantor, the No. 2 Republican, was lecturing his party’s rank and file on why they can’t let the U.S. default. During a private January retreat attended by more than 200 House Republicans at a waterfront hotel in Baltimore, Cantor implored the politicians to view the debt negotiations as a “leverage moment,” according to a person close to the representative. Cantor never suggested that allowing a default was even a possibility.

Clearly the Republicans intend to use the debt discussions to score policy victories. They’re demanding big spending cuts from the Democrats and want to slash sacrosanct entitlement programs such as Medicare. And so far they’re holding firm against Democratic demands to increase government revenues by ending subsidies for oil and gas companies and tax breaks for businesses and the wealthy. Cantor said on July 6 that Republicans would agree to close tax loopholes only if they are “coupled with offsetting tax cuts somewhere else,” something the Democrats are loath to do. The GOP stand plays well with its base, especially budget-conscious Tea Partiers such as Michele Bachmann, the Minnesota representative and Presidential contender.

This is just politics as usual, albeit with higher-than-usual stakes. At the same time it is making demands, the Republican leadership is winking and suggesting that Tea Partiers shouldn’t expect to get everything they want during the debt ceiling negotiations. At the Baltimore retreat, Cantor urged his colleagues to think of the debt ceiling issue as the second of “three bites at the apple.” The first bite came in the form of the 2011 budget negotiations, which nearly ended in a government shutdown in April but instead resulted in a compromise that included $38 billion in spending cuts favored by Republicans. The leadership hopes to build on those gains during the debt ceiling negotiations but sees the 2012 budget negotiations as another chance to extract spending cuts from Democrats.

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RIM Avoiding Appointing Independent Chair, Glass Lewis Says

July 07, 2011, 1:47 PM EDT By Hugo Miller

(Updates with today’s trading in fifth paragraph.)

July 7 (Bloomberg) -- Research In Motion Ltd.’s decision to study the overhaul of its management structure to avoid a shareholder vote next week indicates it’s avoiding a commitment to appoint an independent chair, Glass Lewis & Co. said.

“The appointment of independent board leadership does not require further study, but rather concrete action,” Dimitri Zagoroff and Marian Macindoe, analysts with the San Francisco- based proxy adviser firm, wrote in a report. Glass Lewis advises investors that manage more than $15 trillion on proxy voting.

Northwest & Ethical Investments LP had proposed a split in the chairman and chief executive officer roles at the Waterloo, Ontario-based company, where Jim Balsillie and Mike Lazaridis are both co-CEOs and co-chairmen. That proposal was endorsed by Glass Lewis and Institutional Shareholder Services Inc., another proxy adviser, before RIM said on June 30 that NEI had agreed to withdraw the proposal.

In return, RIM said it will establish a committee of independent directors to study its board structure, the merits of a lead director versus a chair and the “business necessity” for the company’s co-CEOs to hold “significant” board-level titles. RIM has come under pressure to shake up its management as the BlackBerry smartphone maker loses market share to Apple Inc. and handset makers that use Google Inc.’s Android operating system.

RIM rose 79 cents, or 2.9 percent, to $28.51 at 11:06 a.m. New York time in Nasdaq Stock Market trading. The stock had dropped 52 percent this year before today.

“While we commend the board for actively engaging with NEI in an attempt to reach a mutually agreeable solution, we are underwhelmed with the board’s continued avoidance of a commitment to appoint an independent chairman,” Zagoroff and Macindoe wrote in the report.

--Editors: Peter Elstrom, Niamh Ring

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Zynga’s Quest for Big-Spending Whales

By Douglas MacMillan and Brad Stone

Joelle Ibgui collects horses. Lots of horses. In her stable of 108 colorful creatures is a Clydesdale, an Asian wild foal, a spotted appaloosa, and a clown pony, which sports a bow tie, a red honk nose, and a rainbow-colored wig—and cost about $5. The pony and its companions are not real animals, of course, but virtual ones in the hit online game FarmVille, produced by Zynga, the hottest gaming company on the Web and soon, perhaps, on Wall Street. Ibgui, a 30-year-old real estate manager from Kew Gardens, N.Y., has played FarmVille since its introduction two years ago and last year spent more than $500 to burnish her farm and get ahead in the game. “In the winter there came a point when I was playing six hours a day,” she says. “It does get addictive. It does get to the point where you’re not picking up your phone when it’s ringing.”

On July 1, Zynga filed with the Securities and Exchange Commission to raise up to $1 billion in a sure-to-be blockbuster initial public offering. To investors immune to ominous talk of tech bubbles, the numbers look alluring: The San Francisco company has 232 million active monthly users; last year it posted a net income of $90.6 million on revenue of $597 million, which was up fivefold from 2009. In the quarter that ended in March, profit was $11.8 million.

Although its games are free-to-play and widely accessible on Facebook, Zynga makes money by selling virtual items that are avidly hoarded by collectors, competitive players, and obsessives. Among the risk factors Zynga listed in its prospectus: “We rely on a small percentage of our players for nearly all of our revenue.” It didn’t specify the percentage of people willing to fork over a few dollars for a virtual barn, building, or tractor, but multiple people familiar with the booming business of digital goods, including one former Zynga employee who did not want to be named discussing internal matters, suggest that less than 10 percent of Zynga’s players spend money and less than 1 percent are responsible for between a quarter and a half of the company’s revenue. Las Vegas has a name for that kind of incredibly profitable patron: whales.

Game makers don’t like to talk about whale management, but people familiar with Zynga say it does internally refer to its high-value customers as whales and has offered them membership in a VIP “Platinum” club. Whales get special discounts and can wire sums of $500 or more directly from their bank accounts to Zynga. The company declined to comment for this story, citing its SEC-mandated quiet period.

One person familiar with Zynga’s business, who requested not to be named because his company works with Zynga, says a user spent $75,000 in one year on a single game. “The compulsion in Vegas is the illusion you can make money. The compulsion in social games is the illusion you can be more successful than your friends,” says Peter Relan, chief executive officer of CrowdStar, a Zynga rival that has about 24 million players, including as many as 200 people who spend more than $10,000 a year. “In both cases, you’re working with people’s emotions and psychological needs.”

So who are these whales? Relan and executives at other virtual-goods companies say they tend to be comparatively wealthy, older players. They’re also willing to pay to get ahead and avoid the slog of achievement—such as constructing buildings and collecting rent in CityVille—usually necessary to earn the in-game currency for buying virtual items. Tagged, a San Francisco social network and gaming company with 100 million registered users, says that for the first six months of the year, the top 1 percent of its players accounted for 46 percent of its gaming revenue. About half of those were American, and 59 percent of those U.S. players were male with an average age of 48. “A lot of these whales don’t have the patience or the time to go through all the stuff by playing,” says Greg Tseng, Tagged’s CEO who recently hired a former Myspace customer service executive to build a VIP concierge service to give deals to its best players. “They just dump in a lot of money to get ahead.”

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Turntable.fm: Where the DJ Is in the Next Cubicle

Illustration by 731

By Felix Gillette

On Thursday, June 30, Kelly Reeves sent out an invitation to her 1,900 followers on Twitter to join her on Turntable.fm—a new, social media website that lets users share songs with friends and strangers while publicly celebrating each other’s musical tastes. “DJing in the Shameless POP! Room,” Reeves wrote. “Come hang out. Now playing *NSYNC.”

Since making its debut in early June, Turntable.fm has become the go-to music service for Reeves and other plugged-in meme chasers from New York to San Francisco to Austin who want to gather to spin their collective soundtrack. “It’s a really good music discovery tool,” says Jeremy D. Williams, 25, an ardent user in Chicago who works as a “creative technologist” for ad agency DDB. “There’s something for everybody.”

On Turntable.fm, up to five users at a time line up as DJs in one of dozens of virtual listening rooms. The rooms are typically labeled according to musical genre (“I love the ’80s,” “Indie While You Work”) or with the name of a company whose staffers are particularly enraptured with the site (“The Mashable Room”). DJs choose and play songs, either from a deep library of tracks provided by the content-streaming company MediaNet or uploaded from their own music collections. Everyone else in the room then joyfully jawbones about the selection and ranks it from “lame” to “awesome.” Users who delight the crowd rack up DJ points, turning it all into a status-enhancing game. Anybody can become a “fan” of anybody else. Each user’s DJ points and number of fans are prominently attached to their Turntable avatar.

The service’s simple interface allows participants to find their friends from Facebook who are on the site. Music fans must have a Facebook friend already on the site to join. (It’s free.) “I hop around a bit,” says Reeves, 28, a self-described “addict” who works in marketing for a New York startup called Outbrain. “I might go into a big room with 200 people in it. But I usually go where my Facebook friends are. I love the camaraderie.”

Turntable.fm is an offshoot of a barcode tagging service based in New York City called Stickybits. Billy Chasen, Stickybits’s chief executive officer, has said little publicly about Turntable’s business plan or, for that matter, its legality. (He declined a request for an interview.) The company’s silence has done nothing to damp the buzz.

In the month since Turntable.fm’s launch, several professional musicians, including hip-hop artists Talib Kweli and Diplo, have jumped on the site to spin songs alongside the amateurs. Venture capitalist Fred Wilson has rhapsodized about the service on his influential blog AVC. And Facebook CEO Mark Zuckerberg has been spotted on the site, apparently listening to DJs in a listening room called “Coding Soundtrack.”

While DJs spin songs, everybody in the room is welcome to chat in an instant-message-like field on the right side of the screen. Conversations tend to vary from the euphoric to the esoteric. “I was in one of the crowded, indie rooms earlier today,” says DDB’s Williams. “People were talking about Flash vs. HTML5. So you know it’s popular with the tech guys. Everybody in the startup scene is on it.”

While 2011 may be shaping up to be the summer of love for Turntable.fm, there’s plenty of skepticism about how long the good times can last. The music industry has a famously litigious relationship with people who share music on the Web without publishers’ permission and has spent the past decade battling file-sharing sites such as Napster, LimeWire, and Pirate Bay. At the same time, the digital music business has struggled to invent legitimate online sharing services, stranding the industry outside the digital mainstream in a way that doesn’t benefit musicians or their fans. In Europe, millions of users have flocked to the music-streaming service Spotify. It was supposed to launch in the U.S. last year but never did. On July 6 it finally set up a web page saying services are coming to the U.S.

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Boston VCs Trawl for Next Zuckerberg

July 07, 2011, 12:22 AM EDT By Laura Keeley

July 7 (Bloomberg) -- Mark Zuckerberg was the big one that got away.

Boston venture capitalists declined to fund the founder of Facebook, the world’s most-popular social networking service, when he sought money to expand his startup in 2004. Zuckerberg’s move that year to Palo Alto, California, from his Harvard University dorm was a wakeup call for New England firms, which have lost market share to Silicon Valley and New York in the past seven years, says Michael Greeley, a general partner at Flybridge Capital Partners.

“There was a little bit of shock that we missed it, as a community,” Greeley, a board member of the National Venture Capital Association, said in an interview. Since then, Boston “really rallied around ‘how do you let these kids know that the state is open for business and a great place to start companies?’ Sort of a post-Facebook echo boom effect. Zuckerberg should never have left.”

Greeley’s firm in 2009 started Stay in MA, one of several programs designed to entice young entrepreneurs to stay in the region. Incubators such as Dogpatch Labs, started by Polaris Venture Partners, and TechStars Boston offer free space to aspiring entrepreneurs, and angel investors are scouting campuses in search of the next Zuckerberg, Greeley said. Firms that had moved to the suburban venture capital centers are returning to the city to be closer to the universities.

Falling Behind

Boston, the birthplace of modern venture capitalism, accounted for 11 percent of U.S. venture investments last year, down from 15 percent in 2003. Silicon Valley firms increased their share to 39 percent from 34 percent in the same period. Valley firms raised almost three times as much money as their New England counterparts in the past five years, and almost seven times as much in the first quarter of this year.

As a result, Boston missed out on much of the recent surge in initial public offerings, which was driven in part by Internet startups. Of $6.83 billion in venture-backed IPOs in the first half of this year, Massachusetts accounted for just $209 million, or about 3 percent, compared with 11 percent on average for the past decade, the NVCA said this week.

Part of the reason, says Bill Aulet, managing director at the MIT entrepreneurship center, is that Boston’s venture capitalists have traditionally focused on industries that make “real products” such as software, telecommunications, material sciences and biotechnology.

Route 128

Biotechnology startups have been the biggest recipient of Boston venture capital, accounting for about a third of investments in the region over the past five years. MIT president Susan Hockfield, a neuroscientist, said in her 2005 inaugural address that she wanted the school to lead in that field.

Many of the region’s venture firms are based near Route 128, a highway that connects Boston’s western suburbs in a semi- circle and was once nicknamed America’s Technology Highway. The area is still home to companies such as Raytheon Co., the biggest maker of missiles, Thermo Fisher Scientific Inc., the largest maker of laboratory instruments, and Biogen Idec Inc., the world’s largest maker of multiple sclerosis medicines.

Being outside of the city made it harder for firms to stay in touch with students, said Kate Castle, vice president of marketing at Boston-based Flybridge and a board member of the MIT Enterprise Forum Cambridge, which helps connect technology entrepreneurs.

“The T doesn’t go out there,” Castle said, referring to the Massachusetts Bay Transportation Authority, operator of the public transportation system in the area. Students are “not going to rent a car.”

‘Everyone Laughed’

To be closer to the universities, at least seven firms have opened offices in Cambridge in the past two years and one, Charles River Ventures, is planning to do so. Spark Capital, one of the early investors in Twitter and Tumblr, started in downtown Boston six years ago.

“We were on Newbury Street right in Back Bay, and everyone kind of laughed at us,” said Alex Finkelstein, 35, a general partner who’s been with Spark since the beginning. Now, “we’re seeing more of these old-school firms moving from 128 into Boston or Cambridge because that’s where the entrepreneurs are.”

Zuckerberg’s Facebook tried to raise money in the Boston area in 2004 and was turned down by Battery Ventures, a firm in the suburb of Waltham that helped start companies such as Akamai Technologies Inc., which sells server space that helps websites load faster, and wireless communications provider MetroPCS Communications Inc.

Turning Down Facebook

Facebook is currently valued at $82.4 billion on SharesPost Inc., a secondary exchange for shares of private companies. The company may seek an IPO in the first quarter of 2012 with a valuation as high as $100 billion, CNBC reported June 13, citing people familiar with the matter.

“It’s not Boston’s historical strength,” Sunil Dhaliwal, a general partner at Battery, said about the consumer Internet business. “Relative to other geographies, we’ve been playing catch-up.”

Part of the reason Facebook didn’t find funding in Boston, and that area firms missed out on the social networking boom, is because many didn’t grasp its significance, said Howard Anderson, 66, a senior lecturer at the MIT Sloan School of Management and co-founder of Battery Ventures. The average angel investor in Boston is about 55 years old. In California, it’s 32, he said.

‘Generational Issue’

“It became a generational issue. You couldn’t really understand social networking here,” he said. “To understand things like Facebook, you have to be 19 to 24 years old. If you’re 56, you don’t quite get it.”

Battery, formed in 1983 in Boston, used to find technology deals because partners would hang around MIT’s campus in Cambridge, Anderson said. The firm moved to Wellesley and then to Waltham so it could have enough space to help set up entrepreneurs and their businesses, said Amy Grady, a Battery spokeswoman.

Many Boston-area venture capitalists also cringe at the implied valuations of some Internet companies. At its current valuation, Facebook would be worth 59 percent more than Ford Motor Co., the second-largest U.S. automaker, and more than twice as much as BlackRock Inc., the world’s largest asset manager.

Groupon Inc., the online coupon website, has an implied valuation of $10.4 billion, according to SharesPost, on revenue of $713 million last year. In comparison, discount retailer Dollar Tree Inc. has a market value of $8.5 billion and sales of $5.9 billion.

‘Getting Too Excited’

“They’re getting too excited,” Anderson said of the investors in the companies. “For people who say this is not a bubble, I reminded them that 10 years ago they were saying, ‘it’s different this time.’ And it never was.”

Fifty-three Internet companies have filed for U.S. IPOs so far this year, the most since 164 companies in the industry announced plans for initial offerings in the U.S. during all of 2000, data compiled by Bloomberg show. By contrast, just three biotech companies have filed for IPOs, down from 46 in all of 2000.

LinkedIn Corp., based in Mountain View, California, saw its shares more than double in value on May 19, their first day of trading. The stock has been little changed since then. Oakland, California-based Pandora Media Inc. has gained 15 percent from its IPO price of $16.

Greylock Moves West

Greylock Partners, founded in 1965, two years ago moved its headquarters to Menlo Park, California, from Waltham, where it was based for 44 years. The firm, which has backed companies such as Vertex Pharmaceuticals Inc., the drugmaker whose first medicine was approved this year, moved its East Coast office to Cambridge last year.

Greylock was an early backer of LinkedIn, Facebook and Pandora and a recent investor in Groupon, whose IPO may value the company at as much as $25 billion, people familiar with the matter said in March. Greylock general partner David Sze led the firm’s investment in Facebook in 2006.

Apart from Silicon Valley, New York has been among the biggest beneficiaries. It is home to consumer Internet start-ups such as Gilt Groupe Inc., Foursquare Labs Inc., which lets people use the Internet to broadcast their whereabouts, and Tumblr Inc., a microblogging site.

“It’s amazing what’s going on there,” said Aulet, who helps connect aspiring entrepreneurs at the MIT. “You can just feel the excitement in the air.”

New York’s Gain

Venture investments in New York metro-area companies totaled $580 million in this year’s first quarter, equal to 10 percent of the total nationwide, compared with $639 million in the New England region, which had an 11 percent market share. New York’s share was about half of Boston’s seven years ago.

Flybridge’s Greeley said there’s a “historic frustration” that schools like MIT and Harvard educate students only to see them leave. Cambridge has the highest number of Ph.D.s per capita in the United States, according to the most recent data available from the U.S. Census Bureau.

“We tend to focus on things that are hard and novel,” Greeley said. “The novelty of Facebook was the social outlet, it wasn’t the technical insights.”

There’s some evidence Boston firms are getting back into the game. Spark, founded by Todd Dagres, a former partner at Battery, Santo Politi, a partner at Charles River Ventures, and Paul Conway, a former Charles River finance chief, has been among the most visible investors in social media since it was started in 2005. Bijan Sabet, who led Spark’s investments in Twitter and Tumblr, also sits on Twitter’s board.

Return to Harvard

General Catalyst Partners in Cambridge is backing Kayak, the seven-year-old online travel management company that has registered for a $50 million IPO.

Andrew McCollum, who was part of the original Facebook team at Harvard until he left in 2006, said there is much more excitement now about entrepreneurship at the school and in the city than when he left.

“It was just really amazing, the difference in the environment and enthusiasm,” said McCollum, 27, who returned to Boston last year and is now entrepreneur-in-residence at Flybridge. “I saw tons of people, and they told me that CS50, the intro computer science class, is now one of the biggest courses at the school. It’s taught in Sanders Theater, the biggest lecture hall on campus.”

Finkelstein says people who were skeptical of Spark’s investments in Tumblr and Twitter a few years ago don’t laugh now. Twitter is raising funding that values the company at about $7 billion, a person familiar with the matter said this week. That’s almost twice as much as the company was worth in December when it received a $200 million investment led by Kleiner Perkins Caufield & Byers.

“We invested in Tumblr when it was a one-person company, Twitter when it was a 15-person company,” he said. “A lot of people thought we were crazy for those investments when we made them, and now the valuations speak for themselves.”

--With assistance from Ari Levy in San Francisco and Lee Spears in New York. Editors: Christian Baumgaertel, Josh Friedman

To contact the reporter on this story: Laura Keeley in Boston at lkeeley1@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Innovations in Environmental Technology

Nokia Cuts Smartphone Prices as Share Drops, CCS Insight Says

July 05, 2011, 12:51 PM EDT By Diana ben-Aaron

July 5 (Bloomberg) -- Nokia Oyj, the world’s biggest maker of mobile phones by units shipped, cut its smartphone prices in Europe by as much as 15 percent at the beginning of this month, according to analyst firm CCS Insight.

“We’ve absolutely seen the drops,” Ben Wood, a London- based analyst with CCS, said in an interview. “They’re under aggressive pressure from entry-level players and equally their customers in the channels know they’re in a strong negotiating position.” Reuters reported the price drop earlier today, sending the stock down as much as 3.1 percent.

The Espoo, Finland-based company is trying to keep up sales of its older Symbian smartphone lines as it readies the first models based on Microsoft Corp.’s Windows Phone 7 software for the fourth quarter. Chief Executive Officer Stephen Elop announced the shift in February, adding that the company still expects to sell another 150 million Symbian smartphones. Nokia spokesman Doug Dawson said price cuts are routine in the company’s business and he had no comment on the reports.

“All the major houses cut prices two to six times a year, typically in small adjustments,” said Neil Mawston, a London- based analyst at Strategy Analytics. “For a company like Nokia, anything above 5 percent is an above-average adjustment. With revenue declining sharply because of unusually weak demand, they’ve got to make these large price cuts.”

During the past 10 years, Nokia’s average annual price cut has been about 9 percent, he said.

Nokia shares fell 1.5 percent to close at 4.37 euros in Helsinki trading.

‘Whatever It Takes’

“Nokia’s going to do whatever it takes to make sure users remain and that they’re able to move across to the new platform, so it makes sense to incentivize the older products,” said Carolina Milanesi, an analyst at research firm Gartner Inc.’s Egham, U.K. unit. “Nokia has to do what it has to do to keep it interesting for the operators -- which is basically taking the risk of subsidy away from the operators.”

Many operators have subsidized mobile-phone purchases in the past to attract customers or lock them into a long-term contract. The practice is starting to disappear in highly competitive markets such as Denmark.

Nokia has lost more than 25 percentage points of market share in smartphones, the most lucrative and fastest growing category of mobile phones, since Apple Inc. introduced the iPhone in June 2007, according to Gartner figures. Its smartphone market share for the first quarter was 25.5 percent, according to Gartner.

Operating Margin

Nokia said May 31 that the adjusted operating margin for the main handset business in the second quarter “could be around breakeven” as competition and pricing pressures increased in China and Europe. The pressure was both on smartphones and low-end phones, CEO Elop said. The company scrapped its forecast for the year.

Nokia will report a second-quarter net loss, according to the average estimate of 15 analysts surveyed by Bloomberg as of today.

“You could think of the price cuts as a Symbian tax now that Symbian is no longer as fashionable as some other lines,” such as Google Inc.’s Android operating system, said CCS Insight’s Wood. “And of course the iPhone stands by itself,”

--Editors: Robert Valpuesta, Jim Silver.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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